<PAGE>
As filed with the Securities and Exchange Commission on August 30, 1995
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------------
FIRST BANK SYSTEM, INC.
(Exact name of registrant as specified in its charter)
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<C> <C> <C>
Delaware 6711 41-0255900
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael J. O'Rourke
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(612) 973-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
Copies to:
Lee R. Mitau, Esq. Robert J. Murray, Esq.
Dorsey & Whitney P.L.L.P. Kennedy, Holland, DeLacy & Svoboda
220 South Sixth Street 10306 Regency Parkway Drive
Minneapolis, Minnesota 55402 Omaha, Nebraska 68114-3743
--------------------
Approximate date of commencement of proposed sale of the Securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
--------------------
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
--------------------
CALCULATION OF REGISTRATION FEE
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==========================================================================================================
<C> <C> <C> <C> <C>
Proposed Proposed
Title of Each Amount Maximum Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
to be Registered(1) Registered Per Share Offering Price Fee
- ----------------------------------------------------------------------------------------------------------
Common Stock, $1.25 par value 517,241 shares(2) Not Applicable Not Applicable $673.02(3)
==========================================================================================================
</TABLE>
(1) This Registration Statement relates to securities of the Registrant issuable
to holders of common stock of Midwestern Services, Inc. ("MSI") in
connection with the merger described herein, including the associated
Preferred Stock Purchase Rights of the Registrant as described herein.
(2) Based on the maximum aggregate number of shares of the Registrant's Common
Stock issuable in the merger described herein.
(3) Pursuant to Rule 457(f)(2) and (3), the registration fee was calculated
based upon the book value, calculated as of July 31, 1995, of the securities
to be received by Registrant in the merger described herein (or
$16,351,761), less $14,400,000 representing cash to be provided by the
Registrant in such merger.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
FIRST BANK SYSTEM, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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Item No. in Form S-4 Location in Prospectus
-------------------- ----------------------
<C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement Facing page of registration statement;
and Outside Front Cover Page of outside front cover page of Prospectus
Prospectus
2. Inside Front and Outside Back Cover Available Information; Incorporation of
Pages of Prospectus Certain Documents by Reference; Table
of Contents
3. Risk Factors, Ratio of Earnings to Summary; Comparative Unaudited Per
Fixed Charges and Other Information Share Data; Selected Historical
Financial Data
4. Terms of the Transaction Summary; The Merger; Incorporation of
Certain Documents by Reference
5. Pro Forma Financial Information *
6. Material Contacts with the Company Summary; The Merger
Being Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Opinions; Experts
9. Disclosure of Commission Position *
on Indemnification for Securities
Act Liabilities
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Available Information; Incorporation
Registrants of Certain Documents by Reference;
Summary; Business of FBS; Description of
FBS Capital Stock
11. Incorporation of Certain Information Incorporation of Certain Documents by
by Reference Reference
12. Information with Respect to S-2 or *
S-3 Registrants
13. Incorporation of Certain Information *
by Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item No. in Form S-4 Location in Prospectus
-------------------- ----------------------
<C> <C>
14. Information with Respect to Registrants *
Other Than S-2 or S-3 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 *
Companies
16. Information with Respect to S-2 or *
S-3 Companies
17. Information with Respect to Summary; Information Concerning the
Companies Other Than S-3 or S-2 Special Meeting; Business of MSI;
Companies Description of MSI Capital Stock;
Consolidated Financial Statements of
Midwestern Services, Inc.
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Incorporation of Certain Documents by
Authorizations are to be Solicited Reference; Information Concerning the
Special Meeting; The Merger;
Management and Additional Information
19. Information if Proxies, Consents or *
Authorizations are not to be Solicited
or in an Exchange Offer
</TABLE>
________
*Answer is negative or item is not applicable.
<PAGE>
[Midwestern Letterhead]
______, 1995
Dear Shareholder of Midwestern Services, Inc.:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Midwestern Services, Inc. ("MSI") to be held on _____,
1995 at ___ __.m., local time, at ___________, Omaha, Nebraska. A notice of the
Special Meeting, proxy statement and form of proxy containing information about
the matters to be acted upon are enclosed. All holders of MSI's outstanding
shares of Common Stock, $3.50 par value (the "MSI Common Stock"), as of ______,
1995 will be entitled to notice of and to vote at the Special Meeting.
At the Special Meeting you will be asked to consider and vote upon approval
of a proposed Agreement and Plan of Merger, dated June 23, 1995 (the "Merger
Agreement"), which provides for the merger (the "Merger") of MSI with and into
First Bank System, Inc. ("FBS"). If the proposed Merger described in the
accompanying Proxy Statement/Prospectus becomes effective, shareholders of MSI
will receive, for each issued and outstanding share of MSI Common Stock they
own, a number of shares of the common stock, par value $1.25 per share, of FBS
("FBS Common Stock") equal to 517,241 divided by the number of shares of MSI
Common Stock outstanding on the effective date of the Merger plus an amount of
cash equal to $14,400,000 divided by the number of shares of MSI Common Stock
outstanding on the effective date of the Merger. Any fractional share of FBS
Common Stock will be paid in cash. Based on 76,386.030 shares of MSI Common
Stock expected to be outstanding on the effective date of the Merger, the Merger
Consideration would equal approximately 6.7714 shares of FBS Common Stock and
$188.52 in cash for each share of MSI Common Stock.
It is a condition to MSI's obligation to consummate the Merger that between
the date of the Merger Agreement and the date that the proposed merger becomes
effective there shall not have been a "Significant Decline" in the "Average
Closing Price" (as defined in the accompanying Proxy Statement/Prospectus) of
FBS Common Stock compared to $41.76.
The proposed Merger has been approved by the Boards of Directors of MSI and
FBS and is subject to approval by holders of two-thirds of the outstanding MSI
Common Stock in addition to the approval of bank regulators. MSI shareholders
are also being asked to approve the adjournment of the Special Meeting to a
later date to permit the further solicitation of proxies in the event that there
are not sufficient votes at the time of the Special Meeting to approve the
Merger Agreement. Approval of the adjournment requires the affirmative vote of
at least a majority of the shares represented in person or by proxy at the
Special Meeting, even if such number of shares is less than a quorum.
The Board of Directors of MSI believes that the Merger is in the best
interests of MSI and its shareholders and therefore recommends that you vote in
favor of the Merger Agreement and in favor of adjournment of the Special Meeting
if necessary to permit further solicitation of proxies. It is expected that all
of the 57,985.133 shares of MSI Common Stock beneficially owned by the directors
and executive officers of MSI and their affiliates (approximately 75.9% of the
outstanding shares of MSI Common Stock) will be voted for approval of the Merger
Agreement and for approval of adjournment of the Special Meeting if necessary to
permit further solicitation of proxies. Additionally, holders of more than 67.9%
of the outstanding shares of MSI Common Stock, including Raymond D. Pape, Jr., a
director and Chairman of MSI, M. David Klipsch, a director and President of MSI,
Thomas A. Horeis, an executive officer of MSI, and Thomas F. McGowan, a director
of First Bank of Omaha, the sole banking subsidiary of MSI, have signed a voting
agreement pursuant to which they have agreed to vote all such shares held by
them in favor of approval of the Merger Agreement and in favor of adjournment of
the Special Meeting if necessary to permit further solicitation of proxies.
Therefore, approval of the
<PAGE>
Merger Agreement is assured (assuming all such shareholders vote their shares in
accordance with the voting agreement). If the Merger is consummated, MSI
shareholders will no longer hold any interest in MSI other than through their
interest in FBS Common Stock received in the Merger. Details of the background
and reasons for the proposed Merger appear and are explained in the Proxy
Statement/Prospectus. Additional information regarding MSI and FBS is also set
forth in the Proxy Statement/Prospectus or is incorporated by reference therein
from other documents. I urge you to read this material carefully.
In order to ensure that your vote is represented at the Special Meeting,
please indicate your choice on the enclosed form of proxy, date and sign it, and
return it in the enclosed envelope. Executed but unmarked proxies will be voted
for approval of the Merger Agreement and for approval of adjournment of the
Special Meeting if necessary to permit further solicitation of proxies. You are
welcome to attend the Special Meeting and vote in person even if you have
previously returned the form of proxy. If you do not attend the Special Meeting,
you may still revoke your proxy at any time prior to the Special Meeting by
providing written notice of such revocation or by delivering a duly executed
proxy bearing a later date to Thomas A. Horeis, Secretary of MSI.
Please do not send in any stock certificates at this time. If the Merger
Agreement is approved, you will be sent instructions regarding the surrender of
your existing stock certificates.
Sincerely,
Raymond D. Pape, Jr.
Chairman
<PAGE>
MIDWESTERN SERVICES, INC.
222 South 72nd Street
Omaha, Nebraska 68114
(___) _______
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________, 1995
------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Midwestern Services, Inc. ("MSI") will be held at ________, Omaha,
Nebraska at ____ __.m., local time, on _______, 1995 to consider and take action
on the following:
1. A proposal to approve the Agreement and Plan of Merger (the "Merger
Agreement"), dated June 23, 1995, by and among First Bank System, Inc.
("FBS"), MSI and Raymond D. Pape, Jr., in his capacity as
representative of the shareholders of MSI, a copy of which is attached
to the accompanying Proxy Statement/Prospectus as Appendix A. Pursuant
to the Merger Agreement, among other things, MSI will be merged with
and into FBS (the "Merger"), and each issued and outstanding share of
the Common Stock, $3.50 par value, of MSI (the "MSI Common Stock"),
will be exchanged for the right to receive the Merger Consideration (as
defined in the accompanying Proxy Statement/Prospectus).
2. A proposal to adjourn the Special Meeting to a later date to permit
further solicitation of proxies in the event an insufficient number of
shares is present in person or by proxy at the Special Meeting to
approve the Merger Agreement.
3. Such other matters as may properly come before the Special Meeting or
any adjournment or postponement thereof.
Any action may be taken on any of the foregoing proposals at the Special
Meeting on such date or on any date or dates to which the Special Meeting may be
properly adjourned or postponed. The Board of Directors is not aware of any
other business to come before the Special Meeting.
Only shareholders of record of MSI Common Stock at the close of business on
______, 1995, are entitled to notice of, and to vote at, the Special Meeting.
Approval of the Merger Agreement by MSI shareholders requires the affirmative
vote of at least two-thirds of the shares of MSI Common Stock outstanding and
entitled to vote at the Special Meeting. Approval of the adjournment of the
Special Meeting by MSI shareholders requires the affirmative vote of at least a
majority of the shares of MSI Common Stock represented in person or by proxy at
the Special Meeting, even if such number of shares is less than a quorum.
Holders of MSI Common Stock are not entitled to assert dissenters' rights
with respect to their shares under the Nebraska Business Corporation Act.
<PAGE>
It is important that all shareholders of MSI Common Stock be represented at
the Special Meeting. We urge you to sign and return the enclosed proxy as
promptly as possible--whether or not you plan to attend the Special Meeting. The
proxy should be returned to Thomas A. Horeis, Secretary of MSI, in the enclosed
envelope. The proxy may be revoked at any time prior to its exercise. No proxy
will be used if you attend and vote at the Special Meeting in person.
By Order of the Board of Directors
Raymond D. Pape, Jr.
Chairman
Omaha, Nebraska
Date: ______, 1995
YOUR VOTE IS IMPORTANT. HOLDERS OF MSI COMMON STOCK ARE URGED TO COMPLETE, SIGN,
DATE AND MAIL THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AND VOTE IN PERSON. THE PROXY
MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE
PROXY STATEMENT/PROSPECTUS.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. THE PROCEDURE FOR THE
EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET FORTH IN THE
PROXY STATEMENT/PROSPECTUS.
<PAGE>
PROXY STATEMENT
OF
MIDWESTERN SERVICES, INC.
------------
PROSPECTUS
OF
FIRST BANK SYSTEM, INC.
COMMON STOCK, $1.25 PAR VALUE
------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus"), is
being furnished to holders of common stock, $3.50 par value ("MSI Common
Stock"), of Midwestern Services, Inc., a Nebraska corporation ("MSI"), in
connection with the solicitation of proxies by the Board of Directors of MSI for
use at a special meeting of such holders (the "Special Meeting") to be held on
______, 1995, commencing at ___ __.m., local time, and at any adjournment or
postponement thereof. At the Special Meeting, holders of MSI Common Stock will
be asked to consider and act upon a proposal to approve the Agreement and Plan
of Merger, dated June 23, 1995 (the "Merger Agreement"), by and among First Bank
System, Inc., a Delaware corporation ("FBS"), MSI and Raymond D. Pape, Jr.,
acting in his capacity as representative of the shareholders of MSI (the
"Shareholders' Representative"), and the transactions contemplated thereby,
pursuant to which, among other things, MSI would be acquired by FBS by means of
a merger of MSI with and into FBS (the "Merger"). A copy of the Merger Agreement
is attached hereto as Appendix A and is incorporated herein by reference.
Pursuant to the Merger Agreement, each issued and outstanding share of MSI
Common Stock will be converted into the right to receive: (1) a number of shares
of the common stock, par value $1.25 per share, of FBS ("FBS Common Stock")
equal to 517,241 divided by the number of shares of MSI Common Stock outstanding
on the date on which the Merger becomes effective (the "Effective Date") plus
(2) an amount of cash equal to $14,400,000 divided by the number of shares of
MSI Common Stock outstanding on the Effective Date (collectively, the "Merger
Consideration"). The outstanding shares of FBS Common Stock are, and it is a
condition to the consummation of the Merger that the shares of FBS Common Stock
to be issued in the Merger be, listed on the New York Stock Exchange (the
"NYSE") under the symbol "FBS." The last reported sale price of FBS Common Stock
on the NYSE Composite Tape on _____, 1995 was $____ per share. Based on
(continued on next page)
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF FBS COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
BANK INSURANCE FUND, SAVINGS ASSOCIATION INSURANCE
FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is ______, 1995.
1
<PAGE>
such last reported sale price, the purchase price for each share of MSI Common
Stock will be $____, of which $___ represents the cash to be received and
$______ represents the value of the FBS Common Stock to be received. Because the
aggregate number of shares of FBS Common Stock to be received for the MSI Common
Stock is fixed, a change in the market price of FBS Common Stock before the
Merger would affect the value of the FBS Common Stock to be received in the
Merger in exchange for the MSI Common Stock. There can be no assurance as to the
market price of the FBS Common Stock at any time before the Effective Date or as
to the market price of the FBS Common Stock at any time thereafter.
It is a condition to MSI's obligation to consummate the Merger that between
the date of the Merger Agreement and the Effective Date there shall not have
been a "Significant Decline" in the "Average Closing Price" of FBS Common Stock
compared to $41.76. See "The Merger--Conditions to Consummation of the Merger."
Pursuant to the Merger Agreement, all shares of FBS Common Stock to be
received by all the holders of MSI Common Stock (other than the Midwestern
Employee Stock Ownership Plan) and a portion of the cash consideration to be
received by such holders will be placed in an escrow fund in the name of the
Shareholders' Representative. The cash and 47,000 of the shares of FBS Common
Stock to be placed in the escrow fund will fund any obligation on the part of
such holders of MSI Common Stock to indemnify and hold harmless FBS from any
loss, liability, damage or expense which FBS may suffer as a result of certain
matters specified in the Merger Agreement. The remaining shares of MSI Common
Stock to be placed in such fund are intended to ensure compliance with certain
assurances relating to the intent of MSI shareholders to hold the shares of FBS
Common Stock to be received in the Merger for a period of two years following
the Effective Date. Those MSI shareholders under an obligation to indemnify and
hold harmless FBS will not be entitled to receive such cash held in escrow for a
period of one year from the Effective Date and will not be entitled to receive
any of such shares of FBS Common Stock held in escrow for a period of two years
from the Effective Date; further, such holders may forfeit all or a portion of
such cash and/or an aggregate of 47,000 shares of the FBS Common Stock to be
received in the Merger in the event that FBS suffers any such loss, liability,
damage or expense.
For additional information regarding the terms of the Merger, see the
Merger Agreement attached as Appendix A hereto and "The Merger" herein.
Consummation of the Merger is conditioned upon, among other things, receipt
of all required shareholder and regulatory approvals. If there are not
sufficient votes at the time of the Special Meeting to approve the Merger
Agreement, the MSI shareholders may be asked to approve adjournment of the
Special Meeting to permit further solicitation of proxies. See "Adjournment of
Special Meeting" and "The Merger--Regulatory Approvals Required."
THE BOARD OF DIRECTORS OF MSI UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF MSI VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND FOR APPROVAL OF ADJOURNMENT
OF THE SPECIAL MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES.
This Proxy Statement/Prospectus also constitutes a prospectus of FBS with
respect to the shares of FBS Common Stock issuable to shareholders of MSI upon
consummation of the Merger. FBS has supplied all information contained in this
Proxy Statement/Prospectus relating to FBS and its subsidiaries, and MSI has
supplied all information contained in this Proxy Statement/Prospectus relating
to MSI and its subsidiary.
This Proxy Statement/Prospectus and the accompanying form of proxy for the
Special Meeting are first being mailed to the shareholders of MSI on or about
______, 1995.
2
<PAGE>
This Proxy Statement/Prospectus is included as part of a registration
statement on Form S-4 filed with the Securities and Exchange Commission by FBS,
relating to the registration under the Securities Act of 1933, as amended, of up
to 517,241 shares of FBS Common Stock to be issued in connection with the
Merger.
AVAILABLE INFORMATION
FBS is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information concerning FBS can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 1400 Northwestern Atrium Center, 500 Madison
Street, Chicago, Illinois 60661. Copies of such materials can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D. C. 20549, at prescribed rates. Reports, proxy statements and
other information concerning FBS also can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
FBS has filed a registration statement on Form S-4 (together with all
amendments and exhibits thereto, including documents and information
incorporated by reference, the "Registration Statement") with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the shares of FBS Common Stock to be issued in connection with the Merger. This
Proxy Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. Statements contained in this Proxy
Statement/Prospectus as to the contents of any document are not necessarily
complete, and in each instance reference is made to such document itself, each
such statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. Documents relating to FBS
(excluding exhibits unless specifically incorporated therein) are available to
each person, including any beneficial owner, to whom a copy of this Proxy
Statement/Prospectus is delivered without charge upon written or oral request to
Karin E. Glasgow, Investor Relations, First Bank System, Inc., First Bank Place,
601 Second Avenue South, Minneapolis, Minnesota 55402-4302, telephone number
(612) 973-2264. In order to ensure timely delivery of the documents, any request
should be made by [five business days before the meeting date] _______, 1995.
The following FBS documents which have been filed by FBS with the
Commission are hereby incorporated by reference in this Proxy
Statement/Prospectus: (i) Annual Report on Form 10-K for the year ended December
31, 1994; (ii) quarterly reports on Form 10-Q for the quarters ended March 31,
1995, and June 30, 1995; (iii) Current Reports on Form 8-K filed March 3, 1995
(as amended by Amendment No. 1 on Form 8-K/A filed March 7, 1995), April 13,
1995, April 25, 1995, July 6, 1995 and August 18, 1995 (as amended by Amendment
No. 1 on Form 8-K/A filed August 30, 1995); (iv) Current Reports on Form 8-K/A
filed February 13, 1995 (constituting Amendment No. 4 to the Current Report on
Form 8-K filed August 5, 1994); and (v) the description of FBS Common Stock
contained in Item 1 of the FBS Registration Statement on Form 8-A dated March
19, 1984, as amended in its entirety by that Form 8 Amendment dated February 26,
1993 and that Form 8-A/A-2 dated October 6, 1994, and any amendment or report
filed for the purpose of updating such description filed subsequent to the date
3
<PAGE>
of this Proxy Statement/Prospectus and prior to the termination of the offering
described herein; and the description of the rights to purchase preferred stock
contained in Item 1 of the FBS Registration Statement on Form 8-A dated December
21, 1988, as amended by that Form 8 Amendment dated June 11, 1990 and as amended
in its entirety by that Form 8 Amendment dated February 26, 1993, and any
amendment or report filed for the purpose of updating such description filed
subsequent to the date of this Proxy Statement/Prospectus and prior to the
termination of the offering described herein.
The foregoing documents contain financial and other information concerning
FBS and FirsTier Financial, Inc. (see "Business of FBS--Recent Developments"),
and information concerning FBS Common Stock and the related preferred stock
purchase rights (see "Description of FBS Capital Stock"). Such documents
constitute a part of the Proxy Statement/Prospectus, and the information
contained therein should be reviewed together with all the other information
contained herein.
All documents filed by FBS pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date hereof and before the Special Meeting shall
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in
another subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY FBS OR MSI.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY, OR AN OFFER TO SELL OR A SOLICITATION OR AN OFFER TO PURCHASE ANY
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFER MAY NOT
LAWFULLY BE MADE.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE FBS
COMMON STOCK OFFERED HEREBY TO BE RECEIVED BY SHAREHOLDERS OF MSI DEEMED TO BE
"AFFILIATES" OF MSI OR FBS UPON THE CONSUMMATION OF THE MERGER. NO PERSON IS
AUTHORIZED TO MAKE USE OF THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH ANY
SUCH RESALES.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF FBS OR MSI SINCE
THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
4
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION ................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ......................... 3
SUMMARY ................................................................. 8
The Parties to the Merger ............................................... 8
The Proposed Merger ..................................................... 8
The Escrow Agreement; Indemnification of FBS ............................ 9
The Shareholders' Representative ........................................ 10
Special Meeting of MSI Shareholders ..................................... 10
Vote Required to Approve the Merger and the Adjournment; Quorum ......... 10
The Voting Agreement .................................................... 10
Recommendation of the MSI Board of Directors ............................ 11
Interests of Certain Persons in the Merger .............................. 11
Limitation on Negotiations .............................................. 12
Regulatory Approval Required ............................................ 13
Conditions, Waiver and Amendment and Termination ........................ 13
Effective Date of the Merger ............................................ 14
Surrender of MSI Common Stock Certificates ............................. 14
Certain Federal Income Tax Consequences to MSI Shareholders ............. 14
Resales of FBS Common Stock ............................................. 15
Accounting Treatment .................................................... 15
No Dissenters' Rights of Appraisal ...................................... 15
Market and Market Prices ................................................ 15
Differences in Rights of MSI Shareholders ............................... 16
Expenses ................................................................ 16
COMPARATIVE UNAUDITED PER SHARE DATA .................................... 17
HISTORICAL SELECTED AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA ............................................ 19
HISTORICAL SELECTED FINANCIAL DATA OF
FIRST BANK SYSTEM, INC. ............................................ 20
HISTORICAL SELECTED FINANCIAL DATA OF
MIDWESTERN SERVICES, INC. .......................................... 21
HISTORICAL SELECTED FINANCIAL DATA OF
FIRSTIER FINANCIAL, INC. ........................................... 22
UNAUDITED PRO FORMA COMBINED SELECTED
FINANCIAL DATA OF FIRST BANK SYSTEM, INC.
AND FIRSTIER FINANCIAL, INC. ....................................... 24
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INFORMATION CONCERNING THE SPECIAL MEETING .............................. 26
General ................................................................. 26
Solicitation, Voting and Revocability of Proxies ........................ 26
Beneficial Ownership of MSI Common Stock ................................ 28
THE MERGER .............................................................. 29
Background of and Reasons for the Merger; Recommendation
of MSI Board of Directors .......................................... 29
Terms of the Merger; Consideration to be Received by MSI Shareholders .. 30
The Escrow Agreement; Indemnification of FBS ............................ 31
The Shareholders' Representative......................................... 33
The Voting Agreement .................................................... 34
Effective Date of the Merger ............................................ 34
Surrender of MSI Common Stock Certificates .............................. 35
Conditions to Consummation of the Merger ................................ 36
Regulatory Approval Required ............................................ 38
Waiver and Amendment..................................................... 39
Termination ............................................................. 39
Limitation on Negotiations .............................................. 40
Conduct of MSI Business Pending the Merger .............................. 40
Interests of Certain Persons in the Merger .............................. 42
Effect on MSI Employee Benefit Plans .................................... 44
No Dissenters' Rights for MSI Shareholders .............................. 45
Certain Federal Income Tax Consequences to MSI Shareholders ............. 45
Stock Exchange Listing of FBS Common Stock .............................. 47
Noncompetition Agreements ............................................... 47
FBS Escrow Deposit ...................................................... 48
Resale of FBS Common Stock Received by MSI Shareholders ................. 48
FBS Dividend Reinvestment and Common Stock Purchase Plan ................ 49
Accounting Treatment .................................................... 49
Expenses ................................................................ 49
Certain Differences in Rights of MSI Shareholders ....................... 49
BUSINESS OF FBS ......................................................... 53
Recent Developments ..................................................... 53
Management and Additional Information ................................... 54
BUSINESS OF MSI ......................................................... 54
General ................................................................. 54
Market Area and Competition ............................................. 54
Properties and Employees ................................................ 54
Market Prices and Dividends on MSI Common Stock ......................... 55
Supervision and Regulation .............................................. 55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF MSI ......................... 57
Results of Operations ................................................... 57
Capital Resources ....................................................... 67
Interest Rate Risk Management ........................................... 68
Liquidity ............................................................... 69
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DESCRIPTION OF FBS CAPITAL STOCK ........................................ 70
General ................................................................. 70
Preferred Stock ......................................................... 70
Common Stock ............................................................ 72
DESCRIPTION OF MSI CAPITAL STOCK ........................................ 75
General ................................................................. 76
Preferred Stock ......................................................... 76
Common Stock ............................................................ 77
ADJOURNMENT OF THE SPECIAL MEETING ...................................... 77
LEGAL OPINIONS .......................................................... 78
EXPERTS ................................................................. 78
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION ...................... F-1
CONSOLIDATED FINANCIAL STATEMENTS OF
MIDWESTERN SERVICES, INC. .......................................... F-5
APPENDIX A--AGREEMENT AND PLAN OF MERGER ................................ A-1
APPENDIX B--SHAREHOLDER VOTING AGREEMENT ................................ B-1
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SUMMARY
The following summary is qualified in all respects by the more detailed
information included in this Proxy Statement/Prospectus, the appendices hereto
and the documents incorporated herein by reference. Shareholders are urged to
read carefully the entire Proxy Statement/Prospectus, including the appendices.
As used in this Proxy Statement/Prospectus, the terms "FBS" and "MSI" refer to
First Bank System, Inc. and Midwestern Services, Inc., respectively, and, where
the context so requires, to such corporations and their respective subsidiaries.
All information concerning FBS included herein has been furnished by FBS, and
all information included herein concerning MSI has been furnished by MSI.
The Parties to the Merger
FBS. FBS is a regional bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 8 banks, a savings association and other
financial companies with 349 offices, located primarily in the 11 states of
Minnesota, Colorado, Illinois, Montana, North Dakota, South Dakota, Wisconsin,
Iowa, Nebraska, Kansas and Wyoming. Through its subsidiaries, FBS provides
commercial and agricultural finance, consumer banking, trust, capital markets,
treasury management, investment management, data processing, leasing, mortgage
banking and brokerage services. At June 30, 1995, FBS and its consolidated
subsidiaries had consolidated assets of $33.5 billion, consolidated deposits of
$22.8 billion and shareholders' equity of $2.8 billion.
On August 7, 1995, FBS announced that it had signed a purchase agreement to
acquire FirsTier Financial, Inc. ("FirsTier"), a regional financial services
holding company based in Omaha, Nebraska. As of June 30, 1995, FirsTier had
approximately $3.6 billion in assets, $2.8 billion in deposits and operated 63
offices in Nebraska and Iowa. Subject to the completion of due diligence and
shareholder and regulatory approvals, FBS will exchange .8829 shares of FBS
Common Stock for each share of common stock of FirsTier. The transaction will be
accounted for as a purchase and is expected to close in the first quarter of
1996. For additional information concerning the effect of the FirsTier
acquisition, see "Business of FBS-Recent Developments."
For further information concerning FBS, see "Business of FBS" and
"Historical Selected and Unaudited Pro Forma Combined Financial Data--Historical
Selected Financial Data of First Bank System, Inc." herein and the FBS documents
incorporated by reference herein as described under "Incorporation of Certain
Documents by Reference." The principal executive offices of FBS are located at
First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota 55402-4302
(telephone (612) 973-1111).
MSI. MSI is a one bank holding company registered under the Bank Holding
Company Act. Its principal non-cash asset is First Bank of Omaha ("First Bank")
which has seven commercial banking locations in Omaha, Nebraska. First Bank
provides general commercial and consumer banking services, including equipment
leasing, mortgage banking, mutual fund sales, and ATM locations. First Bank also
provides a complete range of deposit products including checking accounts,
savings accounts, certificates of deposit, money market accounts and IRA
accounts. As of June 30, 1995, MSI and First Bank had consolidated assets of
$236.8 million and total deposits of $210.0 million. Shareholders' equity on a
consolidated basis as of June 30, 1995 was $16.2 million.
For further information concerning MSI, see "Business of MSI," "Historical
Selected and Unaudited Pro Forma Combined Financial Data--Historical Selected
Financial Data of Midwestern Services, Inc.," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of MSI" herein. The
principal executive offices of MSI are located at 222 South 72nd Street, Omaha,
Nebraska 68114 (telephone (402) 393-0800).
The Proposed Merger
The Agreement and Plan of Merger, dated June 23, 1995 (the "Merger
Agreement"), among FBS, MSI and Raymond J. Pape, Jr., in his capacity as
representative of the shareholders of MSI (the "Shareholders' Representative"),
provides for the merger of MSI with and into FBS, with FBS as the surviving
corporation (the "Merger"). Assuming the Merger Agreement is approved by the
shareholders of MSI, the Merger will become effective upon the filing of
certificates of merger with the Secretaries of State in the States of Delaware
and Nebraska (the "Effective Date"). Upon consummation of the Merger, each
outstanding share of MSI Common Stock will be converted into the right to
receive (1) a number of shares of FBS Common Stock (the "Merger Shares") equal
to 517,241
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divided by the number of shares of MSI Common Stock outstanding on the Effective
Date with cash paid in lieu of fractional shares plus (2) an amount of cash
equal to $14,400,000 divided by the number of shares of MSI Common Stock
outstanding on the Effective Date (the "Deferred Cash Consideration"). The
Deferred Cash Consideration shall be payable on the later of January 2, 1996 or
the Effective Date (the "Deferred Cash Payment Date") along with accrued
interest from the Effective Date. (Unlike other holders of MSI Common Stock, the
Midwestern Employee Stock Ownership Plan may elect whether to receive the
Deferred Cash Consideration on the Effective Date or January 2, 1996.) (The
Merger Shares together with the Deferred Cash Consideration are sometimes called
the "Merger Consideration" in this Proxy/Prospectus.) If the Merger is
consummated, MSI shareholders will no longer hold any interest in MSI other than
through their interest in FBS Common Stock received in the Merger. See "The
Merger--Terms of the Merger; Consideration to be Received by MSI Shareholders."
Upon consummation of the Merger, each holder of MSI Common Stock other than FBS
would receive a pro rata portion of the Merger Shares; the holders of MSI Common
Stock would hold in the aggregate approximately __% of the FBS Common Stock
outstanding immediately after consummation of the Merger, based on the number of
shares of FBS Common Stock outstanding at _________, 1995. Each outstanding
share of FBS capital stock will remain outstanding and unchanged following the
Merger.
It is a condition to MSI's obligation to consummate the Merger that between
the date of the Merger Agreement and the Effective Date there shall not have
been a "Significant Decline" (as defined below) in the "Average Closing Price"
(as defined below) of FBS Common Stock compared to $41.76. See "The Merger--
Conditions to Consummation of the Merger."
The Merger is subject to a number of other conditions, including the
receipt of required regulatory and shareholder approvals. See "The Merger--
Conditions to Consummation of the Merger."
Pursuant to the Merger Agreement, the certificate of incorporation and
bylaws of FBS as in effect prior to the Effective Date will be the certificate
of incorporation and bylaws of FBS, as the surviving corporation in the Merger,
after the Effective Date. In addition, the officers and directors of FBS prior
to the Effective Date will be the officers and directors of FBS, as the
surviving corporation in the Merger, after the Effective Date.
The Escrow Agreement; Indemnification of FBS
Pursuant to the Merger Agreement, on the Effective Date all the Merger
Shares to be received by the holders of MSI Common Stock other than the
Midwestern Employee Stock Ownership Plan (the "Indemnifying Shareholders") will
be placed in an escrow fund. On the Deferred Cash Payment Date $917,280 of the
Deferred Cash Consideration will be placed in the escrow fund. This cash and a
total of 47,000 of the Merger Shares placed in escrow (the "Indemnity Escrow
Fund") will be used to fund any obligation on the part of the Indemnifying
Shareholders to indemnify and hold harmless FBS from any loss, liability, damage
or expense which FBS may suffer as a result of certain matters specified in the
Merger Agreement. The remaining Merger Shares placed in escrow are intended to
ensure compliance with certain assurances relating to the MSI shareholders'
intent to hold the shares of FBS Common Stock received in the Merger for a
period of two years following the Effective Date. The Indemnifying Shareholders
will not be entitled to receive any of the cash held in escrow for a period of
one year from the Effective Date and will not be entitled to receive any of the
shares of FBS Common Stock held in escrow for a period of two years from the
Effective Date. Further, such holders may forfeit all or a portion the Indemnity
Escrow Fund in the event that FBS suffers any such loss, liability, damage or
expense. In accordance with the terms of the escrow and the agreement among the
Indemnifying Shareholders and the Shareholder's Representative (the
"Shareholders' Representative Agreement"), dividends paid on the escrowed Merger
Shares may be used to reimburse expenses of the Shareholders' Representative
incurred in performing such role, and the Shareholders' Representative intends
to withhold from the dividends otherwise distributable to the Indemnifying
Shareholders an amount deemed to be sufficient, in the Shareholders'
Representatives sole discretion, to cover potential
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expenses. The Shareholders' Representative will hold such withheld dividends in
escrow for the benefit of the Indemnifying Shareholders until such time as they
may be required to reimburse actual expenses and will distribute the remainder
at such time and in such amounts as the Shareholders' Representative, in his
sole discretion, may determine. Each certificate representing the escrowed
Merger Shares will be issued in the name of the Shareholders' Representative.
See "The Merger--The Escrow Agreement; Indemnification of FBS."
The Shareholders' Representative
The Merger Agreement provides that Raymond J. Pape, Jr., or any person
appointed as a successor pursuant to the terms of the Merger Agreement, will act
as the Shareholders' Representative. The Shareholders' Representative will act
on behalf of the MSI shareholders, both prior to and following the consummation
of the Merger, with respect to specified matters under the Merger Agreement. See
"The Merger--The Shareholders' Representative."
Special Meeting of MSI Shareholders
The Special Meeting to consider and vote upon the Merger Agreement will be
held in Omaha, Nebraska, at ___________, on ______, 1995 at ___ __.m. local
time. Only holders of record of MSI Common Stock at the close of business on
______, 1995 (the "Record Date"), will be entitled to notice of and to vote at
the Special Meeting. At the close of business on the Record Date, there were
outstanding and entitled to vote 76,386.030 shares of MSI Common Stock. Each
share of MSI Common Stock is entitled to one vote on the Merger Agreement. See
"Information Concerning the Special Meeting."
Vote Required to Approve the Merger and the Adjournment; Quorum
Pursuant to Nebraska law, approval of the Merger Agreement requires the
affirmative vote of at least two-thirds of all shares of MSI Common Stock
outstanding at the Record Date. A majority of all shares of MSI Common Stock
outstanding and entitled to vote, represented in person or by proxy, will
constitute a quorum for the Special Meeting. Approval of the adjournment of the
Special Meeting requires the affirmative vote of at least a majority of the
outstanding shares of MSI Common Stock represented in person or by proxy at the
Special Meeting, even if such number of shares is less than a quorum. Approval
of the Merger Agreement by the shareholders of FBS is not required under
applicable law.
It is expected that all of the 57,985.133 shares of MSI Common Stock
beneficially owned by directors and executive officers, and their affiliates, of
MSI and its affiliates at the Record Date (approximately 75.9% of the total
number of outstanding shares of MSI Common Stock at such date) will be voted for
approval of the Merger Agreement and for adjournment of the Special Meeting
under the circumstances described herein. As of the Record Date, FBS
beneficially owned no shares of MSI Common Stock, and directors and officers of
FBS and their affiliates beneficially owned no shares of MSI Common Stock. See
"Information Concerning the Special Meeting."
The Voting Agreement
As required by the Merger Agreement, Raymond D. Pape, Jr., Madeline Brady
Pape Trust, Matthew Pape Trust, Thomas F. McGowan, M. David Klipsch, Terry
Klipsch and Thomas A. Horeis (collectively, the "Insider Shareholders"), have
entered into a Shareholder Voting Agreement (the "Voting Agreement") with FBS
relating to certain actions and restrictions on actions of the Insider
Shareholders both prior to and following the Effective Date. The Voting
Agreement requires that the Insider Shareholders (all of whom are directors or
executive officers of MSI or their affiliate) vote, or cause to be voted, all
shares of MSI Common Stock owned or controlled by them (an aggregate of
51,901.487 shares at the Record Date, representing approximately 67.9% of the
outstanding shares of
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MSI Common Stock at such date) in favor of the Merger Agreement and in favor of
the adjournment of the Special Meeting under the circumstances described herein.
Assuming that the Insider Shareholders vote such shares of MSI Common Stock in
favor of the Merger Agreement as required by the Voting Agreement, approval of
the Merger Agreement at the Special Meeting is assured. The Voting Agreement
also contains certain restrictions on the Insider Shareholders with respect to
voting for or supporting transactions regarding MSI that are competitive with or
contradict the Merger. See "The Merger--The Voting Agreement," "--Interests of
Certain Persons in the Merger" and Appendix B.
Recommendation of the MSI Board of Directors
THE BOARD OF DIRECTORS OF MSI RECOMMENDS THAT MSI SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND FOR APPROVAL OF ADJOURNMENT OF THE SPECIAL
MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES.
The Board of Directors of MSI recommends that the shareholders of MSI
approve the Merger Agreement. The Board believes that the terms of the Merger
Agreement are fair and that the Merger is in the best interests of MSI and its
shareholders. In making its recommendation, the Board has not sought the advice
of an independent financial advisor. On _______, 1995, the last sale price for
FBS Common Stock on the NYSE was $____ per share. Based on such last reported
sale price, the purchase price for each share of MSI Common Stock will be
$_____, of which $_____ represents the cash to be received and $______
represents the value of the FBS Common Stock to be received. See "The Merger--
Terms of the Merger; Consideration to be Received by MSI Shareholders." The
directors and executive officers of MSI have unanimously indicated that they
intend to vote the MSI Common Stock that they hold in favor of the Merger
Agreement. See "Information Concerning the Special Meeting--Beneficial Ownership
of MSI Common Stock."
In approving the Merger Agreement and recommending its approval by MSI
shareholders, the Board of Directors of MSI considered, among other things, the
terms and conditions of the Merger Agreement; recent market prices for FBS
Common Stock; the lack of a public trading market for MSI Common Stock; the
nature of the banking businesses of MSI and FBS; MSI's competitive position and
outlook in a changing banking and financial services industry that is facing the
advent of interstate banking, a trend toward bank consolidation and increasing
pressure to realize economies of scale; and the consideration to be received by
the shareholders of MSI in the Merger. The Board did not assign any greater
weight to any one or more factors than it did to the other factors. See "The
Merger--Background of and Reasons for the Merger; Recommendation of MSI Board of
Directors."
Interests of Certain Persons in the Merger
Voting Agreement. As discussed above, the Insider Shareholders, pursuant to
the Voting Agreement, are required to vote all of their shares of MSI Common
Stock in favor of approval of the Merger Agreement and in favor of approval of
the adjournment of the Special Meeting if necessary to permit further
solicitation of proxies. The Insider Shareholders include Raymond D. Pape, Jr.,
M. David Klipsch, Thomas A. Horeis, each of whom is an executive officer and/or
a director of MSI, and Thomas F. McGowan, who is a director of First Bank, as
well as certain of their affiliates. See "The Merger--The Voting Agreement."
Directors' and Officers' Insurance; Limitation of Liability of MSI and
First Bank Directors and Officers. The Merger Agreement requires that, for a
period of three years after the Effective Date, FBS shall use its best efforts
to provide that portion of directors' and officers' liability insurance that
serves to reimburse officers and directors of MSI or First Bank with respect to
claims against such officers and directors arising from facts or events which
occurred before the Effective Date of at least the same coverage and amounts,
and containing terms and conditions no less advantageous, as that coverage
currently provided by MSI, subject to certain requirements and limitations. The
Merger Agreement
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further provides that, under certain conditions and subject to certain
limitations, MSI may obtain a three-year extension of its directors' and
officers' liability insurance to provide coverage for such officers and
directors. The Merger Agreement also provides that FBS shall use its best
efforts to assure, to the extent permitted under applicable law, that all
limitations of liability existing in favor of the directors and officers of MSI
or First Bank as provided in the MSI Articles of Incorporation and Bylaws, as in
effect on the date of the Merger Agreement, with respect to claims or
liabilities arising from facts or events existing or occurring prior to the
Effective Date (including, without limitation, the transactions contemplated by
the Merger Agreement), shall survive the Merger.
Employment Agreement. MSI is party to an employment agreement with M. David
Klipsch, its President and a shareholder. This employment agreement has an
indefinite term and provides, among other things, that if Mr. Klipsch's
employment is terminated by MSI, his salary will continue for six months. As a
result of the Merger and the anticipated termination of Mr. Klipsch's employment
with MSI thereafter, FBS and MSI expect that Mr. Klipsch will receive an
aggregate of $92,500 in salary continuation payments following the Merger.
Severance Payments and Retention Bonuses. Pursuant to the Merger Agreement,
certain employees of MSI or First Bank whose employment is terminated by FBS on
or after the Effective Date (other than by reason of such employee's misconduct,
nonperformance of duties or violation of other rules and policies of FBS, MSI or
First Bank, including confidentiality obligations), shall receive on or promptly
after the last day of employment a lump sum severance payment equal to (i) the
amount of 30 calendar days' base wages or salary plus (ii) the amount of one
week's base wages or salary times the number of full or partial years of service
with MSI, First Bank and FBS from the employee's most recent hire date;
provided, however, that such severance payment is conditioned upon receipt by
FBS of a general release of claims from each such employee releasing FBS and its
subsidiaries and MSI and its subsidiaries. An employee of MSI or First Bank who
voluntarily terminates employment or otherwise ceases to perform active
services, except for disability, for FBS prior to the date scheduled by FBS as
the employee's last day of work shall not be entitled to severance benefits as
provided above or under any FBS plan. FBS has agreed to pay after the Effective
Date retention bonuses to individual employees of MSI or First Bank in
respective amounts to be agreed upon between FBS and MSI. The severance payments
and retention bonuses described above may be paid to officers of MSI and First
Bank other than M. David Klipsch who will receive only the severance payment
described above.
Redemption of Preferred Stock. Pursuant to the Merger Agreement, prior to
the Effective Date MSI is required to redeem all 35,000 outstanding shares of
its Class A 6% Non-Voting, Non-Participating, Cumulative, Non-Convertible
Preferred Stock. Prior to entering into the Merger Agreement, MSI's management
had no immediate plans to undertake such a redemption. Raymond D. Pape, Jr. and
Thomas F. McGowan own 60% and 40%, respectively, of the Class A 6% Non-Voting,
Non-Participating, Cumulative, Non-Convertible Preferred Stock, and will receive
$63,000 and $42,000, respectively, plus accrued interest, as a result of the
redemption.
The foregoing interests of members of management or shareholders of MSI and
its affiliates in the Merger may mean that such persons have personal interests
in the Merger which may not be identical to the interests of nonaffiliated
shareholders. See "The Merger--Interests of Certain Persons in the Merger."
Limitation on Negotiations
The Merger Agreement provides that MSI will not, and will cause First Bank
and MSI's and First Bank's officers, directors, employees, agents and
affiliates, not to, directly or indirectly, solicit, authorize, initiate or
encourage submission of, any proposal, offer, tender offer or exchange offer
from any person or entity (including officers or employees of MSI or First Bank)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material
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portion of the assets or deposits of, or any equity interest in, MSI or First
Bank, or other similar transaction or business combination involving MSI or
First Bank, or participate in any negotiations in connection with or in
furtherance of any of the foregoing or permit any person other than FBS and its
representatives to have any access to the facilities of, or furnish to any
person other than FBS and its representatives any non-public information with
respect to, MSI or First Bank in connection with or in furtherance of any of the
foregoing. The Merger Agreement also requires MSI promptly to notify FBS if any
such proposal or offer, or any inquiry from or contact with any person with
respect thereto, is made concerning any such transactions and promptly to
provide FBS with such information concerning such matters as FBS may request.
See "The Merger--Limitation on Negotiations."
The foregoing provisions may have the effect of discouraging competing
offers to acquire or merge with MSI.
Regulatory Approval Required
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). The Federal
Reserve Board approved the Merger on _______, 1995, respectively. See "The
Merger--Regulatory Approval Required."
Conditions, Waiver and Amendment and Termination
The respective obligations of FBS and MSI to consummate the Merger are
subject to the satisfaction of certain conditions, including, among others, (i)
the receipt of all required regulatory approvals with respect to the Merger,
(ii) the approval of the Merger Agreement by the requisite vote of MSI
shareholders and (iii) certain other conditions customary in transactions of
this kind. A failure of any of such conditions to be satisfied would, if not
waived, prevent consummation of the Merger.
It is a condition to MSI's obligation to consummate the Merger that between
the date of the Merger Agreement and the Effective Date there shall not have
been a "Significant Decline" (as defined below) in the "Average Closing Price"
(as defined below) of FBS Common Stock compared to $41.76.
It is a condition to FBS's obligation to consummate the Merger that the
merger of FBS and Southwest Holdings, Inc., a Delaware corporation ("Southwest
Holdings") shall occur simultaneously with the Merger. See "The Merger--
Conditions to Consummation of the Merger."
At any time before the Effective Date, any party to the Merger Agreement
may (i) extend the time for performance of any obligations or other acts of any
other party under the Merger Agreement or (ii) waive compliance with any of the
agreements of the other parties or with any conditions of its own obligations
contained in the Merger Agreement, to the extent that such obligations,
agreements and conditions are intended for such party's own benefit. In
addition, the Merger Agreement may be amended by written instrument approved by
the parties and signed on behalf of each of the parties. See "The Merger--Waiver
and Amendment."
The Merger Agreement may be terminated at any time before the Effective
Date (i) by mutual consent of FBS and MSI; (ii) by either FBS or MSI, if any of
the conditions to such party's obligation to consummate the transaction
contemplated in the Merger Agreement have become impossible to satisfy; (iii) by
either FBS or MSI, if the Effective Date is not on or before March 31, 1996
(unless the failure to consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate the Merger Agreement
in breach of such party's obligations thereunder); and (iv) by FBS if, after the
date of the Merger Agreement, the Board of Directors of MSI shall have
withdrawn, modified or changed its recommendation of the Merger Agreement or the
Merger, or any shareholder of
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MSI who is a party to the Shareholder Voting Agreement shall have violated or
breached any material provision thereof. See "The Merger--Termination."
Effective Date of the Merger
The Merger will become effective upon the filing of certificates of merger
relating thereto with the Secretaries of State in the States of Delaware and
Nebraska. The Merger Agreement provides that the parties to the Merger Agreement
will cause such certificates of merger to be so filed as soon as practicable
after receipt of all necessary regulatory approvals, provided that each of the
conditions to consummation of the Merger has been satisfied or waived. The
Merger cannot become effective until MSI shareholders have approved the Merger
Agreement and all required regulatory approvals and actions have been obtained
and taken. The Merger Agreement may be terminated by either FBS or MSI if the
Merger has not become effective by March 31, 1996 (unless failure to consummate
the Merger by such date shall be due to the action or failure to act of the
party seeking to terminate the Merger Agreement in breach of such party's
obligations thereunder). Accordingly, there can be no assurance as to whether or
when the Merger will become effective. See "The Merger--Effective Date of the
Merger," "--Conditions to Consummation of the Merger" and "--Regulatory
Approvals Required."
Surrender of MSI Common Stock Certificates
Following the Merger, FBS (or a representative of FBS) will send a notice
and transmittal form, with instructions, to each holder of MSI Common Stock of
record at the Effective Date advising such holder of the effectiveness of the
Merger and of the procedure for surrendering their certificates formerly
evidencing MSI Common Stock. Such notice and transmittal form will be sent as
soon as practicable after the Effective Date. MSI shareholders should not send
in their stock certificates until they receive the notice and transmittal form
from FBS. See "The Merger--Surrender of MSI Common Stock Certificates."
Certain Federal Income Tax Consequences to MSI Shareholders
Kennedy, Holland, Delacy & Svoboda, counsel to MSI, will deliver an opinion
of counsel, which will be based upon various representations and assumptions and
subject to various qualifications, to the effect that for federal income tax
purposes (a) the Merger will qualify as a "reorganization" under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"); (b) no gain or
loss will be recognized by any MSI shareholder (except in connection with the
receipt of cash) upon the receipt of FBS Common Stock for MSI Common Stock in
the Merger; (c) gain, if any, but not loss, will be recognized by any MSI
shareholder upon the exchange of MSI Common Stock for Deferred Cash
Consideration in the Merger; (d) the basis of the FBS Common Stock received by
an MSI shareholder who exchanges MSI Common Stock for FBS Common Stock and
Deferred Cash Consideration will be the same as the basis of the MSI Common
Stock surrendered in exchange therefor, decreased by the amount of Deferred Cash
Consideration received by such shareholder, and increased by the amount of
capital gain recognized by such shareholder (subject to any adjustments required
as the result of receipt of cash in lieu of a fractional share of FBS Common
Stock) and the amount treated as a dividend to such shareholder, if any; (e) the
holding period of the FBS Common Stock received by an MSI shareholder will
include the period during which the MSI Common Stock surrendered in exchange
therefor was held (provided that the MSI Common Stock of such MSI shareholder
was held as a capital asset at the Effective Date); (f) cash received by an MSI
shareholder in lieu of a fractional share interest of FBS Common Stock will be
treated as having been received as a distribution in full payment in exchange
for the fractional share interest of FBS Common Stock which such shareholder
would otherwise be entitled to receive, and will qualify as capital gain or loss
(assuming the FBS Common Stock was a capital asset in such shareholders hands at
the Effective Date); (g) an MSI shareholder shall recognize ordinary interest
income with respect to all interest paid by FBS that is attributable to Deferred
Cash Consideration; and (h) if the Effective Date is on or before December 31,
1995, any taxable gain to be recognized by an MSI shareholder in connection with
the receipt of cash, other than cash treated as
14
<PAGE>
a dividend, shall be reportable under the installment method of Section 453 of
the Code and should be subject to the provisions of Section 453A with respect to
obligations in excess of $5,000,000. Each MSI shareholder is urged to consult
his or her own tax adviser concerning the federal income tax consequences of the
Merger, as well as any applicable state, local, foreign or other tax
consequences, based upon such shareholder's own particular facts and
circumstances. See "The Merger--Certain Federal Income Tax Consequences to MSI
Shareholders."
Resales of FBS Common Stock
Pursuant to the Merger Agreement, the shares of FBS Common Stock
deliverable to the Indemnifying Shareholders (as defined below) will be placed
in escrow in the name of the Shareholders' Representative for a period of two
years from the Effective Date, and, while such Indemnifying Shareholders will be
able to vote such shares, they will not in general be able to withdraw such
shares from escrow for the purpose of reselling them. Shares that have been
released from escrow, either at the termination of the two year period or
otherwise may be traded freely by those shareholders who are not "affiliates" of
MSI or FBS. See "The Merger--Terms of the Merger--Consideration to be Received
by MSI Shareholders."
MSI has agreed in the Merger Agreement to use its best efforts to obtain
signed representations (in the form attached as Exhibit B to the Merger
Agreement) from each shareholder of MSI who may reasonably be deemed an
"affiliate" of MSI (as such term is used in Rule 145 under the Securities Act)
to the effect that such person will not dispose of shares issued to him pursuant
to the Merger except in compliance with Rule 145 under the Securities Act, in a
transaction that, in the opinion of counsel reasonably satisfactory to FBS, is
otherwise exempt from the registration requirements under the Securities Act or
in an offering registered under the Securities Act. See "The Merger--Resale of
FBS Common Stock Received by MSI Shareholders."
Accounting Treatment
FBS intends to account for the Merger using the purchase method of
accounting under generally accepted accounting principles ("GAAP"). See "The
Merger--Accounting Treatment."
No Dissenters' Rights of Appraisal
Under Nebraska law, holders of stock in a bank holding company such as MSI
are not entitled to employ the procedure whereby shareholders may elect to have
the "fair value" of their shares (determined in accordance with Nebraska law)
judicially appraised and paid to them ("dissenters' rights"). Accordingly, all
holders of MSI Common Stock will be required to exchange their shares for the
Merger Consideration. See "The Merger--No Dissenters' Rights for MSI
Shareholders."
Market and Market Prices
FBS Common Stock is listed on the NYSE under the symbol "FBS." There is no
public market for shares of MSI Common Stock. The following table sets forth the
closing price per share of FBS Common Stock and the "equivalent per share price"
(as defined below) of MSI Common Stock as of (i) June 23, 1995, the last trading
day before FBS announced execution of the Merger Agreement, and (ii) ________,
1995. The "equivalent per share price" of the MSI Common Stock as of each such
date equals the sum of (a) the closing price per share of FBS Common Stock on
such date multiplied by the number derived by dividing the total number of
Merger Shares by the number of shares of MSI Common Stock outstanding on such
date plus (b) an amount of cash equal to $14,400,000 divided by the number of
shares of MSI Common Stock outstanding on such date. See "The Merger--Terms of
the Merger; Consideration to be Received by MSI Shareholders."
15
<PAGE>
<TABLE>
<CAPTION>
Market Price FBS Equivalent
Per Share Common Per Share
At: Stock Price
---------------- -------------- -------------
<C> <C> <C>
June 23, 1995 $ 42.125 $ 473.76
__________, 1995 $ ______ $ ______
</TABLE>
Apart from the publicly disclosed information concerning FBS which is
included and incorporated by reference in this Proxy Statement/Prospectus, FBS
does not know what factors account for changes in the market price of its stock.
MSI shareholders are advised to obtain current market quotations for FBS Common
Stock. No assurance can be given as to the market prices of FBS Common Stock at
any time before the Effective Date, or at any time thereafter. Because the
aggregate number of Merger Shares to be received by MSI shareholders in the
Merger is fixed, MSI shareholders will not be compensated for any decreases in
the market price of FBS Common Stock which could occur before the Effective
Date. As a result, in the event the market price of FBS Common Stock decreases,
the value of the FBS Common Stock to be received in the Merger in exchange for
MSI Common Stock would decrease. On the other hand, in the event the market
price of FBS Common Stock increases, the value of the FBS Common Stock to be
received in the Merger in exchange for MSI Common Stock would increase. See "--
The Proposed Merger" above and "The Merger--Terms of the Merger; Consideration
to be Received by MSI Shareholders."
It is a condition to MSI's obligation to consummate the Merger that between
the date of the Merger Agreement and the Effective Date there shall not have
been a "Significant Decline" (as defined below) in the "Average Closing Price"
(as defined below) of FBS Common Stock compared to $41.76. See "--Conditions to
Consummation of the Merger."
Differences in Rights of MSI Shareholders
Upon consummation of the Merger, holders of MSI Common Stock will become
holders of FBS Common Stock. As a result, their rights as shareholders, which
are now governed by Nebraska corporate law and MSI's Articles of Incorporation
and Bylaws, will be governed by Delaware corporate law and FBS's Certificate of
Incorporation and Bylaws. Because of certain differences between Nebraska and
Delaware corporate law and between the provisions of MSI's Articles of
Incorporation and Bylaws and FBS's Certificate of Incorporation and Bylaws, the
current rights of MSI shareholders will change significantly after the Merger.
For a discussion of the material differences between the rights of shareholders
of MSI and the rights of shareholders of FBS, see "The Merger--Certain
Differences in Rights of MSI Shareholders."
Expenses
The Merger Agreement provides that all costs and expenses incurred in
connection with such agreement and the transactions contemplated thereby shall
be paid by the party incurring such costs and expenses. See "The Merger--
Expenses."
16
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for FBS on a historical and pro forma combined basis, and for MSI on a
historical and pro forma equivalent basis, giving effect to the Merger using the
purchase method of accounting, and to the acquisition by FBS of FirsTier
Financial, Inc. ("FirsTier") (as described under "Business of FBS--Recent
Developments") using the purchase method of accounting. The information
presented below is derived from the consolidated historical financial statements
of FBS, MSI and FirsTier, including the related notes thereto, and the unaudited
pro forma combined financial information, including the notes thereto,
incorporated by reference into, or appearing elsewhere in, this Proxy
Statement/Prospectus. This information should be read in conjunction with such
historical and pro forma financial statements and the related notes thereto. See
"Incorporation of Certain Documents by Reference," "Unaudited Pro Forma Combined
Financial Information" and "Consolidated Financial Statements of Midwestern
Services, Inc."
The per share data included within is not necessarily indicative of the
results of the future operations of the combined entity or the actual results
that would have been achieved had the Merger been consummated prior to the
periods indicated.
<TABLE>
<CAPTION>
FBS Common Stock MSI Common Stock
-------------------------- ------------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
June 30, 1995.................... $20.33 $21.73 $211.34 $147.14
December 31, 1994 ............... 18.63 19.98 182.13 135.29
DIVIDENDS DECLARED (2):
Six months ended:
June 30, 1995................. 0.725 0.725 -- 4.91
Year ended:
December 31, 1994............. 1.16 1.16 -- 7.85
INCOME FROM CONTINUING
OPERATIONS (3):
Six months ended:
June 30, 1995................. 1.97 1.94 17.43 13.14
Year ended:
December 31, 1994............. 2.21 2.22 26.41 15.03
</TABLE>
(Notes on Following Page)
17
<PAGE>
Notes to Comparative Unaudited Per Share Data
(1) The pro forma combined book values per share of FBS Common Stock are based
upon the pro forma total common equity for FBS, MSI and FirsTier, divided by
the total pro forma common shares of the combined entity assuming conversion
of the MSI and FirsTier common stock at the respective exchange ratios. The
pro forma equivalent book values per share of MSI Common Stock represent the
pro forma combined amounts multiplied by the exchange ratio. See "The
Merger--Consideration to be Received by MSI Shareholders."
(2) The pro forma combined dividends declared assume no changes in the
historical dividends declared per FBS common share. The pro forma equivalent
dividends per share of MSI Common Stock represent the cash dividends
declared on a share of FBS Common Stock multiplied by the exchange ratio.
See "The Merger--Consideration to be Received by MSI Shareholders."
(3) The pro forma combined income from continuing operations per share are based
upon the pro forma combined income for FBS, MSI and FirsTier, divided by the
average pro forma common shares of the combined entity. The pro forma
equivalent income from continuing operations per share of MSI Common Stock
represents the pro forma combined income multiplied by the exchange ratio.
See "The Merger--Consideration to be Received by MSI Shareholders."
FBS expects to achieve operating cost savings primarily through reductions
in staff, the consolidation and elimination of certain office facilities,
and the consolidation of certain data processing and other back office
operations. No adjustment has been included in the unaudited pro forma
combined financial statements for the anticipated operating cost savings.
Financial results for FBS for 1994 include merger-related items with an
after-tax effect of $156.9 million ($1.15 per share) associated with the
merger of Metropolitan Financial Corporation.
FBS acquired Edina Realty, Inc. a real estate brokerage, as part of the
merger with Metropolitan Financial Corporation on January 24, 1995. Because
of regulatory restrictions on nonbanking activities, FBS expects to sell
Edina Realty, Inc, within two years. Accordingly, its operations are
accounted for as discontinued operations.
18
<PAGE>
HISTORICAL SELECTED AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
The following tables set forth certain selected historical consolidated
financial information for FBS, MSI and FirsTier, and certain unaudited pro forma
combined financial information giving effect to the acquisition by FBS of
FirsTier using the purchase method of accounting. The historical selected
financial data for the five years ended December 31, 1994 is derived from
audited consolidated financial statements of FBS, MSI and FirsTier. The
historical financial data for the six months ended June 30, 1995 is derived from
the unaudited historical financial statements of FBS, MSI and FirsTier and
reflect, in the respective opinions of management of FBS, MSI and FirsTier, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. This information should be read in conjunction
with the consolidated historical financial statements of FBS, MSI and FirsTier,
and the related notes thereto, and the unaudited pro forma combined financial
information, including the notes thereto, incorporated by reference or included
elsewhere in this Proxy Statement/Prospectus. See "Incorporation of Certain
Documents by Reference," "Unaudited Pro Forma Combined Financial Information,"
and "Consolidated Financial Statements of Midwestern Services, Inc."
The unaudited pro forma combined financial information is presented for
informational purposes only and is not necessarily indicative of the results of
the future operations of the combined entity or the actual results that would
have been achieved had the acquisition of FirsTier been consummated on the dates
or prior to the periods presented.
19
<PAGE>
HISTORICAL SELECTED FINANCIAL DATA OF
FIRST BANK SYSTEM, INC.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------------- ----------------------------------------------------
1995 1994 1994(4) 1993(5) 1992(6) 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(In millions, except per share amounts)
CONSOLIDATED INCOME STATEMENT DATA:
Interest income ................................... $1,265.5 $1,075.8 $2,288.1 $2,134.5 $2,106.1 $2,369.0 $2,745.3
Interest expense .................................. 542.7 386.1 868.7 796.3 953.1 1,354.2 1,844.2
-------- -------- -------- -------- -------- -------- --------
Net interest income ............................. 722.8 689.7 1,419.4 1,338.2 1,153.0 1,014.8 901.1
Provision for credit losses ....................... 53.0 52.6 123.6 133.1 191.7 210.2 219.7
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for credit losses ............................... 669.8 637.1 1,295.8 1,205.1 961.3 804.6 681.4
Non-interest income ............................... 369.3 327.2 558.9 618.9 613.7 557.0 472.1
Non-interest expense .............................. 607.5 601.1 1,349.4 1,264.7 1,246.3 1,067.9 1,063.0
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations
before income taxes ............................. 431.6 363.2 505.3 559.3 328.7 293.7 90.5
Applicable income taxes ........................... 159.9 135.8 191.8 198.6 115.7 30.3 6.5
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations
before cumulative effect of changes
in accounting principles ........................ 271.7 227.4 313.5 360.7 213.0 263.4 84.0
Income (loss) from discontinued
operations(1) ................................... -- 0.4 (8.5) 2.5 2.7 1.1 0.6
Cumulative effect of changes in
accounting principles ........................... -- -- -- -- 233.2 -- 1.0
-------- -------- -------- -------- -------- -------- --------
Net income ........................................ $ 271.7 $ 227.8 $ 305.0 $ 363.2 $ 448.9 $ 264.5 $ 85.6
======== ======== ======== ======== ======== ======== ========
Average common and common
equivalent shares ............................... 135.7 135.0 136.3 134.6 124.7 117.3 106.1
PER COMMON SHARE DATA:
Income from continuing operations
before cumulative effect of
accounting changes .............................. $ 1.97 $ 1.62 $ 2.21 $ 2.46 $ 1.46 $ 2.00 $ 0.53
Net income ........................................ 1.97 1.63 2.15 2.48 3.35 2.01 0.55
Dividends paid .................................... 0.725 0.58 1.16 1.00 0.88 0.82 0.82
Common shareholders' equity ....................... 20.33 19.42 18.63 18.91 17.89 14.67 13.28
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END:
Assets ............................................ $ 33,456 $ 33,919 $ 34,128 $ 33,370 $ 32,758 $ 28,508 $ 29,339
Securities ........................................ 3,426 6,057 5,185 5,030 6,092 4,744 5,061
Loans ............................................. 25,699 23,951 24,556 23,497 20,692 18,734 18,845
Deposits .......................................... 22,849 24,548 24,256 26,386 26,395 22,969 22,772
Long-term debt .................................... 2,572 2,423 2,684 1,905 1,141 1,261 1,886
Shareholders' equity .............................. 2,817 2,742 2,612 2,744 2,745 2,131 1,826
SELECTED FINANCIAL DATA AT PERIOD END:
Common shareholders' equity
to assets ...................................... 8.1% 7.7% 7.3% 7.4% 7.2% 5.9% 5.1%
Total shareholders' equity to assets .............. 8.4 8.1 7.7 8.2 8.4 7.5 6.2
Tier 1 capital ratio(2) ........................... 7.7 8.3 7.3 9.4 9.8 8.5 6.8
Total capital ratio(2) ............................ 12.2 12.4 11.4 13.4 13.0 11.3 9.7
Allowance for credit losses ....................... $ 467 $ 480 $ 475 $ 466 $ 484 $ 453 $ 484
Percentage of loans ............................. 1.82% 2.00% 1.93% 1.98% 2.34% 2.42% 2.57%
Nonperforming assets(3) ........................... $ 175 $ 286 $ 232 $ 341 $ 511 $ 658 $ 737
Percentage of total assets ...................... 0.52% 0.84% 0.68% 1.02% 1.56% 2.31% 2.51%
SELECTED FINANCIAL DATA FOR THE PERIOD ENDED:
Return on average assets from continuing
operations before cumulative effect of
changes in accounting principles ................ 1.67% 1.39% 0.93% 1.12% 0.74% 0.95% 0.28%
Return on average assets .......................... 1.67 1.39 0.91 1.13 1.56 0.96 0.29
Return on average common equity from
continuing operations before
cumulative effect of changes in
accounting principles ........................... 20.8 17.3 11.6 13.8 8.7 14.7 4.1
Return on average common equity ................... 20.8 17.3 11.2 13.9 20.0 14.8 4.2
Net interest margin (taxable-
equivalent basis) ............................... 4.99 4.71 4.74 4.69 4.54 4.16 3.47
Net interest margin without taxable-
equivalent increments ........................... 4.94 4.66 4.69 4.63 4.46 4.02 3.29
</TABLE>
SEE NOTES TO HISTORICAL SELECTED FINANCIAL DATA
20
<PAGE>
HISTORICAL SELECTED FINANCIAL DATA OF
MIDWESTERN SERVICES, INC.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share amounts) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENT DATA:
Interest income ................................... $ 8,632 $ 6,973 $ 14,652 $ 13,007 $ 13,975 $ 16,025 $ 16,112
Interest expense .................................. 3,488 2,359 5,140 5,001 6,281 8,558 9,355
-------- -------- -------- -------- -------- -------- --------
Net interest income ............................. 5,144 4,614 9,512 8,006 7,694 7,467 6,757
Provision for loan losses ......................... 162 150 296 300 300 339 1,063
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for loan
losses............................................ 4,982 4,464 9,216 7,706 7,394 7,128 5,694
Non-interest income ............................... 1,698 1,301 2,842 2,541 3,676 2,560 2,447
Non-interest expense .............................. 4,594 4,081 8,637 7,658 7,422 7,422 7,175
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ........................ 2,086 1,684 3,421 2,589 3,648 2,266 966
Applicable income taxes ........................... 751 618 1,268 945 1,309 730 244
-------- -------- -------- -------- -------- -------- --------
Income before minority interests .................. 1,335 1,066 2,153 1,644 2,339 1,536 722
Minority interests ................................ (1) -- -- 4 (64) (27) (28)
-------- -------- -------- -------- -------- -------- --------
Net income ........................................ $ 1,334 $ 1,066 $ 2,153 $ 1,648 $ 2,275 $ 1,509 $ 694
======== ======== ======== ======== ======== ======== ========
Average common shares ............................. 76.2 76.3 76.3 76.8 77.1 78.1 78.1
PER COMMON SHARE DATA:
Net income ........................................ $ 17.43 $ 12.15 $ 26.41 $ 19.99 $ 28.03 $ 17.91 $ 7.45
Dividends paid .................................... .00 .00 .00 .00 .00 .00 .00
FINANCIAL RATIOS:
Return on average assets .......................... 1.20% 1.07% 1.06% 0.89% 1.33% 0.80% 0.39%
Return on average common equity ................... 17.66 17.04 16.53 13.34 21.64 16.95 8.66
Net interest margin ............................... 5.12 5.10 5.16 4.77 4.88 4.74 4.67
Efficiency ratio .................................. 67.14 69.05 69.60 72.58 66.48 74.07 78.38
AVERAGE BALANCE SHEET DATA:
Total gross loans ................................. $147,589 $129,991 $131,765 $116,310 $101,249 $106,812 $105,328
Total assets ...................................... 221,839 199,238 202,479 185,869 171,530 189,754 177,406
Deposits .......................................... 197,655 180,171 182,755 169,589 155,039 168,071 155,969
Shareholders' equity .............................. 15,212 13,398 14,208 13,535 11,695 10,097 9,197
BALANCE SHEET DATA AT PERIOD END:
Total gross loans ................................. $161,640 $137,376 $148,529 $134,247 $109,656 $105,852 $109,827
Total assets ...................................... 236,796 202,811 223,585 202,151 189,224 195,006 184,502
Deposits .......................................... 209,975 179,108 198,149 182,256 168,397 172,201 163,941
Shareholders' equity .............................. 16,203 13,261 13,994 14,421 12,648 10,741 9,453
</TABLE>
SEE NOTES TO HISTORICAL SELECTED FINANCIAL DATA
21
<PAGE>
HISTORICAL SELECTED FINANCIAL DATA OF
FIRSTIER FINANCIAL, INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990(7)
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
(In millions, except per share amounts)
CONSOLIDATED INCOME STATEMENT DATA:
Interest income............................... $129.4 $112.6 $231.5 $223.8 $225.1 $251.6 $248.1
Interest expense.............................. 62.0 44.6 97.1 92.0 103.4 142.8 155.1
------ ------ ------ ------ ------ ------ ------
Net interest income....................... 67.4 68.0 134.4 131.8 121.7 108.8 93.0
Provision for credit losses................... 0.5 (1.6) (0.2) 5.4 9.7 10.7 27.1
------ ------ ------ ------ ------ ------ ------
Net interest income
after provision for credit losses............ 66.9 69.6 134.6 126.4 112.0 98.1 65.9
Non-interest income........................... 27.8 27.2 52.0 59.0 56.7 54.5 46.1
Non-interest expense.......................... 57.2 59.2 118.1 115.4 109.1 107.0 110.2
------ ------ ------ ------ ------ ------ ------
Income before income taxes.................... 37.5 37.6 68.5 70.0 59.6 45.6 1.8
Applicable income taxes....................... 9.9 10.0 17.6 18.8 16.2 11.0 (0.8)
------ ------ ------ ------ ------ ------ ------
Net income................................ $ 27.6 $ 27.6 $ 50.9 $ 51.2 $ 43.4 $ 34.6 $ 2.6
====== ====== ====== ====== ====== ====== ======
Average common and common equivalent shares... 18.7 19.0 18.8 19.1 19.0 19.0 18.7
PER COMMON SHARE DATA:
Net income.................................... $ 1.48 $ 1.45 $ 2.69 $ 2.68 $ 2.30 $ 1.85 $ 0.15
Dividends paid................................ 0.56 0.52 1.04 0.66 0.47 0.42 0.40
Common shareholders' equity................... 19.74 18.12 18.53 17.30 15.09 13.22 11.97
CONSOLIDATED BALANCE SHEET DATA AT PERIOD END:
Assets........................................ $3,580 $3,505 $3,540 $3,400 $3,302 $3,113 $3,076
Securities.................................... 978 1,017 938 1,035 961 803 676
Loans......................................... 2,198 2,034 2,149 1,953 1,875 1,700 1,801
Deposits...................................... 2,806 2,653 2,815 2,721 2,776 2,552 2,583
Long-term debt................................ 164 145 154 38 23 47 35
Shareholders' equity.......................... 365 339 342 326 284 248 206
SELECTED FINANCIAL DATA AT PERIOD END:
Common shareholders' equity to assets......... 10.2% 9.7% 9.7% 9.6% 8.6% 8.0% 6.7%
Total shareholders' equity to assets.......... 10.2 9.7 9.7 9.6 8.6 8.0 6.7
Tier 1 capital ratio (2)...................... 14.3 14.1 13.5 14.0 13.7(7) 11.5(7) 9.8
Total capital ratio (2)....................... 15.5 15.4 14.8 15.2 14.6(7) 12.8(7) 11.3
Allowance for credit losses................... $ 53.0 $ 53.0 $ 53.0 $ 54.0 $ 50.0 $ 46.0 $ 43.0
Percentage of loans....................... 2.41% 2.59% 2.48% 2.78% 2.69% 2.71% 2.39%
Nonperforming assets (3)...................... $ 11.0 $ 15.0 $ 14.0 $ 18.0 $ 28.0 $ 31.0 $ 29.0
Percentage of total assets................ 0.31% 0.43% 0.40% 0.53% 0.85% 1.00% 0.94%
SELECTED FINANCIAL DATA FOR THE PERIOD ENDED:
Return on average assets...................... 1.56% 1.63% 1.48% 1.55% 1.41% 1.14% 0.09%
Return on average common equity............... 15.81 16.57 15.03 16.76 16.41 14.87 1.23
Net interest margin
(taxable-equivalent basis)................... 4.48 4.75 4.59 4.73 4.71 4.25(7) 4.02
Net interest margin without taxable-
equivalent increments........................ 4.16 4.42 4.26 4.63 4.35 4.01(7) 3.75
</TABLE>
See notes to historical selected financial data
22
<PAGE>
Notes to Historical Selected Financial Data
(1) FBS acquired Edina Realty, Inc., a real estate brokerage, as part of the
merger with Metropolitan Financial Corporation on January 24, 1995. Because
of regulatory restrictions on nonbanking activities, FBS expects to sell
Edina Realty, Inc. within two years. Accordingly, its operations are
accounted for as discontinued operations.
(2) Capital ratios are computed based on 1992 Federal Reserve Board rules and
regulations.
(3) Includes nonaccural and restructured loans, other nonperforming assets and
other real estate owned.
(4) Financial results for FBS for 1994 include merger-related items with an
after tax effect of $156.9 million ($1.15 per share) associated with the
merger with Metropolitan Financial Corporation.
(5) The FBS results of operations for the year ended December 31, 1993 include
merger-related charges of $50.0 million ($.37 per share), on an after-tax
basis, associated with the acquisition of Colorado National Bankshares, Inc.
(6) The FBS results of operations for the year ended December 31, 1992 include
merger-related charges of $81.8 million ($.66 per share), on an after-tax
basis, associated with the acquisition of Western Capital Investment
Corporation ("WCIC") and Bank Shares Incorporated. The results of operations
for that year also include the effect of adopting two new accounting
standards: Statement of Financial Accounting Standards No. ("SFAS") 109,
"Accounting for Income Taxes," and SFAS 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions." The cumulative effect of
adopting SFAS 109 was an increase of $264.8 million in net income. The
cumulative effect of adopting SFAS 106 was a decrease of $31.6 million in
net income.
(7) Historical Selected Financial Data for FirsTier for the year ended 1990 has
not been restated to reflect the acquisition of Cornerstone Bank Group, Inc.
("CBG"). Tier I capital ratios and Total capital ratios have not been
restated to reflect the acquisition of CBG for the years ended 1992 and
1991. In addition, net interest margin (taxable-equivalent basis) and net
interest margin without taxable-equivalent increments have not been restated
to reflect the acquisition of CBG for the year ended 1991. The effect of
restatement on this information is not material.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
OF FIRST BANK SYSTEM, INC. AND
FIRSTIER FINANCIAL, INC.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, December 31,
1995(1) 1994(1)
---------- ------------
<S> <C> <C>
(In millions, except per share amounts)
Consolidated Income Statement Data:
Interest income................................. $1,394.9 $2,519.6
Interest expense................................ 615.2 986.8
Net interest income....................... 779.7 1,532.8
-------- --------
Provision for credit losses..................... 53.5 123.4
-------- --------
Net interest income after provision
for credit losses.............................. 726.2 1,409.4
Non-interest income............................. 397.1 610.9
Non-interest expense............................ 673.5 1,485.0
-------- --------
Income from continuing operations before income
taxes.......................................... 449.8 535.3
Applicable income taxes......................... 165.9 201.4
-------- --------
Income from continuing operations....... $ 283.9 $ 333.9
======== ========
Average common and common
equivalent shares............................. 144.0 144.6
Per Common Share Data:
Income from continuing operations............... $ 1.94 $ 2.22
Net income...................................... 1.94 2.16
Dividends paid.................................. 0.73 1.16
Common shareholders' equity..................... 21.65 19.95
Consolidated Balance Sheet Data at Period End:
Assets.......................................... $ 37,385 $ 37,668
Securities...................................... 4,403 6,123
Loans........................................... 27,897 26,705
Deposits........................................ 25,655 27,071
Long-term debt.................................. 2,737 2,839
Shareholders' equity............................ 3,174 2,954
Selected Financial Data at Period End:
Common shareholders' equity to assets........... 8.2% 7.5%
Total shareholders' equity to assets............ 8.5 7.8
Tier 1 capital ratio (2)........................ 7.1 6.7
Total capital ratio (2)......................... 11.5 10.7
Allowance for credit losses..................... $ 520 $ 528
Percentage of loans....................... 1.86% 1.98%
Non-performing assets (3)....................... $ 184 $ 241
Percentage of total assets................ 0.49% 0.64%
Selected Financial Data for the Period Ended:
Return on average assets........................ 1.57% 0.90%
Return on average common equity................. 19.13 10.91
Net interest margin (taxable-equivalent basis).. 4.94 4.73
Net interest margin without taxable-equivalent
increments.................................... 4.86 4.65
</TABLE>
See notes to unaudited pro forma combined selected financial data
24
<PAGE>
Notes to Unaudited Pro Forma Combined Selected Financial Data
(1) The merger with FirsTier will be accounted for by FBS under the purchase
method of accounting in accordance with APB No. 16 and, accordingly, this
method has been applied in the unaudited pro forma combined financial
statements. Under this method of accounting, the purchase price will be
allocated to assets acquired and liabilities assumed based on their
estimated fair value at the closing of the transaction. The historical cost
of FirsTier's assets and liabilities approximates fair value, making mark-
to-market adjustments immaterial. Accordingly, the historical cost of
FirsTier's assets and liabilities have been combined with the historical
consolidated balance sheet of FBS. Based on the market value of shares of
FBS Common Stock on the date the merger agreement with FirsTier was signed,
goodwill and other intangible assets of approximately $349 million have been
reflected in the pro forma combined financial statements as required under
the purchase accounting method. Certain adjustments, primarily to accrue for
costs related to the FirsTier merger expected to be incurred within one year
of the closing. Currently, these accruals are not material and have not been
reflected in the unaudited pro forma combined financial statements. Purchase
accounting adjustments and merger-related costs may change as additional
information becomes available.
Amortization expense relating to the FirsTier merger has been included in
the Unaudited Pro Forma Combined Statements of Income. Amortization expense
was calculated based on the intangible asset balance of $349 million using
the straight-line method over an average estimated period of benefit of 20
years. Subsequent changes to the purchase adjustments, as well as the final
allocation of the intangible assets between goodwill and other intangible
assets will result in an adjustment to goodwill, which will have a
corresponding impact on amortization expense. Accordingly, pro forma
combined income would also change, as well as the related pro forma combined
earnings per share amounts.
FBS expects to achieve operating cost savings primarily through reductions
in staff, the consolidation and elimination of certain duplicate or excess
office facilities, and the consolidation of certain data processing and
other back office operations. The operating cost savings are expected to be
achieved in various amounts at various times during the year subsequent to
the closing and not ratably over, or at the beginning or end of, such
periods. No adjustment has been included in the unaudited pro forma combined
financial statements for the anticipated operating cost savings.
See the "Unaudited Pro Forma Combined Financial Information" for additional
details on these adjustments.
(2) Capital ratios are computed based on 1992 Federal Reserve Board rules and
regulations.
(3) Nonperforming assets include nonaccrual and restructured loans, other
nonperforming assets and other real estate owned.
25
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of MSI Common
Stock as part of the solicitation of proxies by the MSI Board of Directors for
use at the Special Meeting to be held on ______, 1995 and at any adjournment or
postponement thereof. This Proxy Statement/Prospectus, and the accompanying form
of proxy, are being first mailed to MSI shareholders on or about ______, 1995.
The principal purpose of the Special Meeting is to consider and vote upon
the proposal to approve the Merger Agreement, dated June 23, 1995, among FBS,
MSI and the Shareholders' Representative, which sets forth the terms and
conditions of the Merger. Upon consummation of the Merger, each outstanding
share of MSI Common Stock will be converted into the right to receive (1) a
number of shares of FBS Common Stock equal to (a) 517,241 divided by (b) the
number of shares of MSI Common Stock outstanding on the Effective Date with cash
paid in lieu of fractional shares (the "Merger Shares") plus (2) an amount of
cash equal to (a) $14,400,000 divided by (b) the number of shares of MSI Common
Stock outstanding on the Effective Date (the "Deferred Cash Consideration"). The
Deferred Cash Consideration shall be payable on the later of January 2, 1996 or
the Effective Date (the Deferred Cash Payment Date") along with accrued interest
(at a rate to be determined in accordance with the Merger Agreement) from the
Effective Date. (Unlike other holders of MSI Common Stock, the Midwestern
Employee Stock Ownership Plan may elect whether to receive the Deferred Cash
Consideration on the Effective Date or January 2, 1996.) (The Merger Shares
together with the Deferred Cash Consideration are sometimes called the "Merger
Consideration" in this Proxy/Prospectus.) It is a condition to MSI's obligation
to consummate the Merger that between the date of the Merger Agreement and the
Effective Date there shall not have been a "Significant Decline" (as defined
below) in the "Average Closing Price" (as defined below) of FBS Common Stock
compared to $41.76. The Merger is also subject to a number of other conditions,
including the receipt of required regulatory and shareholder approvals. See "The
Merger--Conditions to Consummation of the Merger."
In addition to approval of the Merger Agreement, the shareholders of MSI
may be asked to approve a proposal to adjourn the Special Meeting to permit
further solicitation of proxies in the event there are not sufficient votes at
the time of the Special Meeting to approve the Merger Agreement. See
"Adjournment of the Special Meeting."
Solicitation, Voting and Revocability of Proxies
The Board of Directors of MSI has fixed the close of business on ______,
1995 (the "Record Date") as the record date for the determination of the
shareholders of MSI entitled to notice of and to vote at the Special Meeting.
Accordingly, only holders of record of shares of MSI Common Stock at the close
of business on such date will be entitled to vote at the Special Meeting, with
each share entitling its owner to one vote on all matters properly presented at
the Special Meeting. On the Record Date, there were 21 holders of record of the
76,386.030 shares of MSI Common Stock then outstanding. The presence, in person
or by proxy, of at least a majority of the total number of outstanding shares of
MSI Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. Under Nebraska law, the affirmative
vote of at least two-thirds of the total number of outstanding shares of MSI
Common Stock entitled to vote at the Special Meeting is required to approve the
Merger Agreement. Approval of the adjournment of the Special Meeting requires
the affirmative vote of at least a majority of the outstanding shares of MSI
Common Stock represented in person or by proxy at the Special Meeting, even if
such number of shares is less than a quorum. If an executed form of proxy is
returned and the shareholder has affirmatively abstained from voting on any
matter, the shares represented by such proxy will be considered present at the
Special Meeting for purposes of determining a quorum and for purposes of
calculating the vote, but will not be considered to have voted in favor as to
such matter.
26
<PAGE>
It is expected that all of the 57,985.133 shares of MSI Common Stock
beneficially owned by directors and executive officers of MSI and their
affiliates at the Record Date (75.9% of the total number of outstanding shares
of MSI Common Stock at such date) will be voted for approval of the Merger
Agreement and for adjournment of the Special Meeting under the circumstances
described herein. As of the Record Date, FBS beneficially owned no shares of MSI
Common Stock and directors and executive officers of FBS beneficially owned no
shares of MSI Common Stock. The Insider Shareholders (all of whom are also
directors or executive officers of MSI or their affiliates) have, under the
Voting Agreement, agreed to vote, or cause to be voted, all shares of MSI Common
Stock owned or controlled by them (an aggregate of 51,901.487 shares at the
Record Date or 67.9% of the outstanding shares of MSI Common Stock at such date)
in favor of approval of the Merger Agreement and the adjournment of the Special
Meeting (if necessary). Assuming that the Insider Shareholders vote their shares
of MSI Common Stock in favor of the Merger Agreement as required by the Voting
Agreement, approval of the Merger Agreement at the Special Meeting is assured.
See "The Merger--The Voting Agreement."
If the accompanying form of proxy is properly executed and returned to MSI
in time to be voted at the Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. Executed but
unmarked proxies will be voted for approval of the Merger Agreement and for the
proposal to adjourn the Special Meeting if necessary to permit further
solicitation of proxies. The Board of Directors of MSI does not know of any
matters other than those described in the notice of the Special Meeting that are
to come before the Special Meeting. If any other matters are properly brought
before the Special Meeting, one or more of the persons named in the form of
proxy will vote the shares represented by such proxy upon such matters as
determined in their best judgment.
THE BOARD OF DIRECTORS OF MSI UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
OF MSI VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND FOR APPROVAL OF ADJOURNMENT
OF THE SPECIAL MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES.
The presence of a shareholder at the Special Meeting will not automatically
revoke such shareholder's proxy. A shareholder may, however, revoke a proxy at
any time prior to its exercise by filing a written notice of revocation with, or
by delivering a duly executed proxy bearing a later date to, Thomas A. Horeis,
Secretary, Midwestern Services, Inc., 222 South 72nd Street, Omaha, Nebraska
68114, or by attending the Special Meeting and voting in person.
The cost of soliciting proxies for the Special Meeting will be borne by
MSI. In addition to use of the mails, proxies may be solicited personally or by
telephone, telegraph or facsimile by directors, officers and employees of MSI,
who will not be specially compensated for such activities. MSI will also request
persons, firms and companies holding shares in their names or in the name of
their nominees, which are beneficially owned by others, to send proxy materials
to and obtain proxies from such beneficial owners. MSI will reimburse such
persons for their reasonable expenses incurred in that connection.
Shareholders of MSI are instructed not to send in the stock certificates
representing their shares of MSI Common Stock with their proxy. If the Merger is
approved, shareholders of MSI will receive instructions regarding the surrender
of their stock certificates. See "The Merger--Surrender of MSI Common Stock
Certificates."
27
<PAGE>
Beneficial Ownership of MSI Common Stock
The following table sets forth, as of ______, 1995, the Record Date for the
Special Meeting, certain information with respect to the beneficial ownership of
MSI Common Stock by (i) each person who is a beneficial owner of more than 5% of
the outstanding shares of MSI Common Stock, (ii) each executive officer of MSI
and each director of MSI, and (iii) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
Name, Title and Amount and Nature Percent of
Address of Beneficial Ownership Class
- ------------------------------------ ----------------------- ----------
<S> <C> <C>
Raymond D. Pape, Jr. 28,063.764(1) 36.7%
Director and Chairman
222 South 72nd Street
Omaha, Nebraska 68114
Thomas F. McGowan 14,943.788 19.6
Director of First Bank
222 South 72nd Street
Omaha, Nebraska 68114
M. David Klipsch 7,288.139(2) 9.5
Director and President
222 South 72nd Street
Omaha, Nebraska 68114
Robert I. Hancock III 3,820.466 5.0
Robert Hancock & Co.
Shaker Place, Suite 214
10730 Pacific
Omaha, Nebraska 68114
Donald Greenberg 3,342.906 4.4
Director
John Savage 2,740.740 3.6
Director
John Feagler 2,292.341(3) 3.0
Director
Thomas A. Horeis 1,605.796 2.1
Secretary, Treasurer and
Vice President
All directors and executive officers
as a group (7 persons) 57,985.133 75.9
</TABLE>
28
<PAGE>
(1) Of these shares, 941.995 shares are held by ProTrustCo as custodian for the
Raymond D. Pape IRA, over which Mr. Pape exercises sole voting and
investment power; 53.779 are held by ProTrustCo as custodian for the IRA of
Mr. Pape's wife. Also includes an aggregate of 3,200 shares held in trusts
for the benefit of Mr. Pape's minor children over which trusts Mr. Pape
exercises no voting or investment power; Mr. Pape disclaims beneficial
ownership over such shares.
(2) Of these shares, 317.139 are held by ProTrustCo as custodian for the M.
David Klipsch IRA, over which Mr. Klipsch exercises sole voting and
investment power; and 2,000.000 are owned by Mr. Klipsch's wife.
(3) These shares are owned by Hematology Associates, P.C. Profit Sharing Plan,
for the benefit of Mr. Feagler.
THE MERGER
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Appendix A and is incorporated herein by reference. All shareholders
are urged to read the Merger Agreement and the other appendices hereto in their
entirety.
Background of and Reasons for the Merger; Recommendation of MSI Board of
Directors
Background of the Merger. MSI and FBS first discussed the possibility of a
merger of MSI with and into FBS in February 1995, but no further action was
taken at that time. On Friday, May 26, 1995, representatives of MSI and FBS held
discussions and reached a basic understanding regarding a potential transaction.
Representatives of FBS and MSI and their respective counsel thereafter
negotiated the form of the Merger Agreement, and on June __, 1995, the MSI Board
of Directors met to consider the Merger Agreement. Based on a variety of
factors, the MSI Board of Directors approved the Merger Agreement at such
meeting. The Merger Agreement was executed and delivered by the parties on June
23, 1995. Following the execution and delivery of the Merger Agreement, FBS and
MSI formally announced the execution of the Merger Agreement on June 26, 1995.
Reasons of MSI for the Merger. The Board of Directors of MSI, after careful
study and evaluation of economic, financial, legal and market factors, believes
that the Merger Agreement is in the best interests of MSI and MSI's
shareholders. The Board believes that the Merger Consideration is favorable and
that the receipt of the Merger Consideration represents an opportunity for the
holders of MSI Common Stock to exchange their shares of MSI Common Stock for
cash and a security with a greater market liquidity. Among the factors
considered by the Board of Directors of MSI in deciding to approve and recommend
the execution of the Merger Agreement were the terms and conditions of the
Merger Agreement; recent market prices for FBS Common Stock; the lack of a
public trading market for MSI Common Stock; the nature of the banking businesses
of MSI and FBS; competitive position and outlook in a changing banking and
financial services industry that is facing the advent of interstate banking, a
trend toward bank consolidation and increasing pressure to realize economies of
scale; and the consideration to be received by the shareholders of MSI in the
Merger. While the Board of Directors did not give greater weight to any one of
the factors listed above, the Board of Directors of MSI considered the proposed
exchange of MSI Common Stock for cash and FBS Common Stock to be advantageous to
its shareholders, both because the aggregate Merger Consideration to be received
per share of MSI Common Stock has a value substantially in excess of the book
value of such MSI Common Stock and because the MSI shareholders will receive, in
part, a security which, in the opinion of the Board, has a greater market
liquidity than the MSI Common Stock and which has historically paid dividends.
29
<PAGE>
Recommendation of MSI Board of Directors. The Board of Directors of MSI
recommends that the shareholders of MSI approve the Merger Agreement. The Board
believes that the terms of the Merger Agreement are fair and that the Merger is
in the best interests of MSI and its shareholders. In making its recommendation,
the Board has not sought the advice of an independent financial advisor. On
_______, 1995, the last sale price for FBS Common Stock on the NYSE was $____
per share. Based on such last reported sale price, the purchase price for each
share of MSI Common Stock will be $_____, of which $_____ represents the cash to
be received and $______ represents the value of the FBS Common Stock to be
received. The directors and executive officers of MSI have unanimously indicated
that they intend to vote the MSI Common Stock that they hold in favor of the
Merger Agreement. See "Information Concerning the Special Meeting--Beneficial
Ownership of MSI Common Stock."
THE BOARD OF DIRECTORS OF MSI RECOMMENDS THAT MSI SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
Reasons of FBS for the Merger. The acquisition of MSI by FBS will expand
FBS's retail banking operations in Nebraska. The acquisition will allow FBS to
leverage its existing presence in Nebraska, providing the opportunity to realize
substantial economies from consolidation. Significant cost savings are expected
to result from personnel reductions, branch and operational consolidations and
general reductions in corporate and administrative support functions. See "--
Management and Operations of MSI Following the Merger."
Terms of the Merger; Consideration to be Received by MSI Shareholders
On the Effective Date, MSI will merge with and into FBS, with FBS as the
surviving corporation. The officers and directors of FBS prior to the Effective
Date will be the officers and directors of FBS, as the surviving corporation,
after the Effective Date. The Certificate of Incorporation and Bylaws of FBS as
in effect immediately prior to the Merger will be the Certificate of
Incorporation and Bylaws of the surviving corporation until further amended as
provided therein and in accordance with law. On the Effective Date, each
outstanding share of MSI Common Stock will be converted into the right to
receive (1) a number of shares of FBS Common Stock equal to (a) 517,241 divided
by (b) the number of shares of MSI Common Stock outstanding on the Effective
Date with cash paid in lieu of fractional shares (the "Merger Shares") plus (2)
an amount of cash equal to (a) $14,400,000 divided by (b) the number of shares
of MSI Common Stock outstanding on the Effective Date (the "Deferred Cash
Consideration"). The Deferred Cash Consideration shall be payable on the later
of January 2, 1996 or the Effective Date (the Deferred Cash Payment Date") along
with accrued interest (at a rate to be determined in accordance with the Merger
Agreement) from the Effective Date. (Unlike other holders of MSI Common Stock,
the Midwestern Employee Stock Ownership Plan may elect whether to receive the
Deferred Cash Consideration on the Effective Date or January 2, 1996.) (The
Merger Shares together with the Deferred Cash Consideration are sometimes called
the "Merger Consideration" in this Proxy/Prospectus.) Each share of MSI Common
Stock held as treasury stock of MSI, or held directly or indirectly by FBS,
other than shares of MSI Common Stock held in a fiduciary capacity or in
satisfaction of a debt previously contracted, will be canceled, retired and
cease to exist when the Merger becomes effective, and no payment or exchange
will be made with respect to such shares. See "Description of FBS Capital
Stock." If the Merger is consummated, holders of MSI Common Stock will no longer
hold any interest in MSI other than through their interests in shares of FBS
Common Stock.
Because the aggregate number of Merger Shares is fixed, MSI shareholders
will be not be compensated for any decreases in the market price of FBS Common
Stock which could occur before the Effective Date. As a result, in the event the
market price of FBS Common Stock decreases, the value of the FBS Common Stock to
be received in the Merger in exchange for MSI Common Stock would decrease.
However, in the event the market price of FBS Common Stock increases, the value
of the FBS Common Stock to be received in the Merger in exchange for MSI Common
Stock would increase. The market price
30
<PAGE>
of FBS Common Stock as of a recent date is set forth herein under "Summary--
Market and Market Prices," and MSI shareholders are advised to obtain recent
market quotations for FBS Common Stock. No assurance can be given as to the
market price of FBS Common Stock at any time before the Effective Date or as to
the market price of FBS Common Stock at any time thereafter.
It is a condition to MSI's obligation to consummate the Merger, however,
that between the date of the Merger Agreement and the Effective Date there shall
not have been a "Significant Decline" (as defined below) in the "Average Closing
Price" (as defined below) of FBS Common Stock compared to $41.76. See "--
Conditions to Consummation of the Merger."
The Merger Agreement provides that if, between June 23, 1995 (the date of
the Merger Agreement) and the Effective Date, shares of FBS Common Stock are
changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon is declared with a record date
within such period, then the number of Merger Shares issued as a result of the
Merger will be appropriately and proportionately adjusted so that holders of MSI
Common Stock will receive that number of shares of FBS Common Stock that they
would have received if the record date for such reclassification,
recapitalization, split-up, combination, exchange of shares, readjustment or
stock dividend had been immediately following the Effective Date.
No fractional shares of FBS Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that in lieu of any fractional share FBS
will pay to each holder of MSI Common Stock who otherwise would be entitled to
receive a fractional share of FBS Common Stock a cash amount (without interest)
determined by multiplying (i) $41.76 by (ii) the fractional share interest to
which such holder would otherwise be entitled.
Shares of FBS capital stock issued and outstanding immediately prior to the
Effective Date will remain issued and outstanding thereafter and will not be
affected by the Merger.
The Escrow Agreement; Indemnification of FBS
Pursuant to the Merger Agreement, on the Effective Date FBS, on behalf of
all holders of MSI Common Stock other than the Midwestern Employee Stock
Ownership Plan (the "Indemnifying Shareholders"), shall transfer the Merger
Shares to be received by the Indemnifying Shareholders (the "Escrow Shares") to
LaSalle National Trust, N.A., which will act as escrow agent (the "Escrow
Agent") pursuant to an Escrow Agreement to be entered into as of the Effective
Date (the "Escrow Agreement") by and among FBS, the Shareholders' Representative
and the Escrow Agent. The form of Escrow Agreement to be entered into is
included as Exhibit A to the Merger Agreement (attached hereto as Appendix A),
the terms of which are incorporated by reference herein. The Escrow Shares will
be issued in the name of the Shareholder's Representative and will be delivered
to the Escrow Agent to ensure compliance with certain assurances relating to the
MSI shareholders' intent to hold the Merger Shares for a period of two years
following the Effective Date. In addition, 47,000 of the Escrow Shares may be
used to fund the Indemnifying Shareholders' indemnification obligations to FBS
pursuant to the Merger Agreement described below. On the Deferred Cash Payment
Date, FBS and the Shareholder's Representative, on behalf of the Indemnifying
Shareholders, shall also transfer $917,280 of the Deferred Cash Consideration
(the "Cash Escrow Fund") to the Escrow Agent to fund the remainder of the
Indemnifying Shareholders' indemnification obligations to FBS pursuant to the
Merger Agreement. The Escrow Shares and the Cash Escrow Fund together shall
constitute the "Combined Escrow Fund." The Indemnifying Shareholders may forfeit
a portion of the Combined Escrow Fund, as described below.
The Cash Escrow Fund and up to 47,000 of the Escrow Shares (the "Indemnity
Escrow Fund") will fund any obligations of the Indemnifying Shareholders under
the Merger Agreement to indemnify and hold harmless FBS from any loss,
liability, tax (including interest and penalties), damage or expense
31
<PAGE>
(including reasonable legal expenses and costs) or any assertion thereof,
whether or not matured, contingent or prospective in nature (the "Losses") which
FBS may suffer, sustain or become subject to as a result of or arising out of
(i) any representation or warranty of MSI that is not true and correct as of the
date made (with the exception of certain representations and warranties
regarding loan reserves); (ii) any breach of any covenant or agreement of MSI in
the Merger Agreement or any agreement entered into in connection with the Merger
Agreement; (iii) any claim by First Bank's landlord; (iv) taxes, if any, of MSI
or any successor thereto as a result of the sale, exchange or other disposition
(other than certain dispositions upon death) by the shareholders of MSI of
greater than 50% of the FBS Common Stock received by them in connection with the
Merger within two years of the Effective Date; (v) the failure to obtain a
required consent to the assignment of certain leases; and (vi) acts or omissions
of the Shareholders' Representative. Indemnification payments will be made net
of tax effect and only after, and to the extent that, the total amount of Losses
suffered or sustained by FBS (determined on a pre-tax basis) exceeds $720,000
(the "Deductible"), except for (a) indemnification obligations arising by reason
of clauses (v) and (vi) of the preceding sentence and (b) any willful breaches
of any covenant or agreement of MSI, which shall not be subject to the
Deductible. The aggregate Losses indemnified shall not exceed $3,600,000 (the
"Maximum Indemnity Amount") less the Deductible. No claim shall be made for
indemnification unless notice of the substance of such claim is given by FBS to
the Shareholders' Representative on or prior to the first anniversary of the
Effective Date. Claims made against the Combined Escrow Fund shall first be
satisfied out of the Cash Escrow Fund.
Pursuant to the Merger Agreement, any amount payable to FBS in respect of
indemnification shall include interest on any payment actually made by FBS in
respect of Losses at a rate equal to the then-applicable rate quoted by FBS for
six-month certificates of deposit from the date of payment by FBS to the date of
the indemnification payment, provided that in no event will the aggregate of all
Losses, including interest, exceed the Maximum Indemnity Amount. In addition,
any amount payable to FBS in respect of indemnification shall take into account
any allowable tax benefits attributable to the Losses which gave rise to amounts
to be received in respect of indemnification obligations and shall also take
into account any increased tax liability of FBS as a result of the inclusion in
income of such indemnification payments, provided that FBS shall whenever
possible treat the receipt of such payments as a reduction of purchase price.
For purposes of determining the amount of any tax benefit or detriment, the
marginal combined federal and state income tax rate of FBS shall be deemed to be
38%.
Pursuant to the Escrow Agreement, in the event that claims for
indemnification have been made prior to the business day following the first
anniversary of the Effective Date (the "Indemnity Termination Date"), FBS may in
good faith, at any time prior to the such date, notify the Escrow Agent in
writing of such claims, including a description of the nature and the facts and
circumstances thereof, the estimated amount of potential liability with respect
thereto and the provisions of the Merger Agreement pursuant to which
indemnification is sought. FBS and the Escrow Agent are required to deliver
copies of such notice to the Shareholders' Representative. The Escrow Agent is
to set aside and retain (to the extent available in the then-remaining Combined
Escrow Fund) cash (not to include any dividend or interest income) and/or, to
the extent that insufficient cash remains in the Combined Escrow Fund,
certificates representing Escrow Shares (up to a total of 47,000) having a value
(assuming a value of $41.76 per share) equal to 100% of the total amount claimed
as a reserve to cover such claim or claims (the "Escrow Fund Reserved Amount").
Following the Indemnity Termination Date, the Escrow Agent shall hold the Escrow
Fund Reserved Amount in the same manner as the Combined Escrow Fund and disburse
it in the same way the Escrow Agent would otherwise disburse the Combined Escrow
Fund, but only to cover claims identified in the notice delivered by FBS. In the
event that FBS determines not to pursue, or under the Merger Agreement cannot
pursue, any claim set forth in the notice, or a court of competent jurisdiction
so finds, FBS shall direct the Escrow Agent to disburse all or such portion of
the Escrow Fund Reserved Amount in accordance with the Escrow Agreement.
32
<PAGE>
The Merger Agreement and the Escrow Agreement provide that the
Shareholders' Representative shall be entitled to reimbursement of any expenses
incurred in his role as Shareholder's Representative from the dividends paid on
the Escrow Shares, and the Shareholders' Representative intends to withhold from
the dividends otherwise distributable to the Indemnifying Shareholders an amount
deemed to be sufficient, in the Shareholders' Representatives sole discretion,
to cover potential expenses. The Shareholders' Representative will hold such
withheld dividends in escrow for the benefit of the Indemnifying Shareholders
until such time as they may be required to reimburse actual expenses and will
distribute the remainder at such time and in such amounts as the Shareholders'
Representative, in his sole discretion, may determine.
Pursuant to the Escrow Agreement, on the Indemnity Termination Date all
funds then remaining in the Cash Escrow Fund, if any (subject to deduction for
any Escrow Fund Reserved Amount), along with all funds then held in the Cash
Escrow Fund that constitute investment income on the contents of the Cash Escrow
Fund, will be delivered to the Shareholders' Representative on behalf of the
Indemnifying Shareholders for distribution to the Indemnifying Shareholders in
proportion to their respective interests therein. On the business day following
the second anniversary of the Effective Date, all Escrow Shares remaining in the
Combined Escrow Fund, if any (subject to deduction for any Escrow Fund Reserved
Amount), will be delivered to the Shareholders' Representative on behalf of the
Indemnifying Shareholders for distribution to the Indemnifying Shareholders in
proportion to their respective interests therein.
Prior to the termination of the Combined Escrow Fund, all voting rights
with respect to Escrow Shares will be exercisable by the Indemnifying
Shareholders in accordance with their proportionate interests therein. All
dividends received by the Escrow Agent with respect to the Escrow Shares will be
income for tax purposes to the Indemnifying Shareholders. Such dividends shall
be deposited into escrow, provided that such dividends shall not be distributed
to FBS, but will be delivered by the Escrow Agent only to the Shareholders'
Representative on behalf of the Indemnifying Shareholders for distribution to
the Indemnifying Shareholders in proportion to their proportionate interests in
the Escrow Shares as described above.
While the Escrow Agent holds any of the Cash Escrow Fund or any Escrow
Shares, neither the Indemnifying Shareholders nor the Shareholders'
Representative shall transfer, sell, pledge, create a security interest in or
otherwise dispose of their rights to any of such funds or shares, or
distributions with respect thereto. Pursuant to the Escrow Agreement, FBS shall
have a perfected, first priority security interest in the Indemnity Escrow Fund
to secure FBS's right to indemnification under the Merger Agreement.
The Shareholders' Representative
The Merger Agreement provides that Raymond D. Pape, Jr., or any person
appointed as a successor pursuant to the terms of the Merger Agreement, will act
as the Shareholders' Representative. The Shareholders' Representative will act
on behalf of the MSI shareholders, both prior to and following the consummation
of the Merger, with respect to specified matters under the Merger Agreement. The
Shareholders' Representative shall be authorized to make and deliver any
certificate, notice, consent or instrument required or permitted to be made or
delivered under the Merger Agreement or under certain documents referenced in
the Merger Agreement, including those relating to the Escrow Fund, which the
Shareholders' Representative determines in his sole and absolute discretion to
be necessary, appropriate or desirable. The Shareholders' Representative is also
authorized to hire or retain, at the sole expense of the MSI shareholders, such
counsel, investment bankers, accountants, representatives and other professional
advisors as he determines in his sole and absolute discretion to be necessary,
advisable or appropriate to carry out and perform his rights and obligations
under the Merger Agreement. Prior to the date that all obligations under the
Merger Agreement have been discharged, the holders of MSI Common Stock who
immediately prior to Effective Date held MSI Common Stock
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representing an aggregate number of shares of MSI Common Stock which exceeds 50%
of the amount of such MSI Common Stock outstanding immediately prior to
Effective Date may, from time to time upon written notice to the Shareholders'
Representative and FBS, remove the Shareholders' Representative or appoint a new
Shareholders' Representative to fill any vacancy in such position. If such
holders of MSI Common Stock fail to appoint a successor Shareholders'
Representative within 15 business days from a request by FBS to do so, FBS shall
have the right to appoint a successor.
The Merger Agreement and the Escrow Agreement provide that the
Shareholders' Representative shall be entitled to reimbursement of any expenses
incurred in his role as Shareholder's Representative from the dividends paid on
the Escrow Shares. See "--The Escrow Agreement; Indemnification of FBS."
The Merger Agreement provides that FBS (including FBS as it is constituted
following the Merger) will have no liability to any MSI shareholder or otherwise
arising out of the acts or omissions of the Shareholders' Representative or any
disputes among the MSI shareholders or among them and the Shareholders'
Representative. Moreover, FBS shall have no direct liability to the MSI
Shareholders under the Merger Agreement or any other agreements referred to
therein and may rely entirely on its dealings with, and notices to and from, the
Shareholders' Representative to satisfy any obligations it might have to the MSI
shareholders. Further, pursuant to certain indemnification provisions in the
Merger Agreement, the Indemnifying Shareholders are required to indemnify and
hold harmless FBS for certain claims or losses as a result of or arising out of
acts or omissions of the Shareholders' Representative. Raymond D. Pape, Jr., the
initial Shareholders' Representative, has interests in the Merger that may vary
from those of other MSI shareholders. See "--The Escrow Agreement;
Indemnification of FBS" and "--Interests of Certain Persons in the Merger."
The Voting Agreement
As required by the Merger Agreement, the Insider Shareholders (Raymond D.
Pape, Jr., Madeline Brady Pape Trust, Matthew Pape Trust, Thomas F. McGowan, M.
David Klipsch, Terry Klipsch and Thomas A. Horeis) have entered into the Voting
Agreement with FBS addressing certain actions and restrictions on actions of the
Insider Shareholders both prior to and following the Effective Date. The Voting
Agreement is included as Appendix B to this Proxy Statement/Prospectus and the
terms thereof are incorporated herein by reference. The Voting Agreement
requires that the Insider Shareholders vote, or cause to be voted, all shares of
MSI Common Stock owned or controlled by them in favor of the Merger Agreement
and all other actions necessary or desirable for the consummation of the Merger,
including the adjournment of the Special Meeting if necessary to permit for the
solicitation of proxies. At the Record Date, the Insider Shareholders owned or
controlled an aggregate of 51,901.487 shares of MSI Common Stock, representing
approximately 67.9% of the outstanding shares of MSI Common Stock at such date.
Assuming that the Insider Shareholders vote their shares of MSI Common Stock in
favor of the Merger Agreement, as required by the Voting Agreement, approval of
the Merger Agreement at the Special Meeting is assured. The Voting Agreement
also contains certain restrictions on the Insider Shareholders with respect to
voting for or supporting transactions regarding MSI that are competitive with or
contradict the Merger.
Effective Date of the Merger
The Merger will become effective upon the filing of certificates of merger
relating thereto with the Secretaries of State of the States of Delaware and
Nebraska. The Merger Agreement provides that the parties thereto will cause such
certificates of merger to be filed as soon as practicable after receipt of all
necessary regulatory approvals provided that each of the conditions to
consummation of the Merger has been satisfied or waived. See "--Conditions to
Consummation of the Merger." The Merger cannot become effective until MSI
shareholders have approved the Merger Agreement and all required regulatory
approvals and actions have been obtained and taken. See "--Regulatory Approvals
Required." The Merger Agreement may be terminated by either FBS or MSI if the
Merger has not
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become effective by March 31, 1996 (unless failure to consummate the Merger by
such date shall be due to the action or failure to act of the party seeking to
terminate the Merger Agreement in breach of such party's obligations
thereunder). See "--Termination."
Surrender of MSI Common Stock Certificates
Following the Effective Date, FBS (or a representative of FBS) will send a
notice and transmittal form to each holder of MSI Common Stock of record at the
Effective Date advising such holder of the effectiveness of the Merger and of
the procedure for surrendering their certificates formerly evidencing MSI Common
Stock. Such notice and transmittal form will be sent as soon as practicable
after the Effective Date. MSI shareholders should not send in their stock
certificates until they receive the letter of transmittal form and instructions
from FBS.
Concurrently with the Merger, each holder of a certificate or certificates
representing shares of MSI Common Stock may surrender such certificate or
certificates to FBS, together with a properly completed and signed letter of
transmittal, to effect the exchange of such certificate or certificates. After
such surrender, FBS shall, subject to the requirement (described in the
following paragraph) to deliver Merger Shares and a portion of the Deferred Cash
Consideration into escrow, distribute to the person in whose name such
certificate is registered (1) a certificate or certificates representing the
number of whole Merger Shares that such holder is entitled to receive in the
Merger, (2) cash payment in lieu of any fractional Merger Shares and (3) the
right to receive the Deferred Cash Consideration to which such holder is
entitled (which right shall be uncertificated). FBS's obligation to pay the
Deferred Cash Consideration on the Deferred Payment Date is unconditional and
not subject to any right of set-off.
Simultaneously with the Merger, all Merger Shares to be issued to the
"Indemnifying Shareholders" shall be delivered to the Escrow Agent in the name
of the Shareholders' Representative. In addition, on the Deferred Cash Payment
Date, FBS and the Shareholder's Representative, on behalf of the Indemnifying
Shareholders, shall transfer $917,280 of the Deferred Cash Consideration to
create the Cash Escrow Fund pursuant to the Merger Agreement. As described more
fully above, on the Indemnity Termination Date all funds then remaining in the
Cash Escrow Fund, if any (subject to deduction for any Escrow Fund Reserved
Amount), along with all funds then held in the Cash Escrow Fund that constitute
investment income on the contents of the Cash Escrow Fund, will be delivered to
the Shareholders' Representative on behalf of the Indemnifying Shareholders for
distribution to the Indemnifying Shareholders in proportion to their respective
interests therein. On the business day following the second anniversary of the
Effective Date, all Escrow Shares remaining in the Combined Escrow Fund, if any
(subject to deduction for any Escrow Fund Reserved Amount, as described above),
will be delivered to the Shareholders' Representative on behalf of the
Indemnifying Shareholders for distribution to the Indemnifying Shareholders in
proportion to their respective interests therein. See "--The Escrow Agreement;
Indemnification of FBS."
After the Effective Date and until surrendered and exchanged as described
above, certificates which, prior to the Effective Date, represented shares of
MSI Common Stock shall be deemed to represent and evidence only the right to
receive the Merger Consideration to be paid therefor. After the Effective Date,
the record holder of an outstanding certificate formerly evidencing MSI Common
Stock will be entitled to vote the shares of FBS Common Stock into which such
shares of MSI Common Stock shall be been converted on any matters on which the
holders of record of FBS Common Stock shall be entitled to vote. However, until
such certificates are surrendered to FBS, no dividend or distribution payable to
holders of record of FBS Common Stock will be paid to the holders of record of
such unsurrendered certificates. Upon the surrender of such a certificate, there
will be paid to the holder thereof, without interest, the amount of any
dividends or distributions which had a record date on or after the Effective
Date with respect to such number of whole shares of FBS Common Stock.
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If any certificate formerly evidencing MSI Common Stock has been lost,
stolen or destroyed, FBS shall, upon the making of an affidavit of that fact by
the holder thereof, pay in exchange for such lost, stolen or destroyed
certificate Merger Consideration as may be required pursuant to the Merger
Agreement; provided, however, that FBS may, in its discretion and as a condition
to the issuance and payment of Merger Consideration to which the holder of such
certificate is entitled as a result of the Merger, require the owner thereof to
deliver a bond in such sum as FBS may direct as indemnity against any claim that
may be made against FBS, MSI or any other party with respect to the certificate
alleged to have been lost, stolen or destroyed. After the Effective Date, there
shall be no further registration of transfers on the records of FBS of
certificates formerly evidencing MSI Common Stock, and if a certificate is
presented, it shall be canceled and exchanged for the Merger Consideration as
described above. Certificates formerly evidencing shares of MSI Common Stock
surrendered by any former shareholder of MSI who is deemed an "affiliate" of MSI
will not be exchanged for the Merger Consideration until such shareholder has
executed and delivered to FBS a letter (in the form attached as Exhibit B to the
Merger Agreement) with respect to the resale of shares of FBS Common Stock
received by such shareholders in the Merger. See "--Resale of FBS Common Stock
Received by MSI Shareholders."
All Merger Consideration paid or delivered upon the surrender of MSI Common
Stock shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of MSI Common Stock. In addition, upon the release to
the Shareholder's Representative of any portion of the Merger Consideration held
in escrow, FBS will have no further liability or obligation to the Indemnifying
Shareholders with respect to such Merger Consideration nor will FBS have any
responsibility with respect to the ultimate distribution of such Merger
Consideration to the Indemnifying Shareholders.
Conditions to Consummation of the Merger
The Merger will occur only if the Merger Agreement is approved by the
requisite votes of MSI shareholders. In addition, consummation of the Merger is
subject to the satisfaction of certain other conditions, unless waived (to the
extent such waiver is permitted by law). A failure of any such conditions to be
satisfied, if not waived, would prevent consummation of the Merger.
The obligations of both FBS and MSI to consummate the Merger are subject to
satisfaction of the following conditions, among others: (i) regulatory approval
for the consummation of the transactions contemplated by the Merger Agreement
shall have been obtained from the Federal Reserve Board, the Nebraska Department
of Banking and Finance and any other governmental authority from which approval
is required, and all applicable regulatory waiting periods shall have lapsed;
(ii) no injunction or other court order shall have been issued and remain in
effect which would impair consummation of the transactions contemplated by the
Merger Agreement; (iii) no law, statute, rule or regulation shall have been
enacted or promulgated which would materially impair consummation of the
transactions contemplated by the Merger Agreement; and (iv) no party to the
Merger Agreement shall have terminated such agreement as permitted therein. The
Merger Agreement provides that no regulatory approval referred to in (i) above
shall contain any conditions or restrictions that FBS reasonably believes will
materially restrict or limit the business or activities of FBS, MSI or First
Bank or have a material adverse effect on, or would be reasonably likely to have
a material adverse effect on, the business, operations or financial condition of
FBS and its subsidiaries taken as a whole, on the one hand, or MSI and First
Bank, taken as a whole, on the other hand.
In addition to the foregoing conditions, the obligation of MSI to
consummate the Merger is subject to satisfaction of the following conditions,
among others: (i) the representations and warranties of FBS set forth in the
Merger Agreement shall be true and correct as of the date of such agreement and
as of the Effective Date, except where the failure to be true and correct would
not have, or would not reasonably be expected to have, a material adverse effect
on the business, operations or financial condition of FBS and its subsidiaries,
taken as a whole; and FBS shall in all material respects have
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performed each obligation and agreement and complied with each covenant to be
performed and complied with by it under the Merger Agreement at or prior to the
Effective Date; (ii) MSI shall have received an officer's certificate of the
Senior Vice President and Controller of FBS to the effect that he has no reason
to believe that the conditions set forth in (i) above have not been fulfilled;
(iii) MSI shall have received a certificate of the Corporate Secretary or an
assistant Corporate Secretary of FBS as to the text of resolutions authorizing
the corporate actions to approve the Merger Agreement and the transactions
contemplated thereby and as to the incumbency of certain officers of FBS; (iv)
MSI shall have received an opinion letter of Michael J. O'Rourke, Esq.,
Executive Vice President and General Counsel of FBS, based on customary reliance
and subject to customary qualifications, concerning the due incorporation of
FBS, the due authorization and execution of the Merger Agreement and the Escrow
Agreement by FBS, the noncontravention of the Certificate of Incorporation and
Bylaws of FBS and, to his knowledge, of (a) any agreement or arrangement to
which FBS is a party, (b) any license, franchise or permit or (c) any law,
regulation, order judgment or decree, by the transactions contemplated by the
Merger Agreement, the absence of any authorization, consent, approval of, or
filing with, any public body or authority necessary for the consummation of the
Merger that has not been obtained or made, the authorization of the FBS Common
Stock to be issued in the Merger, and related matters; (v) since the date of the
Merger Agreement, there shall have been no adverse change in, and no event,
occurrence or development in the business of FBS or its subsidiaries that, taken
together with other events, occurrences and development with respect to such
business, would have or would reasonably be expected to have a material adverse
effect on, the business, operations or financial condition of FBS and its
subsidiaries, taken as whole; (vi) FBS shall not have merged, or announced an
agreement to merge, into another corporation, or sold all or substantially all
of its assets, or had one person or group acquire, or had one person or group
announce its intent to acquire, directly or indirectly, beneficial ownership of
more than 50% of the outstanding FBS Common Stock; (vii) the Registration
Statement shall have been declared effective, and the Merger Shares shall have
been listed on the NYSE subject to notice of issuance; and (viii) since the date
of the Merger Agreement there shall not have occurred a Significant Decline (as
defined below) in the Average Closing Price (as defined below) of FBS Common
Stock compared to the Conversion Price. The "Average Closing Price" of FBS
Common Stock shall mean the average of the closing price of FBS Common Stock as
reported on the NYSE for the 10 consecutive trading days ending on the date the
Board of Governors of the Federal Reserve Board issues the later of the orders
approving the Merger and the merger of Southwest Holdings with FBS (the "Final
Calculation Period"); provided that if FBS shall waive the condition set forth
in the Merger Agreement regarding the merger of Southwest Holdings with FBS, the
Final Calculation Period shall end on the date the Federal Reserve Board issues
the order approving the Merger. A "Significant Decline" shall be deemed to have
occurred if the FBS Average Closing Price is less than 80% of $41.76 and the
number obtained by dividing the FBS Average Closing Price by $41.76 is less than
the number obtained by dividing the average of the closing prices of the S&P
Major Regional Bank Index for the 10 consecutive trading days during the Final
Calculation Period by the average of the closing prices of the S&P Major
Regional Bank Index for the 10 consecutive trading days ending on the day prior
to the date hereof and subtracting .20 from the quotient.
In addition to the foregoing conditions, the obligation of FBS to
consummate the Merger is subject to satisfaction of the following conditions,
among others: (i) the representations and warranties of MSI in the Merger
Agreement shall have been true and correct as of the date of such agreement and
as of the Effective Date, except where the failure to be true and correct would
not have, or would not reasonably be expected to have, a material adverse effect
on the business, operations or financial condition of MSI and First Bank, taken
as a whole, for certain representations and warranties regarding loans, which
shall be true and correct in all materials respects as of the date of the Merger
Agreement, and certain lists regarding loans, which shall be true and correct in
all material respects as of the respective dates of each such list and for
certain representations and warranties regarding employees, which may be updated
for facts arising after the date of the Merger Agreement and which shall be true
and correct as of the date of such update; and MSI shall in all material
respects have performed each obligation and agreement and complied with each
covenant to be performed and complied with by it under the Merger
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Agreement at or prior to the Effective Date; (ii) FBS shall have received an
officer's certificate of the President and Chief Executive Officer and the Chief
Financial Officer of MSI to the effect that they have no reason to believe that
the conditions set forth in (i) above have not been fulfilled; (iii) FBS shall
have received a certificate of the Corporate Secretary or an Assistant Secretary
of MSI as to resolutions authorizing the corporate actions to approve the Merger
Agreement and transactions contemplated thereby and as to the incumbency of
certain officers of MSI; (iv) FBS shall have received an opinion letter of
Kennedy, Holland, Delacy & Svoboda, counsel to MSI, concerning the due
incorporation or organization and good standing of MSI and First Bank, the
qualification of MSI and First Bank to do business, the noncontravention of the
charter and bylaws of MSI or First Bank and, to such counsel's knowledge, of (a)
any material agreements to which MSI or First Bank is a party, (b) any material
license, franchise or permit or (c) any material law, regulation, judgment,
order or decree by the transactions contemplated by the Merger Agreement, the
authorization of the outstanding capital stock of MSI and First Bank, the
absence to such counsel's knowledge of legal actions pending or threatened
against MSI or First Bank except as previously disclosed to FBS in schedules to
the Merger Agreement, the due authorization and execution of the Merger
Agreement by MSI, the absence of any authorization, consent or approval of, or
filing with any public body, court or public authority necessary for the
consummation by MSI of the transactions contemplated by the Merger Agreement
which has not been obtained or made, the execution of the Merger Agreement and
the Escrow Agreement by the Shareholders' Representative, the valid and binding
nature of the Shareholder Voting Agreement, the absence of dissenters' rights
and related matters; (v) there shall not be threatened, instituted or pending
any action or proceeding before any court or governmental authority or agency
seeking to take certain specified adverse actions; (vi) there shall not be any
action taken, or any statute, rule, regulation, judgment, order or injunction
proposed, enacted, entered, enforced, promulgated, issued or deemed applicable
to the transactions contemplated by the Merger Agreement by any court,
government or governmental authority or agency which would reasonably be
expected to have specified adverse consequences; (vii) FBS shall not have
discovered any fact or circumstance existing as of the date of the Merger
Agreement which has not been disclosed to FBS, as of the date of such agreement,
in such agreement, any schedule thereto, or any document specifically required
to be furnished to FBS thereunder, regarding MSI or First Bank which would,
individually or in the aggregate with other such facts and circumstances,
materially impair the consummation of the transactions contemplated by such
agreement, or have a material adverse effect on the business, operations or
financial condition of MSI and First Bank, taken as a whole; (viii) since the
date of the Merger Agreement, there shall have been no material adverse change
in, and no event, occurrence or development in the business of MSI or First Bank
that, taken together with other events, occurrences and developments with
respect to such business, would have or would reasonably be expected to have a
material adverse effect on, the business, operations or financial condition of
MSI and First Bank, taken as a whole; (ix) on the Effective Date all issued and
outstanding shares of MSI Common Stock shall be free and clear of any lien,
pledge, security interest, encumbrance or charge of any kind; (x) the merger of
FBS and Southwest Holdings shall occur simultaneously with the Merger; (xi) MSI
shall have caused certain leases to be amended so as to add certain real
property to the premises demised under such leases without additional rental or
otherwise increasing the obligations of the lessee under such leases in any
manner; and (xii) MSI shall have delivered to FBS the letters from affiliates of
MSI described under "--Resale of FBS Common Stock Received by MSI Shareholders."
Regulatory Approval Required
Under the Merger Agreement, the obligations of both FBS and MSI to
consummate the Merger are conditioned upon the receipt of all required
regulatory approvals (without certain restrictions or limitations) and the lapse
of all required regulatory waiting periods. See "--Conditions to Consummation of
the Merger." There can be no assurance that any applicable regulatory authority
will approve or take other required action with respect to the Merger or as to
the date of such regulatory approval or other action. FBS and MSI are not aware
of any governmental approvals or actions that are required in order to
consummate the Merger except as described below. Should such other approval
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or action be required, it is contemplated that FBS and MSI would seek such
approval or action. There can be no assurance as to whether or when any such
other approval or action, if required, could be obtained.
Federal Reserve Board. The Merger is subject to the prior approval of the
Federal Reserve Board under Section 3(a)(5) of the Bank Holding Company Act.
Under the Bank Holding Company Act, the Federal Reserve Board is required, in
approving a transaction such as the Merger, to take into consideration the
financial and managerial resources and future prospects of the existing and
proposed institutions and the convenience and needs of the communities to be
served. The Bank Holding Company Act prohibits the Federal Reserve Board from
approving the Merger if it would result in a monopoly or be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States. The Bank Holding Company
Act also prohibits the Federal Reserve Board from approving the Merger if its
effect in any section of the United States may be substantially to lessen
competition or tend to create a monopoly, or if it would in any other manner
result in a restraint of trade, unless the Federal Reserve Board finds that the
anti-competitive effects of the Merger are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. In addition, under the Community
Reinvestment Act of 1977, as amended (the "Community Reinvestment Act"), the
Federal Reserve Board must take into account the record of performance of the
existing institutions in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by such institutions.
Nebraska Department of Banking and Finance. Because FBS intends to convert
First Bank to a national bank immediately after the Merger, no state level
approvals are expected to be required for the Merger.
Current Status of Regulatory Approval. The Federal Reserve Board approved
the Merger on ________, 1995.
Waiver and Amendment
At any time prior to the Effective Date, any party to the Merger Agreement
may (i) extend the time for performance of any obligations or other acts of any
other party under the Merger Agreement or (ii) waive compliance with any of the
agreements of the other parties or with any conditions of its own obligations
contained in the Merger Agreement, to the extent that such obligations,
agreements and conditions are intended for such party's own benefit.
The Merger Agreement may not be amended except by written instrument
approved by the parties to such agreement and signed on behalf of each of the
parties thereto.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Date (i) by mutual consent of FBS and MSI; (ii) by either FBS or MSI, if any of
the conditions to such party's obligation to consummate the transaction
contemplated in the Merger Agreement have become impossible to satisfy; (iii) by
either FBS or MSI, if the Effective Date is not on or before March 31, 1996
(unless the failure to consummate the Merger by such date shall be due to the
action or failure to act of the party seeking to terminate the Merger Agreement
in breach of such party's obligations thereunder); and (iv) by FBS if, after the
date of the Merger Agreement, the Board of Directors of MSI shall have
withdrawn, modified or changed its recommendation of the Merger Agreement or the
Merger, or any shareholder of MSI who is a party to the Voting Agreement shall
have violated or breached any material provision thereof. Any party desiring to
terminate the Merger Agreement is required to give written notice of such
termination and the reasons therefor to the other party. If the Merger Agreement
is terminated
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pursuant to the foregoing provisions, such termination will be without
liability or obligation of any party (or any shareholder, officer, employee,
agent, consultant or representative of such party) to any other party except as
otherwise provided in law or equity and except for the survival of certain
covenants relating to the Merger Consideration to be deposited into escrow,
payment by the respective parties of their own expenses, confidentiality of
information provided and non-consultation and hiring of the other party's
employees.
Limitation on Negotiations
The Merger Agreement provides that MSI will not, and will cause First Bank
and MSI's and First Bank's officers, directors, employees, agents and
affiliates, not to, directly or indirectly, solicit, authorize, initiate or
encourage submission of, any proposal, offer, tender offer or exchange offer
from any person or entity (including officers or employees of MSI or First Bank)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material portion of the
assets or deposits of, or any equity interest in, MSI or First Bank, or other
similar transaction or business combination involving MSI or First Bank, or
participate in any negotiations in connection with or in furtherance of any of
the foregoing or permit any person other than FBS and its representatives to
have any access to the facilities of, or furnish to any person other than FBS
and its representatives any non-public information with respect to, MSI or First
Bank in connection with or in furtherance of any of the foregoing. The Merger
Agreement also requires MSI promptly to notify FBS if any such proposal or
offer, or any inquiry from or contact with any person with respect thereto, is
made concerning any such transactions and promptly to provide FBS with such
information concerning such matters as FBS may request. The foregoing provisions
of the Merger Agreement may have the effect of discouraging competing offers to
acquire or merge with MSI.
Conduct of MSI Business Pending the Merger
The Merger Agreement provides that from the date of the Merger Agreement to
the Effective Date, unless FBS shall otherwise agree in writing or as otherwise
contemplated or permitted by the Merger Agreement, the business of MSI and First
Bank will be conducted only in the ordinary course, on an arms-length basis and
in accordance in all material respects with past practices and all applicable
laws, rules and regulations. In addition, the Merger Agreement specifically
provides that during such period, except as otherwise permitted by the Merger
Agreement or agreed to in writing by FBS:
(a) neither of MSI or First Bank shall, directly or indirectly, (i) amend
or propose to amend its charter or bylaws; (ii) issue or sell any of
its equity securities, securities convertible into or exchangeable for
its equity securities, warrants, options or other rights to acquire its
equity securities, or any bonds or other securities, except (A) deposit
and other bank obligations in the ordinary course of business and (B)
pursuant to the exercise of the options, warrants, conversion
privileges and other rights set forth on a schedule to the Merger
Agreement; (iii) redeem, purchase, acquire or offer to acquire,
directly or indirectly, any shares of capital stock of MSI or First
Bank, other than a redemption shares of preferred stock of Midwestern
contemplated by the Merger Agreement; (iv) split, combine or reclassify
any outstanding shares of capital stock of MSI or First Bank, or
declare, set aside or pay any dividend or other distribution payable in
cash, property or otherwise with respect to shares of capital stock of
MSI, except that (A) MSI shall be permitted to pay dividends on the
outstanding shares of MSI Common Stock at such times and in such
amounts equal to the dividends that would otherwise have been paid or
been payable to the holders of MSI Common Stock as record holders of
shares of FBS Common Stock had the Merger occurred on January 1, 1996
and (B) First Bank shall be permitted to pay dividends on the shares of
common stock of First Bank owned by MSI; (v) borrow any amount or incur
or become subject to any material liability, except liabilities
incurred in the ordinary course of business, but in no event will MSI
or First Bank enter into any long-term borrowings with a term of
greater than one year; (vi) discharge or satisfy any
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material lien or encumbrance on the properties or assets of MSI or First Bank or
pay any material liability, except otherwise in the ordinary course of business;
(vii) sell, assign, transfer, mortgage, pledge or subject to any lien or other
encumbrance any of its assets, except (A) in the ordinary course of business;
provided, that any such sale, assignment or transfer of any real property shall
not be considered in the ordinary course of business, (B) liens and encumbrances
for current property taxes not yet due and payable, (C) liens and encumbrances
which do not materially affect the value of, or interfere with the past or
future use or ability to convey, the property subject thereto or affected
thereby, and (D) the sale by MSI of the capital stock of Hawarden Banking
Company owned by MSI at book value if requested by FBS pursuant to the Merger
Agreement; (viii) cancel any material debt or claims or waive any rights of
material value, except in the ordinary course of business; (ix) acquire (by
merger, exchange, consolidation, acquisition of stock or assets or otherwise)
any corporation, partnership, joint venture or other business organization or
division or material assets thereof, or assets or deposits that are material to
MSI, except in exchange for debt previously contracted, including OREO; (x)
other than as set forth on a schedule to the Merger Agreement, make any single
or group of related capital expenditures or commitments therefor in excess of
$25,000 or enter into any lease or group of related leases with the same party
which involves aggregate lease payments payable of more than $50,000 for any
individual lease or involves more than $100,000 for any group of related leases
in the aggregate; or (xi) enter into or propose to enter into, or modify or
propose to modify, any agreement, arrangement or understanding with respect to
any of the matters set forth above;
(b) neither of MSI or First Bank shall, directly or indirectly, enter into
or modify any employment, severance or similar agreements or
arrangements with, or grant any bonuses, wage, salary or compensation
increases, or severance or termination pay to, or promote, any
director, officer, employee, group of employees or consultant or hire
any employee, except (i) in the ordinary course of business consistent
with past practice (ii) for the spinoffs and the retention bonus
program as contemplated by and provided for in the Merger Agreement;
(c) neither of MSI or First Bank shall adopt or amend any bonus, profit
sharing, stock option, pension, retirement, deferred compensation, or
other employee benefit plan, trust, fund, contract or arrangement for
the benefit or welfare of any employees, except as required by law and
except for a retention bonus program contemplated by the Merger
Agreement;
(d) each of MSI and First Bank shall use commercially reasonable efforts to
cause its current insurance policies not to be canceled or terminated
or any of the coverage thereunder to lapse, unless simultaneously with
such termination, cancellation or lapse, replacement policies providing
coverage substantially equal to the coverage under the canceled,
terminated or lapsed policies are in full force and effect;
(e) neither of MSI or First Bank shall enter into any settlement or similar
agreement with respect to, or take any other significant action with
respect to the conduct of, any action, suit, proceeding, order or
investigation which is set forth on a schedule to the Merger Agreement
or to which MSI or First Bank becomes a party after the date of the
Merger Agreement, without prior consultation with FBS;
(f) each of MSI and First Bank shall use commercially reasonable efforts to
preserve intact in all material respects the business organization and
the goodwill of each of MSI and First Bank and to keep available the
services of its officers and employees as a group and preserve intact
material agreements and credit facilities, and MSI shall confer on a
regular and frequent basis with representatives of FBS, as reasonably
requested by FBS, to report on operational matters and the general
status of ongoing operations;
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(g) neither of MSI or First Bank shall take any action with respect to
investment securities held or controlled by any of them inconsistent
with past practices, alter its investment portfolio duration policy as
heretofore in effect or, without prior consultation with FBS, take any
action that would have or could reasonably be expected to have a
material effect on First Bank's asset/liability position;
(h) First Bank shall not make any agreements or commitments binding it to
extend credit in an amount in excess of $250,000, or sell, assign or
otherwise transfer any participation in any loan, in each case without
prior consultation with FBS;
(i) with respect to properties leased by MSI or First Bank, neither of MSI
or First Bank shall renew, exercise an option to extend, cancel or
surrender any lease of real property nor allow any such lease to lapse,
without the consent of FBS, which consent shall not be unreasonably
withheld; and
(j) neither of MSI or First Bank shall agree to do any of the foregoing.
Pursuant to the Merger Agreement, MSI also is required to take certain
affirmative actions prior to the Effective Date. These include certain specified
actions with respect to its employee benefit plans, see "--Effect on MSI
Employee Benefit Plans;" the redemption of all outstanding shares of MSI's Class
A 6% Non-Voting, Non-Participating, Cumulative, Non-Convertible Preferred Stock;
all actions necessary to terminate the Stock Redemption Agreements between MSI
and its shareholders; all actions necessary to dissolve Northwestern State Bank
and to cause MSI and First Bank to have no further liabilities or obligations
relating to Northwestern State Bank; the sale, if requested by FBS, of all
shares of capital stock of Hawarden Banking Company owned by MSI at the book
value of such shares at or prior to the Effective Date; and the use of its best
efforts to obtain consent to the assignment of certain leases to FBS or an
affiliate of FBS pursuant to the Merger, or, in the event such consent is not
obtained, to obtain an expedited declaratory judgment permitting such
assignment.
The Merger Agreement also prevents MSI from negotiating for an acquisition
of MSI by any other party, subject to specified exceptions, see "--Limitations
on Negotiations," and from taking any action which would disqualify the Merger
as a "reorganization" that would be tax-free to shareholders of MSI pursuant to
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
see "--Certain Federal Income Tax Consequences to MSI Shareholders."
In addition, the Merger Agreement provides that at the request of FBS, on
the business day before the Merger takes effect, First Bank will establish,
consistent with GAAP, such additional accruals and reserves as may be necessary
to conform First Bank's accounting and credit loss reserve practices and methods
to those of FBS and to reflect the plans of FBS with respect to the conduct of
the business of First Bank following the Merger and to provide for the costs and
expenses related to the Merger.
Interests of Certain Persons in the Merger
Voting Agreement. Pursuant to the Voting Agreement, the Insider
Shareholders who control approximately 67.9% of the outstanding shares of MSI
Common Stock as of the Record Date have agreed to vote their shares of MSI
Common Stock in favor of approval of the Merger Agreement. The Insider
Shareholders include Raymond D. Pape, Jr., M. David Klipsch and Thomas A.
Horeis, each of whom is an executive officer and/or a director of MSI, and
Thomas F. McGowan, who is a director of First Bank, as well as certain of their
affiliates. See "--The Voting Agreement."
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Directors' and Officers' Insurance; Limitation of Liability of MSI and
First Bank Directors and Officers. The Merger Agreement requires that, for a
period of three years after the Effective Date, FBS shall use its best efforts
to provide that portion of directors' and officers' liability insurance that
serves to reimburse officers and directors of MSI or First Bank (as opposed to
FBS) with respect to claims against such officers and directors arising from
facts or events which occurred before the Effective Date of at least the same
coverage and amounts, and containing terms and conditions no less advantageous,
as that coverage currently provided by MSI; provided, however, that if FBS does
not obtain a commitment for such insurance at least five days after obtaining
the approval of the FRB, then MSI may obtain an extension of its directors' and
officers' liability insurance to provide three-year tail coverage for such
officers and directors; and provided, further, that the annual (or annualized)
premiums for any such coverage will not exceed 200% of the annual premiums
currently paid by MSI for such coverage; provided, further, that officers and
directors of MSI or First Bank may be required to make application and provide
customary representations and warranties to FBS's insurance carrier for the
purpose of obtaining such insurance; and provided, further, that such coverage
will have a single aggregate for such three-year period in an amount not less
than the annual aggregate of such coverage currently provided by MSI. The Merger
Agreement also provides that FBS shall use its best efforts to assure, to the
extent permitted under applicable law, that all limitations of liability
existing in favor of the directors and officers of MSI or First Bank as provided
in the MSI Articles of Incorporation and Bylaws, as in effect on the date of the
Merger Agreement, with respect to claims or liabilities arising from facts or
events existing or occurring prior to the Effective Date (including, without
limitation, the transactions contemplated by the Merger Agreement), shall
survive the Merger.
Employment Agreement. MSI is party to an employment agreement with
M. David Klipsch, its President and a shareholder. This employment agreement
has an indefinite term and provides, among other things, that if Mr. Klipsch's
employment is terminated by MSI, his salary will continue for six months. As a
result of the Merger and the anticipated termination of Mr. Klipsch's employment
with MSI thereafter, FBS and MSI expect that Mr. Klipsch will receive an
aggregate of $92,500 in salary continuation payments following the Merger.
Severance Payments and Retention Bonuses. Pursuant to the Merger
Agreement, employees of MSI or First Bank shall not be eligible to participate
in the FBS Severance Pay Plan until such time as FBS, in its sole discretion,
takes affirmative action to allow such participation. Employees of MSI or First
Bank who do not participate in the FBS Severance Pay Plan whose employment is
terminated by FBS on or after the Effective Date (other than by reason of such
employee's misconduct, nonperformance of duties or violation of other rules and
policies of FBS, MSI or First Bank, including confidentiality obligations),
shall receive on or promptly after the last day of employment a lump sum
severance payment equal to (i) the amount of 30 calendar days' base wages or
salary plus (ii) the amount of one week's base wages or salary times the number
of full or partial years of service with MSI, First Bank and FBS from the
employee's most recent hire date; provided, however, that such severance payment
is conditioned upon receipt by FBS of a general release of claims from each such
employee releasing FBS and its subsidiaries and MSI and its subsidiaries. An
employee of MSI or First Bank who voluntarily terminates employment or otherwise
ceases to perform active services, except for disability, for FBS prior to the
date scheduled by FBS as the employee's last day of work shall not be entitled
to severance benefits as provided above or under any FBS plan. FBS has agreed to
pay after the Effective Date retention bonuses to individual employees of MSI or
First Bank in amounts to be agreed upon between FBS and MSI. The severance
payments and retention bonuses described above may be paid to officers of MSI
and First Bank, other than M. David Klipsch who will receive only the severance
payment described under "--Employment Agreement" above.
Redemption of Preferred Stock. Pursuant to the Merger Agreement, prior to
the Effective Date MSI is required to redeem all 35,000 outstanding shares of
its Class A 6% Non-Voting, Non-Participating, Cumulative, Non-Convertible
Preferred Stock. See "Description of MSI Capital Stock." Prior to entering into
the Merger Agreement, MSI's management had no immediate plans to undertake such
a
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redemption. Raymond D. Pape, Jr., who is a director, executive officer and
shareholder of MSI, and Thomas F. McGowan, who is a director of First Bank and a
shareholder of MSI, own 60% and 40%, respectively, of the Class A 6% Non-Voting,
Non-Participating, Cumulative, Non-Convertible Preferred Stock, and will receive
$42,000 and $63,000 respectively, plus accrued interest, as a result of the
redemption.
The foregoing interests of members of management or shareholders of MSI in
the Merger may mean that such persons have personal interests in the Merger
which may not be identical to the interests of nonaffiliated shareholders.
Effect on MSI Employee Benefit Plans
After the Effective Date, the current employee benefit plans of MSI will
continue in force for the benefit of present and former employees of MSI or
First Bank who have any present or future entitlement to benefits under any of
the plans ("MSI Employees") until amended or terminated in accordance with their
terms. Notwithstanding the foregoing, the Merger Agreement provides that FBS
will have the right, after the Effective Date, to continue, amend or terminate
any such plans in accordance with the terms thereof and subject to applicable
law.
401(k) Plan. The Merger Agreement provides that within two years after the
Effective Date, FBS will discontinue contributions under the MSI 401(k) plan and
will take such actions as may be necessary to cause the assets and liabilities
of such plan to be merged with and into the FBS 401(k) plan (the "Capital
Accumulation Plan"). FBS shall take such action as may be necessary to amend the
MSI 401(k) plan to provide that the non-vested accounts in the MSI 401(k) plan
of all participants who, on the Effective Date, were actively employed by MSI,
or were on authorized leave of absence from MSI (including disability leave),
shall be fully vested as of the Effective Date and that all contributions to
that plan after the Effective Date shall be immediately and fully vested. The
non-vested accounts of all other participants in the MSI 401(k) plan shall be
restored and fully vested only if the participant returns to active employment
with FBS or an affiliate of FBS prior to a break in service (as that term is
defined in the MSI 401(k) plan documents) and satisfies any requirements for
restoration of such accounts imposed under the terms of the MSI 401(k) plan
documents as they existed immediately prior to the Effective Date. Distributions
shall not be permitted from the MSI 401(k) plan merely because of the
discontinuance of contributions or the transfer of assets and liabilities. FBS
is also required to take such actions as may be necessary to cause eligible MSI
Employees to become qualified to participate in the Capital Accumulation Plan
concurrent with the date that FBS discontinues contributions under the MSI
401(k) plan. All service with MSI and First Bank (whether before or after the
Effective Date) shall be recognized under the Capital Accumulation Plan for
eligibility and vesting purposes but shall not be recognized for contribution
and allocation purposes. FBS shall take such actions as may be necessary to
cause the Capital Accumulation Plan to accept transfers of assets and
liabilities from the MSI 401(k) plan.
In addition, the Merger Agreement provides that as soon as practicable
after the date of the Merger Agreement and prior to the Effective Date, MSI
shall take all actions necessary to cause the spinoff of the liabilities and
assets in the MSI 401(k) plan that are attributable to First State Bank of
Hawarden and to terminate the participation of employees of First State Bank of
Hawarden in all MSI welfare plans.
ESOP. The Merger Agreement provides that, prior to the Effective Date, MSI
shall make a contribution in the amount of the outstanding loan balance of the
MSI Employee Stock Ownership Plan (the "ESOP") loan to the ESOP trust and shall
instruct the trustee of such ESOP trust to pay off the ESOP loan balance and to
allocate the remaining shares of MSI Common Stock in the reserve in accordance
with the terms of the ESOP. On the Effective Date, all shares of MSI Common
Stock held in the ESOP trust will be exchanged for the Merger Consideration.
Pursuant to the Merger Agreement, the
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ESOP may elect to receive the Deferred Cash Consideration to be paid in respect
of its shares on the Effective Date. The ESOP trustee has notified FBS and MSI
that it intends to exercise this election.
Other Benefits. The Merger Agreement provides that, at such time following
the Effective Date as FBS shall determine, FBS shall use its best efforts to
cause MSI Employees to be covered by the welfare and other generally applicable
benefit plans and practices of FBS (other than the FBS Severance Pay Plan),
provided that during any interim period, FBS shall not be obligated to continue
any particular welfare or other benefit plans or practices of MSI or First Bank,
as the case may be, applicable to MSI Employees. Service with MSI or First Bank
and First Bank before the Effective Date shall be recognized for purposes of all
such plans, excluding the FBS retiree medical plan in which service prior to the
Effective Date shall not be recognized.
No Dissenters' Rights for MSI Shareholders
Section 21-2079(3) of the Nebraska Business Corporation Act (the "NBCA")
provides that the rights of shareholders to dissent and obtain payment of the
"fair value" of their shares (as defined in NBCA Section 21-2080) in the event
of a merger shall not apply to shareholders of, among other entities, a bank
holding company such as MSI. Shareholders will not be eligible to use the
dissenters' rights provisions of the NBCA in connection with the Merger, and
will be required to accept the Merger Consideration in exchange for their shares
of MSI Common Stock if the Merger is approved and consummated.
Certain Federal Income Tax Consequences to MSI Shareholders
MSI expects that the Merger will be treated as a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code and that for federal
income tax purposes no gain or loss will be recognized by any shareholder of MSI
upon the receipt of FBS Common Stock for MSI Common Stock pursuant to the
Merger. Gain will be recognized as described below upon the receipt of cash
pursuant to the Merger and cash in lieu of fractional shares of FBS Common
Stock. The Internal Revenue Service (the "Service") has not been and will not be
asked to rule upon the tax consequences of the Merger. Instead, MSI will rely
upon the opinion of Kennedy, Holland, Delacy & Svoboda, its principal outside
legal counsel, as to certain federal income tax consequences of the Merger. The
opinion of Kennedy, Holland, Delacy & Svoboda will be based upon facts described
herein and upon certain representations made by MSI and FBS in the Merger
Agreement, and certain assumptions regarding the Merger and the parties thereto.
The opinion of Kennedy, Holland, Delacy & Svoboda will also be based upon the
Code, Regulations now in effect thereunder, current administrative rulings and
practice, and judicial authority, all of which are subject to change. An opinion
of counsel is not binding on the Service and there can be no assurance, and none
is hereby given, that the Service will not take a position contrary to one or
more positions reflected herein or that the opinion will be upheld by the courts
if challenged by the Service. Each holder of MSI Common Stock is urged to
consult his or her own tax and financial advisers as to the effect of such
federal income tax consequences on his or her own particular facts and
circumstances and also as to any state, local, foreign or other tax consequences
arising out of the Merger.
Based upon various representations and assumptions and subject to various
qualifications, Kennedy, Holland, Delacy & Svoboda will opine that the following
federal income tax consequences will result from the Merger:
(a) The Merger will qualify as a "reorganization" under Section
368(a) of the Code;
(b) No gain or loss will be recognized by any MSI shareholder (except
in connection with the receipt of cash) upon the receipt of FBS Common
Stock for MSI Common Stock in the Merger;
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(c) Gain, if any, but not loss, will be recognized by any MSI
shareholder upon the exchange of MSI Common Stock for Deferred Cash
Consideration in the Merger. Such gain will be recognized, but not in
excess of the amount of Deferred Cash Consideration received, in an amount
equal to the difference, if any, between the fair market value of the FBS
Common Stock and Deferred Cash Consideration received and the MSI
shareholder's adjusted tax basis in the MSI Common Stock surrendered in
exchange therefor pursuant to the Merger. If, as described below, the
exchange has the effect of a distribution of a dividend, some or all of the
gain recognized will be treated as a dividend. If the exchange does not
have the effect of a distribution of a dividend, all of the gain recognized
would be a capital gain (provided that the MSI Common Stock of such MSI
shareholder was held as a capital asset at the Effective Date);
(d) The basis of the FBS Common Stock received by an MSI shareholder
who exchanges MSI Common Stock for FBS Common Stock and Deferred Cash
Consideration will be the same as the basis of the MSI Common Stock
surrendered in exchange therefor, decreased by the amount of Deferred Cash
Consideration received by such shareholder, and increased by the amount of
capital gain recognized by such shareholder (subject to any adjustments
required as the result of receipt of cash in lieu of a fractional share of
FBS Common Stock) and the amount treated as a dividend to such
shareholder, if any;
(e) The holding period of the FBS Common Stock received by an MSI
shareholder will include the period during which the MSI Common Stock
surrendered in exchange therefor was held (provided that the MSI Common
Stock of such MSI shareholder was held as a capital asset at the Effective
Date);
(f) Cash received by an MSI shareholder in lieu of a fractional share
interest of FBS Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest
of FBS Common Stock which such shareholder would otherwise be entitled to
receive, and will qualify as capital gain or loss (assuming the FBS Common
Stock was a capital asset in such shareholders hands at the Effective
Date);
(g) An MSI shareholder shall recognize ordinary interest income with
respect to all interest paid by FBS that is attributable to the Deferred
Cash Consideration; and
(h) If the Effective Date is on or before December 31, 1995, any
taxable gain to be recognized by an MSI shareholder in connection with the
receipt of cash, other than cash treated as a dividend, shall be
reportable under the installment method of Section 453 of the Code and
should be subject to the provisions of Section 453A with respect to
obligations in excess of $5,000,000.
The determination of whether the exchange of MSI Common Stock for cash
pursuant to the Merger has the effect of a distribution of a dividend will be
made, on a shareholder by shareholder basis, by applying the rules of Section
302 of the Code and by comparing the proportionate, percentage interest of a
former MSI shareholder in FBS after the Merger with the proportionate,
percentage interest such shareholder would have had if such shareholder had
received solely FBS Common Stock pursuant to the Merger. This comparison is made
as though FBS had issued in the Merger to such shareholder solely its FBS Common
Stock and in a hypothetical redemption FBS had then redeemed a portion of its
FBS Common Stock at the time of the Merger for the amount of cash the
shareholder actually received pursuant thereto. In making this comparison, there
must be taken into account (1) any other shares of FBS Common Stock or other
shares of capital stock of FBS actually owned by such MSI shareholder, and (2)
any such shares considered to be owned by such MSI shareholder by reason of the
constructive ownership rules set forth in Section 318 of the Code. These
constructive ownership rules apply in certain specified circumstances to
attribute ownership of shares of a corporation from the shareholder actually
owning the shares, whether an individual, trust, partnership or corporation, to
certain members of such individual's family or to certain other individuals,
trusts, partnerships or
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corporations. Under these rules, a shareholder is also considered to own any
shares with respect to which the shareholder holds exercisable stock options.
Under applicable Internal Revenue Service guidelines, such a hypothetical
redemption, as described above, involving a holder of a minority interest in FBS
whose relative stock interest in FBS is minimal, who exercises no control over
the affairs of FBS and who experiences a reduction in the shareholder's
proportionate interest in FBS, both directly and by application of the foregoing
constructive ownership rules, generally will not be deemed to have resulted in a
distribution of a dividend under the rules set forth in Section 302(b)(1) of the
Code. Because the determination of whether cash received pursuant to the Merger
will be treated as the distribution of a dividend generally will depend upon the
facts and circumstances peculiar to each MSI shareholder, such shareholders are
strongly advised to consult with their own tax advisers regarding the tax
treatment of cash received pursuant to the Merger.
The opinion described above will be based upon certain assumptions,
including the assumption that the shareholders of MSI do not have any plan or
intention to dispose, sell, exchange or otherwise dispose of a number of shares
of FBS Common Stock received pursuant to the Merger that would reduce the
ownership of FBS Common Stock by such shareholders to a number of shares having
a value, as of the date of the Merger, which is less than 50 percent of the
value of all of the formerly outstanding MSI Common Stock held by such MSI
shareholders as of the same date.
All of the Escrow Shares placed in the Escrow Fund pursuant to the Merger
Agreement and the Escrow Agreement will be treated for tax purposes as having
been transferred to the MSI shareholders as of the Effective Date. The return of
any Escrow Shares to FBS pursuant to the terms of the Merger Agreement and the
Escrow Agreement will result in the recognition of gain or loss by the MSI
shareholders. Such gain or loss will be measured by the difference between the
fair market value of the returned Escrow Shares and the MSI shareholder's
adjusted basis in the returned Escrow Shares.
The foregoing is only a general description of certain anticipated federal
income tax consequences of the Merger, without regard to the particular facts
and circumstances of the tax situation of each shareholder of MSI. It does not
discuss all of the consequences that may be relevant to shareholders of MSI
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, exempt organizations or foreign persons) or to
shareholders of MSI who acquired their MSI Common Stock pursuant to the exercise
of employee stock options or otherwise as compensation. The summary set forth
above does not purport to be a complete analysis of all potential tax effects of
the transactions contemplated by the Merger Agreement or the Merger itself. No
information is provided herein with respect to the tax consequences, if any, of
the Merger under state, local, foreign or other tax laws.
Stock Exchange Listing of FBS Common Stock
It is a condition to the obligation of MSI to consummate the Merger
pursuant to the Merger Agreement that the shares of FBS Common Stock which are
issuable upon consummation of the Merger shall have been approved for listing on
the NYSE subject to notice of issuance. FBS anticipates that such application
will be approved subject to notice of issuance at or before the Effective Date.
Noncompetition Agreements
Simultaneously with the execution of the Merger Agreement, each of Raymond
D. Pape, Jr., Thomas F. McGowan and M. David Klipsch entered into a
Noncompetition Agreement with FBS providing that such individuals shall not, for
a period of two years after the Effective Date, (i) engage in the banking or
financial services business as an advisor, employee, consultant, agent, partner,
principal, director, owner or stockholder of any corporation or other business
entity within a 50-mile radius of the main office and each of the branch offices
of First Bank (subject to certain exceptions); (ii) directly or
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indirectly solicit the banking or financial services business of any past or
present customer of First Bank or encourage any such customer to terminate or
alter such customer's relationship with First Bank (or its successor by merger);
or (iii) directly or indirectly, hire for employment any individual who, as of
the date of the Merger Agreement, was an employee or agent of MSI or First Bank
or who subsequent to the date of the Merger Agreement became an employee of MSI
or First Bank (or any successors by merger) (subject to certain exceptions). Mr.
Pape, Mr. McGowan and Mr. Klipsch did not receive separate consideration for
entering into these agreements.
FBS Escrow Deposit
Upon execution of the Merger Agreement, FBS deposited $750,000 (the "FBS
Escrow Deposit") in an escrow account for the benefit of MSI pursuant to the
deposit escrow agreement attached as Exhibit C to the Merger Agreement. If the
Effective Date is delayed beyond March 31, 1996 or if the Merger shall not have
been consummated for any reason on or prior to such date (unless the failure to
consummate the Merger by such date shall be due to the action or failure to act
of MSI), other than the termination of the Merger Agreement due to a failure to
satisfy certain conditions therein, the FBS Escrow Deposit, together with
interest thereon, shall be paid to MSI (but not to or for distribution to any
holders of MSI Common Stock) on the earlier of such termination or such date. If
the Effective Date is on or before March 31, 1996, the FBS Escrow Deposit shall
be refunded to FBS. If the Merger Agreement is terminated at any time due to a
failure to satisfy certain conditions therein, or if the Merger shall not have
been consummated due to the action or failure to act of MSI, the FBS Escrow
Deposit shall be refunded to FBS. Interest on the FBS Escrow Deposit shall be
paid to the party to be paid the FBS Escrow Deposit as detailed above. Any fees
of the escrow deposit agent shall be paid by the party receiving the interest on
the FBS Escrow Deposit.
Resale of FBS Common Stock Received by MSI Shareholders
Pursuant to the Merger Agreement, the shares of FBS Common Stock
deliverable to the Indemnifying Shareholders will be placed in escrow in the
name of the Shareholders' Representative for a period of two years from the
Effective Date, and, while such shareholders will be able to vote such shares,
they will not in general be able to withdraw such shares from escrow for the
purpose of reselling them. See "--The Escrow Agreement; Indemnification of FBS."
Prior to the second anniversary of the Effective Date, upon request by the
Shareholders' Representative on behalf of an Indemnifying Shareholder in
connections with a change in such shareholder's circumstances, FBS may, in its
sole and absolute discretion as evidenced by notification in writing to the
Escrow Agent, authorize the Escrow Agent to deliver to the Shareholders'
Representative on behalf of such Indemnifying Shareholder all or a portion of
such Indemnifying Shareholder's proportionate interest in the Escrow Shares.
Shares that have been released from escrow, either at the termination of
the two year period or otherwise, may be traded freely without restriction by
those shareholders who are not deemed to be "affiliates" of MSI or FBS, as that
term is defined in rules promulgated under the Securities Act.
Shares of FBS Common Stock received by those shareholders of MSI who are
deemed to be "affiliates" of MSI at the time of the Special Meeting may be
resold without registration under the Securities Act only as permitted by Rule
145 under the Securities Act or as otherwise permitted under the Securities Act.
MSI has agreed in the Merger Agreement to use its best efforts to obtain and
deliver to FBS at least 31 days prior to the Effective Date signed
representation letters (in the form attached as Exhibit B to the Merger
Agreement) from each shareholder of MSI who may reasonably be deemed to be an
"affiliate" of MSI to the effect that such persons will not offer to sell,
transfer or otherwise dispose of any of the shares of FBS Common Stock
distributed to them pursuant to the Merger except in compliance with Rule 145,
or in a transaction that, in the opinion of counsel reasonably satisfactory to
FBS, is otherwise exempt from the registration requirements of the Securities
Act, or in an offering
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which is registered under the Securities Act. This Proxy Statement/Prospectus
does not cover any resales of FBS Common Stock received by persons who are
deemed to be "affiliates" of MSI. No person is authorized to make use of this
Proxy Statement/Prospectus in connection with any such resales. Former
shareholders of MSI who are deemed to be "affiliates" of MSI and who surrender
certificates formerly evidencing shares of MSI Common Stock must execute and
deliver to FBS a letter containing the representations described above before
any exchange of such certificates for Merger Consideration will be effected. See
"--Surrender of MSI Common Stock Certificates."
FBS Dividend Reinvestment and Common Stock Purchase Plan
FBS provides eligible shareholders with a simple and convenient method of
investing cash dividends and optional cash payments at 100% of the average price
(as defined) in additional shares of FBS Common Stock without payment of any
brokerage commission or service charge pursuant to its Automatic Dividend
Reinvestment and Common Stock Purchase Plan. The plan includes certain dollar
limitations on participation and provides for eligible shareholders to elect
dividend reinvestment on only a part of the shares registered in the name of a
participant (while continuing to receive cash dividends on remaining shares). It
is anticipated that the plan will continue after the Effective Date and that
shareholders of MSI who receive FBS Common Stock in the Merger will have the
right to participate therein.
Accounting Treatment
The Merger will be accounted for by FBS under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated values. Income of the combined company will not include
income or loss of MSI prior to the Effective Date.
Expenses
The Merger Agreement provides that all costs and expenses incurred in
connection with such agreement and the transactions contemplated thereby shall
be paid by the party incurring such costs and expenses.
Certain Differences in Rights of MSI Shareholders
The rights of holders of MSI Common Stock are governed by the Articles of
Incorporation of MSI, as amended (the "MSI Articles of Incorporation"), the
bylaws of MSI (the "MSI Bylaws") and the laws of the State of Nebraska. The
rights of FBS shareholders are governed by the Restated Certificate of
Incorporation of FBS, as amended (the "FBS Certificate of Incorporation"), the
bylaws of FBS (the "FBS Bylaws") and the laws of the State of Delaware. After
the Effective Date, the rights of holders of MSI Common Stock will be governed
by the FBS Certificate of Incorporation, the FBS Bylaws and the laws of the
State of Delaware. Because of certain differences between Nebraska and Delaware
corporate law and between the MSI Articles of Incorporation and MSI Bylaws, on
the one hand, and the FBS Certificate of Incorporation and the FBS Bylaws, on
the other hand, the current rights of MSI shareholders will change significantly
as a result of the Merger. While it is not practical to describe all changes in
the rights of MSI shareholders that will result from the Merger, the following
is a summary of the material differences. In addition, recently enacted
legislation in Nebraska (the "1995 Amendments") will result in changes to the
NBCA, effective January 1, 1996, that will apply to MSI (and thus affect the
rights of MSI shareholders) if the Effective Date occurs after January 1, 1996.
To the extent applicable to a description of the material differences between
the rights of holders of MSI Common Stock and the rights of holders of FBS
Common Stock, these changes to Nebraska law are also summarized below.
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Business Combinations and Supermajority Voting. Under Delaware law, a
corporation is prohibited from engaging in certain business combinations,
including a merger, sale of substantial assets, loan or substantial issuance of
stock, with an interested shareholder, or an interested shareholder's affiliates
and associates, for a three-year period beginning on the date the interested
shareholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if the board
of directors gives prior approval to the transaction in which the 15% ownership
level is exceeded, the interested shareholder acquires at one time 85% of the
corporation's stock (excluding shares held by management or employee stock plans
in which employees do not have the effective power to tender stock) or the
business combination is approved by the board of directors and authorized at a
meeting of shareholders by the holders of at least 66-2/3% of the outstanding
voting stock, excluding shares owned by the interested shareholder. The FBS
Certificate of Incorporation contains provisions that provide for supermajority
voting requirements in connection with certain "Business Combinations" or
"Business Transactions" (as defined) involving a "Related Person" (as defined).
The FBS Certificate of Incorporation contains provisions designed primarily to
address fair price considerations, and the required supermajority shareholder
vote is not required under certain fair price circumstances or if a majority of
the "Continuing Directors" (as defined) approve the transaction. The affirmative
vote of at least 80% of the outstanding shares entitled to vote generally in the
election of directors is required to approve such a transaction under the FBS
Certificate of Incorporation. The FBS Certificate of Incorporation also requires
supermajority voting at the 80% level to amend, add to, alter, change or repeal
those articles thereof relating to director numbers, filling vacancies on the
board of directors, director classification and "Business Transactions."
The Nebraska Shareholders' Protection Act contains provisions governing the
rights of shareholders in the case of certain share acquisitions and business
combinations involving public corporations incorporated in (or having certain
other significant ties to) Nebraska. MSI is not a public corporation as defined
in such act and, accordingly, is not governed by such act's provisions, which
generally require that specific information delivery, voting and other
procedures be followed in certain acquisitions of shares of corporations subject
to such act.
Dissenters' Rights. Under Delaware law, appraisal rights are available only
in connection with certain statutory mergers or consolidations, unless the
certificate of incorporation grants such rights with respect to amendments to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation, or sales of all or substantially all
of the assets of a corporation. The FBS Certificate of Incorporation does not
grant such rights. Appraisal rights under Delaware law, however, are not
available if the corporation's stock is (prior to the relevant transaction)
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 shareholders;
provided that, if the merger or consolidation requires shareholders to exchange
their stock for anything other than shares of the surviving or resulting
corporation, shares of another corporation which will be listed on a national
securities exchange or held by more than 2,000 shareholders, cash in lieu of
fractional shares of any such corporation, or a combination of such shares and
cash, then appraisal rights will be available.
Under Nebraska law, dissenters' rights of appraisal are not available to
the shareholders of certain financial institutions and holding companies of such
financial institutions. MSI is such a financial institution holding company, and
accordingly holders of MSI Common Stock have no dissenters' rights. See "--No
Dissenters' Rights for MSI Shareholders."
Preemptive Rights. Under Delaware law, shareholders of a corporation have
no preemptive rights unless such rights are expressly granted in the certificate
of incorporation. The FBS Certificate of Incorporation contains no such
provision. Under Nebraska law, preemptive rights are presumed
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unless denied in the articles of incorporation. The MSI Articles of
Incorporation deny preemptive rights.
Amendments to Charter and Bylaws. Under Delaware law, a corporation's
certificate of incorporation may be amended by resolution of the board of
directors and the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote. Under Nebraska law, amendment of a
corporation's articles of incorporation requires the affirmative vote of at
least two-thirds of the shares entitled to vote. Delaware law reserves the power
to amend or repeal the bylaws exclusively to the shareholders unless the
certificate of incorporation confers such power upon the directors. The FBS
Certificate of Incorporation provides that the FBS Bylaws may be amended or
repealed by the Board of Directors of FBS, subject to the power of the
shareholders to amend or repeal any such change to the Bylaws. Nebraska law
provides that a corporation's initial bylaws shall be adopted by the
shareholders but that thereafter either the shareholders or the directors may
adopt, amend or repeal bylaws, except that the directors may not amend or repeal
any bylaw if it specifically provides that they may not and the directors may
not adopt bylaws providing for a supermajority quorum or supermajority voting
except as required by a corporation's articles of incorporation or Nebraska law.
Removal of Directors. Under the FBS Certificate of Incorporation, FBS
shareholders may remove a director only for cause upon a majority vote of the
shareholders. Under Nebraska law, a vote of the holders of a majority of shares
then entitled to vote at an election of directors may remove a director with or
without cause. The MSI Articles of Incorporation do not contain provisions with
respect to removal of directors. (The 1995 Amendments will add provisions that
specify that a director may not be removed if the number of votes sufficient to
elect that director under cumulative voting is voted against the director's
removal and that a director may only be removed at a meeting called for such
purpose.)
Special Meetings of Shareholders. The MSI Bylaws provide that special
meetings of MSI shareholders may be called by the Chairman or the Board of
Directors, and shall be called by the President at the request of the holders of
not less than 10% of the outstanding shares of MSI entitled to vote at such
meeting. The FBS Bylaws provide that special meetings may be called by the Board
of Directors or the Chief Executive Officer.
Quorum at Shareholders' Meetings. The MSI Bylaws provide that the holders
of a majority of the outstanding shares entitled to vote at a meeting,
represented in person or by proxy, shall constitute a quorum for purposes of
such a meeting. The FBS Bylaws require only that the holders of not less than
one-third of the shares entitled to vote at the meeting be present, in person or
by proxy, to constitute a quorum.
Voting Rights. Under Delaware law, a corporation's certificate of
incorporation may provide for cumulative voting in the election of directors.
The FBS Certificate of Incorporation does not provide for cumulative voting.
Nebraska law and the MSI Bylaws provide for cumulative voting rights in the
election of directors.
Limitation on Personal Liability of Directors. The FBS Certificate of
Incorporation provides that directors of FBS shall not be liable to FBS or its
shareholders for monetary damages for breaches of fiduciary duty; provided,
however, that such liability of a director shall not be eliminated or limited to
the extent provided by applicable law under certain circumstances. The MSI
Articles of Incorporation do not contain such a provision.
Indemnification. The FBS Bylaws provide that FBS shall indemnify FBS
directors, advisory directors and officers and those serving at FBS's request as
directors, advisory directors and officers of other entities against certain
expenses under certain circumstances; the indemnification of FBS
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<PAGE>
employees shall be at the discretion of the FBS board of directors, and the FBS
Bylaws do not contemplate the indemnification of any other persons.
Neither the MSI Articles of Incorporation nor the MSI Bylaws contain any
provisions regarding indemnification of directors, officers or employees.
However, under Nebraska law, a corporation is required to indemnify a director,
officer, employee or agent of a corporation against expenses actually and
reasonably incurred in connection with the successful defense of certain
actions, suits, claims or proceedings. (The 1995 Amendments will remove
employees and agents from the list of people entitled to mandatory
indemnification under Nebraska law and will also clarify that, under Nebraska
law, a director or employee must be wholly successful in the defense of the
action, suit, claim or proceeding to be entitled to mandatory indemnification.)
Under Nebraska law, any indemnification of a director, including any
payment or reimbursement of expenses, shall be reported in writing to the
shareholders with the notice of the next shareholders' meeting or prior to such
meeting. Delaware law contains no such requirement.
Dividends. Under Delaware law, dividends may be paid out of surplus or out
of net profits for the fiscal year in which the dividend is paid or the
preceding fiscal year, except that no dividends may be paid if the capital of
the corporation has been diminished to an amount less than the liquidation
preference of outstanding preferred stock. Nebraska law allows payment of
dividends except when the corporation is insolvent or would be rendered
insolvent by the payment thereof and provided that dividends in cash or property
only be paid out of unreserved and unrestricted earned surplus.
Loans to Directors and Officers. Under Delaware law, a corporation may lend
money to, or guarantee any obligation of, or otherwise assist any officer or
other employee (including one who is also a director) whenever, in the judgment
of the directors, such loan, guaranty or assistance may reasonably be expected
to benefit the corporation, and may accept a pledge of shares of stock of the
corporation as security for any such loan. Under current Nebraska law, a
corporation may not make loans to its officers or directors, and a corporation
may not make a loan secured by shares of its own stock; the 1995 Amendments will
alter Nebraska law to permit a corporation to lend money and credit to
directors, officers, employees and agents.
Rights Plan. FBS has adopted a shareholder rights plan, which may have
certain anti-takeover effects. The terms of the FBS rights plan are summarized
and described herein under "Description of FBS Capital Stock--Common Stock--
Preferred Stock Purchase Rights." MSI has no such plan.
General. The foregoing discussion of certain similarities and material
differences between the rights of holders of MSI Common Stock and the rights of
holders of FBS Common Stock under the Articles and Certificate of Incorporation,
respectively, and Bylaws pursuant to Delaware and Nebraska law is only a summary
of certain provisions and does not purport to be a complete description of such
similarities and differences. The foregoing discussion is qualified in its
entirety by reference to the Nebraska Business Corporation Act, the Delaware
General Corporation Law, the common law thereunder, the 1995 Amendments and the
full texts of the Articles and Certificate of Incorporation, respectively, and
Bylaws of MSI and FBS. Such Articles and Certificate of Incorporation and Bylaws
are filed or incorporated by reference as exhibits to the Registration Statement
of which this Proxy Statement/Prospectus is a part.
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BUSINESS OF FBS
FBS is a regional bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 8 banks, a savings association and other
financial companies with 349 offices, located primarily in the 11 states of
Minnesota, Colorado, Illinois, Montana, North Dakota, South Dakota, Wisconsin,
Iowa, Nebraska, Kansas and Wyoming. Through its subsidiaries, FBS provides
commercial and agricultural finance, consumer banking, trust, capital markets,
treasury management, investment management, data processing, leasing, mortgage
banking and brokerage services. At June 30, 1995, FBS and its consolidated
subsidiaries had consolidated assets of $33.5 billion, consolidated deposits of
$22.8 billion and shareholders' equity of $2.8 billion.
The subsidiary banks of FBS engage in general commercial banking business,
principally in domestic markets, and provide banking and ancillary services to
individuals, businesses, institutional organizations, governmental entities and
other financial institutions. The largest subsidiary bank, First Bank National
Association ("FBNA"), had assets of $15.4 billion at June 30, 1995.
FBS is a legal entity separate and distinct from its banking and non-
banking affiliates. The principal sources of FBS's income are dividends,
interest and fees from FBNA and the other banking and non-banking affiliates.
The bank and thrift subsidiaries of FBS (the "Banks"), are subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with, FBS and certain other affiliates; and on investments in
stock or other securities thereof. Such restrictions prevent FBS and such other
affiliates from borrowing from the Banks unless the loans are secured by various
types of collateral. Further, such secured loans, other transactions and
investments by any of the Banks are generally limited in amount as to FBS and as
to each of such other affiliates to 10% of such Bank's capital and surplus and
as to FBS and all of such other affiliates to an aggregate of 20% of such Bank's
capital and surplus. In addition, payment of dividends to FBS by the subsidiary
banks is subject to ongoing review by regulators and is subject to various
statutory limitations and in certain circumstances requires approval by
regulatory authorities.
FBS was incorporated under Delaware law in 1929 and has functioned as a
multi-bank holding company since that time. Its principal executive offices are
located at First Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402-4302 (telephone (612) 973-1111). For further information concerning FBS,
see the FBS documents incorporated by reference herein as described under
"Incorporation of Certain Documents by Reference."
Recent Developments
On August 7, 1995, FBS announced that it had signed a purchase agreement to
acquire FirsTier Financial, Inc. ("FirsTier"), a regional financial services
holding company based in Omaha, Nebraska. As of June 30, 1995, FirsTier had
approximately $3.6 billion in assets, $2.8 billion in deposits and operated 63
offices in Nebraska and Iowa. Subject to the completion of due diligence and
shareholder and regulatory approvals, FBS will exchange .8829 shares of FBS
Common Stock for each share of common stock of FirsTier. Based on the market
price per share of FBS Common Stock on the date of the agreement, the aggregate
purchase price for the transaction is approximately $714 million. The
transaction, which will be accounted for as a purchase, is expected to close in
the first quarter of 1996. For additional information concerning the effect of
the FirsTier acquisition, see "Unaudited Pro Forma Combined Financial
Information" and "Incorporation of Certain Documents by Reference" in this Proxy
Statement/Prospectus. Financial statements of FirsTier are included in Amendment
No. 1 on Form 8-K/A filed August 30, 1995 to the Current Report on Form 8-K of
FBS filed August 18, 1995. See "Incorporation of Certain Documents by
Reference."
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Management and Additional Information
Certain information relating to the management, executive compensation,
various benefit plans (including stock plans), voting securities and the
principal holders thereof, certain relationships and related transactions and
other related matters as to FBS is set forth in or incorporated by reference in
the Annual Report on Form 10-K for the year ended December 31, 1994 of FBS,
which is incorporated by reference in this Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference." MSI shareholders who wish to
obtain copies of these documents may contact FBS at its address or telephone
number set forth under "Incorporation of Certain Documents by Reference."
BUSINESS OF MSI
General
MSI is a one bank holding company registered under the Bank Holding Company
Act. Its principal non-cash asset is First Bank which has seven commercial
banking locations in Omaha, Nebraska. First Bank has no subsidiaries. MSI has
one inactive subsidiary, Northwestern State Bank, which will be liquidated prior
to the Effective Date. MSI owns 4.9% of Hawarden Banking Company.
First Bank was chartered as a state bank in Nebraska in 1955. First Bank
provides general commercial and consumer banking services, including equipment
leasing, mortgage banking, mutual fund sales, and ATM locations. First Bank also
provides a complete range of deposit products including checking accounts,
savings accounts, certificates of deposit, money market accounts and IRA
accounts.
As of June 30, 1995, MSI and First Bank had consolidated assets of $236.8
million and total deposits of $210.0 million. Shareholders' equity on a
consolidated basis as of June 30, 1995 was $16.2 million. First Bank is the
ninth largest financial institution measured by deposits in the Omaha/Council
Bluffs area. MSI derives substantially all of its revenues from cash dividends
paid by First Bank which are determined periodically on an individual basis,
considering the earnings, deposits, and capital requirements of First Bank.
Increases in capital of First Bank have occurred primarily through retention of
earnings.
Market Area and Competition
First Bank's market area is Omaha, Nebraska. There are numerous commercial
banks, saving and loan associations, mortgage companies, finance companies,
credit unions, and similar organizations in Omaha, Nebraska, and Council Bluffs,
Iowa, which compete for business.
Properties and Employees
MSI's executive offices are located in the offices of First Bank, in the
main location at 222 South 72nd Street, Omaha, NE 68114. The main bank property
is owned as an undivided 50% by First Bank and the remaining undivided 50% by
another individual. An additional full service banking facility is located at
132nd & Dodge Streets which is leased by First Bank. This building contains some
space not utilized by the bank which is subleased to other tenants. A third full
service bank is operated in Millard which is owned by First Bank. The remaining
four locations are leased within grocery stores.
As of July 10, 1995, First Bank employed a total of 137 persons of which
102 are full-time, 27 are part-time, and 8 are temporary. MSI does not have any
employees. Management generally considers its relationship with employees to be
good.
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Market Prices and Dividends on MSI Common Stock
There is no established trading market for the MSI common stock. MSI is
aware of three transactions involving the sale of MSI common stock over the past
two years and the current fiscal year to date and three (3) gift transactions.
In all cases, the stock value was established pursuant to MSI Stock Redemption
Agreement.
MSI presently maintains the Midwestern Services, Inc. Employee Stock
Ownership Plan which owns approximately 7.5% of the MSI common stock. The ESOP
stock has been valued annually as required by the terms of the ESOP. As of
December 31, 1994, that value was $208.84 per share. The value as of December
31, 1993, was $181.06 per share. The ESOP value is determined by formula and not
by independent appraisal. It is the same formula as the Stock Redemption
Agreement among the Shareholders.
As of the record date for the special meeting, excluding the Employee Stock
Ownership Plan, there were 20 shareholders. The ESOP owns approximately 7.5% of
the MSI stock for the benefit of the Plan participants. As of December 31, 1994,
there were 80 active participants and 20 inactive participants.
No cash dividends have been paid or declared by MSI on its common stock
since 1976. The payment of cash dividends is restricted by applicable law as
discussed below in "Supervision and Regulation." In the event the merger is not
completed, the Board of Directors of MSI does not anticipate paying a dividend
on the MSI common stock in the foreseeable future.
Supervision and Regulation
MSI is subject to the provisions of the Federal Bank Holding company Act,
which requires a bank holding company to register under the Bank Holding Company
Act, and to be subject to supervision by the Federal Reserve Board. The Bank
Holding Company Act requires prior approval by the Federal Reserve Board of the
acquisition by a bank holding company of more than 5% of the voting stock or
substantially all the assets of any bank, but does not require prior approval
before acquisition of additional shares in banks, the majority of the shares of
which are already controlled by such bank holding company. A bank holding
company is prohibited, with limited exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company which is not a bank and from engaging in activities other than those of
banking or of managing or controlling banks and other authorized subsidiaries
and providing services to its subsidiaries. One of the exceptions to this
prohibition permits ownership of the shares of a company, the activities of
which the Federal Reserve Board determines to be so closely related to the
business of banking or of managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board has published regulations regarding
these matters, which, in the opinion of management of MSI, enable MSI to engage
in its present operations. In addition, bank holding companies are subject to
certain restrictions on their ability to own banks in more than one state.
MSI is required to file periodic reports with the Federal Reserve Board and
such other information as may be required to keep the Federal Reserve Board
informed regarding MSI compliance with the provisions of the Bank Holding
Company Act and the rules, regulations and orders issued thereunder, and the
Federal Reserve Board examines MSI and its subsidiary banks from time to time.
The payment of dividends by MSI is restricted. The Federal Reserve Board
imposes restrictions on the payment of dividends indirectly through its capital
adequacy standards. In addition, the Nebraska Business Corporation Act provides
that dividends may be declared and paid only out of unreserved and unrestricted
earned surplus (with certain exceptions) and restricts the payment of dividends
when a corporation is insolvent or when the payment will render the corporation
insolvent.
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MSI has agreed with the Federal Reserve Board that MSI would pay no
dividends until the indebtedness pertaining to its acquisition of First Bank has
been reduced sufficiently to create a 30% debt to equity ratio.
First Bank, as a state charted bank, is subject to the supervision and
regulation of, and is regularly examined by, the Nebraska Department of Banking,
and is subject to regulation by the Federal Reserve Board. First Bank is also
subject to regulation and examination by the Federal Deposit Insurance
Corporation and files regular reports.
The Nebraska Banking statutes prohibit withdrawal of any part of capital or
surplus in the form of dividends without approval of the Director of the
Department of Banking. Dividends may not be paid: (i) if losses have been
sustained which equal or exceed profits; (ii) if such dividend would exceed net
profits; (iii) unless bad debts have been charged off (within the meaning of the
statute); of (iv) or unless twenty percent (20%) of net profits accumulated
since the preceding dividend have first been carried to the surplus fund unless
such surplus fund equals or exceeds the amount of paid up capital stock.
Additionally, no dividends may be paid until earnings have restored any losses
which have previously been charged to the surplus fund.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF MSI
The following discussion and analysis provides information regarding MSI's
financial condition and results of operations for the six month periods ended
June 30, 1995 and 1994, and for the years ended December 31, 1994, 1993 and
1992. This discussion should be read in conjunction with the consolidated
interim financial statements and notes thereto and the consolidated annual
financial statements and notes thereto of MSI included elsewhere in this Proxy
Statement/Prospectus. Results of operations for the interim periods are not
necessarily indicative of that which may be expected for the entire year. Ratios
for the six month periods are presented on an annualized basis.
Results of Operations
Years Ended December 31, 1994, 1993, and 1992
MSI generated earnings of $2.2 million for the year ended December 31,
1994, an increase of 30.6% from the $1.6 million earned in 1993. In 1994, net
interest income increased $1.5 million or 19% and non-interest income increased
$0.3 million or 14% offset by increases in non-interest expenses of $1.0 million
or 13%. During the same period, average assets, average loans and average
deposits increased 9%, 13% and 8%, respectively.
For the year ended December 31, 1993, net income decreased $0.6 million or
28% from the $2.3 million earned in 1992. For 1993, net interest income
increased $0.3 million or 4%, and non-interest income decreased $0.9 million or
27%. For 1993, non-interest income included an extraordinary gain on sale of
assets of a subsidiary of $1.1 million. Non-interest expenses increased $0.2
million or 3%. During the same period, average assets, average loan and average
deposits increased 8%, 15% and 9%.
Six Months Ended June 30, 1995 and 1994
For the six months ended June 30, 1995, net income was $1.3 million, a
increase of $.27 million or 25% from the same period in 1994. Net interest
income increased $0.5 million or 12% and non-interest income increased $0.4
million or 31%, while non-interest expenses increased $0.5 million or 12%.
During such six-month period, as compared with the same period in 1994, average
assets, average loans and average deposits increased 11%, 14% and 10%,
respectively.
The following table sets forth selected financial data for MSI for the six
months ended June 30, 1995 and 1994 and for each of the three years in the
period ended December 31, 1994. Such data should be read in conjunction with the
unaudited consolidated interim financial statements and notes thereto and the
audited consolidated annual financial statements and notes thereto of MSI
included elsewhere in this Proxy Statement/Prospectus. Results of operations for
the interim periods are not necessarily indicative of that which may be expected
for the entire year.
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Selected Financial Data
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------- -------------------------------
1995 1994 1994 1993 1992
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Condensed Income Statement:
Interest income.............................. $ 8,632 $ 6,973 $ 14,652 $ 13,007 $ 13,975
Interest expense............................. 3,488 2,359 5,140 5,001 6,281
-------- -------- --------- -------- --------
Net interest income........................ 5,144 4,614 9,512 8,006 7,694
Provision for loan losses.................... 162 150 296 300 300
-------- -------- --------- -------- --------
Net interest income after
provision for loan losses.................. 4,982 4,464 9,216 7,706 7,394
Non-interest income.......................... 1,698 1,297 2,897 2,545 3,470
Investment securities gains (losses)......... -- 4 (55) (4) 206
-------- -------- --------- -------- --------
Total non-interest income.................. 1,698 1,301 2,842 2,541 3,676
Non-interest expense......................... 4,594 4,081 8,637 7,658 7,422
-------- -------- --------- -------- --------
Income before income taxes................... 2,086 1,684 3,421 2,589 3,648
Applicable income taxes...................... 751 618 1,268 945 1,309
-------- -------- --------- -------- --------
Income before minority interests............. 1,335 1,066 2,153 1,644 2,339
Minority interests........................... (1) -- -- 4 (64)
-------- -------- --------- -------- --------
Net income................................. $ 1,334 $ 1,066 $ 2,153 $ 1,648 $ 2,275
======== ======== ======== ======== ========
Financial Ratios:
Return on average assets..................... 1.20% 1.07% 1.06% 0.89% 1.33%
Return on average common equity.............. 17.66 17.04 16.53 13.4 21.64
Net interest margin.......................... 5.12 5.10 5.16 4.77 4.88
Efficiency ratio............................. 67.14 69.05 69.60 72.58 66.48
Average Balance Sheet Data:
Total gross loans............................ $147,589 $129,991 $131,765 $116,310 $101,249
Total assets................................. 221,839 199,238 202,479 185,869 171,530
Deposits..................................... 197,655 180,171 182,755 169,589 155,039
Shareholders' equity......................... 15,212 13,398 14,208 13,535 11,695
Period-End Balance Sheet Data:
Total gross loans............................ $161,640 $137,376 $148,529 $134,247 $109,656
Total assets................................. 236,796 202,811 223,585 202,151 189,224
Deposits..................................... 209,975 179,108 198,149 182,256 168,397
Shareholders' equity......................... 16,203 13,261 13,994 14,421 12,648
</TABLE>
Net Interest Income
Years Ended December 31, 1994, 1993 and 1992
Net interest income is MSI's largest single source of earnings. Net
interest income on a tax equivalent basis represents the difference between
interest earned on assets and interest paid on liabilities, with adjustments
made to reflect income on tax-exempt assets as if such income were fully
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taxable. Changes in the types and volumes of earning assets and interest bearing
liabilities, their related yields and overall interest rates all can have a
significant impact on net interest income.
For the year-ended December 31, 1994, net interest income was $9.5 million,
an increase of $1.5 million or 19% over the year ended December 31, 1993. This
increase was largely attributable to a 11% increase in average earning assets
from 1993 to 1994. Interest rates increased in 1994, which also benefitted net
interest income as liabilities repriced at a slower rate than assets. During
1994, net interest margin (net interest income divided by average earning
assets) increased from 4.31% to 4.70% and gross interest spread (the difference
between the rate earned on earning assets and the rate paid on interest bearing
liabilities) increased from 2.88% to 3.25%.
For the year ended December 31, 1993, net interest income was $8.0 million,
an increase of $0.3 million or 4.0% over the year ended December 31, 1992. This
increase resulted from an increase in average interest earning assets of 17%.
During 1993 net interest margin decreased 18 basis points from 4.49% to 4.31%
and gross interest spread increased from 2.35% to 2.88%.
Six Months Ended June 30, 1995 and 1994
For the six months ended June 30, 1995, net interest income was $5.2
million, an increase of $0.6 million or 11.5% over the same period in 1994. This
increase resulted from continued growth in average earning assets, particularly
in the loan portfolio. While the rate paid on interest bearing liabilities
increased during this time period, the earning asset yield increased more,
resulting in a increase in the net interest margin percentage.
For the six months ended June 30, 1994, the net interest margin decreased
from 4.70% to 4.63% and gross interest spread decreased from 3.30% to 3.25%
compared to the same period in 1994.
59
<PAGE>
Analysis of Interest Income (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
--------------------- ------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Consolidated Income Statement Data:
Net interest income................... $ 5,144 $ 4,614 $ 9,512 $ 8,006 $ 7,694
Average balances of earnings
assets supported by:
Average interest-bearing
liabilities....................... $159,724 $142,130 $138,957 $130,668 $115,000
Average non-interest bearing
liabilities....................... 39,931 37,782 43,882 39,031 40,406
Total average earning assets........ $199,655 $179,912 $182,839 $169,699 $155,406
Average yields and weighted
average rates:
Investment securities yield......... 6.61% 5.60% 5.83% 5.80% 7.56%
Loan yield.......................... 9.71 8.72 9.02 8.72 9.91
Other earning asset yield........... 5.83 3.02 4.44 2.88 3.75
Total gross loans:
Earning asset yield............... 8.60% 7.52% 7.76% 7.61% 8.56%
Interest-bearing deposits rate........ 5.22% 4.15% 4.39% 4.70% 6.14%
Borrowings rate....................... 6.88 5.37 6.10 5.58 7.66
Rate on interest-bearing
liabilities....................... 5.35% 4.22% 4.51% 4.73% 6.21%
Net interest margin................... 4.64% 4.63% 4.70% 4.31% 4.49%
</TABLE>
Provisions for Loan Losses
Years Ended December 31, 1994, 1993 and 1992
The provisions for loan losses are determined based upon an evaluation and
analysis by management of First Bank of the adequacy of the allowance for loan
losses. Provisions for loan losses are made in amounts to maintain the allowance
for loan losses at a level considered necessary to absorb estimated loan losses
in the loan portfolio. Factors which are considered are the quality of the
current loan portfolio, estimates and appraisals of collateral values,
historical charge-off experience, current economic conditions and such other
factors which, in the judgment of management, deserve consideration. The
appropriate level of provision for loan loss is reviewed quarterly by management
and the Board of Directors of First Bank.
For the year ended December 31, 1994, the provision for loan losses was
$0.3 million, approximately the same as 1993 and 1992.
Six Months Ended June 30, 1995 and 1994
For the six months June 30, 1995, the provision for loan losses was $0.2
million, approximately the same as the provision for the comparable period in
1994.
60
<PAGE>
Non-Interest Income
Years Ended December 31, 1994, 1993, and 1992
Non-interest income for the year ended December 31, 1994, was $2.8 million
as compared with $2.5 million for the year ended December 31, 1993, a $0.3
million or 12% increase. For the year ended December 31, 1993, non-interest
income decreased $1.1 million or 31% over the year ended December 31, 1992.
The table below summarizes the components of non-interest income.
<TABLE>
<CAPTION>
Six Months Ended % Change from
June 30, Year Ended December 31, Prior Year
------------------- ---------------------------- -------------------
1995 1994 1994 1993 1992 1994 1993
------- ------- ------- ------- ------- ------- -------
(In thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Service Charges on deposit
accounts................. $ 842 $ 778 $1,641 $1,658 $1,625 (1.03%) 2.03%
Gain on sale of assets of
subsidiary............... -- -- -- 1,067 -- (100.00)
Gain (loss) on sales of
securities............... -- 4 (55) (4) 206 1,275.00 (101.94)
Other......................... 856 519 1,256 887 778 41.60 14.01
------ ------ ------ ------ ------ --------- -------
Total.................... 1,698 1,301 2,842 2,541 3,676 11.85% (30.88%)
====== ====== ====== ====== ====== ========= =======
</TABLE>
The decrease for 1994 in service charges on deposit accounts was primarily
a result of the Omaha market promoting free checking very extensively. The
increase in the other category was largely due to an expanded ATM network
resulting in an increase in ATM fees.
For 1993, the increases in deposit service charges resulted primarily from
an increased customer base and increased volumes, and to a lesser extent, price
increases. The gain on sale of assets of subsidiary resulted from the sale of
assets of Northwestern State Bank in Hay Springs, Nebraska, in 1992. The
decrease in gains on sales of investment securities resulted from fewer sales in
the investment portfolio in 1993. The large increase in the other category was
the result of expanding the ATM network, creating an increase in ATM fees.
Six Months Ended June 30, 1995 and 1994
Non-interest income for the six months ended June 30, 1995, was $1.7
million, an increase of $0.4 million or 30% from the same period in 1994. The
service charges on deposit accounts increased due to a larger customer base,
lower earnings credit due to lower interest rates and an increase in prices on
some services. The large increase in other income is due primarily to the
continued expansion of the ATM network.
Non-Interest Expense
Years Ended December 31, 1994, 1993 and 1992
Non-interest expense for the year ended December 31, 1994, was $8.6 million
as compared with non-interest expense for the year ended December 31, 1993, of
$7.6 million for a $1.0 million or 13% increase. Non-interest expense for the
year ended December 31, 1993 reflected a $0.2 million increase or 3% over the
same period in 1992. The major components of non-interest expense are shown on
the table below:
61
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended % Change from
June 30, Year Ended December 31, Prior Year
------------------ ---------------------------- ---------------
1995 1994 1994 1993 1992 1994 1993
------ ------ ------ ------ ------ ------ ------
(In thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits.................... $2,185 $1,941 $4,202 $3,548 $3,389 18.43% 4.69%
Occupancy, net................... 680 732 1,416 1,222 1,185 15.88 3.12
Equipment and data
processing.................. 374 316 666 584 561 14.04 4.10
Other............................ 1,355 1,092 2,353 2,304 2,287 2.13 0.74
------ ------ ------ ------ ------ ------ ------
Total....................... $4,594 $4,081 $8,637 $7,658 $7,422 12.78% 3.18%
====== ====== ====== ====== ====== ====== ======
</TABLE>
For the year ended December 31, 1994, overall expense increases resulted
from additional ongoing expenses related to increased volume, general expansion
and inflationary increases. Salaries and benefits increased due to increased
profit sharing and salary adjustments. Depreciation and other expenses increased
due to expansion of facilities and also larger transaction volumes.
Six Months Ended June 30, 1995 and 1994
Non-interest expense for the six months ended June 30, 1995 increased $0.5
million or 13% over the same period in 1994. Increases occurred in salaries and
benefits due to a new branch and increased profit sharing. Increases occurred in
occupancy and equipment due to depreciation and expansion. The increase in other
non-interest expense was due primarily to the enlargement of the ATM network, a
new branch and FDIC insurance due to additional growth.
Tax Expense
Years Ended December 31, 1994, 1993 and 1992
Income taxes for the years ended December 31, 1994 and 1993 were $1.27
million and $0.94 million respectively. The effective income tax rate was 37% in
1994 and 36% in 1993.
Income taxes for the years ended December 31, 1993 and 1992 were $0.94
million and $1.31 million respectively. The effective tax rates in 1993 and 1992
were 36%.
Six Months Ended June 30, 1995 and 1994
Income taxes for the six months ended June 30, 1995 and 1994 were $0.75
million and $0.62 million, respectively. The effective income tax rate was 36%
for the first six months of 1995 as compared with an effective tax rate of 37%
for the first six months of 1994.
Loan Portfolio Review
MSI provides loans principally to businesses and consumers in the Omaha,
Nebraska area. MSI had total loans of approximately $149 million at December 31,
1994, which is an increase of $15 million or 11% over the amount at December 31,
1993. Most of the growth occurred in the commercial loan portfolio, although
real estate loans and equipment leases increased significantly as well. MSI's
portfolio is comprised of approximately 50% commercial and equipment finance,
10% real estate, 20% residential real estate and 20% in various types of
consumer loans.
At December 31, 1993, total loans were approximately $134 million, an
increase of $15 million or 22% over 1992. Most of this growth occurred in the
commercial loan portfolio.
62
<PAGE>
At June 30, 1995, total loans were approximately $162 million, an increase
of $14 million from the December 31, 1994 year-end balance. All categories
showed growth, with the exception of consumer and student loans; the student
loan portfolio of $2 million was sold during the first half of 1995.
Loan Portfolio Distribution
The following table presents certain information with respect to the
distribution of the loan portfolio.
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- ----------------- -----------------
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
-------- ------- -------- ------- -------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Commercial and
commercial
leasing............. $ 71,995 44.54% $ 67,337 45.34% $ 62,757 46.75% $ 48,654 44.37%
Consumer.............. 29,517 18.26 28,796 19.39 27,093 20.18 25,516 23.27
Real estate........... 50,044 30.96 43,190 29.08 37,868 28.21 32,247 29.41
Equipment leases...... 8,056 4.98 7,462 5.02 4,409 3.28 2,087 1.90
Overdrafts............ 2,028 1.25 1,744 1.17 2,120 1.58 1,152 1.05
Total loans (net of
unearned
income........... $161,640 100.00% $148,529 100.00% $134,247 100.00% $109,656 100.00%
</TABLE>
Allocation of Allowance for Loan Losses
The following table sets forth the allocation of the allowance for loan
losses for each of the periods indicated.
<TABLE>
<CAPTION>
June 30, December 31, December 31, December 31,
1995 1994 1993 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In thousands)
Commercial.................. $ 707 $ 731 $ 676 $ 585
Consumer.................... 71 94 85 179
Real estate................. 250 216 191 86
Equipment leases............ 252 235 205 101
Unallocated................. 533 465 359 273
-------- ------- ------- -------
Loan loss reserve total.. $ 1,813 $ 1,741 $ 1,516 $ 1,224
</TABLE>
Allowance for Loan Losses
The allowance for loan losses is maintained to reserve against inherent
loan losses. This allowance is subject to ongoing review and evaluation of the
risk profiles of the portfolio, specific exposures and general economic trends.
The allowance for loan losses at December 31, 1994, was $1.7 million or 1.17% of
loans outstanding as compared to $1.5 million or 1.11% of loans outstanding as
of December 31, 1993 and $1.2 million or 1.1% of loans outstanding as of
December 31, 1992. The allocations have been increased each year to provide for
growth in outstanding loan balances.
The allowance for loan losses at June 30, 1995 was $1.8 million or 1.10% of
loans outstanding, with increases in all categories from the comparable prior
year period.
63
<PAGE>
Analysis of Loan Loss Allowance
The following table presents certain information with respect to the loan
loss allowance.
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, ------------------------
1995 1994 1993 1992
---------- ------ ------ ------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Balance at beginning of period........ $1,741 $1,516 $1,224 $1,338
Allowance for losses related to the
sale of assets of subsidiary........ -- -- -- (208)
Provision for loan losses............. 162 296 300 300
Charge-offs:
Commercial.......................... 18 40 9 164
Consumer............................ 97 56 32 63
Overdrafts.......................... 5 15 26 19
------ ------ ------ ------
Total charge-offs................. 120 111 67 246
Recoveries:
Commercial.......................... 24 20 39 12
Consumer............................ 6 19 18 27
Overdrafts.......................... -- 1 2 1
------ ------ ------ ------
Total recoveries.................. 30 40 59 40
------ ------ ------ ------
Balance at end of period $1,813 $1,741 $1,516 $1,224
====== ====== ====== ======
Net charge-offs as a percentage of
average outstanding loans........... 0.06% 0.05% 0.01% 0.19%
</TABLE>
Net Charge-Offs
Net charge-offs for 1994 were $0.07 million or 0.05% of average outstanding
loans at December 31, 1994. The net charge-offs consisted of commercial, and
consumer installment loans.
Net charge-offs for 1993 were $0.01 million or 0.01% of average outstanding
loans and net charge-offs for 1992 were $0.2 million or 0.20% of outstanding
loans.
Net charge-offs for the first six months of 1995 were $0.09 million or
0.12% of average outstanding loans. Of the charge-offs, $0.08 million were
related to a $5 million credit card participation purchased from a correspondent
bank. This participation will be paid in full on September 30, 1995.
Non-Performing Assets
Non-performing assets include all non-accrual loans, restructured loans and
other real estate and assets owned. Non-performing assets have generally
decreased from 1991 to June 30, 1995. Non-performing assets at December 31,
1994, were $0.1 million compared to $0.06 million on June 30, 1995. Accruing
loans past due over 90 days reflected a material increase from December 31, 1994
to June 30, 1995; however, at 0.14% of total loans, the amount is insignificant.
64
<PAGE>
The following table presents certain information with respect to non-
performing assets.
<TABLE>
<CAPTION>
June 30, December 31, December 31, December 31,
1995 1994 1993 1992
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Non-accrual loans.......... $ 23 $ 67 $ 367 $ 407
Restructured loans......... 0 0 0 0
Total non-performing
loans.................... 23 67 367 407
Other real estate 0 36 40 0
-------- ------------ ------------ ------------
Total non-performing
assets................. $ 23 $ 103 $ 407 $ 407
Accruing loan 90 days or
more past due............ $ 232 $ 20 $ 366 $ 23
Total loans.............. $161,640 $148,529 $134,247 $109,656
Non-performing loans to
total loans.............. 0.01% 0.05% 0.27% 0.37%
</TABLE>
Securities Portfolio
The following table presents certain information with respect to the
securities portfolio.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, -------------------------
1995 1994 1993 1992
---------- ------- ------- -------
<S> <C> <C> <C> <C>
(Dollars in thousands)
U.S. government........................ $ 5,014 $ 6,963 $ 9,299 $13,861
U.S. agencies.......................... 31,691 32,556 26,943 21,275
State and political.................... 2,601 2,339 1,770 3,597
Other securities....................... 50 50 2,367 3,179
Other investments...................... 4,005 3,864 4,797 3,094
Total................................ $43,361 $45,772 $45,176 $45,006
Average period balance................. $45,135 $46,434 $47,962 $50,535
Average Yield--TE...................... 6.71% 5.82% 5.98% 7.58%
</TABLE>
The December 31, 1994 securities portfolio of approximately $45.8 million
consisted of $33.9 million in available-for-sale securities and $11.9 million in
held-to-maturity securities. The total amount of investment securities increased
from $45.2 million to $45.8 million from December 31, 1993 to December 31, 1994.
During that same time period, the percentage of investments in U.S. Government
and Agencies securities grew from 80% of the securities portfolio to 86%. The
increase was primarily in mortgage-backed securities.
From December 31, 1994, to June 30, 1995, the securities portfolio
decreased from $45.8 million to $43.4 million, with the decrease primarily in
U.S. government and U.S. agencies securities. At June 30, 1995, the securities
portfolio consisted of $32.7 million in available-for-sale securities and $10.7
million in held-to-maturity securities. The decrease in the portfolio balance
was a result of an increase in lending opportunities.
65
<PAGE>
The total securities portfolio increased from $45.0 million on December 31,
1992 to $45.2 million at December 31, 1993.
Deposit Distribution
The following table presents certain information with respect to
distribution of deposits.
<TABLE>
<CAPTION>
Year Year Year
Six Months Ended Ended Ended % Change
Ended Dec. 31, Dec. 31, Dec. 31, 1994 to 1995 % Change
June 30, 1995 1994 1993 1992 (June 30) 1993 to 1994
------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Non-interest bearing demand........ $ 41,370 $ 47,137 $ 40,593 $ 35,451 (12.23%) 16.12%
Interest bearing:
Transaction accounts............. 39,383 38,342 37,362 35,111 2.72 2.62
Money market savings............. 21,663 22,897 27,095 28,749 (5.39) (15.49)
Other savings.................... 11,901 12,351 12,594 11,161 (3.64) (1.93)
Savings certificates............. 82,443 67,021 58,313 52,735 23.01 14.93
CDs over $100,000................ 13,215 10,401 6,299 5,190 27.06 65.12
Total interest bearing............. $ 168,605 $151,012 $141,663 $132,946 11.65 6.60
Total average deposits............. $ 197,655 $182,755 $169,589 $155,039 8.15 7.76
Period-end deposits................ $ 209,975 $198,149 $182,256 $168,397 5.97 8.72
</TABLE>
Average deposits in 1994 were $183 million, a $13 million or 7.8% increase
over 1993. Such increase was principally a result of an increase in the number
of accounts. In 1994, continued growth was experienced in almost all categories
except money market savings and other savings.
For the first six months of 1995, average deposits increased 8.2% from the
1994 levels. The increase was due to opening a new branch and continued growth.
Short-Term Borrowings
Short-term borrowings consist of federal funds purchased, securities sold
under agreements to repurchase, treasury, tax and loan deposits and borrowings
from the Federal Home Loan Bank. The following table presents certain unaudited
information with respect to short-term borrowings.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ------------------------------
1995 1994 1993 1992
---------- -------- -------- --------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Federal funds purchased and securities
sold under agreements to repurchase........ $ -- $ -- $ -- $ 1,721
Treasury tax and loan note................... 587 1,374 1,364 1,356
Federal home loan bank note.................. 5,000 5,000 -- --
---------- -------- -------- --------
Total...................................... $ 5,587 $ 6,374 $ 1,364 $ 3,077
========== ======== ======== ========
Period Average............................... $ 6,509 $ 3,173 $ 1,236 $ 2,554
========== ======== ======== ========
</TABLE>
Federal funds are purchased from a correspondent bank at prevailing
interest rates. Securities were sold to bank customers under repurchase
agreements at prevailing market rates until discontinued in 1993. A short-term
borrowing was done with the Federal Home Loan Bank in 1994 to fund a specific
short-term investment, and will be paid in July, 1995.
66
<PAGE>
Federal Funds Purchased and Sold Under Agreements to Repurchase
(unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ------------------------------
1995 1994 1993 1992
----------- -------- -------- --------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Average amounts outstanding
during year........................... $ 603 $ 1,078 $ 333 $ 1,676
Average interest rate on amounts
outstanding during year............... 6.24% 4.26% 3.21% 3.87%
</TABLE>
While it is the objective of MSI to fund itself principally with core
deposits, short-term borrowings represent an important additional source of
funding. In the normal course of providing banking services to customers, First
Bank purchases federal funds from a correspondent bank. Accordingly, balances in
this account will fluctuate depending on customer needs.
Since 1992, average short-term borrowings have provided approximately 3.3%
or less of the total average fundings of MSI.
As of June 30, 1995, total short-term borrowings were $5.6 million, down
$0.8 million or approximately 12% from December 31, 1994, due to the lower
treasury, tax and loan note balance.
Capital Resources
At December 31, 1994, common equity was $13.9 million, a 6% increase over
December 31, 1993, due to retention of earnings. At June 30, 1995, common equity
had increased from the December 31, 1994 balance to $16,098, a $.221 million or
15.9% increase.
Capital Ratios
The following table sets forth certain information as to the capital ratios
as of the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31, December 31, December 31,
1995 1994 1993 1992
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Common Equity..................... $ 16,098 $ 13,889 $ 13,141 $ 11,368
As a percent of assets.......... 6.80% 6.21% 6.5% 6.01%
Tier 1 capital.................... 13,620 12,189 11,352 9,539
As a percent of risk
adjusted assets................ 8.15% 8.07% 8.45% 7.77%
Total risk-based capital.......... 15,433 13,930 12,868 10,763
As a percent of risk
adjusted assets................ 9.23% 9.23% 9.57% 8.77
Leverage ratio.................... 5.66% 5.54% 5.90% 4.99%
</TABLE>
In 1989, the Federal Reserve Board adopted supervisory risk-based capital
ratios to provide capital adequacy standards for U.S. banking organizations. The
guidelines provided for a transition implementation period that ended at the end
of 1992 with required ratios increasing from 1990-1992. Under these guidelines,
at December 31, 1993, the minimum Tier 1 capital ratio is 4% and the minimum
total risk adjusted capital ratio is 8%. As shown in the table above, Tier 1 and
total risk-adjusted capital ratios were 8.07% and 9.23%, respectively, at
December 31, 1994, and 8.15% and 9.23%, respectively, at June 30, 1995.
67
<PAGE>
In late 1990, the Federal Reserve Board of Governors adopted a new minimum
leverage ratio of 3% Tier 1 capital to total assets. The definition of Tier 1
capital for the leverage ratio is the same as the December 31, 1992 Tier 1
capital definition in the risk-based capital guidelines. However, the new
leverage ratio establishes 3% as a minimum at which only the top-rated banking
organizations with a composite rating of "1" may operate. other institutions
will be required to maintain leverage ratios generally in the range of at least
100 to 200 basis points above the minimum level. At June 30, 1995, December 31,
1994, and December 31, 1993, the leverage ratio was 5.66%, 5.54% and 5.90%,
respectively.
Interest Rate Risk Management
Interest rate risk is the exposure of earnings and capital arising from
changes in interest rates. The objective of interest rate management is to
maximize net interest income while protecting net interest income from the
effect of adverse movements in the level of interest rates and the shape of the
yield curve.
It is the responsibility of the Asset Liability Committee ("ALCO") of First
Bank to monitor and manage its exposure to net interest income due to
fluctuating interest rates. ALCO operates under policies to review and monitor
the composition of the balance sheet generally and for specific management of
investment assets, purchased liabilities and off-balance sheet transactions.
ALCO attempts to achieve stable net interest margins by matching the balance of
assets and liabilities maturing or repricing in given periods and by adjusting
rates to market conditions and changing interest rates.
Interest sensitivity is measured by gaps, defined as the difference between
interest-sensitive assets and interest-sensitive liabilities within any specific
time horizon. A gap ratio greater than one, or asset sensitivity, generally
indicates that net interest income will improve if interest rates rise. The
opposite would be true in the case of gap ratio of less than one, or liability
sensitivity.
It is the policy of First Bank to manage the balance sheet to keep the
cumulative one year gap approaching a 1:1 ratio. On June 30, 1995, the
cumulative one-year gap was .68. The following table reflects First Bank data as
it is the only bank in the holding company.
68
<PAGE>
Interest Rate Sensitivity Analysis--June 30, 1995
<TABLE>
<CAPTION>
More Not
0-3 4-12 1-5 Than Rate
Months Months Years 5 Years Related Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Commercial and commercial
real estate.................. $ 44,694 $ 16,176 $ 37,956 $ 530 $ -- $ 99,356
Real estate - construction..... 7,539 0 0 0 -- 7,539
Real estate - residential...... 7,019 6,774 15,327 1,296 -- 30,416
Consumer....................... 3,863 8,416 3,994 0 -- 16,273
Leases......................... 450 1,200 6,406 0 -- 8,056
Total loans.................... 63,565 32,566 63,683 1,826 -- 161,640
Investments.................... 9,748 8,967 20,152 4,774 -- 43,641
Unrealized gain (loss) mark
to market.................... (280) -- -- -- -- (280)
Federal funds sold............. 7,515 -- -- -- -- 7,515
Cash and due from banks........ -- -- -- -- 14,839 14,839
Fixed assets................... -- -- -- -- 6,717 6,717
Other assets................... -- -- -- -- 2,257 2,257
-------- -------- -------- -------- -------- --------
Total assets.............. $ 80,548 $ 41,533 $ 83,835 $ 6,600 $ 23,813 $236,329
======== ======== ======== ======== ======== ========
Demand deposits................ $ -- $ -- $ -- $ -- $ 41,384 $ 41,384
Now accounts................... 39,382 -- -- -- -- 39,382
Money market investment........ 21,663 -- -- -- -- 21,663
Savings accounts............... 11,901 -- -- -- -- 11,901
Certificates of deposit........ 29,168 30,589 35,901 -- -- 95,658
Total deposits................. 102,114 30,589 35,901 -- 41,384 209,988
Other borrowings............... 5,587 -- -- -- -- 5,587
Long term borrowings........... 30 30 236 235 -- 531
Other liabilities.............. -- -- -- -- 1,709 1,709
Total capital.................. -- -- -- -- 18,514 18,514
-------- -------- -------- -------- -------- --------
Total liabilities and capital.. $107,731 $ 30,619 $ 36,137 $ 235 $ 61,607 $236,329
======== ======== ======== ======== ======== ========
Excess repricing assets........ $(27,183) $ 10,914 $ 47,698 $ 6,365 $(37,794)
Cumulative repricing gap....... $(27,183) $(16,269) $(31,429) $(37,794) $ 0
Rate sensitive assets/rate
sensitive liabilities........ 0.75% 1.36% 2.32% 28.09% 0.39%
Cumulative gap................. 0.75% 0.88% 1.18% 1.22% 1.00%
</TABLE>
Liquidity
The objective of liquidity management is to ensure that sufficient funds
are available to meet customers' needs for loans and deposit withdrawals as well
as corporate needs and to respond to these needs promptly and economically. ALCO
is responsible for managing liquidity and meets regularly to review funding
needs and excess funding positions and monitors the availability of additional
funding sources to ensure a balance sheet structure that provides adequate
liquidity. The core funding is provided by its stable base of core deposits.
Core deposits include demand deposits, interest checking, savings accounts,
money market deposits and certificates of deposit less than $100,000. Liquidity
is also provided by payments on outstanding loans and maturity of investments.
At December 31, 1994, liquidity was adequate. Core deposits constituted
95.0% of total deposits and covered loans 1.27 times. The dependence on
wholesale funding liabilities (CD's greater than $100,000, federal funds
purchased, securities sold under agreements to repurchase and all other
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borrowings) was 9.05% of total assets and CD's greater than $100,000 funded
4.40% of total assets. Additionally, investments maturing within one year,
together with federal funds sold comprised 3.938% of total assets.
At June 30, 1995, liquidity remained adequate with core deposits
constituting 93.7% of total deposits, wholesale funding liabilities constituting
9.53% of total assets, CD's greater than $100,000 funding 5.58% of total assets
and investment securities maturing within one year plus federal funds sold
comprising 5.15% of total assets.
DESCRIPTION OF FBS CAPITAL STOCK
The following description of the capital stock of FBS does not purport to
be complete and is subject, in all respects, to applicable Delaware law and to
the provisions of the FBS Certificate of Incorporation. The following
description is qualified by reference to the FBS Certificate of Incorporation,
the certificate of designation for each series of preferred stock of FBS, and
the agreements and documents referred to below under "--Common Stock--Preferred
Stock Purchase Rights" and "--Periodic Stock Purchase Rights and Risk Event
Warrants," copies of which are incorporated by reference as exhibits to the
Registration Statement of which this Proxy Statement/Prospectus is a part.
General
The authorized capital stock of FBS consists of 200,000,000 shares of FBS
Common Stock, par value $1.25 per share, and 10,000,000 shares of preferred
stock, par value $1.00 per share ("preferred stock of FBS"). Under the FBS
Certificate of Incorporation, the Board of Directors of FBS or a duly authorized
committee thereof has the power, without further action by the shareholders
unless action is required by applicable laws or regulations or by the terms of
outstanding preferred stock of FBS, to provide for the issuance of preferred
stock in one or more series and to fix the voting rights, designations,
preferences, and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, by adopting a resolution or
resolutions creating and designating such series. As of June 30, 1995, there
were 2,113,700 shares of preferred stock of FBS outstanding, having an aggregate
liquidation preference of $105.7 million, and 1,412,750 shares of preferred
stock of FBS reserved for issuance. At June 30, 1995, 135,632,324 shares of FBS
Common Stock were issued and outstanding (including 2,212,758 shares held in
treasury), 8,293,286 shares were reserved for issuance under the FBS employee
plans and dividend reinvestment plan, 3,647,401 shares were reserved for
issuance upon conversion of the Series 1991A Convertible Preferred Stock
described below, and 15,000,000 shares were reserved for issuance upon exercise
of the Periodic Stock Purchase Rights and Risk Event Warrants described below.
Preferred Stock
General. FBS presently has one series of preferred stock issued and
outstanding and two series of preferred stock authorized for future issuance.
The Series 1991A Convertible Preferred Stock, which is issued and outstanding,
and the Series 1990A Preferred Stock, which is authorized for future issuance as
described below, rank on a parity with one another. The Series A Junior
Participating Preferred Stock (the "Junior Preferred Stock"), which is
authorized for future issuance as described below, ranks junior to the other two
series of preferred stock.
Series 1990A Preferred Stock. In connection with the sale by FBS of
12,600,000 shares of FBS Common Stock and accompanying periodic stock purchase
rights and risk event warrants in a private placement in July 1990, FBS may
under certain circumstances be obligated to issue up to 12,750 shares of Series
1990A Preferred Stock. See "--Common Stock--Periodic Stock Purchase Rights and
Risk Event Warrants" below. The shares of Series 1990A Preferred Stock would, if
issued, provide for a
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liquidation preference of $100,000 per share, and the dividend rate would be
adjusted quarterly and would be determined at the time of issuance. If, at the
time of any annual meeting of shareholders for the election of directors, the
amount of accrued but unpaid dividends on the Series 1990A Preferred Stock were
equal to at least six quarterly dividends on such series, then the number of
directors of FBS would be increased by one and the holders of such series,
voting separately as a series, would be entitled to elect one additional
director who would continue to serve the full term for which he or she would
have been elected, notwithstanding the declaration or payment of any dividends
on such series of preferred stock. Holders of Series 1990A Preferred Stock would
not have any other voting rights, except as described under "--Preferred Stock
Voting Rights" below.
Series 1991A Convertible Preferred Stock. In November 1991, FBS issued in a
public offering 2,290,000 shares of its Series 1991A Convertible Preferred Stock
and 2,113,700 of such shares remained outstanding at June 30, 1995. Such shares
bear a dividend rate of 7.125% per annum of the liquidation preference per
share. The shares of Series 1991A Convertible Preferred Stock are convertible at
the option of the holder at any time at the rate of 1.7256 shares of FBS Common
Stock for each such share, which is equivalent to a conversion price of $28.975
per share of FBS Common Stock. The conversion rate is subject to adjustment upon
the occurrence of specified events. The shares of Series 1991A Convertible
Preferred Stock are not subject to any sinking fund provisions and have no
preemptive rights. Such shares provide for a liquidation preference of $50 per
share plus accrued and unpaid dividends, and are subject to redemption upon at
least 30 days' notice, at the option of FBS at any time on or after January 1,
1996 at a redemption price equal to $52.1375 per share, declining to $50 per
share on or after January 1, 2002, plus in each case accrued and unpaid
dividends; provided, however, that the shares of Series 1991A Convertible
Preferred Stock are not redeemable in part in the event that full cumulative
dividends have not been paid. Holders of Series 1991A Convertible Preferred
Stock do not have any voting rights, except as described under "--Preferred
Stock Voting Rights" below.
Junior Preferred Stock. FBS has issued preferred stock purchase rights to
holders of FBS Common Stock entitling such holders, under specified conditions,
to purchase Junior Preferred Stock of FBS. See "--Common Stock--Preferred Stock
Purchase Rights" below. If issued, each share of Junior Preferred Stock would
have a minimum liquidation preference of $100 per share plus accrued and unpaid
dividends and would be entitled to an aggregate payment equal to the liquidation
payment made on 100 shares of FBS Common Stock. In addition, each share of
Junior Preferred Stock would have a minimum preferential quarterly dividend
payment of $1.00 per share but would be entitled to an aggregate payment equal
to the dividends declared on 100 shares of FBS Common Stock. The shares of
Junior Preferred Stock would not be entitled to the benefit of any sinking fund
and would not be redeemable. Each share of Junior Preferred Stock would have 100
votes, voting together with the FBS Common Stock.
Preferred Stock Voting Rights. The following voting provisions apply to all
series of the preferred stock of FBS other than the Junior Preferred Stock. The
voting rights of the Junior Preferred Stock, and certain additional voting
rights of the Series 1990A Preferred Stock, are described above under "--Series
1990A Preferred Stock" and "--Junior Preferred Stock."
If, at the time of any annual meeting of shareholders for the election of
directors, the amount of accrued but unpaid dividends on any preferred stock of
FBS is equal to at least six quarterly dividends on such series of preferred
stock of FBS, the number of the directors of FBS will be increased by two and
the holders of all outstanding series of preferred stock of FBS (excluding the
Series 1990A Preferred Stock), voting as a single class without regard to
series, will be entitled to elect such additional two directors until all
dividends in default on all preferred stock of FBS have been paid or declared
and set apart for payment.
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The affirmative vote or consent of the holders of at least two-thirds of
the outstanding shares of any series of the preferred stock of FBS, voting as a
class, will be required for any amendment of the FBS Certificate of
Incorporation (including any certificate of designation or any similar document
relating to any series of preferred stock of FBS) which will adversely affect
the powers, preferences, privileges or rights of such series of preferred stock.
The affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of any series of preferred stock of FBS, voting as a single
class without regard to series, will be required to issue, authorize, or
increase the authorized amount of, or issue or authorize any obligation or
security convertible into or evidencing a right to purchase, any additional
class or series of stock ranking prior to such series of preferred stock as to
dividends or upon liquidation.
Additional Provisions. The rights of holders of FBS Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. Any such issuance may
adversely affect the interests of holders of the FBS Common Stock by limiting
the control which such holders may exert by exercise of their voting rights, by
subordinating their rights in liquidation to the rights of the holders of the
preferred stock of FBS, and otherwise. In addition, the issuance of preferred
stock of FBS may, in some circumstances, deter or discourage takeover attempts
and other changes in control of FBS, including takeovers and changes in control
which some holders of the FBS Common Stock may deem to be in their best
interests and in the best interests of FBS, by making it more difficult for a
person who has gained a substantial equity interest in FBS to obtain voting
control or to exercise control effectively. FBS has no current plans or
agreements with respect to the issuance of any shares of preferred stock except
as described above with respect to the Series 1990A Preferred Stock.
The FBS Certificate of Incorporation requires the affirmative vote of the
holders of 80% of the Voting Stock (as defined therein) of FBS to approve
certain mergers, consolidations, reclassifications, dispositions of assets or
liquidation, involving or proposed by certain significant shareholders, unless
certain price and procedural requirements are met or unless the transaction is
approved by the Continuing Directors (as defined therein). In addition, the FBS
Certificate of Incorporation provides for classification of the Board of
Directors into three separate classes and authorizes action by the shareholders
of FBS only pursuant to a meeting and not by a written consent. The Bylaws of
FBS provide that special meetings of shareholders may be called only by the
Board of Directors or the chief executive officer. The overall effect of these
provisions may be to delay or prevent attempts by other corporations or groups
to acquire control of FBS without negotiation with the Board of Directors.
Common Stock
General. Each share of FBS Common Stock is entitled to such dividends as
may from time to time be declared by the Board of Directors from any funds
legally available for dividends. FBS may not declare any cash dividends on, or
make any payment on account of, the purchase, redemption or other retirement of,
FBS Common Stock unless full dividends (including accumulated dividends, if
applicable) have been paid or declared or set apart for payment upon all
outstanding shares of the preferred stock of FBS and FBS is not in default or in
arrears with respect to any sinking or other analogous fund or other agreement
for the purchase, redemption or other retirement of any shares of preferred
stock of FBS. Holders of FBS Common Stock are entitled to one vote per share.
Shareholders do not have the right to cumulate their votes in the election of
directors. FBS Common Stock has no conversion rights and the holders of FBS
Common Stock have no preemptive or other rights to subscribe for additional
securities of FBS. In the event of liquidation of FBS, after the payment or
provision for payment of all debts and liabilities and subject to the rights of
the holders of preferred stock of FBS which may be outstanding, the holders of
FBS Common Stock will be entitled to share ratably in the remaining assets of
FBS. Shares of FBS Common Stock are fully paid and nonassessable. The shares of
FBS Common Stock are listed on the NYSE.
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Preferred Stock Purchase Rights. On December 21, 1988, the Board of
Directors of FBS declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of FBS Common Stock. The dividend was paid
on January 4, 1989 to the FBS shareholders of record on that date. Each holder
of shares of FBS Common Stock issued upon consummation of the Merger will
receive one Right for each share of FBS Common Stock.
Each Right initially entitles the registered holder to purchase from FBS
one one-hundredth of a share of Junior Preferred Stock of FBS at a price of
$80.00, subject to adjustment (the "Purchase Price"). The Rights are not and
will not be exercisable or represented by separate certificates until 10 days
following the earlier of a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") have acquired
beneficial ownership of 20% or more of the outstanding shares of FBS Common
Stock or have commenced or announced an intention to make a tender offer or
exchange offer for 20% or more of such outstanding shares of FBS Common Stock
(the earlier of such dates being called the "Distribution Date"). In the event
that any person or group of affiliated or associated persons becomes the
beneficial owner of 20% or more of the outstanding shares of FBS Common Stock,
each Right (other than any Right held by a person or group of affiliated or
associated persons beneficially owning 20% or more of the outstanding shares of
FBS Common Stock, which Rights will thereafter be void) will thereafter entitle
the holder to receive upon exercise that number of shares of FBS Common Stock
having a market value of twice the Purchase Price. In addition, in such event,
the Board of Directors of FBS will thereafter be entitled to exchange the
outstanding Rights (other than any Right held by an Acquiring Person, which
Right shall thereafter be void), in whole or in part, for shares of FBS Common
Stock or Junior Preferred Stock at an exchange ratio of one share of FBS Common
Stock, or one one-hundredth of a share of Junior Preferred Stock, per Right.
In the event that FBS is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
each Right will thereafter entitle the holder to receive upon exercise that
number of shares of common stock of the acquiring company having a market value
of twice the Purchase Price.
Prior to the Distribution Date, the Rights cannot be transferred apart from
FBS Common Stock and are represented solely by the FBS Common Stock
certificates. As soon as practicable following the Distribution Date, separate
certificates representing the Rights will be mailed to holders of record of
shares of FBS Common Stock as of such date, and the Rights could then begin to
trade separately from FBS Common Stock.
The Rights do not have any voting rights and are not entitled to dividends.
The terms of the Rights may be amended without the consent of the holders,
provided that, after a person becomes an Acquiring Person, such amendment may
not adversely affect the interests of the holders.
The terms of the Junior Preferred Stock issuable upon exercise of Rights
are described above under "--Preferred Stock--Junior Preferred Stock."
The Rights are not exercisable until the Distribution Date. The Rights will
expire on the earlier of (a) the date which is 24 months after the first date
upon which FBS can generally be acquired by bank holding companies, and FBS is
generally permitted to acquire banks, principally located in at least fifteen of
the twenty states which as of September 30, 1992 had the largest amount of bank
deposits or (b) January 4, 1999, unless, before that date, all of the Rights are
either redeemed by FBS at a price of $.01 per Right prior to the acquisition by
a person or group of affiliated or associated persons of beneficial ownership of
20% or more of the outstanding shares of FBS Common Stock, or are exchanged by
FBS for shares of FBS Common Stock or Junior Preferred Stock as described above.
It is currently anticipated that the first date on which FBS can generally be
acquired by bank holding companies, and FBS is generally permitted to acquire
banks, principally located in at least fifteen of the twenty states which as of
September 30, 1992 had the largest amount of bank deposits will be in July 1996.
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The Rights may have certain anti-takeover effects. The Rights may cause
substantial dilution to an Acquiring Person if it attempts to merge with, or
engage in certain other transactions with, FBS. The Rights should not, however,
interfere with any merger or other business combination approved by the Board of
Directors of FBS prior to the occurrence of the Distribution Date because the
Rights may be redeemed prior to such time.
The complete terms of the Rights are set forth in a Rights Agreement, dated
as of December 21, 1988, as amended, between FBS and First Chicago Trust Company
of New York (formerly Morgan Shareholder Services Trust Company), as Rights
Agent (the "Rights Agreement"). The description of the Rights set forth herein
does not purport to be complete and is qualified in its entirety by reference to
the complete Rights Agreement, a copy of which is incorporated by reference as
an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
Periodic Stock Purchase Rights and Risk Event Warrants. On May 30, 1990,
FBS entered into (i) a Stock Purchase Agreement, dated as of May 30, 1990 (the
"Stock Purchase Agreement"), by and among Corporate Partners, L.P. ("Corporate
Partners"), Corporate Offshore Partners, L.P. ("Offshore" and, together with
Corporate Partners, the "Partnerships"), The State Board of Administration of
Florida ("State Board") solely in its capacity as a managed account and not in
its individual capacity (State Board and the Partnerships being referred to
herein collectively as the "Purchasers"), Corporate Advisors, L.P. and FBS and
(ii) a Stock Purchase Agreement, dated as of May 30, 1990 (the "Florida Stock
Purchase Agreement"), by and between State Board in its individual capacity and
FBS. Pursuant to the Stock Purchase Agreement, FBS sold (a) to Corporate
Partners 8,856,241 shares of FBS Common Stock, ten Periodic Stock Purchase
Rights (each a "PSPR") and one Risk Event Warrant, (b) to Offshore 643,976
shares of FBS Common Stock, ten PSPRs and one Risk Event Warrant, and (c) to
State Board 939,783 shares of FBS Common Stock, ten PSPRs and one Risk Event
Warrant. Pursuant to the Florida Stock Purchase Agreement, FBS sold to State
Board 2,160,000 shares of FBS Common Stock, ten PSPRs and one Risk Event
Warrant. Effective as of May 30, 1990, FBS and First Chicago Trust Company of
New York entered into Amendment No. 1 to the Rights Agreement to exclude the
acquisition of shares of FBS Common Stock by the Purchasers and State Board
pursuant to the Stock Purchase Agreement and the Florida Stock Purchase
Agreement, respectively, and the transactions contemplated thereby and certain
other transactions from the operation of the Rights Agreement. See "--Preferred
Stock Purchase Rights" above.
The Stock Purchase Agreement and the Florida Stock Purchase Agreement
contain transfer restrictions with respect to the shares of FBS Common Stock
acquired thereunder and standstill provisions limiting further acquisitions of
FBS Common Stock by the Purchasers and State Board. The Stock Purchase Agreement
and the Florida Stock Purchase Agreement also grant each of the Purchasers and
State Board the right to purchase its pro rata share of any Voting Securities
(as defined) sold by FBS for cash, subject to certain exceptions. Pursuant to
the Stock Purchase Agreement, the Purchasers have designated one person to act
as a non-voting observer of the Board of Directors of FBS.
Each PSPR issued to the Purchasers and State Board relates to a specific
twelve-month period commencing with the twelve-month period following closing of
the transactions contemplated under the Stock Purchase Agreement and the Florida
Stock Purchase Agreement. Each PSPR shall become exercisable in the event that a
Dividend Shortfall (as defined) exists for the specific twelve-month period to
which such PSPR relates. A Dividend Shortfall will be deemed to exist to the
extent that FBS has not paid a cash dividend equal to $0.205 per share of FBS
Common Stock for each quarter within such twelve-month period. The PSPRs will be
exercisable for that number of shares of FBS Common Stock or (subject to the
prior approval of the Federal Reserve Board) depositary shares representing one
one-thousandth of a share of Series 1990A Preferred Stock ("Depositary Shares")
such that the holders of PSPRs will receive value equal to the Dividend
Shortfall. Once a PSPR has become exercisable, it will remain exercisable for a
one-year period at an exercise price of $1.25 per share of
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FBS Common Stock or $1.00 per Depositary Share. If a PSPR were to become
exercisable and were not redeemed by FBS as described below, the issuance of
Depositary Shares or FBS Common Stock upon exercise of a PSPR could adversely
affect the market price of the FBS Common Stock. If the PSPRs were to be
exercised for FBS Common Stock, there could be substantial dilution of the FBS
Common Stock.
Each Risk Event Warrant shall become exercisable in the event of certain
defined change of control events with respect to FBS where the value received by
holders of the FBS Common Stock is less than $13.875 per share, or in certain
circumstances in the event the FBS Common Stock is valued at less than $13.875
per share on the tenth anniversary of the closing of the transactions
contemplated under the Stock Purchase Agreement. The Risk Event Warrants will be
exercisable for that number of shares of FBS Common Stock at an exercise price
of $1.25 per share or, in certain circumstances (subject to the prior approval
of the Federal Reserve Board), Depositary Shares such that the holders of Risk
Event Warrants will receive value equal to such shortfall. If the Risk Event
Warrants were to become exercisable and were not redeemed by FBS as described
below, the issuance of Depositary Shares or FBS Common Stock upon exercise of a
Risk Event Warrant could adversely affect the market price of the FBS Common
Stock. If the Risk Event Warrants were to be exercised for FBS Common Stock,
there could be substantial dilution of the FBS Common Stock. In the event of a
change in control at a time when the market price of the FBS Common Stock is
less than $13.875 per share, the Risk Event Warrants may have the effect of
reducing the price per share to be received by the holders of the FBS Common
Stock.
In the event of the exercise of a Risk Event Warrant upon the occurrence of
certain change of control events, FBS may, at its option (subject to the prior
approval of the Federal Reserve Board), elect to have such Risk Event Warrant
become exercisable for other securities of FBS acceptable to the holder of such
Risk Event Warrant in lieu of the shares of FBS Common Stock for which such Risk
Event Warrant would otherwise become exercisable. In addition, FBS has the right
(subject to the prior approval of the Federal Reserve Board) to redeem any PSPR
at a price equal to the Dividend Shortfall and any Risk Event Warrant at a price
equal to the Value Shortfall (as defined) or the Termination Shortfall Amount
(as defined), as applicable, after such PSPR or Risk Event Warrant, as the case
may be, shall have become exercisable. FBS also has entered into a registration
rights agreement with the Purchasers and with State Board pursuant to which the
Purchasers and State Board, respectively, are granted certain rights to cause
FBS to register with the Commission the FBS Common Stock acquired pursuant to
the Stock Purchase Agreement and the Florida Stock Purchase Agreement and the
securities acquired upon exercise of the PSPRs and the Risk Event Warrants.
The foregoing is a summary of the transactions contemplated by the Stock
Purchase Agreement and the Florida Stock Purchase Agreement and related
documents and is qualified in its entirety by the more detailed information
contained in such agreements and documents, copies of which are incorporated by
reference as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
DESCRIPTION OF MSI CAPITAL STOCK
The following description of the capital stock of MSI does not purport to
be complete and is subject, in all respects, to applicable Nebraska law and to
the provisions of the MSI Articles of Incorporation. The following description
is qualified by reference to the MSI Articles of Incorporation, a copy of which
is included as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
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General
The authorized capital stock of MSI consists of 80,000 shares of MSI Common
Stock, par value $3.50 per share; 35,000 shares of Class A 6% Non-Voting, Non-
Participating, Cumulative, Non-Convertible Preferred Stock, par value $3.00 (the
"MSI Class A Preferred Stock"); and 23,500 shares of Class B Non-Voting, Non-
Participating, Cumulative, Non-Convertible Preferred Stock, par value $100.00
(the "MSI Class B Preferred Stock"). As of June 30, 1995, there were 76,386.030
shares of MSI Common Stock issued and outstanding, 35,000 shares of MSI Class A
Preferred Stock issued and outstanding, having an aggregate liquidation
preference of $_____, and no shares of MSI Class B Preferred Stock issued and
outstanding. Pursuant to the Merger Agreement, MSI is required to redeem all
outstanding shares of its Class A Preferred Stock prior to the Effective Date.
See "The Merger --Conduct of MSI Business Pending the Merger."
No holder of any series or class of MSI capital stock has any preemptive
rights to subscribe for or purchase any securities of MSI. Under Nebraska law,
the affirmative vote of the holders of two-thirds of the shares entitled to vote
thereon is required to amend MSI's Articles of Incorporation.
Preferred Stock
General. MSI presently has one series of preferred stock issued and
outstanding and one series of preferred stock authorized for future issuance.
The MSI Class A Preferred Stock, which is issued and outstanding, ranks junior
to the MSI Class B Preferred Stock, which is authorized for future issuance, as
described below.
MSI Class A Preferred Stock. The MSI Class A Preferred Stock has priority
over all shares of MSI Common Stock as to the payment of dividends and the
distribution of the assets of MSI upon the liquidation, distribution or winding
up of MSI, but is junior to the MSI Class B Preferred Stock as to such rights.
The MSI Class A Preferred Stock has an annual preferential dividend rate of 6%
of the par value per share, or $.18 per share, payable on January 5 of each
year. Such dividends are cumulative from the date of issue, with any deficiency
in payment to bear interest from the payment due date at a rate equal to the
respective dividend rate in effect for each year during which the default
continues. Dividends may only be declared on the MSI Common Stock when the full
dividend upon the MSI Class A Preferred Stock for all past dividend periods and
for the then-current dividend period shall have been paid in full. MSI has the
right to call all, but not less than all, of the MSI Class A Preferred Stock for
redemption at any time by paying in cash the par value of the MSI Class A
Preferred Stock plus accrued dividends, and interest accrued thereon, if any,
prorated to the date fixed for redemption. In the event of any liquidation,
dissolution or winding up of the affairs of MSI, the holders of MSI Class A
Preferred Stock are entitled, before the assets of MSI are distributed among or
paid over to the holders of the MSI Common Stock, to be paid the par value of
such MSI Class A Preferred Stock together with a sum of money equivalent to
dividends at the stipulated rate from the date of issuance to the date of
payment, less the amount of dividends theretofore paid, and no more. If the
assets of MSI are insufficient to permit payment of such amount, the entire
assets of MSI shall be distributed ratably among the holders of the MSI Class A
Preferred Stock then issued and outstanding.
MSI Class B Preferred Stock. The MSI Class B Preferred Stock has priority
over all shares of MSI Common Stock and MSI Class A Preferred Stock as to the
payment of dividends and the distribution of the assets of MSI upon the
liquidation, distribution or winding up of MSI. The MSI Class B Preferred Stock
has an annual preferential dividend rate of 9% of the par value per share, or
$9.00 per share, payable on January 5 of each year. Such dividends are
cumulative from the date of issue, with any deficiency in payment to bear
interest from the payment due date at a rate equal to the respective dividend
rate in effect for each year during which the default continues; such dividend
amounts must be paid before any dividend may be declared on the MSI Common Stock
and the MSI Class A Preferred Stock. MSI has the right to call all, but not less
than all, of the MSI Class B Preferred Stock for
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redemption at any time by paying in cash the par value of the MSI Class B
Preferred Stock plus accrued dividends, and interest accrued thereon, if any,
prorated to the date fixed for redemption. In the event of any liquidation,
dissolution or winding up of the affairs of MSI, the holders of MSI Class B
Preferred Stock are entitled, before the assets of MSI are distributed among or
paid over to the holders of any other class of MSI stock, to be paid the par
value of such MSI Class B Preferred Stock together with a sum of money
equivalent to dividends at the stipulated rate from the date of issuance to the
date of payment, less the amount of dividends theretofore paid, and no more. If
the assets of MSI are insufficient to permit payment of such amount, the entire
assets of MSI shall be distributed ratably among the holders of the MSI Class B
Preferred Stock then issued and outstanding.
So long as any shares of MSI Class B Preferred Stock are outstanding, MSI
may not take certain actions without the written approval of all of the holders
of MSI Class B Preferred Stock at the time outstanding. Such actions include (1)
issuing or becoming obligated to issue any shares of stock having priority or
ranking equally with the MSI Class B Preferred Stock as to dividends or the
distribution of assets, (2) amending the terms of the MSI Class B Preferred
Stock, (3) redeeming any shares of the MSI Class B Preferred Stock, (4)
consolidating or merging MSI with or into any other entity, (5) permitting
certain changes to First Bank, (6) selling, transferring or otherwise disposing
of shares of stock of First Bank, other than directors' qualifying shares, (7)
causing or permitting First Bank to issue or sell any securities other than to
MSI or directors' qualifying shares, (8) selling all or substantially all of the
assets of MSI or First Bank, (9) causing or permitting any subsidiary of MSI to
issue any securities having priority as to dividends or distribution of assets
over the shares of such subsidiary's common stock owned by MSI, (10) remaining
or becoming liable for indebtedness beyond certain specified levels or (11)
causing or permitting control of MSI (as defined) to pass to any person who was
not a holder of record of MSI Common Stock at the time of issuance of the MSI
Class B Preferred Stock.
For so long as any shares of MSI Class B Preferred Stock are outstanding,
MSI shall provide the holders thereof with certain financial statements and
other information regarding MSI and First Bank and shall also provide such
holders, not less than annually, with a certificate of an officer of MSI stating
that no event described in the preceding paragraph has occurred.
Preferred Stock Voting Rights. All shares of MSI Class A Preferred Stock
and MSI Class B Preferred Stock are non-voting shares except as described above
and as otherwise provided in the NBCA.
Common Stock
Holders of MSI Common Stock are entitled to such dividends as may be
declared by MSI's Board of Directors, subject to the preferential dividend
rights of holders of MSI Class A Preferred Stock and MSI Class B Preferred Stock
described above. In the event of liquidation, holders of MSI Common Stock will
be entitled to receive pro rata any assets distributable to shareholders after
satisfaction of the preferential liquidation rights of MSI's creditors and of
holders of MSI Class A Preferred Stock and MSI Class B Preferred Stock described
above. MSI Common Stock carries the right to cast one vote per share on all
matters submitted to a vote of shareholders. Directors are elected with
cumulative voting.
ADJOURNMENT OF THE SPECIAL MEETING
In the event that there are not sufficient votes to approve the Merger
Agreement at the time of the Special Meeting, such proposal could not be
approved unless the Special Meeting were adjourned in order to permit further
solicitation of proxies from MSI shareholders. In order to allow proxies that
have been received by MSI at the time of the Special Meeting to be voted for
such adjournment, if necessary, MSI is submitting the question of adjournment
under such circumstances to its shareholders as a separate matter for their
consideration. A majority of the shares represented in person or by proxy
77
<PAGE>
and voting at the Special Meeting is required to approve any adjournment, even
if such number of shares is less than a quorum. THE BOARD OF DIRECTORS OF MSI
RECOMMENDS THAT MSI SHAREHOLDERS VOTE FOR THE PROPOSAL TO ADJOURN THE SPECIAL
MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES.
LEGAL OPINIONS
The validity of the securities offered hereby has been passed upon for FBS
by Dorsey & Whitney P.L.L.P., Minneapolis, Minnesota. Dorsey & Whitney P.L.L.P.
and certain of its members are indebted to and have other banking and trust
relationships with certain banking subsidiaries of FBS.
The opinion of counsel described under "The Merger--Certain Federal Income
Tax Consequences To MSI Shareholders" has been rendered by Kennedy, Holland,
Delacy & Svoboda, Omaha, Nebraska, counsel to MSI.
EXPERTS
The consolidated financial statements of FBS appearing in FBS's Current
Report on Form 8-K filed March 3, 1995 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of MSI included herein have been
audited by KPMG Peat Marwick LLP, independent auditors, as indicated in their
report thereon included herein. Such consolidated financial statements are
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of FirsTier Financial, Inc. and
subsidiaries appearing in FBS's Amendment No. 1 on Form 8-K/A filed August 30,
1995 to FBS's Current Report on Form 8-K filed August 18, 1995 have been audited
by Arthur Andersen LLP, independent public accountants, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated by reference in reliance upon
the authority of said firm as experts in accounting and auditing.
78
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet as of June 30,
1995, combines the historical consolidated balance sheets of FBS and FirsTier as
if the FirsTier acquisition had been effective on June 30, 1995, after giving
effect to certain adjustments described in the attached Notes to Unaudited Pro
Forma Combined Financial Statements. The Unaudited Pro Forma Combined Statements
of Income for the six months ended June 30, 1995 and the year ended December 31,
1994 present the combined results of operations of FBS and FirsTier as if the
FirsTier acquisition had been effective at the beginning of each period, after
giving effect to certain adjustments described in the attached Notes to
Unaudited Pro Forma Combined Financial Statements.
The unaudited pro forma combined financial statements and accompanying
notes reflect the application of the purchase method of accounting for the
acquisition of FirsTier. Under this method of accounting, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the closing of the acquisition. The amount of the
purchase accounting adjustments included in these unaudited pro forma combined
financial statements are preliminary estimates. The actual amount of the
adjustments will be based on information available at that time and could be
different from the estimates.
The unaudited pro forma combined financial statements do not include the
financial position or operating results of MSI or Southwest Holdings, Inc.
Together, the two companies have total assets of $436 million at June 30, 1995,
and are not material to FBS.
The pro forma combined financial information presented is included for
informational purposes only and is not necessarily indicative of the results of
the future operations of the combined entity or the actual results that would
have been achieved had the FirsTier acquisition been consummated prior to the
periods indicated.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Unaudited Pro Forma Combined Balance Sheet at June 30, 1995........... F-2
Unaudited Pro Forma Combined Statements of Income
Six Months Ended June 30, 1995..................................... F-3
Year Ended December 31, 1994....................................... F-4
Notes to Unaudited Pro Forma Combined Financial Statements............ F-5
</TABLE>
F-1
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF FIRSTIER FINANCIAL, INC.
Unaudited Pro Forma Combined Balance Sheet
June 30, 1995
<TABLE>
<CAPTION>
FBS Purchase Pro Forma
(In Millions, Except Shares) Consolidated FirsTier Adjustments Combined
------------ -------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks......................... $ 1,772 $ 237 $ 2,009
Federal funds sold.............................. 47 34 81
Securities purchased under
agreements to resell......................... 380 48 428
Trading account securities...................... 202 1 203
Available-for-sale securities................... 3,426 233 $ 744 4,403
Loans........................................... 25,699 2,198 (744) 0
Less allowance for credit
losses..................................... 467 53 520
------------ -------- ----------- ---------
Net loans.................................... 25,232 2,145 27,377
Bank premises and equipment..................... 438 50 488
Interest receivable............................. 192 32 224
Customers' liability on acceptances............. 165 1 166
Other assets.................................... 1,602 55 349 2,006
------------ -------- ----------- ---------
Total assets.................................. $ 33,456 $ 3,580 $ 349 $ 37,385
============ ======== =========== =========
Liabilities and Shareholders' Equity:
Deposits:
Noninterest-bearing............................. $ 5,749 $ 473 $ 6,222
Interest-bearing................................ 17,100 2,333 19,433
------------ -------- ----------- ---------
Total deposits................................ 22,849 2,806 25,655
Federal funds purchased......................... 1,539 64 1,603
Securities sold under agreements
to repurchase................................. 380 120 $ 357 857
Other short-term funds borrowed................. 2,306 6 2.312
Long-term debt.................................. 2,572 165 2,737
Acceptances outstanding......................... 165 1 166
Other liabilities............................... 828 53 881
------------ -------- ----------- ---------
Total liabilities............................. 30,639 3,215 357 34,211
Shareholder' equity:
Preferred stock................................. 106 106
Common stock and paid in surplus................ 169 94 (73) 190
Capital surplus................................. 898 6 687 1,591
Retained earnings............................... 1,746 273 (273) 1,746
Unrealized loss on securities, net of tax....... (11) 3 (3) (11)
Less cost of common stock in treasury........... (91) (11) (346) (448)
------------ -------- ----------- ---------
Total shareholders' equity.................... 2,817 365 (8) 3,174
------------ -------- ----------- ---------
Total liabilities and Shareholders' equity.... $ 33,456 $ 3,580 $ 349 $ 37,385
============ ======== =========== =========
</TABLE>
See notes to unaudited pro forma combined financial statements
F-2
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF FIRSTIER FINANCIAL, INC.
Unaudited Pro Forma Combined Statement of Income
For the six months ended June 30, 1995
<TABLE>
<CAPTION>
FBS Purchase Pro Forma
(In Millions, Except Per Share Data) Consolidated FirsTier Adjustments Combined
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income:
Loans............................................. $ 1,119.2 $ 94.7 $ $ 1,213.9
Securities:
Taxable......................................... 122.6 19.4 142.0
Exempt from federal income taxes................ 5.6 11.8 17.4
Other interest income............................. 18.1 3.5 21.6
------------ -------- ----------- ------------
Total interest income........................... 1,265.5 129.4 1,394.9
Interest Expense:
Deposits.......................................... 365.2 50.8 416.0
Federal funds purchased and
repurchase agreements........................... 62.8 5.9 $ 10.5 79.2
Other short-term funds borrowed................... 29.4 0.3 29.7
Long-term debt.................................. 85.3 5.0 90.3
------------ -------- ----------- ------------
Total interest expense........................ $ 542.7 $ 62.0 $ 10.5 $ 615.2
------------ -------- ----------- ------------
Net interest income............................... 722.8 67.4 (10.5) 779.7
Provision for credit losses....................... 53.0 0.5 53.5
------------ -------- ----------- ------------
Net interest income after
provision for credit losses..................... 669.8 66.9 (10.5) 726.2
Noninterest Income:
Credit card fees.................................. 108.3 4.6 112.9
Trust fees........................................ 84.7 8.4 93.1
Service charges on deposit accounts............... 62.4 8.4 70.8
Insurance Commissions............................. 13.3 0.8 14.1
Other............................................. 100.6 5.6 106.2
------------ -------- ----------- ------------
Total noninterest income........................ 369.3 27.8 397.1
Noninterest Expense:
Salaries.......................................... 221.9 22.2 244.1
Employee benefits................................. 53.9 5.3 59.2
Net occupancy..................................... 50.0 3.6 53.6
Furniture and equipment........................... 48.3 3.6 51.9
Amortization of goodwill and
other intangible assets......................... 28.3 0.9 8.8 38.0
FDIC insurance.................................... 27.4 3.1 30.5
Advertising....................................... 15.5 2.1 17.6
Other personnel costs............................. 17.4 0.7 18.1
Professional services............................. 17.1 1.0 18.1
Data processing................................... 8.7 2.6 11.3
Other............................................. 119.0 12.1 131.1
------------ -------- ----------- ------------
Total noninterest expense....................... 607.5 57.2 8.8 673.5
------------ -------- ----------- ------------
Income before income taxes........................ 431.6 37.5 (19.3) 449.8
Applicable income taxes........................... 159.9 9.9 (3.9) 165.9
------------ -------- ----------- ------------
Net income...................................... $ 271.7 $ 27.6 $ (15.4) $ 283.9
============ ======== =========== ============
Net income applicable to common equity.......... $ 267.9 $ 280.1
============ ============
Earnings per Common Share:
Average common and common equivalent shares..... 135,718,099 144,004,829
Net income...................................... $ 1.97 $ 1.94
============ ============
</TABLE>
See notes to unaudited pro forma combined financial statements
F-3
<PAGE>
FIRST BANK SYSTEM, INC.
ACQUISITION OF FIRSTIER FINANCIAL, INC.
Unaudited Pro Forma Combined Statement of Income
For the year ended December 31, 1995
<TABLE>
<CAPTION>
FBS Purchase Pro Forma
(In Millions, Except Per Share Data) Consolidated FirsTier Adjustments Combined
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
Interest Income:
Loans..................................................... $ 1,914.7 $ 161.9 $ $ 2,076.6
Securities:
Taxable.............................................. 327.9 44.3 372.2
Exempt from federal income
taxes.............................................. 12.0 20.5 32.5
Other interest income..................................... 33.5 4.8 38.3
------------ -------- ----------- ------------
Total interest income................................ 2,288.1 231.5 2,519.6
Interest Expense:
Deposits.................................................. 597.3 82.1 679.4
Federal funds purchased and
repurchase agreements................................ 103.1 7.9 $ 21.0 132.0
Other short-term funds borrowed........................... 36.4 1.4 37.8
Long-term debt....................................... 131.9 5.7 137.6
------------ -------- ----------- ------------
Total interest expense............................. $ 868.7 $ 97.1 $ 21.0 $ 986.8
------------ -------- ----------- ------------
Net interest income....................................... 1,419.4 134.4 (21.0) 1,532.8
Provision for credit losses............................... 123.6 (0.2) 123.4
------------ -------- ----------- ------------
Net interest income after
provision for credit losses.......................... 1,295.8 134.6 (21.0) 1,409.4
Noninterest Income:
Credit card fees.......................................... 179.0 9.6 188.6
Trust fees................................................ 159.2 16.1 175.3
Service charges on deposit
accounts............................................. 127.3 15.6 142.9
Insurance commissions..................................... 29.2 1.8 31.0
Securities losses......................................... (115.0) (3.7) (118.7)
Other..................................................... 179.2 12.6 191.8
------------ -------- ----------- ------------
Total noninterest income............................. 558.9 52.0 610.9
Noninterest Expense:
Salaries.................................................. 450.7 44.0 494.7
Employee benefits......................................... 105.7 8.8 114.5
Net occupancy............................................. 103.8 8.3 112.1
Furniture and equipment................................... 88.3 8.2 96.8
Amortization of goodwill and
other intangible assets.............................. 50.4 1.7 17.5 69.6
FDIC insurance............................................ 58.4 5.9 64.3
Advertising............................................... 35.5 4.7 40.2
Other personnel costs..................................... 35.7 1.1 36.8
Professional services..................................... 38.5 2.4 40.9
Data processing........................................... 20.3 5.5 25.8
Merger and integration.................................... 122.7 0.0 122.7
Other..................................................... 239.4 27.2 266.6
------------ -------- ----------- ------------
Total noninterest expense............................ 1,349.4 118.1 17.5 1,485.0
------------ -------- ----------- ------------
Income from continuing operations
before income taxes.................................. 505.3 68.5 (38.5) 535.3
Applicable income taxes................................... 191.8 17.6 (8.0) 201.4
------------ -------- ----------- ------------
Income from continuing operations......................... 313.5 $ 50.9 $ (30.5) $ 333.9
============ ======== =========== ============
Earnings per Common Share:
Average common and common
equivalent shares.................................... 136,274,991 144,561,721
Income from continuing operations......................... $ 2.21 $ 2.22
============ ============
</TABLE>
See notes to unaudited pro forma combined financial statements
F-4
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
Note A: Basis of Presentation
On August 6, 1995, FBS signed a definitive purchase agreement to acquire
FirsTier, a regional financial service holding company based in Omaha, Nebraska.
As of June 30, 1995, FirsTier had approximately $3.6 billion in assets, $2.8
billion in deposits and operated 63 offices in Nebraska and Iowa. The agreement
calls for the exchange of .8829 shares of FBS common stock for each common share
of FirsTier, resulting in a per share price of $38 at the date of the
announcement of the transaction. The value of the FBS common stock to be issued
in connection with the merger is approximately $714 million at the date of the
announcement of the transaction.
The merger with FirsTier will be accounted for by FBS under the purchase
method of accounting in accordance with APB No. 16 and, accordingly, this method
has been applied in the unaudited pro forma combined financial statements. Under
this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on their estimated fair value at the
closing of the transaction. The historical cost of FirsTier's assets and
liabilities approximates fair value, making mark-to-market adjustments
immaterial. Accordingly, the historical cost of FirsTier's assets and
liabilities have been combined with the historical consolidated balance sheet of
FBS. Certain adjustments, primarily to accrue for costs related to the FirsTier
merger expected to be incurred within one year of the closing. Currently, these
accruals are not material and have not been reflected in the unaudited pro forma
combined financial statements. Purchase accounting adjustments and merger-
related costs may change as additional information becomes available.
The Unaudited Pro Forma Combined Balance Sheet is based on the unaudited
consolidated balance sheets of FBS and FirsTier as of June 30, 1995. The
unaudited Pro Forma Combined Statements of Income are based primarily on the
unaudited consolidated statements of income of FBS and FirsTier for the six
months ended June 30, 1995 and the audited consolidated statements of income of
FBS and FirsTier for the year ended December 31, 1994.
The unaudited pro forma combined financial statements do not include the
financial position or operating results of Midwestern Services, Inc. or
Southwest Holdings, Inc. Together, the two companies have total assets of $436
million at June 30, 1995, and are not material to FBS.
Management of FBS estimates that as a result of the effects of purchase
accounting in the FirsTier merger, the combined company's results of operations
will reflect goodwill and other intangible asset amortization of approximately
$17.5 million for the fiscal year subsequent to the FirsTier merger.
FBS expects to achieve operating cost savings primarily through reductions in
staff, the consolidation and elimination of certain duplicate or excess of
FirsTier facilities, and the consolidation of certain data processing and other
back office operations. The operating cost savings are expected to be achieved
in various amounts at various times during the year subsequent to the closing
and not ratably over, or at the beginning or end of, such periods. No adjustment
has been included in the unaudited pro forma combined financial statements for
the anticipated operating cost savings.
Certain amounts in the historical financial statements of FirsTier have been
reclassified in the Unaudited Pro Forma Combined Financial Statements to conform
to FBS's historical financial statement presentation.
The FBS results of operations for the year ended December 31, 1994 include the
merger-related charges of $122.7 million ($87.9 million after tax), associated
with the merger of Metropolitan Financial Corporation ("MFC") and a $111.2
million loss ($69.0 million after tax) on the sale of MFC's securities.
Note B: Other Assets
As explained in Note A, purchase accounting adjustments may change as
additional information becomes available. When the ultimate allocation of the
purchase price for FirsTier is made, remaining intangible assets will be
recorded. Based on current estimates, the amount of intangible assets is $349
million, calculated as the purchase price of $714 million less FirsTier June 30,
1995 common equity of $365 million.
Amortization expense relating to the FirsTier merger has been included in the
unaudited Pro Forma Combined Statements of Income for the six months ended June
30, 1995 and the year ended December 31, 1994. Amortization expense was
calculated based on the intangible asset balance using the straight-line method
over an average estimated period of benefit of 20 years which is comprised of 25
years for goodwill and 10 years for other intangible assets. The final
allocation of intangible assets between goodwill and other intangible assets, as
well as the methods of amortization, has not been determined. Subsequent changes
to the purchase adjustments, as well as the final allocation of the intangible
assets between goodwill and other intangible assets will result in an adjustment
to goodwill, which will have and other intangible assets will result in an
adjustment to goodwill, which will have a corresponding impact on amortization
expense. Accordingly, pro forma combined income for the six month period ended
June 30, 1995 and the year ended December 31, 1994, would also change, as well
as the related pro forma combined earnings per share amounts.
Note C: Stockholders' Equity
As explained in Note A, FBS will issues .8829 shares of FBS common stock at an
estimated market value of $714 million for FirsTier. These shares will consist
of treasury stock to the extent available, with the remaining shares to be new
issuances of FBS common stock. FBS common stock in the unaudited Pro Forma
Combined Balance Sheet has been increased by the par value of the FBS stock to
be issued and capital surplus has been increased by $693 million, the difference
between the market value and the par value of the FBS common stock to be issued.
As part of the purchase accounting adjustments, retained earnings of FirsTier
have been eliminated. All equity adjustments in the Unaudited Pro Forma Combined
Balance Sheet are net of the elimination of FirsTier's equity accounts.
FBS has announced its intention to repurchase common shares equal to
approximately one-half of the number of shares to be issued in connection with
the FirsTier acquisition. Accordingly, treasury stock has been increased by $357
million as it is anticipated the cost of these shares will approximate the cost
of shares issued for the FirsTier acquisition.
Note D: Income Tax Provisions
The income tax provision for adjustments related to the FirsTier acquisition
reflected in the Unaudited Pro Forma Combined Statements of Income have been
computed at FBS's effective combined federal and state marginal tax rate.
F-5
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
MIDWESTERN SERVICES, INC.
INDEX
<TABLE>
<S> <C>
Independent Auditors' Report dated March 3, 1995...................... F-7
Consolidated Balance Sheets as of December 31, 1994 and 1993.......... F-8
Consolidated Statements of Income for the Years
Ended December 31, 1994 and 1993.................................. F-9
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1994 and 1993.................... F-10
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994 and 1993.................................. F-11
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1994 and 1993........................................ F-13
Consolidating Schedule--Balance Sheet Information for
the Year Ended December 31, 1994.................................. F-24
Consolidating Schedule--Earnings Information for the Year
Ended December 31, 1994........................................... F-26
Independent Auditors' Report dated March 4, 1994...................... F-27
Consolidated Balance Sheets as of December 31, 1993 and 1992.......... F-28
Consolidated Statements of Income for the Years
Ended December 31, 1993 and 1992.................................. F-30
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1993 and 1992.................................. F-31
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1993 and 1992........................ F-33
Notes to Consolidated Financial Statements for the
Years Ended December 31, 1993 and 1992............................ F-34
Consolidated Balance Sheets as of June 30, 1995 and 1994 (Unaudited).. F-45
Consolidated Statements of Income for the Six Months
Ended June 30, 1995 and 1994 (Unaudited).......................... F-46
Consolidated Statements of Stockholder's Equity for the Six Months
Ended June 30, 1995 (Unaudited)................................... F-47
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1995 and 1994 (Unaudited)................................ F-48
Notes to Consolidated Condensed Financial Statements for the
Six Months Ended June 30, 1995 and 1994 (Unaudited)............... F-49
</TABLE>
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Midwestern Services, Inc.:
We have audited the accompanying consolidated balance sheets of Midwestern
Services, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Midwestern Services,
Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information is
presented for purposes of additional analysis of the consolidated financial
statements rather than to present the financial position, results of operations
and cash flows of the individual companies. The consolidating information has
been subjected to the auditing procedures applied in the audits of the
consolidated financial statements and, in our opinion, is fairly stated in all
material respects, in relation to the consolidated financial statements taken as
a whole.
/s/ KPMG Peat Marwick LLP
March 3, 1995
F-7
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Assets 1994 1993
------ ------------ ------------
<S> <C> <C>
Cash and due from banks........................ $ 19,750,377 $ 9,470,048
Federal funds sold............................. 1,955,000 5,915,000
------------ ------------
Cash and cash equivalents (note 10)........ 21,705,377 15,385,048
------------ ------------
Investment securities (notes 2 and 10):
Held to maturity........................... 11,826,347 11,074,380
Available for sale......................... 33,945,285 34,101,872
------------ ------------
45,771,632 45,176,252
------------ ------------
Loans and leases receivable (notes 3 and 10):
Commercial and commercial leasing.......... 67,336,388 62,756,714
Consumer................................... 28,796,362 27,093,538
Real estate................................ 43,189,381 37,868,220
Equipment leases........................... 7,462,179 4,409,114
Overdrafts................................. 1,744,340 2,119,749
------------ ------------
148,528,650 134,247,335
Less allowance for loan losses............. (1,740,580) (1,516,181)
------------ ------------
Net loans................................ 146,788,070 132,731,154
------------ ------------
Interest receivable (note 10).................. 1,499,803 1,216,131
Premises and equipment, net (note 4)........... 4,160,539 3,882,837
Intangible assets.............................. 2,761,678 2,942,770
Income taxes recoverable....................... -- 16,123
Deferred income taxes.......................... 137,126 --
Other assets................................... 760,385 800,927
------------ ------------
$223,584,610 $202,151,242
============ ============
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1994 1993
------------------------------------ ------------ ------------
<S> <C> <C>
Deposits (note 10):
Demand........................................ $ 47,137,838 $ 40,593,075
Interest-bearing checking..................... 38,341,530 37,361,653
Savings....................................... 12,351,220 12,594,435
Money market.................................. 22,896,467 27,095,308
Time, $100,000 and greater.................... 10,401,259 6,299,194
Time, less than $100,000...................... 67,020,838 58,312,590
------------ ------------
Total deposits............................ 198,149,152 182,256,255
Accrued expenses and other liabilities............. 2,298,500 2,181,850
Current income taxes payable....................... 124,344 --
Deferred income taxes (note 5)..................... -- 339,887
ESOP debt (note 7)................................. 91,900 140,200
FHLB payable (note 13)............................. 5,560,500 --
Notes payable (notes 6 and 10)..................... 3,365,000 2,810,000
------------ ------------
Total liabilities......................... 209,589,396 187,728,192
------------ ------------
Minority interests................................. 1,382 1,629
------------ ------------
Stockholders' equity (note 12):
9% nonvoting cumulative preferred stock,
$100 par value. 23,500 shares authorized;
11,750 shares issued and outstanding ....... -- 1,175,000
6% nonvoting cumulative preferred stock,
$3 par value. 35,000 shares authorized
and outstanding............................. 105,000 105,000
Common stock, $3.50 par value. 80,000 shares
authorized; 78,113 shares issued and
outstanding................................. 273,396 273,396
Additional paid-in capital.................... 2,043,536 2,043,536
Retained earnings............................. 13,038,099 11,024,021
------------ ------------
15,460,031 14,620,953
Less:
ESOP debt secured by common stock (note 7).. (91,900) (140,200)
Cost of 1,853.649 shares of treasury stock.. (291,698) (187,251)
Net unrealized gains (losses) on investment
securities................................ (1,082,601) 127,919
------------ ------------
Total stockholders' equity.............. 13,993,832 14,421,421
Commitments and contingencies
(notes 7, 8, 9 and 10)........................ $223,584,610 $202,151,242
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans................. $11,885,776 $10,144,355
Interest on investment securities:
Taxable.................................. 2,586,448 2,608,692
Nontaxable............................... 92,473 171,834
Interest on Federal funds sold............. 86,830 82,326
----------- -----------
Total interest income.................. 14,651,527 13,007,207
----------- -----------
Interest expense:
Deposits................................... 4,715,949 4,746,911
Notes payable.............................. 246,950 205,289
Other borrowings........................... 176,755 48,676
----------- -----------
Total interest expense................. 5,139,654 5,000,876
----------- -----------
Net interest income.................... 9,511,873 8,006,331
Provision for loan losses (note 3).............. 296,245 300,000
----------- -----------
Net interest income after provision
for loan losses.......................... 9,215,628 7,706,331
----------- -----------
Other operating income:
Service charges............................ 1,640,823 1,657,662
Loss on sale of investment securities, net. (55,426) (3,573)
Other...................................... 1,257,039 887,206
----------- -----------
Total other operating income........... 2,842,436 2,541,295
----------- -----------
Other operating expenses:
Salaries and employee benefits (note 7).... 4,202,205 3,548,491
Occupancy, net............................. 1,415,826 1,222,603
Equipment and data processing.............. 665,609 583,651
Other...................................... 2,353,045 2,303,903
----------- -----------
Total other operating expenses......... 8,636,685 7,658,648
----------- -----------
Income before income taxes and minority
interests............................ 3,421,379 2,588,978
Income taxes (note 5)........................... 1,268,266 944,480
----------- -----------
Income before minority interests....... 2,153,113 1,644,498
Minority interests.............................. 247 3,835
----------- -----------
Net income............................. $ 2,153,360 $ 1,648,333
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Gains
6% and 9% Additional (losses) on Total
Preferred Common Paid-in Retained ESOP Treasury Investment Stockholders'
Stock Stock Capital Earnings Debt Stock Securities Equity
----------- -------- ---------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992....... $ 1,280,000 $273,396 $2,043,536 $ 9,487,703 $(225,800) $(187,251) $ (23,151) $12,648,433
Payment on ESOP
debt.................... -- -- -- -- 109,600 -- -- 109,600
ESOP debt incurred........ -- -- -- -- (24,000) -- -- (24,000)
Net income................ -- -- -- 1,648,333 -- -- -- 1,648,333
Preferred stock
dividends............... -- -- -- (112,015) -- -- -- (112,015)
Changes in net
unrealized gains........ -- -- -- -- -- -- 151,070 151,070
----------- -------- ---------- ----------- --------- --------- ----------- ------------
Balance at
December 31, 1993....... 1,280,000 273,396 2,043,536 11,024,021 (140,200) (187,251) 127,919 14,421,421
Payment on ESOP
debt.................... -- -- -- -- 59,400 -- -- 59,400
ESOP debt incurred........ -- -- -- -- (11,100) -- -- (11,100)
Net income................ -- -- -- 2,153,360 -- -- -- 2,153,360
Preferred stock
dividends............... -- -- -- (139,282) -- -- -- (139,282)
Repurchase of 9%
preferred stock......... (1,175,000) -- -- -- -- -- -- (1,175,000)
Repurchase of common
stock................... -- -- -- -- -- (104,447) -- (104,447)
Changes in net
unrealized gains........ -- -- -- -- -- -- -- --
(losses)................ -- -- -- -- -- -- (1,210,520) (1,210,520)
----------- -------- ---------- ----------- --------- --------- ----------- ------------
Balance at
December 31, 1994....... $ 105,000 $273,396 $2,043,536 $13,038,099 $ (91,900) $(291,698) $(1,082,601) $13,993,832
=========== ======== ========== =========== ========= ========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-11
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 2,153,360 $ 1,648,333
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................... 713,974 662,529
Provision for loan losses....................... 296,245 300,000
Loss on sale of premises and equipment.......... 11,870 2,140
Loss on sale of investment securities, net...... 55,427 3,573
Changes in assets and liabilities:
Interest receivable............................. (283,672) 410,375
Income taxes recoverable........................ -- (16,123)
Other assets.................................... 40,542 (17,868)
Accrued expenses and other liabilities.......... 116,650 (312,562)
Current income taxes payable.................... 140,467 (100,587)
Deferred income taxes........................... (477,013) 100,605
Minority interests.............................. (247) (12,271)
------------ ------------
Total adjustments............................... 614,243 1,019,811
------------ ------------
Net cash provided by operating activities...... 2,767,603 2,668,144
------------ ------------
Cash flows from investing activities:
Additions to premises and equipment, net.......... (836,200) (313,176)
Proceeds from disposal of premises and equipment.. 13,745 32,009
Purchase of investment securities, net of
maturities....................................... (4,789,857) (235,640)
Proceeds from sale of investment securities--
available for sale............................... 2,928,530 278,182
Increase in loans, net............................ (14,353,160) (24,599,836)
Purchase of treasury stock........................ (104,447) --
------------ ------------
Net cash used in investing activities.......... (17,141,389) (24,838,461)
------------ ------------
Cash flows from financing activities:
Increase in deposits, net......................... 15,892,897 13,859,231
Decrease in securities sold under agreements
to repurchase.................................... -- (1,721,263)
Proceeds from notes payable....................... 1,225,000 160,000
Payment of notes payable.......................... (670,000) (799,000)
Proceeds from FHLB debt........................... 5,560,500 --
Repurchase of preferred stock..................... (1,175,000) --
Preferred stock dividends......................... (139,282) (112,015)
------------ ------------
Net cash provided by financing activities...... 20,694,115 11,386,953
------------ ------------
Net increase (decrease) in cash and cash equivalents... 6,320,329 (10,783,364)
Cash and cash equivalents, beginning of year........... 15,385,048 26,168,412
------------ ------------
Cash and cash equivalents, end of year................. $ 21,705,377 $ 15,385,048
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest......................................... $ 5,351,841 $ 5,133,722
============ ============
Income taxes..................................... $ 900,157 $ 897,086
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(1) Significant Accounting Policies
-------------------------------
Financial Statement Presentation
- --------------------------------
The accounting and reporting policies of Midwestern Services, Inc. and
subsidiaries (the Corporation) conform to generally accepted accounting
principles and prevailing practices within the banking industry.
The consolidated financial statements of the Corporation include the
accounts of Midwestern Services, Inc. (the parent), First Bank (FB) and
Northwestern State Bank (NWSB), an inactive nonbanking corporation. The parent
owns 100 percent of the outstanding common stock of FB and approximately 92
percent of NWSB. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Investment Securities
- ---------------------
Statement of Financial Accounting Standards (FAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, was adopted by the
Corporation as of December 31, 1993. Under FAS No. 115, the Corporation
classifies its debt and marketable equity securities into one of three
categories: held to maturity, available for sale and trading.
Investment securities classified as held to maturity are stated at cost,
adjusted for amortization of premiums and for accretion of discounts. Gains or
losses on the sale of investment securities classified as available for sale and
held to maturity are included in earnings and are derived using the specific
identification method. Investment securities classified as available for sale or
trading are carried at fair value. Unrealized holding gains and losses, net of
the related tax effect, on available for sale securities are excluded from
earnings and are reported as a separate component of stockholders' equity until
realized. FB holds no trading securities. Premiums and discounts are amortized
or accredited over the life of the related security as an adjustment to yield
using the effective interest method.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation,
which is computed on either the straight-line or declining balance methods over
the estimated useful lives of the assets. Leasehold improvements are amortized
on either the straight-line or declining balance methods over the shorter of the
estimated useful lives of the improvements or the terms of the related leases.
Loans
- -----
Loans are reported at the principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
(Continued)
F-13
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(1) Significant Accounting Policies, Continued
------------------------------------------
Nonaccrual Loans
- ----------------
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal. Income on such loans is then recognized
only to the extent that cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans only when
they are brought fully current with respect to interest and principal and when,
in the judgment of management, the loans are estimated to be fully collectible
as to both principal and interest.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans and leases are charged against the allowance
for loan losses when management believes the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses inherent in existing loans, leases and commitments to extend
credit, based on evaluations of the collectibility and prior loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall loan portfolio quality, loan
concentrations, specific problem loans or leases and current and anticipated
economic conditions that may affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate. While
management used available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review FB's allowance for loan losses.
Such agencies may require FB to recognize additions to the allowance based on
their judgments of information available to them at the time of their
examination.
Intangible Assets
- -----------------
Intangible assets (goodwill) are being amortized using the straight-line
method over 25 years.
Income Taxes
- ------------
The Corporation files a consolidated U.S. Federal income tax return. The
Corporation accounts for certain income and expense items differently for
financial reporting purposes than for income tax purposes. Provisions for
deferred income taxes are made in recognition of these temporary differences.
Cash Equivalents
- ----------------
For purposes of the consolidated statements of cash flows, the Corporation
considers cash and cash equivalents to be cash on hand, due from banks and
Federal funds sold. Generally, Federal funds sold are purchased and sold for
one-day periods.
Reclassifications
- -----------------
Certain of the 1993 balances have been reclassified to conform to the 1994
presentation.
(Continued)
F-14
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(2) Investment Securities
---------------------
The amortized cost and estimated market values of investment securities, at
December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1994 Cost Gains Losses Value
---- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government securities..... $ 2,978,095 -- (64,730) 2,913,365
U.S. Government agencies
and corporations............. 500,000 -- (5,685) 494,315
Mortgage-backed securities..... 5,959,685 -- (207,839) 5,751,846
Obligations of states and
political subdivisions....... 2,338,567 1,398 (66,821) 2,273,144
Other securities............... 50,000 1,022 (1,500) 49,522
----------- ------- ----------- -----------
Total held to maturity....... 11,826,347 2,420 (346,575) 11,482,192
----------- ------- ----------- -----------
Available for Sale
U.S. Government securities..... 4,041,033 305 (56,336) 3,985,002
U.S. Government agencies
and corporations............. 12,654,132 58,843 (357,441) 12,355,534
Mortgage-backed securities..... 14,833,526 568 (1,093,649) 13,740,445
Marketable equity securities--
mutual funds................. 3,386,698 -- (192,594) 3,194,104
Other securities............... 670,200 -- -- 670,200
----------- ------- ----------- -----------
Total available for sale..... 35,585,589 59,716 (1,700,020) 33,945,285
----------- ------- ----------- -----------
Total investment securities.. $47,411,936 $62,136 $(2,046,595) $45,427,477
=========== ======= =========== ===========
</TABLE>
(Continued)
F-15
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(2) Investment Securities, Continued
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1993 Cost Gains Losses Value
- ------------------------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government securities..... $ 5,063,734 $117,060 $ -- $ 5,180,794
U.S. Government agencies
and corporations............. 2,013,198 32,422 -- 2,045,620
Obligations of states and
political subdivisions....... 1,769,760 23,350 (129) 1,792,981
Other securities............... 2,227,688 19,502 -- 2,247,190
----------- -------- --------- -----------
Total held to maturity....... 11,074,380 192,334 (129) 11,266,585
----------- -------- --------- -----------
Available for Sale
U.S. Government securities..... 4,112,792 124,399 (2,036) 4,235,155
U.S. Government agencies
and corporations............. 10,061,457 258,523 (57,818) 10,262,162
Mortgage-backed securities..... 14,888,828 40,831 (122,544) 14,807,115
Marketable equity securities -
mutual funds................. 4,251,601 -- (12,461) 4,239,140
Other securities............... 558,300 -- -- 558,300
----------- -------- --------- -----------
Total available for sale..... 33,872,978 423,753 (194,859) 34,101,872
----------- -------- --------- -----------
Total investment securities.. $44,947,358 $616,087 $(194,988) $45,368,457
=========== ======== ========= ===========
</TABLE>
Proceeds from sales of available for sale securities during 1994 and 1993
were $2,928,530 and $278,182, respectively. Gross gains of $4,400 and $-0- and
gross losses of $59,827 and $3,573 were realized on those sales using specific
identification to determine cost in 1994 and 1993, respectively.
Investment securities having a carrying value of approximately $6,565,000
at December 31, 1994 were pledged to secure public deposits and for other
purposes required by law.
The amortized cost and estimated market value of investment securities at
December 31, 1994 and 1993, by contractual maturity, are shown on the following
page. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
(Continued)
F-16
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(2) Investment Securities, Continued
<TABLE>
<CAPTION>
1994 1993
------------------------ ------------------------
Gross Estimated
Amortized Unrealized Amortized Market
Cost Gains Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held to Maturity
Due in one year or less......... $ 1,299,955 $ 1,298,927 $ 9,864,523 $10,041,510
Due after one year through
five years................... 3,764,522 3,682,951 1,159,857 1,175,075
Due after five years through
ten years.................... 802,185 748,468 50,000 50,000
----------- ----------- ----------- -----------
5,866,662 5,730,346 11,074,380 11,266,585
Mortgage-backed securities...... 5,959,685 5,751,846 -- --
----------- ----------- ----------- -----------
11,826,347 11,482,192 11,074,380 11,266,585
----------- ----------- ----------- -----------
Available for sale
Due in one year or less......... 5,544,205 5,532,247 558,300 558,300
Due after one year through
five years................... 10,150,960 9,883,840 13,674,249 14,002,318
Due after five years through
ten years.................... 1,000,000 924,450 634,129 495,000
----------- ----------- ----------- -----------
16,695,165 16,340,537 14,866,678 15,055,618
Mortgage-backed securities...... 14,833,526 13,740,444 14,754,699 14,807,114
Other securities................ 670,200 670,200 -- --
Marketable equity securities -
mutual funds................. 3,386,698 3,194,104 4,251,601 4,239,140
----------- ----------- ----------- -----------
35,585,589 33,945,285 33,872,978 34,101,872
----------- ----------- ----------- -----------
$47,411,936 $45,427,477 $44,947,358 $45,368,457
=========== =========== =========== ===========
</TABLE>
(3) Loans and Allowance for Loan Losses
Activity in the allowance for loan losses in 1994 and 1993 is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Balance at beginning of year..................... $1,516,181 $1,224,363
Provision charged to operations ............ 296,245 300,000
---------- ----------
1,812,426 1,524,363
---------- ----------
Loans charged off........................... (111,589) (67,501)
Recoveries on loans previously charged off.. 39,743 59,319
---------- ----------
Net loans charged off....................... (71,846) (8,182)
---------- ----------
Balance at end of year...................... $1,740,580 $1,516,181
========== ==========
</TABLE>
(Continued)
F-17
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(3) Loans and Allowance for Loan Losses, Continued
Certain officers and directors of the Corporation and companies and
individuals related to such persons incurred indebtedness, in the form of loans,
as customers. These loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other customers and did not involve more than the normal risk
of collectibility. Loans of this nature amounted to approximately $7,961,816 and
$3,750,000 at December 31, 1994 and 1993, respectively.
Nonaccrual loans approximated $67,366 and $367,400 at December 31, 1994 and
1993, respectively. Loss of interest income related to these nonaccrual loans
was not significant in 1994 and 1993.
FB grants commercial, consumer and real estate loans to customers in the
metropolitan Omaha area. Although FB has a diversified loan portfolio, a
substantial portion of FB debtors' ability to honor their contracts is dependent
upon the metropolitan Omaha economic sector.
(4) Premises and Equipment
Premises and equipment at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Land and buildings................................. $ 1,549,999 $ 1,549,999
Furniture, fixtures and equipment.................. 4,858,367 4,370,300
Leasehold improvements............................. 1,947,152 1,894,968
----------- -----------
8,355,518 7,815,267
Less accumulated depreciation and
amortization................................. (4,194,979) (3,932,430)
----------- -----------
Net premises and equipment.................. $ 4,160,539 $ 3,882,837
=========== ===========
</TABLE>
(5) Income Taxes
Components of income taxes in 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Current taxes:
Federal..................................... $ 1,034,701 $ 762,934
State....................................... 86,945 80,941
----------- -----------
1,121,646 843,875
Deferred Federal income taxes................. 146,620 100,605
----------- -----------
Total income tax expense charged to
operations............................. $ 1,268,266 $ 944,480
=========== ===========
Deferred Federal income taxes (benefit)
charged (credited) to stockholders' equity
related to unrealized losses on available
for sale investment securities............. $ (623,633) $ 65,898
=========== ===========
</TABLE>
(Continued)
F-18
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(5) Income Taxes, Continued
The actual income tax expense differs from the "expected" income tax
expense (computed by applying the statutory U.S. Federal corporate tax rate of
34 percent to income before income taxes and minority interests) as shown below:
<TABLE>
<CAPTION>
1994 1993
---------- --------
<S> <C> <C>
Computed "expected" income tax expense................... $1,163,269 $880,253
Increase (decrease) in income taxes resulting from:
Tax-exempt interest................................. (36,808) (69,268)
Goodwill amortization............................... 61,571 61,571
State income taxes, net of Federal income
tax benefit....................................... 57,384 53,421
Other.................................................. 22,850 18,503
---------- --------
Total income tax expense charged
to operations..................................... $1,268,266 $944,480
========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................... $375,700 $ 299,400
Unrealized net losses on marketable
investment securities............................. 557,735 --
Accrued compensation................................ 22,791 --
-------- ---------
Total deferred tax assets......................... 956,226 299,400
-------- ---------
Deferred tax liabilities:
Fixed assets, principally due to differences
in depreciation................................... 259,000 256,200
Leases.............................................. 557,000 315,300
Unrealized net gains on marketable
investment securities............................. -- 65,898
Other............................................... 3,100 1,889
-------- --------
Total deferred tax liabilities.................... 819,100 639,287
-------- --------
Net deferred tax asset (liability)................ $137,126 $(339,887)
======== =========
</TABLE>
No valuation allowances were considered necessary for the deferred income
tax assets at December 31, 1994 and 1993.
(Continued)
F-19
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(6) Notes Payable
The notes payable are due June 30, 1995 and bear interest at the floating
national prime rate (8.5 percent at December 31, 1994). The stock of FB has been
pledged as collateral on these notes. Management intends to renew the
outstanding balances at maturity.
The notes contain covenants that, among other things, restrict the amount
of additional debt and specify minimum financial ratios and levels of
stockholders' equity of the Corporation, as well as FB. The Corporation was in
compliance with these covenants at December 31, 1994.
(7) Employee Benefit Plans
The Corporation sponsors an Employee Stock Ownership Plan and Trust (ESOP)
to acquire shares of the Corporation's common stock for the benefit of all
eligible employees. The ESOP, which is noncontributory, covers substantially all
employees of the Corporation. The amount of annual contribution from the
Corporation, if any, is determined by management and may be in the form of stock
or cash. The Corporation's contribution to the ESOP was $68,400 in 1994 and
$71,152 in 1993.
In 1990, the ESOP arranged financing of $286,000 with a bank to purchase
approximately 2,763 shares of Corporation common stock. At December 31, 1994 and
1993, the ESOP owned a total of 5,756.576 shares of Corporation common stock.
These ESOP loans are to be repaid in annual installments of $57,200 through 1998
and bear interest rates at the floating national prime rate. The unpaid ESOP
borrowings are recorded on the Corporation's books as debt with a corresponding
charge to stockholders' equity. However, this debt is not guaranteed by the
Corporation.
The Corporation also has a 401(k) Salary Reduction Profit Sharing Plan.
The plan is a defined contribution plan and is available to substantially all
employees. Employees may defer up to 15 percent of their salary, which is
partially matched by Corporation contributions. Corporation contributions to
this plan were $64,325 and $55,560 for 1994 and 1993, respectively.
The Corporation's contributions to both the ESOP and 401(k) plan vest 100
percent after 5 years of service.
(8) Leases
Included in other assets is $395,000 FB paid for an option to purchase from
an affiliated partnership a 50 percent interest in a portion of FB's main
banking facility. FB paid an additional $2,050,000 to exercise the option on
February 6, 1995. Actual rent expense for this facility under the previous rent
agreement amounted to $537,236 and $502,257 in 1994 and 1993, respectively. The
new estimated annual rental of $271,118 has been included in the schedule of
future minimum rentals shown below.
(Continued)
F-20
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(8) Leases, Continued
Rental expense on other operating leases totaled $751,000 and $546,000 in
1994 and 1993, respectively. Minimum future annual rentals in effect at December
31, 1994 on operating leases having an initial term greater than one year are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1995........................ $633,000
1996........................ 634,000
1997........................ 636,000
1998........................ 631,000
1999........................ 629,000
========
</TABLE>
(9) Commitments, Contingencies and Financial
Instruments with Off-Balance-Sheet Risk
The consolidated financial statements do not reflect various commitments,
contingencies and financial instruments with off-balance-sheet risk which arise
in the normal course of business. These commitments, contingencies and financial
instruments, which represent credit risk, interest rate risk and liquidity risk,
consist of open commitments to extend credit, Goldman Sachs Sweep accounts and
litigation arising in the normal course of business.
Open commitments to extend credit amounted to approximately $28,329,000 and
$31,235,000 at December 31, 1994 and 1993, respectively. Such agreements require
FB to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. The banks
evaluate each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained (if deemed necessary by the banks upon extension of
credit) is based on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by FB to
guarantee the performance of a customer to a third-party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The outstanding standby letters of
credit were $1,887,112 and $1,556,000 at December 31, 1994 and 1993,
respectively.
FB has agreements with certain deposit customers to act as their agent and
automatically transfer deposits in excess of their minimum required balance into
interest-bearing broker accounts at Goldman Sachs, daily. These off-balance
sheet "sweep" accounts amounted to approximately $26,616,000 and $23,400,000 at
December 31, 1994 and 1993, respectively.
The Corporation is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes
that the liabilities, if any, arising from such litigation and claims will not
be material to the consolidated financial statements.
(Continued)
F-21
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(10) Fair Value of Financial Instruments
FAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Corporation disclose estimated fair values for its financial
instruments. Fair value estimates, methods and assumptions are set forth below
for the Corporation's financial instruments at December 31, 1994 and 1993.
Cash and Cash Equivalents, Interest Receivable, Interest Payable and Notes
Payable
For cash and cash equivalents, interest receivable, interest payable and
notes payable, the carrying amount approximates fair value due to the short-term
nature of these financial instruments.
Investment Securities
For marketable investment securities, fair value equals quoted market
price, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities, adjusted for
differences between the quoted securities and the securities being valued.
Loans
The fair value of performing, variable-rate loans approximates the carrying
value of the loan balance. The fair value of performing, fixed-rate loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. The allowance for loan losses, as recorded in these
consolidated financial statements, is considered by management to include a
reasonable estimation of the credit and market risk associated with
nonperforming loans.
Deposits
The fair value of demand deposits, interest-bearing checking, savings and
money market accounts is the amount payable on demand at December 31, 1994 and
1993. The fair value of fixed-maturity certificates of deposit and IRA accounts
is based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.
<TABLE>
<CAPTION>
Commitments to Extend Credit
Commitments to extend credit are adjustable rate commitments with most
of the commitments expected to expire without being drawn upon and for which no
significant fees are charged. Consequently, for commitments which are drawn
upon, the carrying amount and fair value of the related loan will be the same.
The estimated fair value of the certain financial instruments at
December 31, 1994 and 1993 are shown below:
1994 1993
-------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Investment securities... $ 45,771,632 $ 45,427,477 $ 45,176,252 $ 45,368,457
------------ ------------ ------------ ------------
Loans................... $146,788,000 $144,203,000 $132,731,000 $134,890,000
------------ ------------ ------------ ------------
Financial liabilities,
deposits................ $198,149,000 $197,724,000 $182,256,000 $183,215,000
</TABLE>
(Continued)
F-22
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1994 and 1993
(10) Fair Value of Financial Instruments, Continued
----------------------------------------------
Limitations
- -----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. In addition,
the tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in these estimates.
(11) Regulatory Compliance
---------------------
The audit procedures applied to the Corporation were also performed on FB
in accordance with the State of Nebraska, Department of Banking Rule 45 NAC 24,
which permits the acceptance of a holding company audit in lieu of a Directors'
Examination for a subsidiary bank. The tests of independence outlined in Rule 45
NAC 24 have also been met.
(12) Regulatory Capital Requirements (Unaudited)
-------------------------------------------
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established certain regulations implementing prompt corrective action
provisions. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for insured
depository institutions.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Institutions
categorized as "undercapitalized" or worse are subject to certain additional
requirements and restrictions.
To be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5 percent, a Tier 1 risk-based capital ratio of at
least 6 percent and a total risk-based capital ratio of at least 10 percent. At
December 31, 1994, FB was in the "well capitalized" category.
Management believes FB will continue to meet all the regulatory capital
requirements in the foreseeable future.
(13) Advances from Federal Home Loan Bank
------------------------------------
At December 31, 1994, the Corporation was indebted to the Federal Home Loan
Bank for borrowings totaling $5,560,500. The borrowings mature $560,500 on
February 4, 2004, and the remaining $5,000,000 is a line of credit maturing
September 28, 1995. The advance maturing in 2004 bears interest at a fixed rate
of 5.76 percent and the line of credit is based on FHLB cost of funds rate plus
2.40 percent (6.65 percent at December 31, 1994). Both borrowings are secured by
qualifying first mortgage loans totaling approximately $8,000,000 at December
31, 1994, which exceeds the amount of outstanding advances using the collateral
valuation schedule method.
F-23
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidating Schedule - Balance Sheet Information
December 31, 1994
<TABLE>
<CAPTION>
Schedule 1
----------
First Elimi- Consoli-
ASSETS MSI NWSB Bank nations dated
-------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and due from banks... $ 7,247 $ 13,387 $ 19,736,990 $ (7,247) $ 19,750,377
Federal funds sold........ -- -- 1,955,000 -- 1,955,000
------------ ------------ ------------ ------------ ------------
Cash and cash
equivalents......... 7,247 13,387 21,691,990 (7,247) 21,705,377
Investment securities..... 14,617,400 -- 45,771,632 (14,617,400) 45,771,632
Loans and leases
receivable:
Commercial and
commercial
leasing............. -- -- 67,336,388 -- 67,336,388
Consumer............. -- -- 28,796,362 -- 28,796,362
Real estate.......... -- -- 43,189,381 -- 43,189,381
Equipment leases..... -- -- 7,462,179 -- 7,462,179
Overdrafts........... -- -- 1,744,340 -- 1,744,340
------------ ------------ ------------ ------------ ------------
-- -- 148,528,650 -- 148,528,650
Less allowance for
loan losses......... -- -- (1,740,580) -- (1,740,580)
------------ ------------ ------------ ------------ ------------
Net loans......... -- -- 146,788,070 -- 146,788,070
------------ ------------ ------------ ------------ ------------
Interest receivable....... -- -- 1,499,803 -- 1,499,803
Premises and equipment,
net..................... -- -- 4,160,539 -- 4,160,539
Intangible assets......... 2,761,678 -- -- -- 2,761,678
Income taxes recoverable.. 84,453 -- -- (84,453) --
Deferred income taxes..... -- -- 137,126 -- 137,126
Other assets.............. 78,925 3,739 677,721 -- 760,385
------------ ------------ ------------ ------------ ------------
Total assets......... $ 17,549,703 $ 17,126 $220,726,881 $(14,709,100) $223,584,610
============ ============ ============ ============ ============
</TABLE>
(Continued)
See accompanying independent auditors' report.
F-24
<PAGE>
MIDWESTERN SERVICES, INC.
AND SUBSIDIARIES
Consolidating Schedule - Balance Sheet Information, Continued
December 31, 1994
Schedule 1, Continued
---------------------
<TABLE>
<CAPTION>
Liabilities
and Stockholders Equity MSI NWSB First Bank Eliminations Consolidated
- ------------------------------ ----------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Deposits:
Demand........................ $ -- $ -- $ 47,138,392 $ (554) $ 47,137,838
Interest-bearing checking..... -- -- 38,341,530 -- 38,341,530
Savings....................... -- -- 12,351,220 -- 12,351,220
Money market.................. -- -- 22,903,161 (6,694) 22,896,467
Time, $100,000 and greater.... -- -- 10,401,259 -- 10,401,259
Time, less than $100,000...... -- -- 67,020,838 -- 67,020,838
----------- -------- ------------ ------------ ------------
Total deposits............. -- -- 198,156,400 (7,248) 198,149,152
Accrued expenses and other
liabilities....................... 70,428 -- 2,228,072 -- 2,298,500
Current income taxes payable....... 28,545 696 179,556 (84,453) 124,344
ESOP debt.......................... 91,900 -- -- -- 91,900
FHLB payable....................... -- -- 5,560,500 -- 5,560,500
Notes payable...................... 3,365,000 -- -- -- 3,365,000
----------- -------- ------------ ------------ ------------
Total liabilities.......... 3,555,873 696 206,124,528 (91,701) 209,589,396
----------- -------- ------------ ------------ ------------
Due to minority interests.......... -- -- -- 1,382 1,382
----------- -------- ------------ ------------ ------------
Stockholders' equity:
6% preferred stock............ 105,000 -- -- -- 105,000
Common stock.................. 273,396 19,351 3,200,000 (3,219,351) 273,396
Additional paid-in capital.... 2,043,536 -- 3,200,000 (3,200,000) 2,043,536
Retained earnings............. 11,955,496 (2,921) 9,284,954 (8,199,430) 13,038,099
Less:
ESOP debt secured by
common stock.............. (91,900) -- -- -- (91,900)
Treasury stock.............. (291,698) -- -- -- (291,698)
Net unrealized losses on
investment securities..... -- -- (1,082,601) -- (1,082,601)
----------- -------- ------------ ------------ ------------
Total stockholders' equity.. 13,993,830 16,430 14,602,353 (14,618,781) 13,993,832
----------- -------- ------------ ------------ ------------
Total liabilities and
stockholders' equity...... $17,549,703 $ 17,126 $220,726,881 $(14,709,100) $223,584,610
----------- -------- ------------ ------------ ------------
</TABLE>
See accompanying independent auditors' report.
F-25
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidating Schedule - Earnings Information
Year ended December 31, 1994
<TABLE>
<CAPTION>
Schedule 1
First Elimi- Cosoli-
MSI NWSB Bank nations dated
- ------------------------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans.............. $ -- $ -- $11,885,776 $ -- $11,885,776
Interest on investment securities:
Taxable.............................. 21,744 3,698 2,561,006 -- 2,586,448
Nontaxable........................... -- -- 92,473 -- 92,473
Equity in earnings-NWSB................. (2,676) -- -- 2,676 --
Equity in earnings-First Bank........... 2,505,031 -- -- (2,505,031) --
Interest on Federal funds sold.......... -- -- 86,830 -- 86,830
----------- ---------- ----------- ----------- -----------
Total interest income................ 2,524,099 3,698 14,626,085 (2,502,355) 14,651,527
Interest expense:
Deposits................................ -- -- 4,715,949 -- 4,715,949
Notes payable........................... 246,950 -- -- -- 246,950
Other borrowings........................ -- -- 176,755 -- 176,755
----------- ---------- ----------- ----------- -----------
Total interest expense................ 246,950 -- 4,892,704 -- 5,139,654
----------- ---------- ----------- ----------- -----------
Net interest income................... 2,277,149 3,698 9,733,381 (2,502,355) 9,511,873
Provision for loan losses................. -- -- 296,245 -- 296,245
----------- ---------- ----------- ----------- -----------
Net interest income after
provision for loan losses........... 2,277,149 3,698 9,437,136 (2,502,355) 9,215,628
Other operating income:
Service charges......................... -- -- 1,640,823 -- 1,640,823
Loss on sale of investment
securities, net....................... -- -- (55,426) -- (55,426)
Other................................... 6,508 -- 1,250,531 -- 1,257,039
----------- ---------- ----------- ----------- -----------
Total other operating income.......... 6,508 -- 2,835,928 -- 2,842,436
----------- ---------- ----------- ----------- -----------
Other operating expenses:
Salaries and employee benefits.......... 216 -- 4,201,989 -- 4,202,205
Occupancy, net.......................... -- -- 1,415,826 -- 1,415,826
Equipment and data processing........... -- -- 665,609 -- 665,609
Other................................... 223,677 1,025 2,128,343 -- 2,353,045
----------- ---------- ----------- ----------- -----------
Total other operating
expenses............................ 223,893 1,025 8,411,767 -- 8,636,685
----------- ---------- ----------- ----------- -----------
Income before income taxes
and minority interests.............. 2,059,764 2,673 3,861,297 (2,502,355) 3,421,379
Income taxes............................ 93,596 (5,594) (1,356,268) -- 1,268,266
----------- ---------- ----------- ----------- -----------
Income before minority
interests........................... 2,153,360 (2,921) 2,505,029 (2,502,355) 2,153,113
Minority interests...................... -- -- -- 247 247
----------- ---------- ----------- ----------- -----------
Net income............................ $ 2,153,360 $ (2,921) $ 2,505,029 $(2,502,108) $ 2,153,360
=========== ========== =========== =========== ===========
</TABLE>
See accompanying independent auditors' report.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Midwestern Services, Inc.:
We have audited the accompanying consolidated balance sheets of Midwestern
Services, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Midwestern Services,
Inc. and subsidiaries at December 31, 1993 and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As described in note 1 to the consolidated financial statements, the Corporation
adopted the provisions of Statements of Financial Accounting Standards (FAS) No.
109, Accounting for Income Taxes and FAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities in 1993.
/s/ KPMG Peat Marwick LLP
March 4, 1994
F-27
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992
------ ------------ ------------
<S> <C> <C>
Cash and due from banks....................... $ 9,470,048 $ 13,523,412
Federal funds sold............................ 5,915,000 12,645,000
------------ ------------
Cash and cash equivalents (note 10)....... 15,385,048 26,168,412
------------ ------------
Investment securities (notes 2 and 10)........ 45,176,252 45,005,399
Loans and leases receivable (notes 3 and 10):
Commercial and commercial leasing......... 62,756,714 48,653,835
Consumer.................................. 27,093,538 25,515,581
Real estate............................... 37,868,220 32,247,228
Equipment leases.......................... 4,409,114 2,087,349
Overdrafts................................ 2,119,749 1,151,688
------------ ------------
134,247,335 109,655,681
Less allowance for loan losses............ (1,516,181) (1,224,363)
------------ ------------
Net loans............................... 132,731,154 108,431,318
------------ ------------
Interest receivable (note 10)................. 1,216,131 1,626,506
Premises and equipment, net (note 4).......... 3,882,837 4,085,247
Intangible assets............................. 2,942,770 3,123,862
Income taxes recoverable...................... 16,123 --
Other assets.................................. 800,927 783,059
------------ ------------
$202,151,242 $189,223,803
============ ============
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1993 1992
- ------------------------------------ ------------ ------------
<S> <C> <C>
Deposits (note 10):
Demand................................... $ 40,593,075 $ 35,450,790
Interest-bearing checking................ 37,361,653 35,110,750
Savings.................................. 12,594,435 11,161,214
Money market............................. 27,095,308 28,749,462
Time, $100,000 and greater............... 6,299,194 5,189,915
Time, less than $100,000................. 58,312,590 52,734,893
------------ ------------
Total deposits........................... 182,256,255 168,397,024
Securities sold under agreements
to repurchase (note 10).................. -- 1,721,263
Accrued expenses and other liabilities..... 2,181,850 2,494,412
Current income taxes payable............... -- 100,587
Deferred incomes taxes (note 5)............ 339,887 173,384
ESOP debt (note 7)......................... 140,200 225,800
Notes payable (notes 6 and 10)............. 2,810,000 3,449,000
------------ ------------
Total liabilities........................ 187,728,192 176,561,470
------------ ------------
Minority interests......................... 1,629 13,900
------------ ------------
Stockholders' equity (note 12):
9% nonvoting cumulative preferred
stock, $100 par value, 23,500 shares
authorized; 11,750 shares issued
and outstanding......................... 1,175,000 1,175,000
6% nonvoting cumulative preferred
stock, $3 par value, 35,000 shares
authorized and outstanding.............. 105,000 105,000
Common stock, $3.50 par value, 80,000
shares authorized; 78,113 shares
issued and outstanding.................. 273,396 273,396
Additional paid-in capital............... 2,043,536 2,043,536
Retained earnings........................ 11,024,021 9,487,703
------------ ------------
14,620,953 13,084,635
Less:
ESOP debt secured by common stock
(note 7)............................... (140,200) (225,800)
Cost of 1,279.825 shares of treasury
stock.................................. (187,251) (187,251)
Net unrealized gains (losses) on
investment securities.................. 127,919 (23,151)
------------ ------------
Total stockholders' equity............ 14,421,421 12,648,433
Commitments and contingencies
(notes 7, 8, 9 and 10)
------------ ------------
$202,151,242 $189,223,803
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Interest income
Interest and fees on loans.................... $10,144,355 $10,037,264
Interest on investment securities:
Taxable..................................... 2,608,692 3,547,767
Nontaxable.................................. 171,834 275,506
Interest on Federal funds sold................ 82,326 114,904
----------- -----------
Total interest income....................... 13,007,207 13,975,441
----------- -----------
Interest expense:
Interest on deposits.......................... 4,746,911 5,886,417
Interest on notes payable..................... 205,289 299,691
Other borrowings.............................. 48,676 95,485
----------- -----------
Total interest expense...................... 5,000,876 6,281,593
----------- -----------
Net interest income......................... 8,006,331 7,693,848
Provision for loan losses (note 3).............. 300,000 300,000
----------- -----------
Net interest income after provision
for loan losses............................ 7,706,331 7,393,848
----------- -----------
Other operating income:
Service charges............................... 1,657,662 1,625,603
Gain on sale of assets of subsidiary.......... -- 1,067,436
Gain (loss) on sale of investment securities,
net.......................................... (3,573) 205,714
Other......................................... 887,206 777,757
----------- -----------
Total other operating income................ 2,541,295 3,676,510
----------- -----------
Other operating expenses:
Salaries and employee benefits (note 7)....... 3,548,491 3,389,079
Occupancy, net................................ 1,222,603 1,184,794
Equipment and data processing................. 583,651 560,857
Other......................................... 2,303,903 2,287,245
----------- -----------
Total other operating expenses.............. 7,658,648 7,421,975
----------- -----------
Income before income taxes and minority
interests.................................. 2,588,978 3,648,383
Income taxes (note 5)........................... 944,480 1,309,286
----------- -----------
Income before minority interests............ 1,644,498 2,339,097
Minority interests.............................. 3,835 64,191
----------- -----------
Net income.................................. $ 1,648,333 $ 2,274,906
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,648,333 $ 2,274,906
------------ ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 662,529 751,235
Provision for loan losses............................... 300,000 300,000
Loss on sale of premises and equipment.................. 2,140 --
(Gain) loss on sale of investment securities, net....... 3,573 (205,714)
Gain on sale of assets of subsidiary.................... -- (1,067,436)
Changes in assets and liabilities:
Interest receivable................................... 410,375 385,601
Income taxes recoverable.............................. (16,123) --
Other assets.......................................... (17,868) 623,770
Accrued expenses and other liabilities................ (312,562) (213,314)
Current income taxes payable.......................... (100,587) (13,143)
Deferred income taxes................................. 100,605 13,387
Minority interests.................................... (12,271) (155,902)
------------ ------------
Total adjustments................................... 1,019,811 418,484
------------ ------------
Net cash provided by operating activities........... 2,668,144 2,693,390
------------ ------------
Cash flows from investing activities:
Additions to premises and equipment, net.................. (313,176) (232,243)
Proceeds from disposal of premises and equipment.......... 32,009 --
Purchase of investment securities, net of maturities...... (235,640) --
Maturities of investment securities, net of purchases.... -- 8,780,149
Proceeds from sale of investment securities............... 278,182 4,402,414
Increase in loans, net.................................... (24,599,836) (20,656,544)
Proceeds from sale of assets of subsidiary................ -- 2,818,788
Cash and cash equivalents relinquished in sale of
assets of subsidiary.................................... -- (1,728,084)
Purchase of treasury stock................................ -- (187,251)
------------ ------------
Net cash used in investing activities................... (24,838,461) (6,802,771)
------------ ------------
Cash flows from financing activities:
Increase in deposits, net................................. 13,859,231 18,241,892
Decrease in securities sold under agreements to repurchase (1,721,263) (451,819)
Proceeds from notes payable............................... 160,000 185,000
Payment of notes payable.................................. (799,000) (3,086,000)
Preferred stock dividends................................. (112,015) (112,050)
------------ ------------
Net cash provided by financing activities............... 11,386,953 14,777,023
------------ ------------
Net increase (decrease) in cash and cash equivalents........ (10,783,364) 10,667,642
Cash and cash equivalents, beginning of year................ 26,168,412 15,500,770
------------ ------------
Cash and cash equivalents, end of year...................... $ 15,375,295 $ 26,168,412
============ ============
</TABLE>
See accompanying independent auditors' report.
(Continued)
F-31
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................... $5,133,722 $ 6,466,971
========== ===========
Income taxes....................................... $ 897,086 $ 1,272,929
========== ===========
1992
----
Supplemental schedule of noncash investing activities:
During 1992, Northwestern State Bank, a 91.5675
percent owned subsidiary of the Corporation sold
certain assets to C.S.B. Co. (the Buyer) for cash
of $2,818,788. In connection with this sale,
liabilities were assumed by the Buyer as follows:
Fair value of assets sold....................... $ -- $25,073,503
Cash received for assets........................ -- (2,818,788)
========== ===========
Liabilities assumed by Buyer.................. $ -- $22,254,715
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
Net
Unrealized
Gains
6% and 9% Additional (losses) on total
Preferred Common Paid-in Retained ESOP Treasury Investment Stockholders'
Stock Stock Capital Earnings Debt Stock Securities Equity
---------- -------- ---------- ----------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1991....... $1,280,000 $273,396 $2,043,536 $ 7,324,847 $(181,800) $ -- $ -- $10,740,779
Payment on ESOP
debt.................... -- -- -- -- 36,200 -- -- 36,200
ESOP debt incurred........ -- -- -- -- (81,000) -- -- (81,000)
Purchase of treasury
stock................... -- -- -- -- -- (187,251) -- (187,251)
Net income................ -- -- -- 2,274,906 -- -- -- 2,274,906
Preferred stock
dividends............... -- -- -- (112,050) -- -- -- (112,050)
Change in unrealized
losses.................. -- -- -- -- -- -- (23,151) (23,151)
---------- -------- ---------- ----------- --------- --------- -------- ------------
Balance at
December 31, 1992....... 1,280,000 273,396 2,043,536 9,487,703 (225,800) (187,251) -- 12,648,433
Payment on ESOP
debt.................... -- -- -- -- 109,600 -- -- 109,600
ESOP debt incurred........ -- -- -- -- (24,000) -- -- (24,000)
Net income................ -- -- -- 1,648,333 -- -- -- 1,648,333
Preferred stock
dividends............... -- -- -- (112,015) -- -- -- (112,015)
Changes in net
unrealized gains........ -- -- -- -- -- -- 151,070 151,070
---------- -------- ---------- ----------- --------- --------- -------- ------------
Balance at
December 31, 1993....... $1,280,000 $273,396 $2,043,536 $11,024,021 $(140,200) $(187,251) $127,919 $14,421,421
========== ======== ========== =========== ========= ========= ======== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-33
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993 and 1992
(1) Significant Accounting Policies
-------------------------------
Financial Statement Presentation
--------------------------------
The accounting and reporting policies of Midwestern Services, Inc. and
subsidiaries (the Corporation) conform to generally accepted accounting
principles and prevailing practices within the banking industry.
The consolidated financial statements of the Corporation include the
accounts of Midwestern Services, Inc. (the parent), First Bank (FB) and
Northwestern State Bank (NWSB) through April 1992. In April 1992, NWSB, a
91.5675 percent owned subsidiary of the Corporation, sold certain assets to
C.S.B. Co., a Nebraska bank holding company, in consideration of the assumption
of certain liabilities and payment of $2,818,788, resulting in a gain of
$1,067,436. Subsequent to this transaction, NWSB relinquished its Nebraska State
Bank Charter and no longer functions as a banking institution. The parent owns
100 percent of the outstanding common stock of FB and 91.5675 percent of the
outstanding common stock of NWSB. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Investment Securities
---------------------
Statement of Financial Accounting Standards (FAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, was adopted by the
Corporation as of December 31, 1993. The objective of this standard is to
classify the investment portfolio between those investments the Corporation
intends to hold to maturity, those investments available for sale and those
investments held for trading purposes.
Investment securities classified as held to maturity are stated at cost,
adjusted for amortization of premiums and for accretion of discounts which are
recognized as adjustments to interest income. Gains or losses on the sale of
investment securities classified as held to maturity are recognized only upon
realization using the specific identification method. Investment securities
classified as available for sale and held for trading are carried at fair value.
The U.S. Government securities mutual fund is classified as a marketable equity
security and thus is adjusted to fair value. Any provision for net unrealized
gains (losses) are recorded as an adjustment to stockholders' equity.
The effects of the adoption of FAS No. 115 on the December 31, 1993
consolidated financial statements were to increase investment securities by
$216,968 for unrealized gains on investment securities classified as available
for sale and increase deferred income taxes by $65,898 for the deferred income
tax effect on these unrealized gains. The net unrealized gains of $151,070 are
recorded as a separate component of stockholders' equity. The Corporation had no
investments held for trading purposes at December 31, 1993.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation,
which is computed on either the straight-line or declining balance methods over
the estimated useful lives of the assets. Leasehold improvements are amortized
on either the straight-line or declining balance methods over the shorter of the
estimated useful lives of the improvements or the terms of the related leases.
(Continued)
F-34
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(1) Significant Accounting Policies, Continued
Loans
-----
Loans are reported at the principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
Nonaccrual Loans
----------------
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal. Income on such loans is then recognized
only to the extent that cash is received and where the future collection of
principal is probable. Interest accruals are resumed on such loans only when
they are brought fully current with respect to interest and principal and when,
in the judgment of management, the loans are estimated to be fully collectible
as to both principal and interest.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans and leases are charged against the allowance
for loan losses when management believes the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses inherent in existing loans, leases and commitments to extend
credit, based on evaluations of the collectibility and prior loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall loan portfolio quality, loan
concentrations, specific problem loans or leases and current and anticipated
economic conditions that may affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate. While
management used available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review FB's allowance for loan losses.
Such agencies may require FB to recognize additions to the allowance based on
their judgements of information available to them at the time of their
examination.
Intangible Assets
-----------------
Intangible assets (goodwill) are being amortized using the straight-line
method over 25 years.
Income Taxes
------------
The Corporation files a consolidated U.S. Federal income tax return. The
Corporation accounts for certain income and expense items differently for
financial reporting purposes than for income tax purposes. Provisions for
deferred income taxes are made in recognition of these temporary differences.
In 1993, the Corporation adopted FAS No. 109, Accounting for Income Taxes,
as required. The cumulative effect of this change in accounting principle was
recognized as of January 1, 1993. The adoption of this new accounting standard
did not have a significant effect on these consolidated financial statements.
(Continued)
F-35
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(1) Significant Accounting Policies, Continued
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Corporation
considers cash and cash equivalents to be cash on hand, due from banks and
Federal funds sold. Generally, Federal funds sold are purchased and sold
for one-day periods.
Reclassifications
Certain of the 1992 balances have been reclassified to conform to the 1993
presentation.
(2) Investment Securities
The carrying value and estimated market values of investment securities, at
December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
1993 Value Gains Losses Value
- -------------------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government securities.... $ 5,063,734 117,060 -- 5,180,794
U.S. Government agencies
and corporations............. 2,013,198 32,422 -- 2,045,620
Obligations of states and
political subdivisions....... 1,769,760 23,350 (129) 1,792,981
Other securities.............. 2,227,688 19,502 -- 2,247,190
----------- ---------- ---------- ----------
Total held to maturity...... 11,074,380 192,334 (129) 11,266,585
----------- ---------- ---------- ----------
Available for Sale
U.S. Government securities.... 4,235,155 -- -- 4,235,155
U.S. Government agencies
and corporations............ 10,262,162 -- -- 10,262,162
Mortgage-backed securities.... 14,807,115 -- -- 14,807,115
Marketable equity securities
mutual funds................ 4,239,140 -- -- 4,239,140
Other securities.............. 558,300 -- -- 558,300
----------- ---------- ---------- ----------
Total available for sale.... 34,101,872 -- -- 34,101,872
----------- ---------- ---------- ----------
Total investment securities. $45,176,252 192,334 (129) 45,368,457
=========== ========== ========== ==========
</TABLE>
(Continued)
F-36
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(2) Investment Securities, Continued
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Unrealized Unrealized Market
1992 Value Gains Losses Value
---- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government securities... $13,860,637 $ 346,870 $ -- $14,207,507
U.S. Government agencies
and corporations........... 18,762,470 508,105 -- 19,270,575
Obligations of states and
political subdivisions..... 3,596,632 74,855 (129) 3,671,358
Mortgage-backed securities... 2,802,077 50,151 -- 2,852,228
Marketable equity securities
mutual funds............... 3,093,687 -- -- 3,093,687
Other securities............. 2,889,896 28,358 (737) 2,917,517
----------- ---------- -------- -----------
$45,005,399 $1,008,339 $ (866) $46,012,872
=========== ========== ======== ===========
</TABLE>
Proceeds from sales of investments in debt securities, other than
investment securities sold in connection with the sale of certain assets by
NWSB, during 1993 and 1992 were $278,182 and $4,402,414, respectively. Gross
gains of $-0- and $210,584 and gross losses of $3,573 and $4,870 were realized
on those sales in 1993 and 1992, respectively.
Investment securities having a carrying value of approximately $12,238,000
at December 31, 1993 were pledged to secure public deposits and for other
purposes required by law.
The carrying value and estimated market value of investment securities at
December 31, 1993, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Carrying Market
Value Value
----------- -----------
<S> <C> <C>
Held to maturity
Due in one year or less....................... $ 9,864,522 $10,041,510
Due after one year through five years......... 1,159,857 1,175,074
Due after five years through ten years........ 50,000 50,000
----------- -----------
11,074,379 11,266,584
----------- -----------
Available for sale
Due in one year or less....................... 558,300 558,300
Due after one year through five years......... 14,002,318 14,002,318
Due after five years through ten years........ 495,000 495,000
----------- -----------
15,055,618 15,055,618
----------- -----------
Mortgage-backed securities.................... 14,807,115 14,807,115
Marketable equity securities - mutual funds... 4,239,140 4,239,140
----------- -----------
$45,176,252 $45,368,457
=========== ===========
</TABLE>
(Continued)
F-37
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(3) Loans and Allowance for Loan Losses
-----------------------------------
Activity in the allowance for loan losses in 1993 and 1992 is summarized as
follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Balance at beginning of year....................... $1,224,363 $1,337,724
Allowance for loan losses related to
the sale of assets of subsidiary.................. -- (208,000)
Provision charged to operations.................... 300,000 300,000
---------- ----------
1,524,363 1,429,724
---------- ----------
Loans charged off.................................. (67,501) (245,888)
Recoveries on loans previously charged off......... 59,319 40,527
---------- ----------
Net loans charged off.............................. (8,182) (205,361)
---------- ----------
Balance at end of year............................. $1,516,181 $1,224,363
========== ==========
</TABLE>
Certain officers and directors of the Corporation and companies and
individuals related to such persons incurred indebtedness, in the form of loans,
as customers. These loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other customers and did not involve more than the normal risk
of collectibility. Loans of this nature amounted to approximately $3,750,000 and
$4,936,000 at December 31, 1993 and 1992, respectively.
Nonaccrual loans approximated $367,400 and $407,100 at December 31, 1993
and 1992, respectively. Loss of interest income related to these nonaccrual
loans was not significant in 1993 and 1992.
FB grants commercial, consumer and real estate loans to customers in the
metropolitan Omaha area. Although FB has a diversified loan portfolio, a
substantial portion of FB debtors' ability to honor their contracts is dependent
upon the metropolitan Omaha economic sector.
(4) Premises and Equipment
----------------------
Premises and equipment at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Land and buildings................................. $1,549,999 $1,549,999
Furniture, fixtures and equipment.................. 4,370,300 4,130,115
Leasehold improvements............................. 1,894,968 1,893,563
---------- ----------
7,815,267 7,573,677
Less accumulated depreciation and amortization..... 3,932,430 3,488,430
---------- ----------
Net premises and equipment....................... $3,882,837 $4,085,247
========== ==========
</TABLE>
(Continued)
F-38
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Services, Continued
December 31, 1993 and 1992
(5) Income Taxes
------------
Components of income taxes in 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Current taxes:
Federal............................................... $ 762,934 $1,215,580
State................................................. 80,941 80,319
---------- ----------
843,875 1,295,899
Deferred Federal tax expense charged
to operations....................................... 100,605 13,387
---------- ----------
Total income tax expense charged
to operations....................................... 944,480 1,309,286
Deferred Federal tax expense charged to
stockholders' equity................................ 65,898 --
---------- ----------
$1,010,378 $1,309,286
========== ==========
</TABLE>
The actual income tax expense differs from the "expected" income tax
expense (computed by applying the statutory U.S. Federal corporate tax rate of
34 percent to income before income taxes and minority interests) as shown below:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Computed "expected" income tax expense..................... $ 880,253 $1,240,450
Increase (decrease) in income taxes
resulting from:
Tax-exempt interest................................... (69,268) (107,545)
Goodwill amortization................................. 61,571 84,376
State income taxes, net of Federal
income tax benefit.................................. 53,421 53,011
Other................................................... 18,503 38,994
---------- ----------
Total income tax expense charged
to operations....................................... $ 944,480 $1,309,286
========== ==========
</TABLE>
The components of deferred income taxes are primarily related to the
allowance for loan losses, equipment leasing arrangements, depreciation of
premises and equipment and net unrealized gains on investment securities.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Corporation had net
deferred income tax assets of $299,390 and net deferred income tax liabilities
of $639,277 at December 31, 1993. No valuation allowances were considered
necessary for the deferred income tax assets at December 31, 1993.
(6) Notes Payable
-------------
The notes payable are due June 30, 1994 and bear interest at the floating
national prime rate (6 percent at December 31, 1993 and 1992). The stock of FB
has been pledged as collateral on these notes. Management intends to renew the
outstanding balances at maturity.
(Continued)
F-39
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(6) Notes Payable, Continued
The notes contain covenants that, among other things, restrict the amount
of additional debt and specify minimum financial ratios and levels of
stockholders' equity of the Corporation, as well as FB.
(7) Employee Benefit Plans
The Corporation sponsors an Employee Stock Ownership Plan and Trust (ESOP)
to acquire shares of the Corporation's common stock for the benefit of all
eligible employees. The ESOP, which is noncontributory, covers substantially all
employees of the Corporation. The amount of annual contribution from the
Corporation, if any, is determined by management and may be in the form of stock
or cash. The Corporation's contribution to the ESOP was $71,152 in 1993 and
$115,928 in 1992.
Since 1990, the ESOP has arranged financing of $286,000 with a bank to
purchase approximately 2,763 shares of Corporation common stock. At December 31,
1993 and 1992, the ESOP owned a total of 5,756.576 shares of Corporation common
stock. These ESOP loans are to be repaid in annual principal payments totaling
$57,200 through 1998 and bear interest rates at the floating national prime
rate. Current accounting literature requires that the unpaid ESOP borrowings be
recorded on the Corporation's books as debt with a corresponding charge to
stockholders' equity even though the debt is not guaranteed by the Corporation.
The Corporation also has a 401(k) Salary Reduction Profit Sharing Plan.
The plan is a defined contribution plan and is available to substantially all
employees. Employees may defer up to 15 percent of their salary, which is
partially matched by Corporation contributions. Corporation contributions to
this plan were $55,560 and $49,200 for 1993 and 1992, respectively.
The Corporation's contributions to both the ESOP and 401(k) plan vest 100
percent after 5 years of service.
(8) Leases
FB leases its main banking facility from related parties. The agreement
provides for monthly rental payments equal to the greater of .025 percent of
total deposits or $600. Actual rental expense under this agreement amounted to
$502,257 and $451,840 in 1993 and 1992, respectively. The minimum monthly rental
of $600 has been included in the schedule of future minimum rentals shown on the
following page; however, management anticipates significantly greater actual
expense.
Included in other assets is $395,000 FB paid for an option to purchase from
an affiliated partnership a 50 percent interest in FB's main banking facility.
The option, which must be exercised between December 8, 1994 and July 8, 1996,
grants FB the right to acquire a 50 percent interest in the property for
$2,395,000. The agreement also contains a provision whereby the partnership can
require FB to exercise the option.
(Continued)
F-40
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
<TABLE>
<CAPTION>
(8) Leases, Continued
Rental expense on other operating leases totaled $545,550 and $453,300 in
1993 and 1992, respectively. Minimum future annual rentals in effect at December
31, 1993 on operating leases are as follows:
<S> <C>
1994........................... $340,945
1995........................... 344,324
1996........................... 344,973
1997........................... 346,614
1998........................... 341,637
========
</TABLE>
(9) Commitments, Contingencies and Financial
Instruments with Off-Balance-Sheet Risk
The consolidated financial statements do not reflect various commitments,
contingencies and financial instruments with off-balance-sheet risk which arise
in the normal course of business. These commitments, contingencies and financial
instruments, which represent credit risk, interest rate risk and liquidity risk,
consist of open commitments to extend credit, standby letters of credit, Goldman
Sachs Sweep accounts and litigation arising in the normal course of business.
Open commitments to extend credit amounted to approximately $31,235,000 at
December 31, 1993. Such agreements require FB to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitments do not necessarily represent
future cash requirements. The banks evaluate each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained (if deemed necessary
by the banks upon extension of credit) is based on management's credit
evaluation of the customer.
Standby letters of credit are conditional commitments issued by FB to
guarantee the performance of a customer to a third-party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The outstanding standby letters of
credit were $1,556,000 and $2,907,900 at December 31, 1993 and 1992,
respectively.
FB has agreements with certain deposit customers to act as their agent and
automatically transfer deposits in excess of their minimum required balance into
interest-bearing broker accounts at Goldman Sachs, daily. These off-balance
sheet "sweep" accounts amounted to approximately $23,400,000 at December 31,
1993.
The Corporation is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes
that the liabilities, if any, arising from such litigation and claims will not
be material to the consolidated financial statements.
(Continued)
F-41
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(10) Fair Value of Financial Instruments
FAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that the Corporation disclose estimated fair values for its financial
instruments. Fair value estimates, methods and assumptions are set forth below
for the Corporation's financial instruments at December 31, 1993 and 1992.
Cash and Cash Equivalents, Interest Receivable, Interest Payable, Securities
Sold Under Agreements to Repurchase and Notes Payable
For cash and cash equivalents, interest receivable, interest payable,
securities sold under agreements to repurchase and notes payable, the carrying
amount is a reasonable estimate of fair value.
Investment Securities
For investment and mortgage-backed securities, fair value equals quoted
market price, if available or quotations received from securities dealers. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities, adjusted for differences between the
quoted securities and the securities being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial, equipment
finance, real estate, consumer and other. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value of performing, variable-rate loans is the loan balance at
December 31, 1993. The fair value of performing, fixed-rate loans is estimated
by discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities. The allowance for loan losses, as recorded in these
consolidated financial statements, is considered by management to include a
reasonable estimation of the credit and market risk associated with
nonperforming loans.
Deposits
The fair value of demand deposits, interest-bearing checking, savings and
money market accounts is the amount payable on demand at December 31, 1993 and
1992. The fair value of fixed-maturity certificates of deposit and IRA accounts
is based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Commitments to Extend Credit
Commitments to extend credit are adjustable rate commitments with most of
the commitments expected to expire without being drawn upon and for which no
significant fees are charged. Consequently, for commitments which are drawn
upon, the carrying amount and fair value of the related loan will be the same.
(Continued)
F-42
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(10) Fair Value of Financial Instruments, Continued
<TABLE>
<CAPTION>
The estimated fair value of the certain financial instruments at December
31, 1993 and 1992 are shown below:
1993 1992
--------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Investment securities.... $ 45,176,252 $ 45,368,458 $ 45,005,399 $ 46,012,872
============ ============ ============ ============
Loans.................... $134,247,335 $134,889,569 $109,655,681 $110,287,777
============ ============ ============ ============
Financial liabilities,
deposits.................... $182,237,016 $183,214,687 $168,397,024 $168,807,919
============ ============ ============ ============
</TABLE>
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. In addition,
the tax ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered in these estimates.
(11) Regulatory Compliance
The audit procedures applied to the Corporation were also performed on FB
in accordance with the State of Nebraska, Department of Banking Rule 45 NAC 24,
which permits the acceptance of a holding company audit in lieu of a Directors'
Examination for a subsidiary bank. The tests of independence outlined in Rule 45
NAC 24 have also been met.
(12) Regulatory Capital Requirements (Unaudited)
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions and new regulations
concerning internal controls, accounting and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Institutions
categorized as "undercapitalized" or worse are subject to certain additional
requirements and restrictions.
(Continued)
F-43
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
December 31, 1993 and 1992
(12) Regulatory Capital Requirements (Unaudited), Continued
To be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5 percent, a Tier 1 risk-based capital ratio of at
least 6 percent and a total risk-based capital ratio of at least 10 percent. At
December 31, 1993, FB was in the "well capitalized" category.
Management believes FB will continue to meet all the regulatory capital
requirements in the foreseeable future.
F-44
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
June 30,
-------------------
Assets 1995 1994
------ -------- --------
<S> <C> <C>
Cash and due from banks............................ $ 14,864 $ 12,377
Federal funds sold................................. 7,515 0
-------- --------
Cash and cash equivalents (note 10)........... 22,379 12,377
Investment securities:
Held to maturity............................... 10,701 9,737
Available for sale............................. 32,660 35,696
-------- --------
Total investment securities................... 43,361 45,433
Loans and leases receivable, net................... 159,827 135,755
Interest receivable................................ 1,436 1,323
Premises and equipment, net........................ 6,719 4,299
Intangible assets.................................. 2,671 2,852
Deferred income taxes.............................. 0 9
Other assets....................................... 403 763
-------- --------
Total assets.................................. $236,796 $202,811
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Total deposits..................................... $209,975 $179,108
Accrued expenses and other liabilities............. 1,338 1,409
Current income taxes payable....................... 55 51
Deferred income taxes.............................. 432 --
ESOP debt.......................................... 90 121
FHLB payable (note 13)............................. 5,531 590
Federal funds purchased............................ 0 4,615
Notes payable...................................... 3,170 3,655
-------- --------
Total liabilities............................. 220,591 189,548
-------- --------
Minority interests................................. 2 2
-------- --------
Stockholders' Equity:
6% preferred stock............................ 105 105
Common stock.................................. 273 273
Additional paid-in capital.................... 2,044 2,044
Retained earnings............................. 14,366 11,951
-------- --------
16,788 14,373
Less:
ESOP debt secured by common stock........... (90) (121)
Cost of 1,942.401 shares in 1995 and
1,853.649 shares in 1994 of treasury
stock..................................... (310) (292)
Net unrealized gains (losses) on investment
securities................................ (185) (699)
-------- --------
Total stockholders' equity.................. 16,203 13,261
-------- --------
Total liabilities and stockholders'
equity.................................. $236,796 $202,811
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
Six Months Ended June 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1994
------ ------
<S> <C> <C>
Interest income:
Interest and fees on loans...................... $7,164 $5,670
Interest on investment securities:
Taxable....................................... 1,346 1,244
Nontaxable.................................... 64 41
Interest on Federal funds sold.................. 58 18
------ ------
Total interest income......................... 8,632 6,973
------ ------
Interest expense:
Interest on deposits............................ 3,130 2,185
Interest on other borrowings.................... 358 174
------ ------
Total interest expense........................ 3,488 2,359
------ ------
Net interest income........................... 5,144 4,614
Provision for loan losses............................ 162 150
------ ------
Net income after provision.................... 4,982 4,464
Other operating income:
Service charges................................. 842 778
Gain (loss) on sale of investment
securities, net............................... 0 4
Other........................................... 856 519
------ ------
Total other operating income.................. 1,698 1,301
------ ------
Other operating expenses:
Salaries and employee benefits.................. 2,185 1,941
Occupancy, net.................................. 680 732
Equipment and data processing................... 374 316
Other........................................... 1,355 1,092
------ ------
Total other operating expenses................ 4,594 4,081
------ ------
Income before income taxes and minority
interests................................... 2,086 1,684
Income tax expense................................... (751) (618)
------ ------
Income before minority interests............ 1,335 1,066
Minority interests................................... (1) (0)
------ ------
Net income.................................. $1,334 $1,066
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Gains
6% and 9% Additional (losses) on Total
Preferred Common Paid-in Retained ESOP Treasury Investment Stockholders'
Stock Stock Capital Earnings Debt Stock Securities Equity
--------- ------ ---------- -------- ---- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993.... $ 1,280 $273 $2,044 $11,025 $(140) $(187) $ 128 $14,423
Payment on ESOP
debt................. -- -- -- -- 30 -- -- 30
ESOP debt incurred.... -- -- -- -- (11) -- -- (11)
Net income............ -- -- -- 1,066 -- -- -- 1,066
Preferred stock
dividends............ -- -- -- (140) -- -- -- (140)
Repurchase of 9%
preferred stock...... (1,175) -- -- -- -- -- -- (1,175)
Repurchase of common
stock................ -- -- -- -- -- (105) -- (105)
Changes in net
unrealized gains
(losses)............. -- -- -- -- -- -- (827) (827)
------- ---- ------ ------- ----- ----- ------- -------
Balance at
June 30, 1994........ $ 105 $273 $2,044 $11,951 $(121) $(292) $ (699) $13,261
======= ==== ====== ======= ===== ===== ======= =======
Balance at
December 31, 1994.... $ 105 $273 $2,044 $13,038 $ (92) $(293) $(1,083) $13,993
Payment on ESOP
debt................. -- -- -- -- 33 -- -- 33
ESOP debt incurred.... -- -- -- -- (31) -- -- (31)
Net income............ -- -- -- 1,334 -- -- -- 1,334
Preferred stock
dividends............ -- -- -- (6) -- -- -- (6)
Repurchase of common
stock................ -- -- -- -- -- (17) -- (18)
Changes in net
unrealized gains
(losses)............. -- -- -- -- -- -- 898 898
------- ---- ------ ------- ----- ----- ------- -------
Balance at
June 30, 1995........ $ 105 $273 $2,044 $14,366 $ (90) $(310) $ (185) $16,203
======= ==== ====== ======= ===== ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-47
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 1,334 $ 1,066
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................... 396 341
Provision for loan losses....................... 162 150
Gain on sale of investments..................... 0 (4)
Change in assets and liabilities:
Interest receivable........................... 64 (107)
Other assets.................................. 357 38
Income taxes recoverable...................... 0 16
Accrued expenses and other liabilities........ (961) (773)
Current income taxes payable.................. (69) 51
Minority interest............................. 1 1
Deferred income taxes......................... (137) (349)
-------- -------
Total adjustments........................... 87 (636)
-------- -------
Net cash provided by operating activities... 1,421 430
-------- -------
Cash flows from investing activities:
Proceeds from sale of investment securities..... 3,956 2,320
Purchase of investment securities............... (217) (3,400)
Purchase of treasury stock...................... (18) (105)
Increase in loans............................... (13,201) (3,174)
Additions to premises and equipment, net........ (2,894) (681)
Proceeds from disposal of premises and equipment 31 15
-------- -------
Net cash provided in investing activities..... (12,343) (5,025)
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits............. 11,826 (3,148)
Proceeds (payments) from FHLB debt, net......... (29) 590
Proceeds from federal funds purchased, net...... 0 4,615
Proceeds from notes payable..................... 0 845
Payments on notes payable....................... (195) 0
Repurchase on preferred stock................... 0 (1,175)
Preferred stock dividends....................... (6) (140)
-------- -------
Net cash provided by financing activities..... 11,596 1,587
-------- -------
Net increase (decrease) in cash and cash equivalents. 674 (3,008)
Cash and cash equivalents, beginning of year......... 21,705 15,385
-------- -------
Cash and cash equivalents, end of year............... $ 22,379 $12,377
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-48
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1995 and 1994
The unaudited consolidated financial statements of Midwestern Services,
Inc. and subsidiaries (the Corporation) at June 30, 1995 and 1994 are prepared
in accordance with generally accepted accounting principles. The consolidated
financial statements include the account of Midwestern Services, Inc. (the
Parent), First Bank (FB) and Northwestern State Bank (NSWSB). The Parent owns
100 percent of the outstanding common stock of FB and approximately 92 percent
of NWSB. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of results have
been made and management believes such presentation is adequate to make the
information presented not misleading. All significant intercompany transactions
and balances have been eliminated in consolidation.
(1) Securities
Available for sale securities consist of bonds, notes, debentures, and
certain equity securities not classified as held to maturity securities.
Unrealized holding gains and losses, net of income taxes, are reported as a net
amount in a separate component of stockholders' equity until realized. Gains and
losses on the sale of available for sale securities are determined using the
specific identification method.
The amortized cost and approximate fair values of securities available for
sale, which were recorded at amortized cost were as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
June 30, 1995 Cost Value
- ------------- --------- ---------
<S> <C> <C>
Securities Available for Sale:
U.S. Government securities........................... $ 3,019 $ 3,032
U.S. Government agencies and corporations............ 12,140 12,167
Mortgage-backed securities........................... 13,628 13,456
Marketable equity securities-mutual funds............ 3,483 3,335
Other securities..................................... 670 670
------- -------
Total available for sale........................ $32,940 $32,660
======= =======
Securities Held to Maturity:
U.S. Government securities........................... $ 1,982 $ 2,015
U.S. Government agencies and corporations............ 500 517
Mortgage-backed securities........................... 5,568 5,688
Municipal bonds...................................... 2,601 2,605
Other securities..................................... 50 46
------- -------
Total held to maturity.......................... $10,701 $10,871
======= =======
Securities available for sale
(Estimated market value)............................. $32,660
Securities held to maturity
(Amortized cost)..................................... $10,701
-------
Total securities at June 30, 1995.......... $43,361
=======
(Continued)
</TABLE>
F-49
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 1995 and 1994
(1) Securities, Continued
<TABLE>
<CAPTION>
Estimated
Amortized Market
June 30, 1994 Cost Value
- ------------- --------- ---------
<S> <C> <C>
Securities Available for Sale:
U.S. Government securities........................... $ 4,077 $ 4,083
U.S. Government agencies and corporations............ 11,535 11,372
Mortgage-backed securities........................... 16,128 15,382
Marketable equity securities-mutual funds............ 4,369 4,214
Other securities..................................... 645 645
------- -------
Total available for sale........................ $36,754 $35,696
======= =======
Securities Held to Maturity:
U.S. Government securities........................... $ 4,518 $ 3,549
U.S. Government agencies and corporations............ 1,006 1,016
Mortgage-backed securities........................... 1,193 1,153
Municipal bonds...................................... 1,715 1,692
Other securities..................................... 1,305 1,307
------- -------
Total held to maturity.......................... $ 9,737 $ 8,717
======= =======
Securities available for sale
(Estimated market value)............................. $35,696
Securities held to maturity
(Amortized cost)..................................... $ 9,737
-------
Total securities at June 30, 1994......... $45,433
=======
(Continued)
</TABLE>
F-50
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 1995 and 1994
(2) Loans and Allowance for Loan Losses
The allowance for loan losses is maintained at a level adequate to
absorb loan losses. Management determines the adequacy of the allowance
based upon changes in the nature and volume of the loan portfolio, overall loan
portfolio quality, loan concentrations, specific problem loans or leases and
current and anticipated economic conditions that may affect the borrowers'
ability to pay. Loans deemed uncollectible are charged to the allowance.
Provisions for loan losses and recoveries on loans previously charged off are
added to the allowance.
<TABLE>
<CAPTION>
Loans consist of the following at June 30: 1995 1994
- ------------------------------------------ -------- --------
<S> <C> <C>
Commercial and commercial leasing......................... $ 71,995 $ 63,652
Consumer.................................................. 29,517 25,761
Real estate............................................... 50,044 41,489
Equipment leases.......................................... 8,056 4,928
Overdrafts................................................ 2,028 1,546
-------- --------
161,640 137,376
Less: allowance for loan losses...................... 1,813 1,621
-------- --------
Net loans............................................ $159,827 $135,755
======== ========
An analysis of the changes in the allowance
for loan losses is as follows:
Balance, January 1................................... $ 1,741 $ 1,516
Provision............................................ 162 150
Loans charged off.................................... (120) (58)
Recoveries........................................... 30 13
-------- --------
Balance......................................... $ 1,813 $ 1,621
======== ========
</TABLE>
(3) Deposits
<TABLE>
<CAPTION>
Deposits consist of the following: 1995 1994
- ---------------------------------- -------- --------
<S>....................................................... <C> <C>
Demand.................................................... $ 41,370 $ 36,760
Interest-bearing checking................................. 39,383 35,082
Savings................................................... 11,901 12,837
Money market.............................................. 21,663 24,263
Time...................................................... 95,658 70,166
-------- --------
Total deposits....................................... $209,975 $179,108
======== ========
</TABLE>
(Continued)
F-51
<PAGE>
MIDWESTERN SERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Six Months Ended June 30, 1995 and 1994
(4) Income Taxes
The Corporation files a consolidated U.S. Federal income tax return. The
Corporation and its subsidiaries have adopted the policy of paying their share
of any income taxes or receiving the benefit of any operating losses based on
the proportionate share of each company's taxable income or loss to total
taxable income. Deferred taxes are reflected at currently enacted income tax
rates applicable to the period in which the deferred tax assets or liabilities
are expected to be realized or settled.
The consolidated income tax provision consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current tax provision:
Federal............................................... $686 $478
State................................................. 42 40
Deferred.............................................. 23 100
---- ----
Total tax provision................................... $751 $618
==== ====
</TABLE>
(5) Commitments and Contingencies
In the normal course of business, the Corporation makes various commitments
and incurs certain contingent liabilities which are not presented in the
consolidated financial statements. These financial instruments include
commitments to extend credit, standby letters of credit, and Goldman Sachs Sweep
accounts. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statements. The contract or notional amounts of those instruments reflect the
extent of involvement the Corporation has in particular classes of financial
instruments.
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Commitments to extend credit...............................$24,102 $30,178
Standby letters of credit.................................. 1,331 1,469
Goldman Sachs Sweep accounts............................... 35,156 28,590
</TABLE>
The Corporation holds collateral for the above commitments as deemed
appropriate based on their assessed risk.
F-52
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
FIRST BANK SYSTEM, INC.
MIDWESTERN SERVICES, INC.
AND
RAYMOND D. PAPE, JR.
(Acting in his capacity as Shareholders' Representative)
June 23, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE 1--MERGER.......................................................... 2
1.1. Effect of Merger................................................ 2
1.2. Conversion of Midwestern Common Stock; Capital Stock of FBS..... 3
1.3. Additional FBS Common Stock; Adjustments........................ 4
1.4. No Fractional Shares............................................ 4
1.5. Exchange of Certificates........................................ 4
1.6. Shareholder Voting Agreement and Noncompetition Agreement....... 7
ARTICLE 2--REPRESENTATIONS AND WARRANTIES OF FBS........................... 8
2.1. Organization and Qualification.................................. 8
2.2. Authority Relative to this Agreement; Non-Contravention......... 8
2.3. Validity of FBS Common Stock.................................... 9
2.4. Capital Stock.................................................. 9
2.5. 1934 Act Reports............................................... 9
2.6. No Material Adverse Changes.................................... 10
2.7. Reports and Filings............................................ 10
2.8. Prospectus/Proxy Statement..................................... 10
ARTICLE 3--REPRESENTATIONS AND WARRANTIES OF MIDWESTERN................... 11
3.1. Organization and Qualification................................. 11
3.2. Authority Relative to this Agreement; Non-Contravention........ 11
3.3. Capitalization................................................. 12
3.4. Financial Statements........................................... 13
3.5. Loans.......................................................... 13
3.6. Reports and Filings............................................ 14
3.7. Subsidiaries................................................... 14
3.8. Absence of Undisclosed Liabilities............................. 14
3.9. No Material Adverse Changes.................................... 15
3.10. Absence of Certain Developments................................ 15
3.11. Properties..................................................... 16
3.12. Tax Matters.................................................... 19
3.13. Contracts and Commitments...................................... 20
3.14. Litigation..................................................... 21
3.15. No Brokers or Finders.......................................... 21
3.16. Employees...................................................... 21
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
3.17. Employee Benefit Plans.......................................... 21
3.18. Insurance....................................................... 24
3.19. Affiliate Transactions.......................................... 24
3.20. Compliance with Laws; Permits................................... 25
3.21. Administration of Fiduciary Accounts............................ 25
3.22. Disclosure...................................................... 26
3.23. Prospectus/Proxy Statement...................................... 26
3.24. Regulatory Approvals............................................ 26
3.25. Interest Rate Risk Management Instruments....................... 26
3.26. Loan Participations............................................. 27
3.27. Disclosures in Schedules........................................ 27
3.28. No Dissenters' Rights........................................... 27
ARTICLE 4--CONDUCT OF BUSINESS PENDING THE MERGER.......................... 27
4.1. Conduct of Business............................................. 27
ARTICLE 5--ADDITIONAL COVENANTS AND AGREEMENTS............................. 30
5.1. Filings and Approvals........................................... 30
5.2. Certain Loans and Related Matters............................... 30
5.3. Monthly Financial Statements and Pay Listings................... 31
5.4. Expenses........................................................ 31
5.5. No Negotiations, etc. .......................................... 31
5.6. Notification of Certain Matters................................. 31
5.7. Access to Information; Confidentiality;
Nonsolicitation of Employees.................................. 32
5.8. Filing of Tax Returns and Adjustments........................... 33
5.9. Establishment of Accruals....................................... 34
5.10. Employee Matters................................................ 34
5.11. Tax Treatment................................................... 36
5.12. Redemption of Preferred Stock................................... 37
5.13. Shareholder Approval; Registration Statement.................... 37
5.14. Indemnification of FBS.......................................... 38
5.15. Escrow Agreement................................................ 41
5.16. Directors' and Officers' Insurance;
Limitation of Liability of Directors and Officers............. 41
5.17. Termination of Stock Redemption Agreement ...................... 42
5.18. Dissolution of Northwestern State Bank.......................... 42
5.19. Transfer of Directors' Shares................................... 42
5.20. Sale of Assets of Midwestern.................................... 42
5.21. Consent to Assignment of Leases................................. 42
5.22. Affiliate Letters............................................... 42
</TABLE>
-ii-
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 6--CONDITIONS...................................................... 42
6.1. Conditions to Obligations of Each Party......................... 42
6.2. Additional Conditions to Obligation of Midwestern............... 43
6.3. Additional Conditions to Obligation of FBS...................... 46
ARTICLE 7--TERMINATION, AMENDMENT AND WAIVER............................... 51
7.1. Termination..................................................... 51
7.2. Effect of Termination........................................... 51
7.3. Amendment....................................................... 51
7.4. Waiver.......................................................... 51
ARTICLE 8--THE ESCROW DEPOSIT.............................................. 52
8.1. Escrow Deposit.................................................. 52
8.2. Release of Escrow Deposit to Shareholders....................... 52
8.3. Refund of Escrow Deposit to FBS................................. 52
ARTICLE 9--THE SHAREHOLDERS' REPRESENTATIVE................................ 52
9.1. Appointment..................................................... 52
9.2. Election and Replacement........................................ 52
9.3. Authority....................................................... 53
9.4. No Liability of FBS............................................. 53
ARTICLE 10--GENERAL PROVISIONS.............................................. 54
10.1. Public Statements............................................... 54
10.2. Notices......................................................... 54
10.3. Interpretation.................................................. 55
10.4. Severability.................................................... 55
10.5. Miscellaneous................................................... 56
10.6. Survival of Representations, Warranties and Covenants 56
10.7. Schedules....................................................... 56
SIGNATURES................................................................. 57
Exhibit A--Escrow Agreement
Exhibit B--Affiliate Letter
Exhibit C--Escrow Deposit Agreement
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated June 23,
1995, is made and entered into by and among FIRST BANK SYSTEM, INC., a Delaware
corporation ("FBS"), MIDWESTERN SERVICES, INC., a Nebraska corporation
("Midwestern"), and RAYMOND D. PAPE, JR. (acting in his capacity as
representative of the shareholders of Midwestern (the "Shareholders'
Representative")).
WHEREAS, the respective Boards of Directors of FBS and Midwestern have
determined that it is advisable and in the best interests of FBS and Midwestern
and their respective shareholders to consummate the merger of Midwestern with
and into FBS as described in Article 1 of this Agreement (the "Merger");
WHEREAS, FBS will be the surviving corporation of the Merger and, as a
result of the Merger, all of the outstanding shares of the common stock, $3.50
par value, of Midwestern ("Midwestern Common Stock"), will be converted into the
right to receive a combination of cash and shares of common stock, $1.25 par
value, of FBS ("FBS Common Stock") on the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, Midwestern owns all of the issued and outstanding capital
stock of First Bank, a Nebraska state banking corporation ("First Bank"), other
than the shares of capital stock of First Bank owned by the directors of First
Bank (the "Directors' Shares");
WHEREAS, FBS and certain shareholders owning in excess of two-thirds
of the voting securities of Midwestern will enter into a Shareholder Voting
Agreement with FBS, dated the date hereof, pursuant to which such shareholders
agree that they will vote all of such securities in favor of this Agreement and
the Merger at the meeting of the Midwestern shareholders held for such purpose;
WHEREAS, as a condition to the Merger, certain shareholders of
Midwestern have entered into a noncompetition agreement with FBS, dated the date
hereof, pursuant to which such shareholders agree that they will not compete
with the Surviving Corporation (as hereinafter defined) following the Merger,
subject to certain exceptions;
WHEREAS, this Agreement provides for certain indemnification
obligations to FBS which are to be satisfied out of an escrow account
established pursuant to the terms of the Escrow Agreement (as defined in Section
5.15 hereof);
WHEREAS, the rights of the holders of Midwestern Common Stock with
respect to certain provisions of this Agreement will be represented, following
the effective date of the Merger, by the Shareholders' Representative; and
A-1
<PAGE>
WHEREAS, FBS and Midwestern desire that the Merger be made on the
terms and subject to the conditions set forth in this Agreement and that the
Merger qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties
and covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
MERGER
Subject to the satisfaction or waiver of the conditions set forth in
Article 6, on a date mutually satisfactory to the parties as soon as practicable
following receipt of all necessary regulatory approvals of the Board of
Governors of the Federal Reserve System ("FRB") and the Nebraska Department of
Banking and Finance, Midwestern will merge with and into FBS. FBS, in its
capacity as the corporation surviving the Merger, is sometimes referred to
herein as the "Surviving Corporation." The Merger will be effected pursuant to
the provisions of, and with the effect provided in Section 21-2076 of the
Nebraska Business Corporation Act (the "NBCA") and Section 252 of the Delaware
General Corporation Law (the "DGCL").
1.1. Effect of Merger.
(a) On the Effective Date (as defined in Section 1.1(d)), Midwestern
shall be merged with and into FBS, and the separate existence of Midwestern
shall cease. The Charter (as defined Section 2.2) and the Bylaws of FBS, as in
effect immediately prior to the Effective Date, shall be the Charter and the
Bylaws of the Surviving Corporation, until the same may be further amended as
provided therein and in accordance with applicable law. The directors and
officers of FBS immediately prior to the Effective Date will be the directors
and officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and shall qualify.
(b) On the Effective Date and thereafter, the Surviving Corporation
shall be responsible and liable for all the liabilities, debts, obligations and
penalties of each of FBS and Midwestern.
(c) On the Effective Date and thereafter, the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a public
as well as of a private nature, of each of FBS and Midwestern; all property,
real, personal and mixed, and all debts due on whatever account, and all and
every other interest, of or belonging to or due to each of FBS and Midwestern,
shall be taken and deemed to be transferred to and vested in the Surviving
Corporation without further act or
A-2
<PAGE>
deed; and the title to any real estate or any interest therein, vested in FBS or
Midwestern, shall not revert or be in any way impaired by reason of the Merger.
(d) To effect the Merger, the parties hereto will cause appropriate
certificates of merger relating to the Merger to be filed with the Secretary of
State of Delaware and the Secretary of State of Nebraska. The Merger shall
become effective upon the later of such certificates of merger to be filed. As
used herein, the term "Effective Date" shall mean the date on which the Merger
shall become effective as provided in the preceding sentence.
1.2. Conversion of Midwestern Common Stock; Capital Stock of FBS.
To effectuate the Merger and subject to the terms and conditions of
this Agreement:
(a) On the Effective Date, each issued and outstanding share of
Midwestern Common Stock (other than shares to be canceled pursuant to Section
1.2(b)) shall be converted into and become the right to receive (subject to
Section 1.3, 1.4 and 1.5(b)) the following (collectively, the "Merger
Consideration"):
(i) a number of shares of FBS Common Stock (the "Stock Consideration")
equal to (A) 517,241 divided by (B) the number of shares of Midwestern Common
Stock outstanding on the Effective Date; and
(ii) an amount (the "Deferred Cash Consideration") equal to (A)
$14,400,000 divided by (B) the number of shares of Midwestern Common Stock
outstanding on the Effective Date, which Deferred Cash Consideration shall be
payable on January 2, 1996 or the Effective Date, whichever is later (the
"Deferred Payment Date"); plus accrued interest from the Effective Date to the
Deferred Payment Date at the rate equal to the 30-day Treasury bill rate in
effect on the Effective Date; provided that in the event the Deferred Payment
Date is more than 30 days after the Effective Date such interest rate shall be
reset to equal the 30-day Treasury bill rate in effect on the 31st day following
the Effective Date for the remainder of the interest accrual period; provided
further that the Midwestern Employee Stock Ownership Plan trust shall have the
option to elect to accelerate the payment of the Deferred Cash Consideration to
be paid in respect of its shares of Midwestern Common Stock to the Effective
Date.
All shares of Midwestern Common Stock converted pursuant to the Merger
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent the right to receive the Merger Consideration
into which such Midwestern Common Stock was converted in the Merger and cash in
lieu of fractional shares of FBS Common Stock pursuant to Section 1.4.
Certificates previously representing shares of Midwestern Common Stock shall be
exchanged for the Cash Consideration and the Deferred Cash Consideration and
certificates representing whole shares of the Stock Consideration upon the
surrender of such
A-3
<PAGE>
certificates in accordance with the provisions of Section 1.5, without interest.
No fractional share of FBS Common Stock shall be issued, and, in lieu thereof, a
cash payment shall be made pursuant to Section 1.4 of this Agreement.
(b) Each share of Midwestern Common Stock held as treasury stock of
Midwestern or held directly or indirectly by FBS, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted, shall be
canceled, retired and cease to exist, and no payment shall be made with respect
thereto.
(c) On and after the Effective Date, each share of capital stock of
FBS issued and outstanding immediately prior to the Effective Date shall remain
an issued and existing share of common stock of the Surviving Corporation and
shall not be affected by the Merger.
1.3. Additional FBS Common Stock; Adjustments. If, between the date
hereof and the Effective Date, shares of FBS Common Stock shall be changed into
a different number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with a record
date within such period, then the number of shares of FBS Common Stock issued as
Stock Consideration on the Effective Date pursuant to this Agreement will be
appropriately and proportionately adjusted so that the number of such shares of
FBS Common Stock (or such class of shares into which shares of FBS Common Stock
have been changed) that will be issued as Stock Consideration will equal the
number of such shares that the shareholders of Midwestern Common Stock would
have received pursuant to such classification, recapitalization, split-up,
combination, exchange of shares or readjustment had the record date therefor
been immediately following the Effective Date.
1.4. No Fractional Shares. No fractional shares of FBS Common Stock,
and no certificates representing any fractional shares, shall be issued upon the
surrender for exchange of certificates representing Midwestern Common Stock nor
in connection with the shares of FBS Common Stock to be received, if any,
pursuant to Section 1.3(a). In lieu of any fractional share, FBS shall pay to
each holder of Midwestern Common Stock who otherwise would be entitled to
receive a fractional share of FBS Common Stock an amount of cash (without
interest) equal to the product of (a) $41.76 (the "Conversion Price"),
multiplied by (b) the fractional share interest to which such holder would
otherwise be entitled.
1.5. Exchange of Certificates.
(a) Payment of Merger Consideration; Exchange of Certificates.
Concurrently with the Merger on the Effective Date, each holder of a certificate
or certificates representing shares of Midwestern Common Stock canceled and
extinguished at the Effective Date pursuant to Sections 1.2(a) may surrender
such certificate or certificates to FBS, as agent for the holders of shares of
Midwestern Common Stock, to effect the exchange of such certificate or
certificates on such
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holder's behalf. After surrender to FBS of any certificate which prior to the
Effective Date represented shares of Midwestern Common Stock (other than shares
to be canceled pursuant to Section 1.2(b)), FBS shall distribute to the person
in whose name such certificate is registered, a (i) a certificate or
certificates representing the number of whole shares of Stock Consideration
issuable to such holder under Section 1.2(a)(i), (ii) cash payments in lieu of
any fractional shares as provided in Section 1.4, and (iii) the right to receive
the Deferred Cash Consideration to which such holder is entitled to receive
under Section 1.2(a)(ii) on the Deferred Payment Date, which right shall be
uncertificated, all subject to the requirement to deliver the Stock
Consideration and certain of the Deferred Cash Consideration into escrow as
provided in Section 1.5(c); provided, however, that certificates surrendered for
exchange by any person deemed an "affiliate" of Midwestern (as defined in
Section 5.22) shall not be exchanged for the Merger Consideration until FBS has
received a written agreement from such person as provided in Section 5.22. The
Deferred Cash Consideration to which such holder is entitled shall be paid by
FBS by cashier's check on the Deferred Payment Date. That portion of the
Deferred Cash Consideration to be paid into escrow as provided in Section 1.5(c)
shall be paid by FBS to the Escrow Agent (as such term is defined in the Escrow
Agreement) by cashier's check or wire transfer on the Deferred Payment Date. FBS
agrees that its obligation to pay the Deferred Cash Consideration on the
Deferred Payment Date is unconditional and is not subject to any right of set
off. In the event that FBS should default in its obligation to pay the Deferred
Cash Consideration, FBS shall also be responsible for the payment of the
reasonable legal expenses and costs of the Shareholders' Representative in any
action to collect such amounts.
(b) Rights of Holders of Midwestern Common Stock; Stock Transfer.
Until so surrendered and exchanged, each outstanding certificate which, prior to
the Effective Date, represented shares of Midwestern Common Stock shall be
deemed to represent and evidence only the right to receive the Merger
Consideration to be paid therefor as set forth in Section 1.2, and until such
surrender and exchange, no Merger Consideration shall be paid or delivered to
the holder of such outstanding certificate in respect thereof. The record
holder of an outstanding stock certificate for Midwestern Common Stock shall,
after the Effective Date, be entitled to vote the shares of FBS Common Stock
into which such shares of Midwestern Common Stock shall have been converted on
any matters on which the holders of record of FBS Common Stock, as of any date
subsequent to the Effective Date, shall be entitled to vote. After the
Effective Date, there shall be no further registration of transfers on the
records of the Surviving Corporation of outstanding certificates formerly
representing shares of Midwestern Common Stock and, if a certificate formerly
representing such shares is presented to Midwestern or FBS, it shall be canceled
and exchanged for the Merger Consideration as provided in this Section 1.5. In
any matters relating to certificates of Midwestern Common Stock, FBS may rely
conclusively upon the record of shareholders maintained by Midwestern containing
the names and addresses of the holders of record of Midwestern Common Stock on
the Effective Date.
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(c) Escrow of Merger Consideration. Simultaneously with the Merger on
the Effective Date, all of the Stock Consideration to be delivered to the
holders of Midwestern Common Stock (other than the Stock Consideration issued in
respect of the shares of Midwestern Common Stock held by the Midwestern Employee
Stock Ownership Plan which shall be issued to such holder on the Effective Date)
will be delivered to the Escrow Agent (as such term is defined in, and pursuant
to, the Escrow Agreement as provided in Section 5.15). The holders of Midwestern
Common Stock other than the Midwestern Employee Stock Ownership Plan are
hereinafter referred to as the "Indemnifying Shareholders." Of such Stock
Consideration held in Escrow, 47,000 shares of FBS Common Stock shall constitute
a portion of the escrow for purposes of satisfying the indemnification
obligations of the Indemnifying Shareholders pursuant to Section 5.14 and the
remainder of the Stock Consideration to be issued to the Indemnifying
Shareholders shall be for the purpose of establishing that it is the
Indemnifying Shareholders' plan and intention that none of the Stock
Consideration issued in respect of such Indemnifying Shareholders will be sold
or otherwise transferred from the date hereof until at least two years from the
Effective Date. In addition, on the Deferred Payment Date, $917,280 of the
Deferred Cash Consideration to be paid in respect of the Indemnifying
Shareholders will be delivered to the Escrow Agent by check or wire transfer as
provided in Section 5.15 and shall constitute the remainder of the escrow for
purposes of satisfying the indemnification obligations of the Indemnifying
Shareholders pursuant to Section 5.14. Claims made against the Indemnity Escrow
Fund (as defined in Section 5.15) shall first be satisfied out of the Deferred
Cash Consideration held by the Escrow Agent.
(d) No Further Liability. All Merger Consideration paid or delivered
upon the surrender of Midwestern Common Stock in accordance with the terms and
conditions of this Agreement shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Midwestern Common Stock.
Upon any release of any portion of the Merger Consideration held in escrow
pursuant to Sections 1.5(b) and 5.15 to the Shareholders' Representative, FBS
will have no further liability or obligation to the Indemnifying Shareholders
with respect to such Merger Consideration nor will it have any responsibility
with respect to the ultimate distribution of such Merger Consideration to the
Indemnifying Shareholders.
(e) Failure to Surrender Certificates. If outstanding certificates
formerly representing shares of Midwestern Common Stock are not surrendered
prior to the date on which the Merger Consideration to which any holder of such
shares is entitled as a result of the Merger would otherwise escheat to or
become the property of any governmental unit or agency, the unclaimed
consideration shall, to the extent permitted by abandoned property and any other
applicable law, become the property of FBS (and to the extent not in FBS's
possession shall be paid over to FBS), free and clear of any and all claims or
interest of any person. Notwithstanding the foregoing, neither FBS nor any
other person shall be liable to any former holder of Midwestern Common Stock for
any amount delivered to a public official pursuant to applicable abandoned
property, escheat or other similar laws.
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(f) Lost Certificates. In the event that any certificate representing
Midwestern Common Stock shall have been lost, stolen or destroyed, FBS shall pay
in exchange for such lost, stolen or destroyed certificate, upon the making of
an affidavit of that fact by the holder thereof in form satisfactory to FBS,
cash as may be required pursuant to this Agreement; provided, however, that FBS
may, in its sole discretion and as a condition precedent to the issuance and
payment of the Merger Consideration to which the holder of such certificate is
entitled as a result of the Merger, require the owner of such lost, stolen or
destroyed certificate to deliver a bond in such sum as it may direct as
indemnity against any claim that may be made against FBS, Midwestern or any
other party with respect to the certificate alleged to have been lost, stolen or
destroyed.
(g) Dividends. Until outstanding certificates formerly representing
Midwestern Common Stock are surrendered as provided in Section 1.5(a), no
dividend or distribution payable to holders of record of FBS Common Stock shall
be paid to any holder of such outstanding certificates, but upon surrender of
such outstanding certificates by such holder there shall be paid to such holder
the amount of any dividends or distributions (without interest) theretofore paid
with respect to such whole shares of FBS Common Stock, but not paid to such
holder, and which dividends or distributions had a record date occurring on or
subsequent to the Effective Date.
1.6. Shareholder Voting Agreement and Noncompetition Agreement.
(a) Simultaneously with the execution of this Agreement, each of
Raymond D. Pape, Jr., Madeline Brady Pape Trust, Matthew Pape Trust, Thomas F.
McGowan, M. David Klipsch, Terry Klipsch and Thomas A. Horeis shall enter into a
Shareholder Voting Agreement (the "Shareholder Voting Agreement") providing that
such shareholders will agree to vote all of their respective shares of
Midwestern Common Stock in favor of this Agreement and the Merger at the meeting
of Midwestern shareholders held for such purpose.
(b) Simultaneously with the execution of this Agreement, each of
Raymond D. Pape, Jr., Thomas F. McGowan and M. David Klipsch shall enter into a
Noncompetition Agreement with FBS providing that such individuals shall not, for
a period of two years after the Effective Date, (i) engage in the banking or
financial services business as an advisor, employee, consultant, agent, partner,
principal, director, owner or stockholder of any corporation or other business
entity within a 50-mile radius of the main office and each of the branch offices
of First Bank (subject to certain exceptions); (ii) directly or indirectly
solicit the banking or financial services business of any past or present
customer of First Bank or encourage any such customer to terminate or alter such
customer's relationship with First Bank (or its successor by merger); or (iii)
directly or indirectly, hire for employment any individual who, as of the date
of this
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Agreement, was an employee or agent of Midwestern or First Bank or who
subsequent to the date of this Agreement became an employee of Midwestern or
First Bank (or any successors by merger) (subject to certain exceptions).
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF FBS
FBS hereby represents and warrants to Midwestern as follows:
2.1. Organization and Qualification. FBS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power to carry on its business as now
conducted. FBS is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). FBS is
licensed or qualified to do business in every jurisdiction in which the nature
of its business or its ownership of property requires it to be licensed or
qualified, except where the failure to be so licensed or qualified would not
have or would not reasonably be expected to have a material adverse effect on
the business, operations or financial condition of FBS and its subsidiaries,
taken as a whole.
2.2. Authority Relative to this Agreement; Non-Contravention. FBS has
the requisite corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement by FBS and the consummation by FBS of the transactions contemplated
hereby have been duly authorized by the Board of Directors of FBS, and no other
corporate proceedings on the part of FBS are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by FBS and constitutes a valid and binding obligation of FBS,
enforceable in accordance with its terms. FBS is not subject to, or obligated
under, any provision of (a) its Charter (as hereinafter defined) or Bylaws, (b)
any agreement, arrangement or understanding, (c) any license, franchise or
permit or (d) subject to obtaining the approvals referred to in the next
sentence, any law, regulation, order, judgment or decree, which would be
breached or violated, or in respect of which a right of termination or
acceleration or any encumbrance on any of its or any of its subsidiaries' assets
would be created, by its execution, delivery and performance of this Agreement
and the consummation by it of the transactions contemplated hereby, other than
any such breaches or violations which will not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of FBS and its subsidiaries, taken as a whole, or the
consummation of the transactions contemplated hereby. Other than in connection
with obtaining any approvals required by the Bank Holding Company Act, the
Nebraska Department of Banking and Finance, the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the "1993 Act"), the
Securities Exchange Act of 1934, as amended, and the rules and regulations there
under (the "1934 Act"), rules of the New York Stock Exchange (the "NYSE"); state
securities or blue sky laws, and the rules and regulations thereunder (the "Blue
Sky Laws"), and the filing of certificates of merger
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with the Secretary of State of Nebraska and the Secretary of State of Delaware,
no authorization, consent or approval of, or filing with, any public body, court
or authority is necessary on the part of FBS for the consummation by it of the
transactions contemplated by this Agreement, except for such authorizations,
consents, approvals and filings as to which the failure to obtain or make would
not, individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of FBS and its subsidiaries, taken
as a whole, or the consummation of the transactions contemplated hereby. As used
in this Agreement, the term "Charter" with respect to any corporation or banking
association shall mean those instruments that at that time constitute its
charter as filed or recorded under the general corporation or other applicable
law of the jurisdiction of incorporation or association, including the articles
or certificate of incorporation or association, any amendments thereto and any
articles or certificate of merger or consolidation.
2.3. Validity of FBS Common Stock. The shares of FBS Common Stock to
be issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and free and clear of any lien,
pledge, security interest, encumbrance or charge of any kind.
2.4. Capital Stock. The authorized capital stock of FBS consists of
200,000,000 shares of FBS Common Stock, par value $1.25 per share, and
10,000,000 shares of preferred stock, par value $1.00 per share. As of March
31, 1995, (a) 135,424,331 shares of FBS Common Stock were issued and outstanding
(including 2,976 shares of FBS Common Stock held in treasury), 9,560,003 shares
of FBS Common Stock were reserved for issuance pursuant to FBS's 1987 Stock
Option Plan, 1991 Stock Incentive Plan, 1994 Stock Incentive Plan, Restated
Employee Stock Purchase Plan and Dividend Reinvestment Plan, the Western Capital
Investment Corp. 1984 Stock Option and Incentive Plan, the MFC Stock Warrants,
the 1988 Equity Participation Plan and the Edina Realty, Inc. 1995 Sales
Associate Stock Purchase Plan and 3,952,000 shares of FBS Common Stock were
reserved for issuance upon conversion of FBS's $3.5625 Cumulative Preferred
Stock, Series 1991A (the "Series 1991A Preferred"); (b) 2,118,500 shares of
Series 1991A Preferred were outstanding; (c) 12,750 shares of Adjustable Rate
Cumulative Preferred Stock, Series 1990A were reserved for issuance pursuant to
certain periodic stock purchase rights and risk event warrants issued by FBS;
and (d) 1,400,000 shares of Series A Junior Participating Preferred Stock were
reserved for issuance upon exercise of rights to purchase shares of Junior
Participating Preferred Stock of FBS pursuant to the Rights Agreement dated as
of December 21, 1988, between FBS and First Chicago Trust Company of New York,
as Rights Agent.
2.5. 1934 Act Reports.
(a) Prior to the execution of this Agreement, FBS has delivered or
made available to Midwestern complete and accurate copies of (i) FBS's Annual
Reports on Form 10-K for the years ended December 31, 1994, 1993 and 1992, as
amended (the "FBS 10-K Reports"), as filed under the 1934 Act with the
Securities
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and Exchange Commission (the "SEC"), (ii) all FBS proxy statements and annual
reports to shareholders used in connection with meetings of FBS shareholders
held since January 1, 1993, and (iii) FBS's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 (the "FBS 10-Q Report"), as filed under the
1934 Act with the SEC. As of their respective dates, such documents (x) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (y)
complied as to form in all material respects with the applicable laws and rules
and regulations of the SEC. Since January 1, 1992, FBS has filed in a timely
manner all reports that it was required to file with the SEC pursuant to the
1934 Act.
(b) The FBS financial statements (including any footnotes thereto)
contained in the FBS 10-K Reports and the FBS 10-Q Report were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved and fairly present the consolidated financial
position of FBS and its subsidiaries as of the dates thereof and the
consolidated results of operations, changes in shareholders' equity and cash
flows for the periods then ended.
2.6. No Material Adverse Changes. Since March 31, 1995, there has
been no material adverse change in, and no event, occurrence or development in
the business of FBS or its subsidiaries, taken as a whole, that, taken together
with other events, occurrences and developments with respect to such business,
has had or would reasonably be expected to have a material adverse effect on the
business operations or financial condition of FBS and its subsidiaries, taken as
a whole, or the ability of FBS to consummate the transactions contemplated
hereby.
2.7. Reports and Filings. Since January 1, 1992, each of FBS and its
subsidiaries has filed each report or other filing it was required to file with
any federal or state banking or bank holding company or other regulatory
authority having jurisdiction over it (together with all exhibits thereto, the
"FBS Regulatory Reports"), except for such reports and filings which the failure
to so file would not have a material adverse effect on the business, operations
or financial condition of FBS and its subsidiaries, taken as a whole. As of
their respective dates or as subsequently amended prior to the date hereof, each
of the FBS Regulatory Reports was true and correct in all material respects and
complied in all material respects with applicable laws, rules and regulations.
2.8. Prospectus/Proxy Statement. At the time the Registration
Statement (as defined in Section 5.13) becomes effective and at the time the
Prospectus/Proxy Statement (as defined in Section 5.13) is mailed to the
shareholders of Midwestern for the purpose of obtaining their approval referred
to in Section 5.13 and at all times subsequent to such mailing up to and
including the time of such approval, the Registration Statement and the
Prospectus/Proxy Statement (including any amendments or supplements thereto),
with respect to all information set forth therein specifically designated as
being supplied by FBS for
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inclusion therein and relating to FBS, the FBS Common Stock, this Agreement, the
Merger and all other transactions contemplated hereby, will (a) comply in all
material respects with applicable provisions of the 1933 Act and the 1934 Act
and (b) not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MIDWESTERN
Midwestern hereby represents and warrants to FBS as follows:
3.1. Organization and Qualification. Midwestern is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nebraska, and has the requisite corporate power to carry on its business as now
conducted. Midwestern is registered as a bank holding company under the Bank
Holding Company Act. First Bank is a state banking corporation duly organized,
validly existing and in good standing under the laws of the State of Nebraska,
and has the requisite corporate power to carry on its business as now conducted.
The copies of the Charter and Bylaws of each of Midwestern and First Bank which
have been provided to FBS prior to the date of this Agreement are correct and
complete and reflect all amendments made thereto through the date hereof. Each
of Midwestern and First Bank is licensed or qualified to do business in every
jurisdiction in which the nature of its respective business or its ownership of
property requires it to be licensed or qualified, except where the failure to be
so licensed or qualified would not have or would not reasonably be expected to
have a material adverse effect on the business, operations or financial
condition of Midwestern and First Bank, taken as a whole.
3.2. Authority Relative to this Agreement; Non-Contravention.
Midwestern has the requisite corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement by Midwestern and the consummation by Midwestern of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Midwestern and, except for approval of this Agreement and the
Merger by the shareholders of Midwestern, no other corporate proceedings on the
part of Midwestern are necessary to authorize this Agreement, the Merger and
such transactions. This Agreement has been duly executed and delivered by
Midwestern and constitutes a valid and binding obligation of Midwestern,
enforceable in accordance with its terms. Except as disclosed on Schedule 3.2,
neither of Midwestern nor First Bank is subject to, or obligated under, any
provision of (a) its Charter or Bylaws, (b) any agreement, arrangement or
understanding, (c) any license, franchise or permit or (d) subject to obtaining
the approvals referred to in the next sentence, any law, regulation, order,
judgment or decree, which would be breached or violated, or in respect of which
a right of termination or acceleration or any
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encumbrance on any of its assets would be created, by the execution, delivery or
performance of this Agreement, or the consummation of the transactions
contemplated hereby, other than any such breaches or violations which will not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Midwestern and First Bank, taken
as a whole, or the consummation of the transactions contemplated hereby. Other
than in connection with obtaining any approvals required by the Bank Holding
Company Act, the Nebraska Department of Banking and Finance, the 1933 Act, the
1934 Act, the NYSE, the Blue Sky Laws, and the filing of the certificate of
merger with the Secretary of State of Nebraska, no authorization, consent or
approval of, or filing with, any public body, court or authority is necessary on
the part of Midwestern or First Bank for the consummation by Midwestern of the
transactions contemplated by this Agreement, except for such authorizations,
consents, approvals and filings as to which the failure to obtain or make would
not, individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Midwestern and First Bank, taken
as a whole, or the consummation of the transactions contemplated hereby.
3.3. Capitalization. The authorized, issued and outstanding capital
stock of each of Midwestern and First Bank as of the date hereof is set forth on
Schedule 3.3. All of the issued and outstanding shares of capital stock of
Midwestern are owned by the shareholders of Midwestern set forth on Schedule 3.3
free and clear of any lien, pledge, security interest, encumbrance or charge of
any kind, other than such as are set forth on Schedule 3.3. All of the issued
and outstanding shares of capital stock of First Bank are owned by Midwestern,
other than Directors' Shares, as set forth on Schedule 3.3. All of the shares
of capital stock of First Bank owned by Midwestern and all of the Directors'
Shares owned by the directors of First Bank are owned free and clear of any
lien, pledge, security interest, encumbrance or charge of any kind, other than
encumbrances arising as a result of requisite regulatory approvals for transfer.
The issued and outstanding shares of capital stock of each of Midwestern and
First Bank are duly authorized, validly issued, fully paid and nonassessable and
have not been issued in violation of any preemptive rights. Except as set forth
on Schedule 3.3, there are no options, warrants, conversion privileges or other
rights, agreements, arrangements or commitments obligating Midwestern and First
Bank to issue, sell, purchase or redeem any shares of their capital stock or
securities or obligations of any kind convertible into or exchangeable for any
shares of their capital stock or of any of their subsidiaries or affiliates, nor
are there any stock appreciation, phantom or similar rights outstanding based
upon the book value or any other attribute of any of the capital stock of
Midwestern or First Bank, or the earnings or other attributes of Midwestern or
First Bank. Midwestern has heretofore delivered to FBS true and correct copies
of all such agreements, arrangements (including all stock option plans) or
commitments identified on Schedule 3.3.
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3.4. Financial Statements.
(a) Midwestern has furnished FBS with copies of the consolidated
balance sheets of Midwestern and subsidiary as of March 31, 1995 and 1994 and
December 31, 1994, 1993 and 1992 and the related statements of operations and
changes in shareholders' equity for the three-month periods then ended, and the
related statements of operations, changes in shareholders' equity and cash flows
for the years then ended (collectively, together with any notes thereto, the
"Midwestern Financial Statements"). The Midwestern Financial Statements for the
years ended December 31, 1994, 1993 and 1992 have been audited by KPMG Peat
Marwick LLP. The consolidated balance sheet of Midwestern and subsidiaries as
of March 31, 1995 is herein referred to as the "Latest Midwestern Balance
Sheet," and the related statements of income and changes in shareholders' equity
for the three-month period then ended are herein referred to as the "Related
Midwestern Statements." The Midwestern Financial Statements have been prepared
in accordance with generally accepted accounting principles (except as disclosed
on Schedule 3.4(a)) applied on a consistent basis during the periods involved
and fairly present the consolidated financial position of Midwestern and its
subsidiaries as of the dates thereof and the consolidated results of operations,
changes in shareholders' equity and cash flows for the periods then ended.
(b) Midwestern has furnished FBS with copies of the balance sheets of
First Bank as of March 31, 1995 and 1994 and December 31, 1994, 1993 and 1992
and the related statements of operations and changes in shareholder's equity for
the three-month periods then ended, and the related statements of operations,
changes in shareholders' equity and cash flows for the years then ended
(collectively, together with any notes thereto, the "First Bank Financial
Statements"). The balance sheet of First Bank as of March 31, 1995 is herein
referred to as the "Latest First Bank Balance Sheet," and the related statements
of operations and changes in shareholder's equity for the three-month period
then ended are herein referred to as the "Related First Bank Statements." The
First Bank Financial Statements have been prepared in accordance with generally
accepted accounting principles (except as disclosed on Schedule 3.4(b)) applied
on a consistent basis during the periods involved and fairly present the
financial position of First Bank as of the dates thereof and the results of
operations, changes in shareholder's equity and cash flows for the periods then
ended.
(c) The Latest Midwestern Balance Sheet and the Latest First Bank
Balance Sheet are collectively referred to as the "Latest Balance Sheets," and
the Related Midwestern Statements and the Related First Bank Statements are
collectively referred to as the "Related Statements."
3.5. Loans.
(a) The documentation relating to each loan made by First Bank and
relating to all security interests, mortgages and other liens with respect to
all collateral for each such loan, taken as a whole, are adequate for the
enforcement of
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the material terms of each such loan and of the related security interests,
mortgages and other liens. The terms of each such loan and of the related
security interests, mortgages and other liens comply in all material respects
with all applicable laws, rules and regulations (including, without limitation,
laws, rules and regulations relating to the extension of credit).
(b) Except as set forth in Schedule 3.5, (i) there are no loans,
leases, other extensions of credit or commitments to extend credit of First Bank
that have been or, to the knowledge of Midwestern and First Bank, should have
been classified by First Bank as non-accrual, as restructured, as 90 days past
due, as still accruing and doubtful of collection or any comparable
classification, (ii) in response to a request for information by FBS, Midwestern
has provided to FBS written information concerning the loan portfolios of First
Bank that is true, correct and complete in all material respects, and (iii) no
material information with respect to the loan portfolios of First Bank has been
withheld from FBS.
3.6. Reports and Filings. Since January 1, 1992, each of Midwestern
and First Bank has filed each report or other filing that it was required to
file with any federal or state banking, bank holding company or other applicable
regulatory authorities having jurisdiction over it (together with all exhibits
thereto, the "Midwestern Regulatory Reports"). Midwestern has provided or made
available to FBS copies of all of the Midwestern Regulatory Reports. As of
their respective dates or as subsequently amended prior to the date hereof, each
of the Midwestern Regulatory Reports was true and correct in all material
respects and complied in all material respects with applicable laws, rules and
regulations.
3.7. Subsidiaries. Except for the stock of First Bank owned by
Midwestern and except as otherwise disclosed on Schedule 3.7, none of Midwestern
or First Bank owns any stock, partnership interest, joint venture interest or
any other security issued by any other corporation, organization or entity,
except securities owned by First Bank in the ordinary course of its business.
3.8. Absence of Undisclosed Liabilities. Except as otherwise
disclosed on Schedule 3.8, all of the obligations or liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise, whether due or to
become due, and regardless of when asserted, including Taxes (as defined in
Section 3.12)) with respect to or based upon transactions or events heretofore
occurring ("Liabilities"), required to be reflected on the Latest Balance Sheets
in accordance with generally accepted accounting principles have been so
reflected. Midwestern and First Bank have no Liabilities except (a) as
reflected on the Latest Balance Sheets, (b) Liabilities which have arisen after
the date of the Latest Balance Sheets in the ordinary course of business, none
of which is a material unaccrued liability, and (c) as otherwise disclosed on
Schedule 3.8. As of the date of this Agreement, there are no agreements or
commitments binding First Bank to extend credit, in the amount per "one
borrower" (as defined in 12 C.F.R. section 563.93), of $250,000 or more,
except as set forth on Schedule 3.8.
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3.9. No Material Adverse Changes. Since the date of the Latest
Balance Sheets, there has been no material adverse change in, and no event,
occurrence or development in the business of Midwestern or First Bank that,
taken together with other events, occurrences and developments with respect to
such business, has had, or would reasonably be expected to have, a material
adverse effect on the business, operations or financial condition of Midwestern
or First Bank, taken as a whole, or the ability of Midwestern to consummate the
transactions contemplated hereby.
3.10. Absence of Certain Developments. Except as set forth in the
Latest Balance Sheets and the Related Statements or on Schedule 3.10, since
March 31, 1995, neither of Midwestern or First Bank has:
(a) issued or sold any of its equity securities, securities
convertible into or exchangeable for its equity securities, warrants, options or
other rights to acquire its equity securities, or any bonds or other securities,
except deposit and other bank obligations in the ordinary course of business;
(b) redeemed, purchased, acquired or offered to acquire, directly or
indirectly, any shares of capital stock or other securities of Midwestern or
First Bank, other than the redemption of shares of preferred stock of Midwestern
contemplated by Section 5.14;
(c) split, combined or reclassified any outstanding shares of capital
stock of Midwestern or First Bank, or declared, set aside or paid any dividends
or other distribution payable in cash, property or otherwise with respect to any
shares of capital stock of Midwestern or First Bank or other securities, except
dividends paid in cash by Midwestern to the holders of Midwestern Common Stock
permitted to be made after the date hereof pursuant to Section 4.1(b)(iv);
(d) borrowed any amount or incurred or become subject to any material
liability, except liabilities incurred in the ordinary course of business, but
in no event has Midwestern or First Bank entered into any long-term borrowings
with terms of greater than one year;
(e) discharged or satisfied any material lien or encumbrance on the
properties or assets of Midwestern or First Bank or paid any material liability
other than in the ordinary course of business;
(f) sold, assigned, transferred, mortgaged, pledged or subjected to
any lien or other encumbrance any of the assets of Midwestern or First Bank,
except (A) in the ordinary course of business, including real estate acquired
through foreclosure or deed in lieu of foreclosure ("OREO") (B) liens and
encumbrances for current property taxes not yet due and payable and (C) liens
and encumbrances which do not materially affect the value of, or interfere with
the past or future use or ability to convey, the property subject thereto or
affected thereby;
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(g) canceled any material debts or claims or waived any rights of
material value, except in the ordinary course of business or upon payment in
full;
(h) suffered any theft, damage, destruction or loss of or to any
property or properties owned or used by it, whether or not covered by insurance,
which would, individually or in the aggregate, have a material adverse effect on
the business, operations or financial condition of Midwestern or First Bank,
taken as a whole;
(i) made or granted any bonus or any wage, salary or compensation
increase or severance or termination payment to, or promoted, any director,
officer, employee, group of employees or consultant, entered into any employment
contract or hired any employee, in each case, other than in the ordinary course
of business and consistent with past practice;
(j) made or granted any increase in the benefits payable under any
employee benefit plan or arrangement, amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee benefit plan or
arrangement, except as required by law;
(k) made any single or group of related capital expenditures or
commitment therefor in excess of $25,000 or entered into any lease or group of
related leases with the same party which involves aggregate lease payments
payable of more than $50,000 for any individual lease or involves more than
$100,000 for any group of related leases in the aggregate;
(l) acquired (by merger, exchange, consolidation, acquisition of stock
or assets or otherwise) any corporation, partnership, joint venture or other
business organization or division or material assets thereof, or assets or
deposits that are material to Midwestern;
(m) taken any other action or entered into any other transaction other
than in the ordinary course of business; or
(n) agreed to do any of the foregoing.
3.11. Properties.
(a) Each of Midwestern and First Bank owns good and marketable title
to all of the real property and all of the personal property, fixtures,
furniture and equipment reflected on the Latest Balance Sheets or acquired since
the date thereof (other than real property reflected on the Latest Balance
Sheets as OREO), free and clear of all liens and encumbrances, except for (i)
mortgages on real property set forth on Schedule 3.11(a), (ii) encumbrances
which do not materially affect the value of, or interfere with the past or
future use or ability to convey, the property subject thereto or affected
thereby, (iii) liens for current taxes and special assessments not yet due and
payable, (iv) leasehold estates with respect to multi-tenant buildings
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owned by Midwestern or First Bank, which leases are identified on Schedule
3.11(a), and (v) property disposed of since the date of the Latest Balance
Sheets in the ordinary course of business; provided, that no disposal of any
real property shall be considered to be in the ordinary course of business.
(b) Schedule 3.11(b) correctly sets forth a brief description,
including the term, of each lease for real or personal property to which
Midwestern or First Bank is a party as lessee. Midwestern has delivered to FBS
complete and accurate copies of each of the leases described on Schedules
3.11(a) and 3.11(b), and none of such leases has been modified in any material
respect, except to the extent that such modifications are disclosed by the
copies delivered to FBS. At the Effective Date, neither of Midwestern or First
Bank occupy or use any real property as to which there is no lease in full force
and effect, other than real property owned by Midwestern or First Bank. The
leases described on Schedules 3.11(a) and 3.11(b) are in full force and effect
in all material respects. Midwestern or First Bank, as the case may be (if
lessee under such lease), has a valid and existing leasehold interest under each
lease described on Schedule 3.11(b) for the term set forth therein. With
respect to the leases described on and except as set forth on Schedule 3.11(b),
neither of Midwestern or First Bank is in default, and, to the best knowledge of
Midwestern and First Bank, none of the other parties to any of such leases is in
default, and, to the best knowledge of Midwestern and First Bank no
circumstances (not in the control of Midwestern and First Bank) exist which
could result in such a default under any of such leases.
(c) To the best knowledge of Midwestern and First Bank, there has been
no cancellation, breach or anticipated breach by any other party to any lease
described on Schedule 3.11(a) or 3.11(b). The rent rolls set forth on Schedules
3.11(a) and 3.11(b) are true and complete in all material respects and describe
all occupancies and the material terms of each occupancy.
(d) Except as set forth in Schedule 3.11(d), all of the buildings,
fixtures, furniture and equipment necessary for the conduct of the business of
Midwestern and First Bank are in good condition and repair, ordinary wear and
tear excepted, and are usable in the ordinary course of business. Each of
Midwestern and First Bank owns, or leases under valid leases, all buildings,
fixtures, furniture, personal property, land improvements and equipment
necessary for the conduct of its business as it is presently being conducted.
(e) Except as set forth in Schedules 3.11(e) and 3.11(f), neither of
Midwestern or First Bank and none of the buildings owned or leased by Midwestern
or First Bank is in violation of any applicable zoning ordinance or other law,
regulation or requirement relating to the operation of any properties used in
the operation of its business, including, without limitation, applicable
environmental protection laws and regulations, which violations would,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Midwestern or First Bank, taken
as a whole, and none of Midwestern or First Bank has received any notice of any
such violation, or of the existence of any
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condemnation proceeding with respect to any properties owned or leased by
Midwestern or First Bank. Except as set forth in Schedule 3.11(e), no Hazardous
Materials (as defined below) have been deposited or disposed of in, on or under
Midwestern's or First Bank's owned or leased properties (including properties
owned, managed or controlled by First Bank in connection with its lending or
fiduciary operations) during the period in which Midwestern or First Bank has
owned, occupied, managed, controlled or operated such properties. Except as set
forth on Schedule 3.11(e), to the best knowledge of Midwestern or First Bank, no
prior owners, occupants or operators of all or any part of Midwestern's or First
Bank's owned or leased properties (including properties owned, managed or
controlled by First Bank in connection with its lending or fiduciary operations)
ever used such properties as a dump or gasoline service station, or deposited,
disposed of or allowed to be deposited or disposed of in, on or under such
properties any Hazardous Materials. Except as disclosed on Schedule 3.11(e), no
asbestos or any material amount of ureaformaldehyde materials exists in or on
any of Midwestern's or First Bank's owned or leased properties (including
properties owned, managed or controlled by First Bank in connection with its
lending or fiduciary operations), and no electrical transformers or capacitors,
other than those owned by public utility companies, on such properties contain
any PCBs.
As used in this Section 3.11(e), the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined
in or governed by any federal, state or local law, statute, code,
ordinance, regulation, rule or other requirement relating to such substance
or otherwise relating to the environment or human health or safety,
including without limitation any waste, material, substance, pollutant or
contaminant that might cause any injury to human health or safety or to the
environment or might subject Midwestern or First Bank or, after the
Effective Date, FBS or any of its affiliates, or any of their respective
directors or officers, to any imposition of costs or liability under any
Environmental Laws.
(ii) "Environmental Laws" means all applicable federal, state, local
and foreign laws, rules, regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to pollution,
contamination or protection of health, safety or the environment
(including, without limitation, all applicable federal, state, local and
foreign laws, rules, regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to Hazardous Materials
in effect as of the date of this Agreement).
(f) Except as set forth in Schedule 3.11(f), there are no aboveground
or underground tanks (excluding hot water storage or propane tanks) located
under, in or about, nor, to the best knowledge of Midwestern and First Bank,
have there ever been any such tanks located under, in or about, any of
Midwestern's or First
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Bank's owned or leased properties (including properties owned, managed or
controlled by First Bank in connection with its lending or fiduciary
operations).
3.12. Tax Matters. Except as disclosed on Schedule 3.12, each of
Midwestern and First Bank and all members of any consolidated, affiliated,
combined or unitary group of which Midwestern or First Bank is a member have
filed or will file all Tax (as hereinafter defined) and Tax information returns
or reports required to be filed (taking into account permissible extensions) by
them on or prior to the Effective Date, and have paid (or have accrued or will
accrue, prior to the Effective Date, amounts for the payment of) all Taxes
relating to the time periods covered by such returns and reports. Except as
disclosed on Schedule 3.12, the accrued taxes payable accounts for Taxes
reflected on the Latest Balance Sheets (or the notes thereto) are sufficient for
the payment of all unpaid Taxes of Midwestern and First Bank accrued for or
applicable to all periods ended on or prior to the date of the Latest Balance
Sheets or which may subsequently be determined to be owing with respect to any
such period. Except as disclosed on Schedule 3.12, neither of Midwestern or
First Bank has waived any statute of limitations with respect to Taxes or agreed
to any extension of time with respect to an assessment or deficiency for Taxes.
Each of Midwestern and First Bank has paid or will pay in a timely manner and as
required by law all Taxes due and payable by it or which it is obligated to
withhold from amounts owing to any employee or third party. Except as disclosed
on Schedule 3.12, all Taxes which will be due and payable, whether now or
hereafter, for any period ending on, prior to or including the Effective Date,
shall have been paid by or on behalf of Midwestern and First Bank or shall be
reflected on the books of Midwestern and First Bank as an accrued Tax liability
determined in a manner which is consistent with past practices and the Latest
Balance Sheets, without taking account of the Merger. The aggregate amount of
all such accruals for Tax liability for any such period will be set forth on
Schedule 3.12 (and a good faith estimate of such amount shall be provided in
writing to FBS at least 10 days prior to the Effective Date). In the five years
prior to the date of this Agreement, no Tax returns of Midwestern or First Bank
have been audited by any governmental authority other than as disclosed on
Schedule 3.12; and, except as set forth on Schedule 3.12, there are no
unresolved questions, claims or disputes asserted by any relevant taxing
authority concerning the liability for Taxes of Midwestern or First Bank.
Neither of Midwestern or First Bank has made an election under Section 341(f) of
the Code, for any taxable years not yet closed for statute of limitations
purposes. In the five years prior to the date of this Agreement, no demand or
claim has been made against Midwestern or First Bank with respect to any Taxes
arising out of membership or participation in any consolidated, affiliated,
combined or unitary group of which Midwestern or First Bank was at any time a
member. Midwestern's federal tax identification number is 47-0583133. First
Bank's federal tax identification number is 47-0411682. For purposes of this
Agreement, the term "Tax" shall mean any federal, state, local or foreign
income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits tax, environmental tax,
customs duty, capital stock, deposits, franchise, employees' income withholding,
foreign or domestic withholding, social security, unemployment, disability,
workers' compensation,
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employment-related insurance, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum or other tax, fee,
assessment or charge of any kind whatsoever, including any interest, penalties
or additions to, or additional amounts in respect of the foregoing, for each of
Midwestern, First Bank and all members of any consolidated, affiliated, combined
or unitary group of which Midwestern or First Bank is a member.
3.13. Contracts and Commitments.
(a) Except as set forth on Schedule 3.13, neither of Midwestern or
First Bank (i) is a party to any collective bargaining agreement or contract
with any labor union, (ii) is a party to any written or oral contract relating
to any consulting services or to severance pay for any person, (iii) is a party
to any written or oral agreement or understanding to repurchase assets
previously sold (or to indemnify or otherwise compensate the purchaser in
respect of such assets), except for securities sold under a repurchase agreement
providing for a repurchase date 30 days or less after the purchase date, (iv) is
a party to any (A) contract or group of related contracts with the same party
for the purchase or sale of products or services, under which the undelivered
balance of such products and services has a purchase price in excess of $50,000
for any individual contract or $100,000 for any group of related contracts in
the aggregate, (B) other contract or group of related contracts with the same
party continuing over a period of more than six months from the date or dates
thereof, which is not entered into in the ordinary course of business and is
either not terminable by it on 30 days' or less notice without penalty or
involves more than $50,000 for any individual contract or $100,000 in the
aggregate for any group of related contracts, or (C) other agreement material to
the business of Midwestern and First Bank, taken as a whole, which is not
entered into in the ordinary course of business, or (v) has any commitments for
capital expenditures in excess of $25,000.
(b) Except as disclosed on Schedule 3.13, (i) to the best knowledge of
Midwestern and First Bank, since the date of the Latest Balance Sheets, no
customer has indicated that it will stop or decrease the rate of business done
with Midwestern or First Bank (except for changes in the ordinary course of such
business) that would, individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of Midwestern and
First Bank, taken as a whole; (ii) each of Midwestern and First Bank has
performed all obligations required to be performed by it prior to the date
hereof in connection with the contracts or commitments set forth on Schedule
3.13, and neither of Midwestern or First Bank is in receipt of any claim of
default under any contract or commitment set forth on Schedule 3.13, except for
any failures to perform, breaches or defaults which would not, individually or
in the aggregate, have a material adverse effect on the business, operations or
financial condition of Midwestern and First Bank, taken as a whole; (iii)
neither of Midwestern or First Bank has any present expectation or intention of
not fully performing any material obligation pursuant to any contract or
commitment set forth on Schedule 3.13; and (iv) to the best knowledge of
Midwestern and First Bank, there has been no cancellation, breach or anticipated
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breach by any other party to any contract or commitment set forth on Schedule
3.13, except for any cancellation, breach or anticipated breach which would not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Midwestern and First Bank, taken
as a whole.
3.14. Litigation. Except as set forth on Schedule 3.14, there are no
actions, suits, proceedings, orders or investigations pending or, to the best
knowledge of Midwestern and First Bank, threatened against Midwestern or First
Bank, at law or in equity, or before or by any federal, state or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. None of the matters set forth on Schedule 3.14,
individually or in the aggregate, will have or could reasonably be expected to
have a material adverse effect on the business, operations or financial
condition of Midwestern or First Bank, taken as a whole.
3.15. No Brokers or Finders. Except as disclosed on Schedule 3.15,
there are no claims for brokerage commissions, finders' fees, investment
advisory fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement, understanding,
commitment or agreement made by or on behalf of Midwestern or First Bank.
3.16. Employees. Except as set forth on Schedule 3.16, neither of
Midwestern or First Bank has any knowledge of the announced or anticipated
resignation of any officer of Midwestern or First Bank. Except as set forth on
Schedule 3.16, Midwestern and First Bank have each complied with all laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining, non-discrimination and
the payment of social security and other taxes, except where the failure to so
comply would not, individually or in the aggregate, have a material adverse
effect on the business, operations or financial condition of Midwestern and
First Bank, taken as a whole.
3.17. Employee Benefit Plans.
(a) Definitions. For the purposes of this Section 3.17, unless the
context clearly requires otherwise, the term "Plan" or "Plans" includes all
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all other benefit
arrangements, whether written or oral, (including, without limitation, any
employment agreement or any program, agreement, perquisites, automobile
allowances, country or health club allowances, policy or commitment providing
for insurance coverage of employees, workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accidental benefits) applicable to the employees of
Midwestern or First Bank, to which Midwestern or First Bank contribute, or which
Midwestern or First Bank have committed to implement for their employees prior
to the date of this Agreement. Unless the context clearly requires otherwise,
"Plan" or "Plans" shall also include any similar program or arrangement
maintained by any organization affiliated by ownership
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with Midwestern or First Bank for which Midwestern or First Bank are or could be
completely or partially liable for the funding or the administration either as a
matter of law or by agreement but excluding customers of the trust departments
of affiliates of Midwestern where there is no ownership affiliation between such
customers and Midwestern.
(b) Except as disclosed on Schedule 3.17:
(i) Full Disclosure of All Plans. With respect to all employees and
former employees of Midwestern and First Bank (and all dependents and
beneficiaries of such employees and former employees):
(A) Neither of Midwestern or First Bank maintains or
contributes to any nonqualified deferred compensation or retirement
plans, contracts or arrangements;
(B) Neither of Midwestern or First Bank maintains or
contributes to any qualified defined contribution plans (as defined in
Section 3(34) of ERISA or Section 414(i) of the Code);
(C) Neither of Midwestern or First Bank maintains or
contributes to any qualified defined benefit plans (as defined in
Section 3(35) of ERISA or Section 414(j) of the Code) ("Defined
Benefit Plans"); and
(D) Neither of Midwestern or First Bank maintains or
contributes to any employee welfare benefit plans (as defined in
Section 3(1) of ERISA).
(ii) Funding. With respect to the Plans, (A) all required
contributions which are due have either been made or properly accrued and
(B) neither of Midwestern or First Bank is liable for any "accumulated
funding deficiency" as that term is defined in Section 412 of the Code or
any penalty or excise tax in connection therewith.
(iii) Plan Documents. With respect to all Plans sponsored or
administered by Midwestern or First Bank and with respect to any other Plan
if available to Midwestern or First Bank, Midwestern has furnished FBS with
true and complete copies of (A) the most recent determination letter, if
any, received by Midwestern or First Bank from the Internal Revenue Service
regarding each qualified Plan, (B) the Form 5500 and all Schedules and
accompanying financial statements, if any, for each Plan for which such
form is required to be filed for the three most recent fiscal Plan years,
(C) the most recently prepared actuarial valuation report, if any, for each
Plan, and (D) copies of the current Plan documents, trust agreements,
insurance contracts and all related contracts and documents (including any
material employee communications) with respect to each Plan. To the extent
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Midwestern or First Bank may be deemed to maintain any Plan for which there
are no such documents, agreements or contracts, FBS has received a complete
and accurate description of the terms of such Plan.
(iv) Defined Benefit Plans. Neither of Midwestern or First Bank nor
any affiliate of Midwestern or First Bank maintains or has maintained any
Defined Benefit Plans for which Midwestern, First Bank or FBS have or will
have any liability or, which if terminated, could result in any liability
to Midwestern, First Bank or FBS under Title IV of ERISA. There are no
unfunded vested liabilities (determined using the assumptions used by the
Plan for funding and without regard to future salary increases) with
respect to Defined Benefit Plans sponsored by Midwestern or First Bank.
There have been no reportable events under Section 4043 of ERISA (with
respect to which the 30-day notice requirement has not been waived by
regulation) with respect to any Defined Benefit Plan maintained by
Midwestern or First Bank. No Defined Benefit Plan has been terminated that
will result in a material liability by Midwestern or First Bank to the
Pension Benefit Guaranty Corporation.
(v) Multiemployer Plans. Neither of Midwestern or First Bank has any
actual or potential liabilities under Sections 4201 or 4205 of ERISA for
any complete or partial withdrawal from any multiemployer plan.
(vi) Fiduciary Breach; Claims. Neither of Midwestern or First Bank
nor any of their respective directors, officers, employees or other
"fiduciaries" (as such term is defined in Section 3(21) of ERISA) has
committed any breach of fiduciary duty imposed by ERISA or any other
applicable law with respect to the Plans which would subject Midwestern or
First Bank, directly or indirectly, to any liability under ERISA or any
applicable law. There are no actions, suits or claims pending against
Midwestern or First Bank relating to benefits other than routine,
uncontested claims for benefits.
(vii) Prohibited Transaction. Neither of Midwestern or First Bank
nor any officer, director, employee, agent or fiduciary of any Plan has
incurred any liability for any civil penalty imposed by Section 4975 of the
Code or Section 502(i) of ERISA.
(viii) Material Compliance With Law. All Plans have been
consistently administered in accordance with their terms in all material
respects. To the extent required either as a matter of law or to obtain
the intended tax treatment and tax benefits, all Plans comply in all
material respects with the requirements of ERISA and the Code. All Tax
information returns or reports and all other required filings, disclosures
and contributions have been made with respect to all Plans. No condition
exists that limits the right of Midwestern or First Bank to amend or
terminate any such Plan (except as provided in such Plans or limited under
ERISA or the Code).
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(ix) VEBA Funding. No Plan is funded in whole or in part through a
voluntary employees' beneficiary association exempt from tax under Section
501(c)(9) of the Code. The limitations under Sections 419 and 419A of the
Code have been computed, all unrelated business income tax returns have
been filed and appropriate adjustments have been made on all other Tax
returns.
(x) Retirement and COBRA Benefits. Neither of Midwestern or First
Bank has actual or potential liability under current law for benefits after
separation from employment other than (y) benefits under Plans described in
clauses (A), (B) or (C) of Section 3.17(b)(i) and set forth on Schedule
3.17, and (z) health care continuation benefits described in Section 4980B
of the Code or Part G of Subtitle B of Title I of ERISA or any comparable
provisions under the laws of any state.
(xi) Collective Bargaining. No Plan is maintained in whole or in part
pursuant to collective bargaining.
(xii) Employee Status. No employee of Midwestern or First Bank is
absent due to (A) a disability that currently entitles the employee to
benefits under any long-term disability plan sponsored by Midwestern or
First Bank or (B) military service leave of absence. All employees of
Midwestern and First Bank are "at will" employees.
(xiii) Parachute Payments. No Plan requires or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, and the
consummation of the transactions contemplated by this Agreement will not be
a factor in causing payments to be made by Midwestern, First Bank or FBS
that are not deductible (in whole or in part) under Section 280G of the
Code.
3.18. Insurance. Schedule 3.18 hereto lists each insurance policy
maintained by Midwestern or First Bank with respect to its properties and
assets. Prior to the date hereof, Midwestern has delivered to FBS complete and
accurate copies of each of the insurance policies described on Schedule 3.18.
All such insurance policies are in full force and effect, and none of Midwestern
or First Bank is in default with respect to its obligations under any of such
insurance policies.
3.19. Affiliate Transactions. Except as set forth on Schedule 3.19,
neither of Midwestern or First Bank, or any of their respective executive
officers or directors, or any member of the immediate family of any such
executive officer or director (which for the purposes hereof shall mean a
spouse, minor child or adult child living at the home of any such executive
officer or director), or any entity which any of such persons "controls" (within
the meaning of Regulation O of the FRB), has any loan agreement, note or
borrowing arrangement or any other agreement with Midwestern or First Bank
(other than normal employment arrangements or deposit account relationships) or
any interest in any property, real,
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personal or mixed, tangible or intangible, used in or pertaining to the business
of Midwestern or First Bank.
3.20. Compliance with Laws; Permits. Each of Midwestern and First
Bank has complied in all respects with all applicable laws and regulations of
foreign, federal, state and local governments and all agencies thereof which
affect the business or any owned or leased properties of Midwestern or First
Bank and to which Midwestern or First Bank may be subject (including, without
limitation, the Occupational Safety and Health Act of 1970, the Home Owners Loan
Act, the Federal Deposit Insurance Act, as amended, (the "FDIA"), the Real
Estate Settlement Procedures Act, the Home Mortgage Disclosure Act of 1975, the
Fair Housing Act, the Equal Credit Opportunity Act and the Federal Reserve Act,
each as amended, and any other state or federal acts (including rules and
regulations thereunder) regulating or otherwise affecting employee health and
safety or the environment), except where the failure to so comply would not,
individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Midwestern and First Bank, taken
as a whole, or Midwestern's ability to consummate the transactions contemplated
hereby; and no claims have been filed by any such governments or agencies
against Midwestern or First Bank alleging such a violation of any such law or
regulation which have not been resolved to the satisfaction of such governments
or agencies. Each of Midwestern and First Bank holds all of the permits,
licenses, certificates and other authorizations of foreign, federal, state and
local governmental agencies required for the conduct of its business, except
where failure to obtain such authorizations would not, individually or in the
aggregate, have a material adverse effect on the business, operations or
financial condition of Midwestern and First Bank, taken as whole, or the ability
of Midwestern to consummate the transactions contemplated hereby. Neither of
Midwestern or First Bank is subject to any cease and desist order, written
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
is a recipient of any extraordinary supervisory agreement letter from, or has
adopted any board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits (collectively, the "Bank
Regulators"), nor have either of Midwestern or First Bank been advised by any
Bank Regulator that it is contemplating issuing or requesting (or is considering
the appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar undertaking. Neither of
Midwestern or First Bank is subject to Section 32 of the FDIA.
3.21. Administration of Fiduciary Accounts. First Bank has properly
administered, in all respects material and which could reasonably be expected to
be material to the business, operations or financial condition of Midwestern and
First Bank, taken as a whole, all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the
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terms of the governing documents and applicable state and federal law and
regulation and common law. None of Midwestern, First Bank or any of their
respective officers or directors has committed any breach of trust with respect
to any such fiduciary account which is material to or could reasonably be
expected to be material to the business, operations or financial condition of
Midwestern and First Bank, taken as a whole, and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account in all material respects.
3.22. Disclosure. The representations and warranties of Midwestern
contained in this Agreement are true and correct in all material respects, and
such representations and warranties do not omit any material fact necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading. There is no fact known to Midwestern or First
Bank which has not been disclosed to FBS pursuant to this Agreement and the
Schedules hereto which would have or would reasonably be expected to have a
material adverse effect on the business, operations or financial condition of
Midwestern and First Bank, taken as a whole, or the ability of Midwestern to
consummate the transactions contemplated hereby.
3.23. Prospectus/Proxy Statement. At the time the Prospectus/Proxy
Statement is mailed to the shareholders of Midwestern in order to obtain their
approval referred to in Section 5.13 and at all times subsequent to such mailing
up to and including the time of such approval, such Prospectus/Proxy Statement
(including any supplements thereto), with respect to all information set forth
therein relating to Midwestern (including First Bank) and its shareholders,
Midwestern Common Stock, this Agreement, the Merger and all other transactions
contemplated hereby supplied by Midwestern, First Bank or NSB for inclusion
therein, will (a) comply in all material respects with applicable provisions of
the 1933 Act, and (b) not contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they are
made, not misleading.
3.24. Regulatory Approvals. As of the date hereof, neither of
Midwestern or First Bank is aware of any fact that would likely result in the
regulatory approvals specified in Section 5.1 not being obtained.
3.25. Interest Rate Risk Management Instruments.
(a) Schedule 3.25 sets forth a true, correct and complete list of all
interest rate swaps, caps, floors and option agreements and other interest rate
risk management arrangements to which Midwestern or First Bank is a party or by
which any of their properties or assets may be bound. Midwestern has delivered
to FBS true, correct and complete copies of all such interest rate risk
management agreements and arrangements.
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(b) All interest rate swaps, caps, floors and option agreements and
other interest rate risk management arrangements to which Midwestern or First
Bank is a party or by which any of their properties or assets may be bound were
entered into in the ordinary course of business and, to the knowledge of
Midwestern and First Bank, in accordance with prudent banking practice and
applicable rules, regulations and policies of the Bank Regulators and with
counterparties believed to be financially responsible at the time and are legal,
valid and binding obligations enforceable in accordance with their terms (except
as may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and the availability of
equitable remedies), and are in full force and effect. Each of Midwestern and
First Bank has duly performed in all material respects all of its obligations
thereunder to the extent that such obligations to perform have accrued; and to
the knowledge of Midwestern and First Bank, there are no breaches, violations or
defaults or allegations or assertions of such by any party thereunder.
3.26. Loan Participations. Each loan of First Bank for which a
participation has been sold is disclosed on Schedule 3.26. Except as disclosed
on Schedule 3.26, each such participation expires in one year or less and no
such participation has guaranteed renewal terms.
3.27. Disclosures in Schedules. Any matter disclosed in any Schedule
to this Agreement shall be deemed to have been disclosed in all Schedules to
this Agreement.
3.28. No Dissenters' Rights. The shareholders of Midwestern do not
have any right to dissent and demand payment for their shares of Midwestern
Common Stock pursuant to Sections 21-2079 and 21-2080 of the NBCA as a result of
the Merger.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. Conduct of Business. From the date of this Agreement to the
Effective Date, unless FBS shall otherwise agree in writing or as otherwise
expressly contemplated or permitted by other provisions of this Agreement,
including this Section 4.1:
(a) the business of Midwestern and First Bank shall be conducted only
in, and neither of Midwestern or First Bank shall take any action except in, the
ordinary course, on an arms-length basis and in accordance, in all material
respects, with all applicable laws, rules and regulations and past practices;
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(b) neither of Midwestern or First Bank shall, directly or indirectly,
(i) amend or propose to amend its Charter or Bylaws; (ii) issue or sell any of
its equity securities, securities convertible into or exchangeable for its
equity securities, warrants, options or other rights to acquire its equity
securities, or any bonds or other securities, except (A) deposit and other bank
obligations in the ordinary course of business and (B) pursuant to the exercise
of the options, warrants, conversion privileges and other rights set forth on
Schedule 3.3; (iii) redeem, purchase, acquire or offer to acquire, directly or
indirectly, any shares of capital stock of Midwestern or First Bank, other than
the redemption shares of preferred stock of Midwestern contemplated by Section
5.14; (iv) split, combine or reclassify any outstanding shares of capital stock
of Midwestern or First Bank, or declare, set aside or pay any dividend or other
distribution payable in cash, property or otherwise with respect to shares of
capital stock of Midwestern, except that (A) Midwestern shall be permitted to
pay dividends on the outstanding shares of Midwestern Common Stock at such times
and in such amounts equal to the dividends that would otherwise have been paid
or been payable to the holders of Midwestern Common Stock as record holders of
shares of FBS Common Stock had the Mergers occurred on January 1, 1996 and (B)
First Bank shall be permitted to pay dividends on the shares of common stock of
First Bank owned by Midwestern; (v) borrow any amount or incur or become subject
to any material liability, except liabilities incurred in the ordinary course of
business, but in no event will Midwestern or First Bank enter into any long-term
borrowings with a term of greater than one year; (vi) discharge or satisfy any
material lien or encumbrance on the properties or assets of Midwestern or First
Bank or pay any material liability, except otherwise in the ordinary course of
business; (vii) sell, assign, transfer, mortgage, pledge or subject to any lien
or other encumbrance any of its assets, except (A) in the ordinary course of
business; provided, that any such sale, assignment or transfer of any real
property shall not be considered in the ordinary course of business, (B) liens
and encumbrances for current property taxes not yet due and payable, (C) liens
and encumbrances which do not materially affect the value of, or interfere with
the past or future use or ability to convey, the property subject thereto or
affected thereby, and (D) the sale by Midwestern of the capital stock of
Hawarden Banking Company owned by Midwestern at book value if requested by FBS
pursuant to Section 5.20; (viii) cancel any material debt or claims or waive any
rights of material value, except in the ordinary course of business; (ix)
acquire (by merger, exchange, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership, joint venture or other business
organization or division or material assets thereof, or assets or deposits that
are material to Midwestern, except in exchange for debt previously contracted,
including OREO; (x) other than as set forth on Schedule 3.10, make any single or
group of related capital expenditures or commitments therefor in excess of
$25,000 or enter into any lease or group of related leases with the same party
which involves aggregate lease payments payable of more than $50,000 for any
individual lease or involves more than $100,000 for any group of related leases
in the aggregate; or (xi) enter into or propose to enter into, or modify or
propose to modify, any agreement, arrangement or understanding with respect to
any of the matters set forth in this Section 4.1(b);
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(c) neither of Midwestern or First Bank shall, directly or indirectly,
enter into or modify any employment, severance or similar agreements or
arrangements with, or grant any bonuses, wage, salary or compensation increases,
or severance or termination pay to, or promote, any director, officer, employee,
group of employees or consultant or hire any employee, except (i) in the
ordinary course of business consistent with past practice (ii) for the spinoffs
provided in Section 5.11(b)(i), and (iii) for the retention bonus program
contemplated by Section 5.10(d), to the extent the details of such program have
been agreed upon between FBS and Midwestern;
(d) neither of Midwestern or First Bank shall adopt or amend any
bonus, profit sharing, stock option, pension, retirement, deferred compensation,
or other employee benefit plan, trust, fund, contract or arrangement for the
benefit or welfare of any employees, except as required by law and except for
the retention bonus program contemplated by Section 5.10(d), to the extent the
details of such program shall have been as agreed upon between FBS and
Midwestern;
(e) each of Midwestern and First Bank shall use commercially
reasonable efforts to cause its current insurance policies not to be canceled or
terminated or any of the coverage thereunder to lapse, unless simultaneously
with such termination, cancellation or lapse, replacement policies providing
coverage substantially equal to the coverage under the canceled, terminated or
lapsed policies are in full force and effect;
(f) neither of Midwestern or First Bank shall enter into any
settlement or similar agreement with respect to, or take any other significant
action with respect to the conduct of, any action, suit, proceeding, order or
investigation which is set forth on Schedule 3.14 or to which Midwestern or
First Bank becomes a party after the date of this Agreement, without prior
consultation with FBS;
(g) each of Midwestern and First Bank shall use commercially
reasonable efforts to preserve intact in all material respects the business
organization and the goodwill of each of Midwestern and First Bank and to keep
available the services of its officers and employees as a group and preserve
intact material agreements and credit facilities, and Midwestern shall confer on
a regular and frequent basis with representatives of FBS, as reasonably
requested by FBS, to report on operational matters and the general status of
ongoing operations;
(h) neither of Midwestern or First Bank shall take any action with
respect to investment securities held or controlled by any of them inconsistent
with past practices, alter its investment portfolio duration policy as
heretofore in effect or, without prior consultation with FBS, take any action
that would have or could reasonably be expected to have a material effect on
First Bank's asset/liability position;
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(i) First Bank shall not make any agreements or commitments binding it
to extend credit in an amount in excess of $250,000, or sell, assign or
otherwise transfer any participation in any loan, in each case without prior
consultation with FBS;
(j) with respect to properties leased by Midwestern or First Bank,
neither of Midwestern or First Bank shall renew, exercise an option to extend,
cancel or surrender any lease of real property nor allow any such lease to
lapse, without the consent of FBS, which consent shall not be unreasonably
withheld; and
(k) neither of Midwestern or First Bank shall agree to do any of the
foregoing;
For purposes of this Agreement, the words "prior consultation" with respect to
any action means advance notice of such proposed action and a reasonable
opportunity to discuss such action in good faith prior to taking such action.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1. Filings and Approvals. FBS and Midwestern will use all
reasonable efforts and will cooperate with the other in the preparation and
filing, as soon as practicable, of all applications or other documents required
to obtain regulatory approvals and consents from the FRB and any other
applicable regulatory authorities and provide copies of the non-confidential
portions of such applications, filings and related correspondence to the other
party. Prior to filing each application, registration statement or other
document with the applicable regulatory authority, each party will provide the
other party with an opportunity to review and comment on the non-confidential
portions of each such application, registration statement or other document and
will discuss with the other party which portions of this Agreement shall be
designated as confidential portions of such applications. Each party will use
all reasonable efforts and will cooperate with the other party in taking any
other actions necessary to obtain such regulatory or other approvals and
consents, including participating in any required hearings or proceedings.
Subject to the terms and conditions herein provided, each party will use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective as promptly as practicable the transactions contemplated by this
Agreement.
5.2. Certain Loans and Related Matters. Midwestern will furnish to
FBS a complete and accurate list as of the end of each calendar month after
March 1995, within 15 business days after the end of each such calendar month,
of (a) all of First Bank's periodic internal credit quality reports prepared
during such calendar month (which reports will be prepared in a manner
consistent with past practices), (b) all loans of First Bank classified as non-
accrual, as restructured, as 90 days past
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due, as still accruing and doubtful of collection or any comparable
classification, (c) all OREO, including in-substance foreclosures and real
estate in judgment, (d) any current repurchase obligations of First Bank with
respect to any loans, loan participations or state or municipal obligations or
revenue bonds and (e) any standby letters of credit issued by First Bank.
5.3. Monthly Financial Statements and Pay Listings. Midwestern shall
furnish FBS with Midwestern's and First Bank's balance sheets as of the end of
each calendar month after March 1995 and the related statements of operations,
within 15 days after the end of each such calendar month. Such financial
statements shall be prepared on a basis consistent with the Latest Balance
Sheets and the Related Statements and on a consistent basis during the periods
involved and shall fairly present the financial positions of Midwestern and
First Bank, respectively, as of the dates thereof and the results of operations
of Midwestern and First Bank, respectively, for the periods then ended.
Midwestern shall furnish FBS with Midwestern's and First Bank's payroll listings
as of the end of each pay period after June 1995, within one week after the end
of such pay period.
5.4. Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses.
5.5. No Negotiations, etc. Midwestern will not, and will cause First
Bank and Midwestern's and First Bank's respective officers, directors,
employees, agents and affiliates, not to, directly or indirectly, solicit,
authorize, initiate or encourage submission of, any proposal, offer, tender
offer or exchange offer from any person or entity (including any of its or their
officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets or deposits of, or any equity interest in,
Midwestern or First Bank or other similar transaction or business combination
involving Midwestern or First Bank, or participate in any negotiations in
connection with or in furtherance of any of the foregoing or permit any person
other than FBS and its representatives to have any access to the facilities of,
or furnish to any person other than FBS and its representatives any non-public
information with respect to, Midwestern or First Bank in connection with or in
furtherance of any of the foregoing. Midwestern shall promptly notify FBS if
any such proposal or offer, or any inquiry from or contact with any person with
respect thereto, is made, and shall promptly provide FBS with such information
regarding such proposal, offer, inquiry or contact as FBS may request.
5.6. Notification of Certain Matters. Each party shall give prompt
notice to the other parties of (a) the occurrence or failure to occur of any
event or the discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or warranty on its part
contained in this Agreement to be materially untrue or inaccurate when made, at
the Effective Date or at any time prior to the Effective Date and (b) any
material failure of such party to comply with
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or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder.
5.7. Access to Information; Confidentiality; Nonsolicitation of
Employees.
(a) Midwestern shall permit and shall cause First Bank to permit FBS
full access on reasonable notice and at reasonable hours to its properties and
shall disclose and make available (together with the right to copy) to FBS and
to the internal auditors, loan review officers, employees, attorneys,
accountants and other representatives of FBS all books, papers and records
relating to the assets, stock, properties, operations, obligations and
liabilities of Midwestern and First Bank, including, without limitation, all
books of account (including, without limitation, the general ledgers), tax
records, minute books of directors' and shareholders' meetings, organizational
documents, bylaws, contracts and agreements, filings with any regulatory
authority, accountants' work papers, litigation files (including, without
limitation, legal research memoranda), documents relating to assets and title
thereto (including, without limitation, abstracts, title insurance policies,
surveys, environmental reports, opinions of title and other information relating
to the real and personal property), Plans affecting employees, securities
transfer records and shareholder lists, and any books, papers and records
relating to other assets, business activities or prospects in which FBS may have
a reasonable interest, including, without limitation, its interest in planning
for integration and transition with respect to the business of Midwestern and
First Bank; provided, however, that the foregoing rights granted to FBS shall,
whether or not and regardless of the extent to which the same are exercised, in
no way affect the nature or scope of the representations, warranties and
covenants of Midwestern set forth herein. FBS hereby agrees that if, during the
course of any investigation of the business and operations of Midwestern and its
subsidiaries and affiliates made by FBS, FBS shall discover any fact that
constitutes a breach of any representation or warranty of Midwestern contained
in this Agreement, FBS shall so notify Midwestern; provided, that no such
disclosure by FBS of any breach and no failure by FBS to provide such notice
shall in any way limit or otherwise affect the nature or scope of the rights of
FBS set forth herein, or the nature or scope of the representations, warranties
and covenants of Midwestern set forth herein. In addition, Midwestern shall
cause First Bank to instruct its officers, employees, counsel and accountants to
be available for, and respond to any questions of, such FBS representatives at
reasonable hours and with reasonable notice by FBS to such individuals, and to
cooperate fully with FBS in planning for the integration of the business of
Midwestern and First Bank with the business of FBS and its affiliates.
(b) All information furnished by Midwestern pursuant hereto shall be
treated as the sole property of Midwestern until the Effective Date, and, if the
Effective Date shall not occur, FBS shall return to Midwestern all documents or
other materials obtained from Midwestern on and after May 31, 1995 (including
copies thereof) containing, reflecting or referring to such information;
provided, however, that with respect to documents that reflect or refer to such
information,
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FBS at its option may elect to destroy such documents to the extent FBS
reasonably determines that such documents contain confidential information with
respect to FBS or its affiliates. In addition, FBS shall keep confidential all
such information and shall not directly or indirectly use such information for
any competitive or other commercial purpose. The obligation to keep such
information confidential shall not apply to (i) any information which (A) was
already in FBS's possession prior to the disclosure thereof to FBS by
Midwestern, (B) was then generally known to the public, (C) became known to the
public through no fault of FBS or its representatives or (D) was disclosed to
FBS by a third party not bound by an obligation of confidentiality or (ii)
disclosures required by law, governmental or regulatory authority.
(c) In the event that this Agreement shall terminate, neither party
shall disclose, except as required by law or pursuant to the request of an
administrative agency or other regulatory body, the basis or reason for such
termination, without the consent of the other party.
(d) In the event that this Agreement shall terminate, FBS shall not,
directly or indirectly, for a period of one year following such termination,
consult with or hire any individual who, as of the date of this Agreement, was
an employee or agent of Midwestern or First Bank or who subsequent to the date
of this Agreement became an employee of Midwestern or First Bank (or any
successors by merger), provided that this provision shall not apply to any such
employee whose employment or relationship with Midwestern or First Bank shall
have been terminated for at least three months prior to such consultation or
hiring.
5.8. Filing of Tax Returns and Adjustments.
(a) Midwestern and First Bank shall file (or cause to be filed) at
their own expense, on or prior to the due date, all Tax returns, including all
Plan returns and reports, for all Tax periods ending on or before the Effective
Date where the due date for such returns or reports (taking into account valid
extensions of the respective due dates) falls on or before the Effective Date;
provided, however, that neither of Midwestern or First Bank shall file any such
Tax returns, or other returns, elections or information statements with respect
to any liabilities for Taxes (other than federal, state or local sales, use,
withholding or employment tax returns or statements), or consent to any
adjustment or otherwise compromise or settle any matters with respect to Taxes,
without prior consultation with FBS; provided, further, that neither of
Midwestern or First Bank shall make any election or take any other discretionary
position with respect to Taxes, in a manner inconsistent with past practices,
without the prior written approval of FBS. In the event the granting or
withholding of such approval by FBS results in additional Taxes owing for any
Tax period ending on or before the Effective Date, liability for such additional
Taxes shall not cause any representation of the Midwestern relating to Taxes to
be untrue. Midwestern shall provide FBS with a copy of appropriate workpapers,
schedules, drafts and final copies of each federal and state income Tax return
or election of Midwestern and First Bank (including returns of all Plans) at
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least ten days before filing such return or election and shall reasonably
cooperate with any request by FBS in connection therewith.
(b) FBS, in its sole and absolute discretion, will file (or cause to
be filed) all Tax returns of Midwestern and First Bank due after the Effective
Date. After the Effective Date, FBS, in its sole and absolute discretion and to
the extent permitted by law, shall have the right to amend, modify or otherwise
change all Tax returns of Midwestern and First Bank for all Tax periods. To the
extent FBS amends any such Tax returns, other than an amendment at the request
of the applicable federal, state, local or foreign Tax authority, and such
amendment results in additional Taxes owing for any Tax period ending on or
before the Effective Date, such additional Taxes shall not cause any
representation of Midwestern relating to Taxes to be untrue.
5.9. Establishment of Accruals. If requested by FBS, on the business
day immediately prior to the Effective Date, First Bank shall, consistent with
generally accepted accounting principles, establish such additional accruals and
reserves as may be necessary to conform First Bank's accounting and credit loss
reserve practices and methods to those of FBS (as such practices and methods are
to be applied to First Bank from and after the Effective Date) and reflect FBS's
plans with respect to the conduct of First Bank's business following the Merger
and to provide for the costs and expenses relating to the consummation by First
Bank of the transactions contemplated by this Agreement. The establishment of
such accruals and reserves shall not, in and of itself, constitute a breach of
any representation or warranty of Midwestern contained in this Agreement or
constitute a material adverse change in the business, operations or financial
condition of Midwestern and First Bank, taken as a whole.
5.10. Employee Matters.
(a) General. Subject to the following agreements, FBS shall have the
right to continue, amend, merge or terminate any of the Plans (as defined in
Section 3.17) in accordance with the terms thereof and subject to any limitation
arising under applicable law, including tax qualification requirements. Until
FBS shall take such action, however, such Plans shall continue in force for the
benefit of present and former employees of Midwestern or First Bank who have any
present or future entitlement to benefits under any of the Plans ("Midwestern
Employees").
(b) Midwestern Plans.
(i) Spinoff of Portion of Midwestern 401(k) Plan Attributable to First
State Bank of Hawarden; Termination of First State Bank of Hawarden in
Welfare Plans. As soon as practicable after the date hereof and prior to
the Effective Date, Midwestern shall take all such actions as may be
necessary to cause the spinoff of the liabilities and assets in the
Midwestern 401(k) plan that are attributable to First State Bank of
Hawarden, a participating employer in such plan. As soon as practicable
after the date hereof and prior to the
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Effective Date, Midwestern shall take all such actions as may be necessary
to terminate the participation of employees of First State Bank of Hawarden
in welfare plans of Midwestern.
(ii) Midwestern 401(k) Plan. Within two years after the Effective
Date, FBS will discontinue contributions under the Midwestern 401(k) plan
sponsored by Midwestern and will take such actions as may be necessary to
cause the assets and liabilities of the Midwestern 401(k) plan to be merged
with and into the FBS Capital Accumulation Plan ("CAP"). After the
Effective Date, FBS shall take such action as may be necessary to amend the
Midwestern 401(k) plan to provide that the non-vested accounts in the
Midwestern 401(k) Plan of all participants who, on the Effective Date, were
actively employed by Midwestern, or were on authorized leave of absence
from Midwestern (including disability leave), shall be fully vested as of
the Effective Date and that all contributions to that plan after the
Effective Date shall be immediately and fully vested. The non-vested
accounts of all other participants in the Midwestern 401(k) plan shall be
restored and fully vested only if the participant returns to active
employment with FBS or an Affiliate prior to a break in service (as that
term is defined in the Midwestern 401(k) plan documents) and satisfies any
requirements for restoration of such accounts imposed under the terms of
the Midwestern 401(k) plan documents as they existed immediately prior to
the Effective Date. Distributions shall not be permitted from the
Midwestern 401(k) plan merely because of the discontinuance of
contributions or the transfer of assets and liabilities.
(iii) Midwestern ESOP. Prior to the Effective Date, Midwestern shall
make a contribution in the amount of the outstanding loan balance of the
Midwestern Employee Stock Ownership Plan (the "ESOP") loan to the ESOP
trust and shall instruct the trustee of such ESOP trust to pay off the ESOP
loan balance and to allocate the remaining shares of Midwestern Common
Stock in the reserve in accordance with the terms of the ESOP.
(c) FBS Plans.
(i) Retirement Plans. After the Effective Date, FBS shall take such
actions as may be necessary to cause eligible Midwestern Employees to
become qualified to participate in the FBS Capital Accumulation Plan
("CAP") concurrent with the date that FBS discontinues contributions under
the Midwestern 401(k) plan. All service with Midwestern and First Bank
(whether before or after the Effective Date) shall be recognized under the
CAP for eligibility and vesting purposes but shall not be recognized for
contribution and allocation purposes. FBS shall take such actions as may be
necessary to cause the CAP to accept transfers of assets and liabilities
from the Midwestern 401(k) plan.
(ii) Welfare and Other Benefits. Following the Effective Date, at
such time as FBS shall determine, FBS shall use its best efforts to cause
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Midwestern Employees to be covered by the welfare and other generally
applicable benefit plans and practices of FBS (other than the FBS Severance
Pay Plan), provided that during any interim period, FBS shall not be
obligated to continue any particular welfare or other benefit plans or
practices of Midwestern or First Bank, as the case may be, applicable to
Midwestern Employees. Service with Midwestern and First Bank before the
Effective Date shall be recognized for purposes of all such plans,
excluding the FBS retiree medical plan in which service prior to the
Effective Date shall not be recognized.
(d) Severance and Transition Payments. Midwestern Employees shall not
be eligible to participate in the FBS Severance Pay Plan until such time as FBS,
in its sole discretion, takes affirmative action to allow such participation.
Midwestern Employees who do not participate in the FBS Severance Pay Plan whose
employment is terminated by FBS on or after the Effective Date (other than by
reason of such employee's misconduct, nonperformance of duties or violation of
other rules and policies of FBS, Midwestern or First Bank, including
confidentiality obligations) shall receive on or promptly after the last day of
employment a lump sum severance payment equal to (i) the amount of 30 calendar
days' base wages or salary plus (ii) the amount of one week's base wages or
salary times the number of full or partial years of service with Midwestern,
First Bank and FBS from the employee's most recent hire date; provided, however,
that such severance payment is conditioned upon receipt by FBS of a general
release of claims from each such employee releasing FBS and its subsidiaries and
Midwestern and its subsidiaries. A Midwestern Employee who voluntarily
terminates employment or otherwise ceases to perform active services, except for
disability, for FBS prior to the date scheduled by FBS as the employee's last
day of work shall not be entitled to severance benefits under this Section
5.10(d) or any FBS plan. FBS agrees to pay after the Effective Date retention
bonuses to the individual Midwestern Employees in the respective amounts as
previously agreed upon between FBS and Midwestern, in accordance with the terms
of such retention bonuses as generally described by FBS to Midwestern. After
the date hereof, FBS shall notify such individual Midwestern Employees of the
terms, including the amount, of their respective retention bonus.
(e) Limitation on Enforcement. This Section 5.10 is an agreement
solely between Midwestern and FBS. Nothing in this Section 5.10, whether express
or implied, confers upon any employee of Midwestern, First Bank or FBS or any
other person, any rights or remedies, including, but not limited to: (i) any
right to employment or recall, (ii) any right to continued employment for any
specified period, or (iii) any right to claim any particular compensation,
benefit or aggregate of benefits, of any kind or nature whatsoever, as a result
of this Section 5.10.
5.11. Tax Treatment. None of Midwestern, First Bank or FBS shall
take any action which would disqualify the Merger as a "reorganization" that
would be tax-free to the shareholders of Midwestern pursuant to Section 368(a)
of the Code.
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5.12. Redemption of Preferred Stock. Prior to the Effective Date,
Midwestern shall redeem all outstanding shares of its Class A 6% Non-Voting,
Non-Participating, Cumulative, Non-Convertible Preferred Stock (the "Preferred
Stock").
5.13. Shareholder Approval; Registration Statement.
(a) Midwestern shall call a meeting of its shareholders for the
purpose of voting upon this Agreement and the Merger, and shall schedule such
meeting based on consultation with FBS. The Board of Directors of Midwestern
shall recommend that the shareholders approve this Agreement and the Merger, and
shall use its best efforts (including, without limitation, soliciting proxies
for such approval) to obtain such shareholder approval.
(b) For the purposes of (i) holding a meeting of the shareholders of
Midwestern to approve this Agreement and the Merger and (ii) registering the FBS
Common Stock to be issued to holders of Midwestern Common Stock in connection
with the Merger with the SEC and with applicable state securities authorities,
the parties hereto shall cooperate in the preparation of a registration
statement on Form S-4 (such registration statement, together with all and any
amendments and supplements thereto, being herein referred to as the
"Registration Statement"), which shall include a prospectus/proxy statement
satisfying all applicable requirements of the 1933 Act, the 1934 Act and
applicable Blue Sky Laws (such prospectus/proxy statement, together with any and
all amendments or supplements thereto, being herein referred to as the
"Prospectus/Proxy Statement").
(c) FBS shall furnish such information concerning FBS as is necessary
in order to cause the Prospectus/Proxy Statement, insofar as it relates to FBS,
to be prepared in accordance with Section 5.13(b). FBS agrees promptly to
notify Midwestern if at any time prior to the Midwestern shareholder meeting any
information provided by FBS in the Prospectus/Proxy Statement becomes incorrect
or incomplete in any material respect, and to provide the information needed to
correct such inaccuracy or omission.
(d) Midwestern shall furnish FBS with such information concerning
Midwestern and First Bank as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to Midwestern and First Bank, to be prepared in
accordance with Section 5.13(b). Midwestern agrees promptly to notify FBS if at
any time prior to the Midwestern shareholder meeting any information provided by
Midwestern in the Prospectus/Proxy Statement becomes incorrect or incomplete in
any material respect, and to provide FBS with the information needed to correct
such inaccuracy or omission.
(e) FBS shall promptly file the Registration Statement with the SEC
and applicable state securities agencies. FBS shall use reasonable efforts to
cause the Registration Statement to become effective under the 1933 Act and
applicable Blue Sky Laws at the earliest practicable date. Midwestern hereby
authorizes FBS to
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utilize in the Registration Statement the information concerning Midwestern,
First Bank and NSB provided to FBS for the purpose of inclusion in the
Prospectus/Proxy Statement. Midwestern shall have the right to review and
comment on the form of proxy statement included in the Registration Statement.
FBS shall advise Midwestern promptly when the Registration Statement has become
effective and of any supplements or amendments thereto, and FBS shall furnish
Midwestern with copies of all such documents. Prior to the Effective Date or the
termination of this Agreement, each party shall consult with the other with
respect to any material (other than the Prospectus/Proxy Statement) that might
constitute a "prospectus" relating to the Merger within the meaning of the 1933
Act.
(f) FBS shall use reasonable efforts to cause to be delivered to
Midwestern a letter relating to the Registration Statement from Ernst & Young
LLP, FBS's independent auditors, dated a date within two business days before
the date on which the Registration Statement shall become effective and
addressed to Midwestern, in form and substance reasonably satisfactory to
Midwestern and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
(g) Midwestern shall use reasonable efforts to cause to be delivered
to FBS a letter relating to the Registration Statement from KPMG Peat Marwick
LLP, Midwestern's independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to FBS, in form and substance reasonably satisfactory to FBS and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
(h) FBS shall bear the costs of all SEC filing fees with respect to
the Registration Statement and the costs of qualifying the shares of FBS Common
Stock under the Blue Sky Laws, to the extent necessary. Midwestern shall bear
all printing and mailing costs in connection with the preparation and mailing of
the Prospectus/Proxy Statement to Midwestern shareholders. FBS and Midwestern
shall each bear their own legal and accounting expenses in connection with the
Registration Statement.
5.14. Indemnification of FBS. (a) FBS shall be indemnified and held
harmless against any loss, liability, Tax (including interest and penalties),
damage or expense (including reasonable legal expenses and costs) or any
assertion thereof, whether or not matured, contingent or prospective in nature
("Losses") which FBS may suffer, sustain or become subject to as a result of or
arising out of (i) any representation or warranty by Midwestern in, or in
connection with, this Agreement or in any Schedule hereto, that is not true and
correct as of the date made; provided, however, no breach of the representations
and warranties contained in Section 3.4 which breach is based solely on any
inadequacy of the loan loss reserves contained in the Midwestern Financial
Statements or the First Bank Financial Statements will give rise to an
indemnification obligation under this
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Section 5.14; (ii) any breach of any covenant or agreement of Midwestern
contained in this Agreement or any other agreement entered into by such party in
connection with this Agreement; (iii) any claim by John R. Lauritzen or his
personal representatives or successors in interest; (iv) Taxes, if any, of
Midwestern, or any successor thereto, as a result of the sale, exchange or other
disposition (other than transfers by will, trust or laws of interstate
succession as a result of the death of one or more of the Midwestern
shareholders) by the shareholders of Midwestern of greater than 50% of the
shares of FBS Common Stock received by them in connection with the Merger within
two years of the Effective Date (v) the failure to obtain the required consent
to the assignment of the Leases (as defined in Section 6.3(k)) to FBS or an
affiliate of FBS pursuant to the Merger; and (vi) acts or omissions of the
Shareholders' Representative. Indemnification payments required by this Section
5.14(a) shall be made net of tax effect (as determined in accordance with
Section 5.14(b)) and only after, and to the extent that, the total amount of all
Losses suffered or sustained by FBS (determined on a pre-tax basis and in
accordance with the provisions of this Section 5.14(a)) exceeds $720,000 (the
"Deductible"), except for (y) indemnification obligations arising by reason of
clause (v) and (vi) and (z) any willful breaches of any covenant or agreement of
Midwestern, which shall not be subject to the Deductible. The aggregate Losses
indemnified pursuant to this Section 5.14(a) shall not, however, exceed
$3,600,000 (the "Maximum Indemnity Amount") less the Deductible. The
indemnification provided by this Section 5.14(a) shall only be satisfied from
the Merger Consideration held in the Indemnity Escrow Fund described in Sections
1.5(c) and 5.15, provided that any shares of Stock Consideration held in escrow
delivered to FBS in satisfaction of any claim for indemnification shall be
valued at the Conversion Price. No claim shall be made for indemnification
pursuant to this Section 5.14(a) unless notice of the substance of such claim is
given by FBS on or prior to the first anniversary of the Effective Date.
(b) Any amount payable to FBS pursuant to this Section 5.14 shall
include interest on any payment actually made by FBS in respect of Losses at a
rate equal to the then applicable rate quoted by FBS for six-month certificates
of deposit (adjusted for reserve requirements and FDIC insurance) from the date
of such payment to the date of the indemnification payment; provided, however,
that in no event will the aggregate of all Losses, including interest,
indemnified pursuant to this Section 5.14 exceed the Maximum Indemnity Amount.
Any amount payable to FBS pursuant to this Section 5.14 shall take into account
any allowable tax benefits attributable to the Losses which gave rise to
indemnification amounts received pursuant to this Section 5.14 and shall also
take into account any increased tax liability of FBS as a result of inclusion in
income of any part of such indemnification payments; provided, that FBS shall
whenever possible treat the receipt of such payments as a reduction of purchase
price. For purposes of determining the amount of any tax benefit or detriment
pursuant to the previous sentence, the marginal combined federal and state
income tax rate of FBS shall be deemed to be thirty-eight percent (38%).
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(c) The following procedures will apply to all claims for indemnity
hereunder. FBS will give the Shareholders' Representative written notice of any
claim for indemnification pursuant to this Section 5.14 within 30 days after FBS
receives notice, or becomes aware of, an event giving rise to such claim for
indemnification and FBS will give copies to the Shareholders' Representative of
all information and documents relating to such claim that are received by FBS
within 20 days after FBS' receipt thereof; provided, however, that the failure
of FBS to give notice or deliver copies of information or documents within the
specified time periods shall not limit FBS' right to claim indemnification
pursuant to this Section 5.14 except to the extent that the Shareholders'
Representative can demonstrate that the Indemnifying Shareholders were actually
damaged by the failure to give notice or provide information or documents within
the specified time periods. The Shareholders' Representative will have the
right to defend any action, proceeding, claim, demand or assessment giving rise
to claim for indemnification pursuant to this Section 5.14, and to select
counsel for any third party claim, which counsel shall be reasonably
satisfactory to FBS, all at the sole cost and expense of the Indemnifying
Shareholders; provided, however, that FBS will be allowed, at its expense, to
participate in such defense; provided, further, that no settlement shall be
entered into without the approval of FBS; provided, further, that in the event
the Shareholders' Representative proposes in good faith to settle a claim on
terms acceptable to the third party claimant, which settlement FBS does not
consent to, FBS shall be responsible for all Losses with respect to such claim
which exceed the proposed settlement amount, including all legal expenses and
costs incurred after the date the Shareholders' Representative initially gave
notice to FBS seeking its consent to the proposed settlement. Notice of the
Shareholders' Representative intention to so defend any such action, proceeding,
claim, demand or assessment shall be given to FBS within 20 days after FBS shall
have notified the Shareholders' Representative of the claim (but in all events
at least five business days prior to the date that an answer or other response
is due to be filed or made), which notice shall contain an acknowledgement in
writing of the Shareholders' Representative of the obligation to indemnify FBS
with respect to such claim pursuant to this Section 5.14.
(d) The Shareholders' Representative, on behalf of the Indemnifying
Shareholders, shall be subrogated to the rights, remedies and equities of FBS,
Midwestern or First Bank relating to Losses indemnified hereunder to the extent
of the Losses indemnified from the Escrow Fund pursuant to the Escrow Agreement
(the "Subrogation Claims"). The Shareholders' Representative shall have the
right to pursue all Subrogation Claims, with counsel reasonably acceptable to
FBS, at the sole cost and expense of the Shareholders' Representative. FBS
shall have the right to participate in the assertion and pursuit of the
Subrogation Claims at its sole cost and expense. No settlement of a Subrogation
Claim shall be made by the Shareholders' Representative without the prior
written consent of FBS; provided, however, that in the event the Shareholders'
Representative proposes in good faith to settle a claim on terms acceptable to
the adverse party and FBS does not consent to such settlement, FBS shall pay to
the Shareholders' Representative the
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amount of the proposed settlement and FBS may then proceed to assert and pursue
such Subrogation Claim for its own account and at its sole cost and expense.
5.15. Escrow Agreement. At the Effective Date, upon the consummation
of the Merger and solely to fund the indemnification obligations described in
Section 5.14 of this Agreement, FBS, on behalf of the Indemnifying Shareholders,
shall transfer to LaSalle National Trust, N.A., as escrow agent (the "Escrow
Agent"), $917,280 of the Cash Consideration and 47,000 shares of the Stock
Consideration paid in respect of the Indemnifying Shareholders which shall
constitute the Indemnity Escrow Fund pursuant to an escrow agreement (the
"Escrow Agreement") substantially in the form attached hereto as Exhibit A,
among FBS, the Shareholders' Representative and the Escrow Agent. At the
Effective Date, upon the consummation of the Merger and for the purposes of
funding the indemnification obligations described in Section 5.14 of this
Agreement and for the further purpose of establishing that it is the
Indemnifying Shareholders' plan and intention that none of the Stock
Consideration issued in respect of such Indemnifying Shareholders will be sold
or otherwise transferred from the date hereof until at least two years from the
Effective Date, FBS, on behalf of the Indemnifying Shareholders, shall transfer
to the Escrow Agent the remaining Stock Consideration issued in respect of the
Indemnifying Shareholders pursuant to the Escrow Agreement.
5.16. Directors' and Officers' Insurance; Limitation of Liability of
Directors and Officers. For a period of three years after the Effective Date,
FBS shall use its best efforts to provide that portion of directors' and
officers' liability insurance that serves to reimburse officers and directors of
Midwestern or First Bank (as opposed to FBS or Midwestern) with respect to
claims against such officers and directors arising from facts or events which
occurred before the Effective Date of at least the same coverage and amounts,
and containing terms and conditions no less advantageous, as that coverage
currently provided by MFC; provided, however, that if FBS does not obtain a
commitment for such insurance at least five days after obtaining the approval of
the FRB, then Midwestern may obtain an extension of its directors' and officers'
liability insurance to provide three-year tail coverage for such officers and
directors; and provided, further, that the annual (or annualized) premiums for
any such coverage will not exceed 200% of the annual premiums currently paid by
Midwestern for such coverage; provided, further, that officers and directors of
Midwestern or First Bank may be required to make application and provide
customary representations and warranties to FBS's insurance carrier for the
purpose of obtaining such insurance; and provided, further, that such coverage
will have a single aggregate for such three-year period in an amount not less
than the annual aggregate of such coverage currently provided by Midwestern.
FBS shall use its best efforts to assure, to the extent permitted under
applicable law, that all limitations of liability existing in favor of the
directors and officers of Midwestern or the Bank as provided in the Midwestern
Charter and Bylaws, as in effect on the date hereof, with respect to claims or
liabilities arising from facts or events existing or occurring prior to the
Effective Date (including, without limitation, the transactions contemplated by
this Agreement), shall survive the Merger.
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5.17. Termination of Stock Redemption Agreement. Prior to the
Effective Date, Midwestern shall take all such actions as are necessary to
terminate as of the Effective Date each of the Stock Redemption Agreements
between Midwestern and its shareholders.
5.18. Dissolution of Northwestern State Bank. Prior to the Effective
Date, Midwestern shall have taken all necessary such actions as are necessary to
dissolve Northwestern State Bank and to cause Midwestern and First Bank to have
no further liabilities or obligations relating to Northwestern State Bank.
5.19. Transfer of Directors' Shares. Prior to the Effective Date,
Midwestern shall have taken all necessary actions to cause the Directors' Shares
to be transferred to FBS or its designee on the Effective Date.
5.20. Sale of Assets of Midwestern. Midwestern agrees that, if
requested by FBS, it shall sell all shares of capital stock of Hawarden Banking
Company owned by Midwestern at the book value of such shares at or prior to the
Effective Date.
5.21. Consent to Assignment of Leases. Midwestern shall use its best
efforts to obtain the consent of John R. Lauritzen to the assignment of the
Leases (as defined in Section 6.3(k)) to FBS or an affiliate of FBS pursuant to
the Merger, or, in the event such consent is not obtained, an expedited
declaratory judgment permitting such assignment. Midwestern shall furnish to
FBS the opinion of Kennedy, Holland, Delacy & Svoboda to the effect that, in the
event that Mr. Lauritzen fails to consent to such assignment, Midwestern would,
more likely than not, be able to obtain such an expedited declaratory judgment
permitting such assignment.
5.22. Affiliate Letters. Midwestern shall use its best efforts to
obtain and deliver to FBS at least 31 days prior to the Effective Date a signed
representation letter substantially in the form of Exhibit B hereto and
otherwise satisfactory to FBS from each shareholder of Midwestern who may
reasonably be deemed an "affiliate" of Midwestern within the meaning of such
term as used in Rule 145 under the 1933 Act. FBS may place appropriate legends
on the stock certificates of affiliates of Midwestern.
ARTICLE 6
CONDITIONS
6.1. Conditions to Obligations of Each Party. The respective
obligations of each party to effect the transactions contemplated hereby shall
be subject to the fulfillment at or prior to the Effective Date of the following
conditions:
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(a) Regulatory Approval. Regulatory approval for the consummation of
the transactions contemplated hereby shall have been obtained from the FRB,
the Nebraska Department of Banking and Finance and any other governmental
authority from whom approval is required, and the applicable waiting
periods, if any, under all statutory or regulatory waiting periods shall
have lapsed. None of such approvals shall contain any conditions or
restrictions that FBS reasonably believes will materially restrict or limit
the business or activities of FBS, Midwestern or First Bank or have a
material adverse effect on, or would be reasonably likely to have a
material adverse effect on, the business, operations or financial condition
of FBS and its subsidiaries, taken as a whole, on the one hand, or
Midwestern and First Bank, taken as a whole, on the other hand.
(b) No Injunction. No injunction or other order entered by a state or
federal court of competent jurisdiction shall have been issued and remain
in effect which would impair the consummation of the transactions
contemplated hereby.
(c) No Prohibitive Change of Law. There shall have been no law,
statute, rule or regulation, domestic or foreign, enacted or promulgated
which would materially impair the consummation of the transactions
contemplated hereby.
(d) No Termination. No party hereto shall have terminated this
Agreement as permitted herein.
6.2. Additional Conditions to Obligation of Midwestern. The
obligation of Midwestern to consummate the transactions contemplated hereby in
accordance with the terms of this Agreement is also subject to the following
conditions:
(a) Representations and Compliance. The representations and
warranties of FBS set forth in Article 2 shall have been true and correct
as of the date hereof, and shall be true and correct as of the Effective
Date as if made at and as of the Effective Date, except where the failure
to be true and correct would not have, or would not reasonably be expected
to have, a material adverse effect on the business, operations or financial
condition of FBS and its subsidiaries, taken as a whole; and FBS shall in
all material respects have performed each obligation and agreement and
complied with each covenant to be performed and complied with by it
hereunder at or prior to the Effective Date.
(b) Officer's Certificate. FBS shall have furnished to Midwestern a
certificate of the Senior Vice President and Controller of FBS, dated as of
the Effective Date, in which such officer shall certify that he has no
reason to believe that the conditions set forth in Section 6.2(a) have not
been fulfilled.
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(c) Secretary's Certificate. FBS shall have furnished to Midwestern
(i) copies of the text of the resolutions by which the corporate action on
the part of FBS necessary to approve this Agreement and the transactions
contemplated hereby were taken, (ii) a certificate dated as of the
Effective Date executed on behalf of FBS by its corporate secretary or one
of its assistant corporate secretaries certifying to Midwestern that such
copies are true, correct and complete copies of such resolutions and that
such resolutions were duly adopted and have not been amended or rescinded
and (iii) an incumbency certificate dated as of the Effective Date executed
on behalf of FBS by its respective corporate secretary or one of their
respective assistant corporate secretaries certifying the signature and
office of each officer of FBS, executing this Agreement or any other
agreement, certificate or other instrument executed pursuant hereto.
(d) Opinion of Counsel to FBS. Midwestern shall have received an
opinion letter dated as of the Effective Date addressed to Midwestern from
Michael J. O'Rourke, Esq., Executive Vice President and General Counsel of
FBS, based on customary reliance and subject to customary qualifications,
to the effect that:
(i) FBS is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. FBS is
registered as a bank holding company under the Bank Holding Company
Act.
(ii) FBS has the corporate power to consummate the
transactions on its part contemplated by this Agreement and the Escrow
Agreement. FBS has taken all requisite corporate action to authorize
such agreements, and such agreements have been duly executed and
delivered by FBS and constitute the valid and binding obligations of
FBS enforceable in accordance with their respective terms, subject as
to the enforcement of remedies to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally
and to judicial limitations on the enforcement of the remedy of
specific performance.
(iii) The execution and delivery of this Agreement by FBS
and the Escrow Agreement by FBS and the consummation of the
transactions contemplated hereby and thereby will not constitute a
breach, default or violation under FBS's Charter or Bylaws or, to such
counsel's knowledge, (A) any agreement, arrangement or understanding
to which FBS is a party, (B) any license, franchise or permit of FBS
or (C) any law, regulation, order, judgment or decree applicable to
FBS.
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(iv) No authorization, consent or approval of, or filing
with, any public body, court or authority is necessary for the
consummation by FBS of the transactions contemplated hereby which has
not been obtained or made.
(v) The shares of FBS Common Stock to be issued pursuant to
this Agreement will be, when issued, duly authorized, validly issued,
fully paid and nonassessable.
(e) Material Adverse Change. Since the date of this Agreement, there
has been no material adverse change in, and no event, occurrence or
development in the business of FBS or its subsidiaries that, taken together
with other events, occurrences and developments with respect to such
business, would have or would reasonably be expected to have a material
adverse effect on, the business, operations or financial condition of FBS
and its subsidiaries, taken as a whole.
(f) Change in Control of FBS. FBS shall not have merged, or announced
an agreement to merge, into another corporation, or sold all or
substantially all of its assets, or had one person or group acquire, or had
one person or group announce its interest to acquire, directly or
indirectly, beneficial ownership of more than 50% of the outstanding FBS
Common Stock.
(g) Registration Statement; Listing. The registration statement on
Form S-4 referred to in Section 5.13 shall have been declared effective,
and the Stock Consideration shall have been listed on the NYSE subject to
notice of issuance, on the Effective Date.
(h) No Significant Decline in FBS Common Stock. There shall not have
occurred since the date of this Agreement, a Significant Decline (as
defined below) in the Average Closing Price (as defined below) of FBS
Common Stock as compared to the Conversion Price. The "Average Closing
Price" of FBS Common Stock shall mean the average of the closing price of
FBS Common Stock as reported on the NYSE for the 10 consecutive trading
days ending on the date the Board of Governors of the Federal Reserve
System issues the later of the orders approving (i) the Merger and (ii) the
merger of Southwest Holdings, Inc., a Delaware corporation, with FBS (the
"Final Calculation Period"); provided that if FBS shall waive the condition
set forth in Section 6.3(j), the Final Calculation Period shall end on the
date the FRB issues the order approving the Merger. A "Significant
Decline" shall be deemed to have occurred if (i) the FBS Average Closing
Price is less than 80% of the Conversion Price and (ii) the number obtained
by dividing the FBS Average Closing Price by the Conversion Price is less
than the number obtained by dividing the average of the closing prices of
the S&P Major Regional Bank Index for the 10 consecutive trading days
during the Final Calculation Period by the average of the closing prices of
the S&P Major
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Regional Bank Index for the 10 consecutive trading days ending on the day
prior to the date hereof and subtracting .20 from the quotient.
6.3. Additional Conditions to Obligation of FBS. The obligation of
FBS to consummate the transactions contemplated hereby in accordance with the
terms of this Agreement is also subject to the following conditions:
(a) Representations and Compliance. The representations and
warranties of Midwestern in this Agreement shall have been true and correct
as of the date hereof, and such representations and warranties shall be
true and correct as of the Effective Date as if made at and as of the
Effective Date, except (i) where the failure to be true and correct would
not have, or would not reasonably be expected to have, a material adverse
effect on the business, operations or financial condition of Midwestern and
First Bank, taken as a whole (ii) for the representations and warranties
set forth in Section 3.5(b) which shall be true and correct in all
materials respects as of the date of this Agreement, and the lists provided
pursuant to Section 5.2 which shall be true and correct in all material
respects as of the respective dates of each such list and (iii) for the
representations and warranties set forth in the first sentence of Section
3.16 which may be updated for facts arising after the date hereof and which
shall be true and correct as of the date of such update; and Midwestern
shall in all material respects have performed each obligation and agreement
and complied with each covenant to be performed and complied with by them
hereunder at or prior to the Effective Date.
(b) Officers' Certificate of Midwestern. Midwestern shall have
furnished to FBS a certificate of the President and Chief Executive Officer
and the Chief Financial Officer of Midwestern, dated as of the Effective
Date, in which such officers shall certify that they have no reason to
believe that the conditions set forth in Section 6.3(a) have not been
fulfilled.
(c) Midwestern Secretary's Certificate. Midwestern shall have
furnished to FBS (i) copies of the text of the resolutions by which the
corporate action on the part of Midwestern necessary to approve this
Agreement and the transactions contemplated hereby were taken, (ii) a
certificate dated as of the Effective Date executed on behalf of Midwestern
by its corporate secretary or one of its assistant corporate secretaries
certifying to FBS that such copies are true, correct and complete copies of
such resolutions and that such resolutions were duly adopted and have not
been amended or rescinded and (iii) an incumbency certificate dated as of
the Effective Date executed on behalf of Midwestern by its corporate
secretary or one of its assistant corporate secretaries certifying the
signature and office of each officer executing this Agreement or any other
agreement, certificate or other instrument executed pursuant hereto.
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(d) Opinion of Counsel to Midwestern. FBS shall have received an
opinion letter dated as of the Effective Date addressed to FBS from
Kennedy, Holland, Delacy & Svoboda, based on customary reliance and subject
to customary qualifications, to the effect that:
(i) Midwestern is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Nebraska. Midwestern is registered as a bank holding company under
the Bank Holding Company Act.
(ii) First Bank is a state banking association duly
organized, validly existing and in good standing under the laws of the
State of Nebraska.
(iii) Each of Midwestern and First Bank has the requisite
corporate and other power and authority (including all licenses,
permits and authorizations) to own and operate its properties and to
carry on its business as now conducted. Each of Midwestern and First
Bank is licensed or qualified to do business in every jurisdiction in
which the nature of its business or its ownership of property requires
it to be licensed or qualified, except where the failure to be so
licensed or qualified would not have or would not be reasonably
expected to have a material adverse effect on the business,
operations, financial condition or operating results of Midwestern or
First Bank.
(i) The execution and delivery of this Agreement by
Midwestern and the consummation of the transactions contemplated
hereby will not constitute a breach, default or violation under the
respective Charter or Bylaws of Midwestern or First Bank or, to such
counsel's knowledge, (A) any material agreement, arrangement or
understanding to which Midwestern or First Bank is a party, (B) any
material license, franchise or permit of Midwestern or First Bank or
(C) any material law, regulation, order, judgment or decree applicable
to Midwestern or First Bank.
(v) The authorized capital of Midwestern consists of
76,386.030 shares of Midwestern Common Stock; all of the issued and
outstanding shares of the Midwestern Common Stock are duly authorized,
validly issued, fully paid and nonassessable. No holder of the
Midwestern Common Stock is entitled to any preemptive or other similar
rights with respect to the capital stock of Midwestern.
(vi) All of the issued and outstanding shares of capital
stock of First Bank are duly authorized, validly issued, fully paid
and nonassessable.
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(vii) Except as set forth in Schedule 3.14, to the
knowledge of such counsel, there are no actions, suits, proceedings,
orders or investigations pending or threatened against Midwestern or
First Bank, at law or in equity, or before or by any federal, state or
other governmental department, commission, board, bureau, agency or
instrumentality.
(viii) Midwestern has the corporate power to consummate the
transactions on its part contemplated by this Agreement. Midwestern
has duly taken all requisite corporate action to authorize this
Agreement and this Agreement has been duly executed and delivered by
Midwestern and constitutes the valid and binding obligation of
Midwestern enforceable in accordance with its terms, subject as to the
enforcement of remedies to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally
and to judicial limitations on the enforcement of the remedy of
specific performance.
(ix) No authorization, consent or approval of, or filing
with any public body, court or public authority, is necessary for the
consummation by Midwestern of the transactions contemplated hereby,
which has not been obtained or made.
(x) The Shareholders' Representative has duly executed and
delivered this Agreement and the Escrow Agreement, and such agreements
constitute the valid and binding obligations of the Shareholders'
Representative, enforceable in accordance with their respective terms,
subject as to the enforcement of remedies to applicable bankruptcy,
insolvency, moratorium and other laws affecting the rights of
creditors generally and to judicial limitations on the enforcement of
the remedy of specific performance.
(xi) The Shareholder Voting Agreement constitutes the valid
and binding obligation of the parties thereto (assuming that it is the
valid and binding obligation of FBS) enforceable in accordance with
its terms, subject as to the enforcement of remedies to applicable
bankruptcy, insolvency, moratorium and other laws affecting the rights
of creditors generally and to judicial limitations on the enforcement
of the remedy of specific performance.
(xii) The shareholders of Midwestern do not have any right
to dissent and demand payment for their shares of Midwestern Common
Stock pursuant to Section 21-2079 and 21-2080 of the NBCA as a result
of the Merger.
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(e) Adverse Proceedings. There shall not be threatened, instituted or
pending any action or proceeding before any court or governmental authority
or agency, domestic or foreign, (i) challenging or seeking to make illegal,
or to delay or otherwise directly or indirectly to restrain or prohibit,
the consummation of the transactions contemplated hereby or seeking to
obtain material damages in connection with the transactions contemplated
hereby, (ii) seeking to prohibit direct or indirect ownership or operation
by FBS of all or a material portion of the business or assets of Midwestern
or First Bank or of FBS or any of its subsidiaries, or to compel FBS or any
of its subsidiaries or Midwestern or First Bank to dispose of or to hold
separately all or a material portion of the business or assets of FBS or
any of its subsidiaries or of Midwestern or First Bank, as a result of the
transactions contemplated hereby, or (iii) seeking to require direct or
indirect divestiture by FBS of any of its business or assets or of the
business or assets of Midwestern or First Bank.
(f) Governmental Action. There shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the
transactions contemplated hereby by any federal, state or other court,
government or governmental authority or agency, which would reasonably be
expected to result, directly or indirectly, in any of the consequences
referred to in Section 6.3(e).
(g) Failure to Disclose. FBS shall not have discovered any fact or
circumstance existing as of the date of this Agreement which has not been
disclosed to FBS, as of the date of this Agreement, in this Agreement, any
Schedule hereto, or any document specifically required to be furnished to
FBS hereunder, regarding Midwestern or First Bank which would, individually
or in the aggregate with other such facts and circumstances, (i) materially
impair the consummation of the transactions contemplated by this Agreement,
or (ii) have a material adverse effect on the business, operations or
financial condition of Midwestern and First Bank, taken as a whole.
(h) Material Adverse Change. Since the date of this Agreement, there
shall have been no material adverse change in, and no event, occurrence or
development in the business of Midwestern or First Bank that, taken
together with other events, occurrences and developments with respect to
such business, would have or would reasonably be expected to have a
material adverse effect on, the business, operations or financial condition
of Midwestern and First Bank, taken as a whole. Without limiting the
generality of the foregoing, the termination of employment for any reason
of more than one of the persons identified in a letter delivered by FBS to
Midwestern prior to the date hereof (or the failure of more than one such
person to accept FBS's offer of employment) shall constitute such a
material adverse change.
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(i) Midwestern Common Stock. As of the Effective Date, all issued and
outstanding shares of Midwestern Common Stock will be free and clear of any
lien, pledge, security interest, encumbrance or charge of any kind,
including any lien, pledge, security interest, encumbrance or charge set
forth on Schedule 3.3.
(j) Southwest Merger. The merger of FBS and Southwest Holdings, Inc.,
a Delaware corporation, shall occur simultaneously with the Merger.
(k) Lease Amendment.
Midwestern shall have caused the Leases (as defined below) to be
amended so as to add the following real property to the premises demised
under such Leases without additional rental or otherwise increasing the
obligations of the Lessee under such Leases in any manner:
(A) Lots 4 and 5, Block 6 in CEDARNOLE, an Addition to the City of Omaha,
as surveyed, platted and recorded, in Douglas County, Nebraska, except (1) that
part of Lot 4 described as follows: Beginning at the Northwest corner of Lot 4,
thence East along the North line of said lot, a distance of 164.2 feet, thence
South 20 feet along the East line of said Lot 4, thence in a Northwesterly
direction to the Northwest corner of Lot 4 being the place of beginning;
(B) The East one-half of vacated 73rd Street adjoining said Lots 4, 5 and
6, Block 6 in CEDARNOLE, on the West; and
(C) All the vacated alley in said Block 6, abutting Lots 4, 5, 6, 7, 8, 10
and 11, Block 6 in CEDARNOLE, except: (1) the West one-half of the vacated alley
adjoining the North 20 feet of Lot 4 on the East, (2) the West one-half of
vacated alley adjoining Lot 3 on the East, and (3) the West one-half of vacated
alley adjoining Lot 2 on the East;
all situated in Douglas County, Nebraska.
For purposes of this provision, the term "Leases" means the Lease by and between
John F. Davis and John R. Lauritzen, as Lessors, and First West Side Bank, as
Lessee, executed on June 16, 1955, together with the Lease by and between John
F. Davis and John R. Lauritzen, as Lessors, and First West Side Bank, as Lessee,
executed on March 17, 1956, but dated as of July 1, 1955, together with all
amendments and modifications thereto, including, without limitation, the
Settlement Agreement dated October 12, 1994 concerning the Leases by and between
First Bank and John R. Lauritzen.
(l) Affiliate Letters. Midwestern shall have delivered to FBS the
letters required to be delivered pursuant to Section 5.22.
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ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated prior to the
Effective Date:
(a) by mutual consent of FBS and Midwestern;
(b) by either FBS or Midwestern, if any of the conditions to such
party's obligation to consummate the transactions contemplated in this Agreement
shall have become impossible to satisfy;
(c) by either FBS or Midwestern if the Effective Date is not on or
before March 31, 1996 (unless the failure to consummate the Merger by such date
shall be due to the action or failure to act of the party seeking to terminate
this Agreement in breach of such party's obligations under this Agreement); or
(d) by FBS if, after the date hereof, the Board of Directors of
Midwestern shall have withdrawn, modified or changed its recommendation of this
Agreement or the Merger, or any shareholder of Midwestern who is a party to the
Shareholder Voting Agreement shall have violated or breached any material
provision thereof.
Any party desiring to terminate this Agreement shall give written
notice of such termination and the reasons therefor to the other parties.
7.2. Effect of Termination. If this Agreement is terminated as
permitted by Section 7.1, such termination shall be without liability or
obligation of any party (or any shareholder, officer, employee, agent,
consultant or representative of such party) to any other party to this
Agreement, except (a) as may be otherwise provided in law or in equity, (b) for
the obligations under or in Article 8 hereof, and (c) that the covenants
contained in Sections 5.4 and 5.7(b), (c) and (d) hereof shall survive such
termination.
7.3. Amendment. This Agreement may not be amended except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.
7.4. Waiver. At any time prior to the Effective Date, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto or (b) waive compliance with any of the
agreements of the other parties or with any conditions to its own obligations,
in each case only to the extent such obligations, agreements and conditions are
intended for its benefit.
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ARTICLE 8
THE ESCROW DEPOSIT
8.1. Escrow Deposit. Upon execution of this Agreement and in
consideration of the covenants and agreements of Midwestern herein, FBS shall
deposit in an escrow account with LaSalle National Trust, N.A. (the "Escrow
Deposit Agent") for the benefit of Midwestern and pursuant to the deposit escrow
agreement attached hereto as Exhibit C, the sum of $750,000 (the "Escrow
Deposit"). Interest on the Escrow Deposit shall be paid to the party to be paid
the Escrow Deposit pursuant to Sections 8.2 and 8.3, hereof. Any fees of the
Escrow Deposit Agent shall be paid by the party receiving the interest on the
Escrow Deposit.
8.2. Release of Escrow Deposit to Shareholders. If the Effective Date
is delayed beyond March 31, 1996 or if the Merger shall not have been
consummated for any reason on or prior to such date (unless the failure to
consummate the Merger by such date shall be due to the action or failure to act
of Midwestern), other than the termination of this Agreement pursuant to Section
7.1(b) due to a failure to satisfy the conditions of Sections 6.3(a), (g) or (h)
hereof, the Escrow Deposit Agent shall pay the Escrow Deposit, together with
interest thereon, to Midwestern on the earlier of such termination or such date.
8.3. Refund of Escrow Deposit to FBS. If the Effective Date is on or
before March 31, 1996, the Escrow Deposit shall be refunded to FBS. If this
Agreement is terminated at any time pursuant to Section 7.1(b) due to a failure
to satisfy the conditions of Sections 6.3(a), (g) or (h) hereof, or if the
Merger shall not have been consummated due to the action or failure to act of
Midwestern, the Escrow Deposit shall be refunded to FBS.
ARTICLE 9
THE SHAREHOLDERS' REPRESENTATIVE
9.1. Appointment. As used in this Agreement, the "Shareholders'
Representative" shall mean Raymond D. Pape, Jr., or any person appointed as a
successor Shareholders' Representative pursuant to Section 9.2 hereof.
9.2. Election and Replacement. During the period ending upon the date
when all obligations under this Agreement have been discharged (including all
indemnification obligations pursuant to Section 5.14), the holders of Midwestern
Common Stock who immediately prior to the Effective Date held Midwestern Common
Stock representing an aggregate number of shares of Midwestern Common Stock
which exceeded 50% of the amount of such Midwestern Common Stock outstanding
immediately prior to the Effective Date (a "Majority") may from time to time
upon written notice to the Shareholders' Representative and FBS remove the
Shareholders' Representative, and if the Shareholders' Representative
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dies, becomes incapacitated, resigns or is removed by a Majority, the Majority
shall appoint a successor Shareholders' Representative to fill the vacancy so
created. If the Majority is required to but has not appointed a successor
Shareholders' Representative within 15 business days from a request by FBS to
appoint a successor Shareholders' Representative, FBS shall have the right to
appoint a Shareholders' Representative to fill the vacancy so created, and shall
advise all those who were holders of Midwestern Common Stock immediately prior
to the Effective Date of such appointment by written notice. A copy of any
appointment by the Majority of any successor Shareholders' Representative shall
be provided to FBS promptly after it shall have been effected.
9.3. Authority. The Shareholders' Representative shall be authorized
to make and deliver any certificate, notice, consent or instrument required or
permitted to be made or delivered under this Agreement or under the documents
referred to in this Agreement (including, without limitation, the Escrow
Agreement) (an "Instrument") which the Shareholders' Representative determines
in its sole and absolute discretion to be necessary, appropriate or desirable,
and, in connection therewith, to hire or retain, at the sole expense of the
Midwestern shareholders, such counsel, investment bankers, accountants,
representatives and other professional advisors as it determines in its sole and
absolute discretion to be necessary, advisable or appropriate in order to carry
out and perform its rights and obligations hereunder. The Shareholders'
Representative shall be entitled to reimbursement of any expenses incurred in
his role as Shareholder's Representative from the dividends paid on the Stock
Consideration issued in respect of the Indemnifying Shareholders and placed in
escrow pursuant to the Escrow Agreement. Any party receiving an Instrument from
the Shareholders' Representative (including, without limitation, the Escrow
Agent, as defined in the Escrow Agreement) shall have the right to rely in good
faith upon such certification, and to act in accordance with the Instrument
without independent investigation.
9.4. No Liability of FBS. Neither FBS nor the Surviving Corporation
shall have any liability whatsoever to any Midwestern shareholder or otherwise
arising out of the acts or omissions of the Shareholders' Representative or any
disputes among the Midwestern shareholders or among them and the Shareholders'
Representative. FBS shall have no direct liability to the Midwestern
shareholders under this Agreement or the other agreements referred to herein and
may rely entirely on its dealings with, and notices to and from, the
Shareholders' Representative to satisfy any obligations it might have under this
Agreement, any agreement referred to herein or otherwise to the Midwestern
shareholders. Without limiting the foregoing, delivery of certificates for
shares of FBS Common Stock from the Escrow Fund to the Shareholders'
Representative shall extinguish any obligations of FBS toward the Midwestern
shareholders with respect to such certificates, and FBS shall have no liability
for subsequent misdelivery to any Midwestern shareholder or any other act or
omission of the Shareholders' Representative with respect to such certificates.
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ARTICLE 10
GENERAL PROVISIONS
10.1. Public Statements. Neither of Midwestern or FBS shall make any
public announcement or statement with respect to the Merger, this Agreement or
any related transactions without the approval of the other parties; provided,
however, that FBS may, upon reasonable notice to Midwestern, make any public
announcement or statement that it believes is required by federal securities
laws.
10.2. Notices. All notices and other communications hereunder shall
be in writing and shall be sufficiently given if made by hand delivery, by fax,
by telecopier, by overnight delivery service, or by registered or certified mail
(postage prepaid and return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by it by
like notice):
if to FBS:
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Richard A. Zona, Vice Chairman and
Chief Financial Officer
Fax: (612) 973-0410
with a copy to:
Dorsey & Whitney P.L.L.P.
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq.
Fax: (612) 340-8738
if to Midwestern:
Midwestern Services, Inc.
c/o Kennedy, Holland, Delacy & Svoboda
Kennedy Holland Building
10306 Regency Parkway Drive
Omaha, Nebraska 68114
Attention: Robert J. Murray
Fax: (402) 397-7824
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with a copy to:
Kennedy, Holland, Delacy & Svoboda
Kennedy Holland Building
10306 Regency Parkway Drive
Omaha, Nebraska 68114
Attention: Robert J. Murray
Fax: (402) 397-7824
if to the Shareholders' Representative:
Raymond D. Pape, Jr.
285 Trails End Road
Elkhorn, Nebraska 68022
with a copy to:
Kennedy, Holland, Delacy & Svoboda
Kennedy Holland Building
10306 Regency Parkway Drive
Omaha, Nebraska 68114
Attention: Robert J. Murray
Fax: (402) 397-7824
All such notices and other communications shall be deemed to have been
duly given as follows: when delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if delivered
by mail; when receipt electronically acknowledged, if faxed or telecopied; and
the next day after being delivered to an overnight delivery service.
10.3. Interpretation. When a reference is made in this Agreement to
subsidiaries of FBS, the word "subsidiary" means any "majority-owned subsidiary"
(as defined in Rule 12b-2 under the 1934 Act) of FBS, as the context requires;
provided, however, that neither of Midwestern or First Bank shall at any time be
considered a subsidiary of FBS for purposes of this Agreement. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References to
Sections and Articles refer to Sections and Articles of this Agreement unless
otherwise stated. Words such as "herein," "hereinafter," "hereof," "hereto,"
"hereby" and "hereunder," and words of like import, unless the context requires
otherwise, refer to this Agreement (including the Exhibits and Schedules
hereto). As used in this Agreement, the masculine, feminine and neuter genders
shall be deemed to include the others if the context requires.
10.4. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of
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this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties shall negotiate in good faith
to modify this Agreement and to preserve each party's anticipated benefits under
this Agreement.
10.5. Miscellaneous. This Agreement (together with all other
documents and instruments referred to herein): (a) constitutes the entire
agreement, and supersedes all other prior agreements and undertakings, both
written and oral, among the parties, with respect to the subject matter hereof;
(b) is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder; (c) shall be governed in all respects, including
validity, interpretation and effect, by the internal laws of the State of
Minnesota, without giving effect to the principles of conflict of laws thereof;
(d) shall not be assigned by operation of law or otherwise. This Agreement may
be executed in two or more counterparts which together shall constitute a single
agreement.
10.6. Survival of Representations, Warranties and Covenants. Subject
to the one-year limitation on the duration of the indemnification obligations
set forth in Section 5.14(a) hereof, the representations, warranties and
covenants of the parties set forth herein will survive the consummation of the
Merger, regardless of any investigation made by or on behalf of the parties
hereto or the results of any such investigation, and the participation of a
party in such consummation will not constitute a waiver of any representation,
warranty or covenant of any other party; provided, however, that the sole and
exclusive remedy of FBS with respect to a violation or breach of this Agreement
shall be as provided in Section 5.14.
10.7. Schedules. The Schedules referred to in this Agreement shall be
delivered as of the date hereof under cover of a letter from the President and
Chief Executive Officer of Midwestern.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first written above, in the case of FBS and Midwestern
by their respective duly elected and authorized officers.
FIRST BANK SYSTEM, INC.
By
------------------------------------
Richard A. Zona, Vice Chairman and
Chief Financial Officer
MIDWESTERN SERVICES, INC.
By
------------------------------------
Raymond D. Pape, Jr., Chairman
SHAREHOLDERS' REPRESENTATIVE:
--------------------------------------
Raymond D. Pape, Jr.
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EXHIBIT A
ESCROW AGREEMENT
This agreement (the "Escrow Agreement"), dated , 199 ,
is made by and among FIRST BANK SYSTEM, INC., a Delaware corporation ("FBS"),
RAYMOND D. PAPE (acting in his capacity as representative of the shareholders of
MIDWESTERN SERVICES, INC., a Nebraska corporation ("Midwestern"), (the
"Shareholders' Representative")), and LASALLE NATIONAL TRUST, N.A., as escrow
agent (the "Escrow Agent").
INTRODUCTION
A. FBS, Midwestern and the Shareholders' Representative are parties
to an Agreement and Plan of Merger dated June 23, 1995, (the "Agreement") under
the terms of which Midwestern will be merged with and into FBS and all
outstanding shares of Midwestern Common Stock will be converted into the right
to receive cash and FBS Common Stock pursuant to the terms of the Agreement (the
"Merger"). All capitalized terms used herein and not otherwise defined shall
have the meanings given to them in the Agreement. Section 5.15 of the Agreement
provides for the execution and delivery at the Effective Date thereunder of an
escrow agreement, to provide for certain indemnifications and certain assurances
relating to intentions with respect to the Stock Consideration, as specified in
Sections 5.14 and 5.15 of the Agreement. FBS and the Shareholders'
Representative, on behalf of the Indemnifying Shareholders, have agreed that the
execution and delivery of this Escrow Agreement and the establishment of the
Combined Escrow Fund (as defined below) provided for herein shall satisfy the
obligations of the parties to execute and deliver such escrow agreement. As
hereafter provided, the Combined Escrow Fund hereunder shall fund and be the
sole source of securing the indemnification rights contemplated by Section
5.14(a) of the Agreement (the "Section 5.14(a) Indemnities").
B. The Agreement also provides for the appointment of the
Shareholders' Representative to act for and on behalf of Midwestern shareholders
following the merger of Midwestern with and into FBS. The appointment of the
Shareholders' Representative has been duly approved by Midwestern shareholders,
and the Shareholders' Representative has been duly authorized to respond to the
assertion of any and all claims for indemnification by FBS pursuant to the terms
of this Escrow Agreement and the provisions of the Agreement pertaining thereto
and to act for and on behalf of the Indemnifying Shareholders with respect to
this Escrow Agreement.
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C. Subsequent to the Effective Date, the Combined Escrow Fund shall
be viewed as owned by the Indemnifying Shareholders and it shall be maintained
and operated in a manner consistent with such ownership. The Escrow Agent will
administer the Combined Escrow Fund as owned by the Indemnifying Shareholders
upon the merger of Midwestern with and into FBS.
D. Pursuant to the Agreement, FBS, Midwestern and the Shareholders'
Representative have agreed that FBS, on behalf of the Indemnifying Shareholders,
shall transfer to the Escrow Agent the Cash Escrow Fund (as defined below) and
the Escrow Shares (as defined below) to be deposited at the Effective Date in
escrow with the Escrow Agent and held in accordance with the terms of this
Escrow Agreement.
NOW, THEREFORE, in consideration of consummating the transactions
contemplated by the Agreement, the covenants and agreements herein set forth and
for other valuable consideration, the receipt of which is hereby acknowledged,
the parties further agree as follows:
1. Appointment and Agreement of Escrow Agent. FBS and the
Shareholders' Representative, on behalf of the Indemnifying Shareholders, hereby
appoint and designate the Escrow Agent as the escrow agent for the purposes set
forth herein, and the Escrow Agent hereby accepts such appointment under the
terms and conditions set forth herein.
2. Agreement Not Limited by this Escrow Agreement. This Escrow
Agreement and the deposit of the Combined Escrow Fund are without prejudice to,
and are not in limitation of, any obligations of Midwestern, the shareholders of
Midwestern or the Indemnifying Shareholders to FBS in respect of any of the
covenants, representations or warranties of Midwestern, or the shareholders of
Midwestern, contained in the Agreement, except insofar as the indemnity
obligations of Section 5.14(a) are to be satisfied solely from the Combined
Escrow Fund.
3. Establishment of Escrow.
3.1. Escrow Deposit. (a) Simultaneously with the execution of this
Escrow Agreement, FBS and the Shareholders' Representative, on behalf of
the Indemnifying Shareholders, have caused to be deposited with the Escrow
Agent funds in the amount of $917,280 (the "Cash Escrow Fund") and
certificates registered in the name of the Shareholders' Representative on
behalf of the Indemnifying Shareholders, in negotiable form duly endorsed
in blank, representing an aggregate of shares of
FBS Common Stock (the "Escrow Shares"). Together, the Cash Escrow Fund and
the Escrow Shares are sometimes referred to herein as the "Combined Escrow
Fund."
(b) Together with the certificates of the Escrow Shares transferred to
the Escrow Agent, the Shareholders' Representative has delivered to the
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Escrow Agent duly executed stock powers (endorsed in blank) with respect
thereto with signatures guaranteed by a bank or trust company or by a
member firm of the New York Stock Exchange, together with a list of the
Indemnifying Shareholders, including their tax I.D. numbers and addresses,
indicating each such shareholder's proportionate interest in the Escrow
Shares.
(c) The Cash Escrow Fund shall be held and used only for the purposes
of funding the Section 5.14(a) Indemnities; provided, however, that the
Dividend Income (as defined below) and the Investment Income (as defined
below) shall not be used to fund the Section 5.14(a) Indemnities. The
Escrow Shares shall be held and used for the purposes of funding the
Section 5.14(a) Indemnities and for purposes of establishing certain
intentions with respect to the Stock Consideration, as set forth in Section
5.15 of the Agreement.
3.2. Receipt. The Escrow Agent hereby acknowledges receipt of the
Cash Escrow Fund and the Escrow Shares and agrees to hold and disburse the
Combined Escrow Fund in accordance with the terms and conditions of this
Escrow Agreement for the uses and purposes stated herein.
3.3. Voting Rights of Escrow Shares. All voting rights with respect
to the Escrow Shares shall be exercised by the Indemnifying Shareholders in
accordance with their proportionate interests therein, and the Escrow Agent
shall from time to time execute and deliver to the Indemnifying
Shareholders such proxies, consents or other documents as may be necessary
to enable the respective Indemnifying Shareholders to exercise such rights.
3.4. Dividends. Pending the disbursement of the Escrow Shares
pursuant to this Escrow Agreement, the Escrow Agent shall hold the
certificates representing Escrow Shares in the Combined Escrow Fund. All
dividends received with respect to Escrow Shares shall be income for tax
purposes to the Indemnifying Shareholders. Any dividends received by the
Escrow Agent in respect of the Escrow Shares (the "Dividend Income") shall
be deposited into and become a part of the Cash Escrow Fund and shall be
distributed by the Escrow Agent from the Cash Escrow Fund pursuant to the
terms of this Escrow Agreement.
4. Liabilities etc. Covered. This Escrow Agreement has been
executed and the deposit of the Combined Escrow Fund hereunder has been made
pursuant to Section 5.15 of the Agreement. The deposit of the Combined Escrow
Fund has been made for the purpose of funding and securing, to the extent of the
Combined Escrow Fund, the Section 5.14(a) Indemnities until the first
anniversary date of this Escrow Agreement. The deposit of the Escrow Shares has
been made for the additional purpose of establishing certain intentions with
respect to the Stock Consideration, as set forth in Section 5.15 of the
Agreement, through the second anniversary date of this Escrow Agreement.
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5. Investment Authority. Subject to the provisions of Section 6 of
this Escrow Agreement, the Escrow Agent shall hold and invest the Cash Escrow
Fund in such investments as shall be directed, in a writing signed by each of
FBS and the Shareholders' Representative to be delivered to the Escrow Agent
promptly following effectiveness of this Agreement (the "Permitted
Investments"), during the term of this Escrow Agreement and shall treat the Cash
Escrow Fund as a trust fund in accordance with the terms hereof. It is
expressly agreed that any Permitted Investments may be purchased by the Escrow
Agent notwithstanding that an affiliate of the Escrow Agent has underwritten,
privately placed or made a market for, any such Permitted Investment, or may in
the future underwrite, privately place or make a market in any such Permitted
Investments. Any income received by the Escrow Agent in respect of the Cash
Escrow Fund (the "Investment Income"), shall be deposited into and become a part
of the Cash Escrow Fund and shall be distributed by the Escrow Agent from the
Cash Escrow Fund pursuant to the terms of this Escrow Agreement.
6. Procedures for Disbursement of the Combined Escrow Fund to FBS.
6.1. Disbursement of the Combined Escrow Fund. Whenever there shall
be delivered to the Escrow Agent (a) a certificate signed by FBS and the
Shareholders' Representative certifying, or (b) a certified copy of a
final, non-appealable judgment of a court of competent jurisdiction
determining, that an amount is due to FBS pursuant to Section 5.14(a) of
the Agreement, the Escrow Agent shall, to the extent that the amount of the
Cash Escrow Fund and the Escrow Shares then held by it in the Combined
Escrow Fund shall be sufficient for such purpose, promptly (and in no event
later than five business days following receipt of either document referred
to in clauses (a) and (b) of this Section 6.1) cause cash equal to such
amount and/or, to the extent that insufficient cash remains in the Combined
Escrow Fund to cover such amount, certificates representing Escrow Shares
(together with duly executed stock powers relating to such certificates)
having a value (assuming a value of $41.76 per share) equal to such amount
not covered by cash, to be delivered to FBS. FBS may, in its sole and
absolute discretion as evidenced by notification in writing to the Escrow
Agent, refuse and surrender indemnification payments, or delay acceptance
until after the second anniversary of this Escrow Agreement of
indemnification payments, in the form of Escrow Shares pursuant to this
Section 6.1. FBS, Midwestern and the Shareholders' Representative agree
and acknowledge that the maximum number of Escrow Shares that may be
delivered to FBS under this Section 6.1 in connection with amounts due to
FBS pursuant to Section 5.14(a) of the Agreement shall not exceed 47,000
Escrow Shares. Notwithstanding the foregoing, cash held by the Escrow
Agent in the Combined Escrow Fund constituting Dividend Income and/or
Investment Income shall not be used to fund the Section 5.14(a) Indemnities
or be disbursed pursuant to the provisions of this Section 6.1.
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6.2. No Fractional Shares. In the event of any disbursement of
Escrow Shares pursuant to Section 6.1, no fractional shares shall be
delivered, but rather the Escrow Agent shall adjust the amount of Escrow
Shares to be delivered to FBS by rounding to the nearest whole share.
7. Disbursement of Dividend Income to the Shareholders'
Representative. From time to time prior to the Indemnity Termination Date (as
defined below), if the Shareholders' Representative shall deliver to the Escrow
Agent a written instruction to deliver to the Shareholders' Representative, on
behalf of the Indemnifying Shareholders, funds then held hereunder constituting
all or a portion of the Dividend Income portion of the Cash Escrow Fund, the
Escrow Agent shall cause such delivery to occur.
8. Termination of Escrow.
(a) On the business day next following the first anniversary of the
date hereof (the "Indemnity Termination Date"), FBS shall authorize the Escrow
Agent to deliver to the Shareholders' Representative on behalf of the
Indemnifying Shareholders, the funds then held hereunder constituting the Cash
Escrow Fund; provided however, that there shall be deducted from the amount to
be delivered to the Shareholders' Representative the Escrow Fund Reserved Amount
(as defined in Section 9 below); and provided further, that any deduction in
connection with the Escrow Fund Reserved Amount shall not include any Dividend
Income or Investment Income. On the business day next following the Indemnity
Termination Date, regardless of any deduction relating to the Escrow Fund
Reserved Amount, FBS shall authorize the Escrow Agent to deliver to the
Shareholders' Representative on behalf of the Indemnifying Shareholders the
funds then held hereunder constituting the remaining Dividend Income and the
Investment Income portion of the Cash Escrow Fund, subject to the provisions of
Section 12.2 hereof.
(b) On the business day next following the second anniversary of the
date hereof (the "Share Termination Date"), FBS shall authorize the Escrow Agent
to deliver to the Shareholders' Representative on behalf of the Indemnifying
Shareholders, the Escrow Shares then held hereunder, provided however, that
there shall be deducted from the amount to be delivered to the Shareholders'
Representative any such shares reserved as part of the Escrow Fund Reserved
Amount (as defined in Section 9 below). Notwithstanding the foregoing, prior to
the Share Termination Date, upon request by the Shareholders' Representative on
behalf of an Indemnifying Shareholder in connection with a change in such
shareholder's circumstances, FBS may, in its sole and absolute discretion as
evidenced by notification in writing to the Escrow Agent, authorize the Escrow
Agent to deliver to the Shareholders' Representative on behalf of such
Indemnifying Shareholder, all or a portion of such Indemnifying Shareholder's
proportionate interest in the Escrow Shares held hereunder.
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(c) This Escrow Agreement shall automatically terminate if and when
all the property and funds in the Combined Escrow Fund shall have been
distributed by the Escrow Agent in accordance with the terms of this Escrow
Agreement.
9. Retention of Combined Escrow Fund Following the Indemnity
Termination Date. (a) If at the Indemnity Termination Date claims for
indemnification shall have been made pursuant to Section 5.14(a) of the
Agreement, then FBS may in good faith, at any time, prior to the Indemnity
Termination Date notify the Escrow Agent to such effect in writing, which
written notice shall describe briefly the nature of each such claim, the facts
and circumstances which give rise to each such claim, and the estimated amount,
based on the good faith judgment of FBS as determined solely by FBS, of the
potential liability with respect to each such claim, and the provisions of the
Agreement or this Escrow Agreement on which each such claim is based. FBS shall
promptly deliver to the Shareholders' Representative a copy of such written
notice. The Escrow Agent shall have no obligation to verify that delivery of
such notice has been made by FBS to the Shareholders' Representative, but agrees
to forward to the Shareholders' Representative, promptly, by overnight mail, a
copy of the notice received by it. Cash (which shall not include any Dividend
Income or Investment Income) and/or, as hereinafter set forth, Escrow Shares
with a value equal to one hundred percent (100%) of the total amounts claimed
shall be set aside and retained (to the extent available in the then remaining
Combined Escrow Fund) by the Escrow Agent as a reserve to cover such claim or
claims (such amounts so set aside and reserved, as reduced from time to time
pursuant to the provisions of this Section 9 or of Section 6.1 hereof, being
herein called the "Escrow Fund Reserved Amount"). To the extent that
insufficient cash remains in the Combined Escrow Fund to cover the Escrow Fund
Reserved Amount, certificates representing Escrow Shares (together with duly
executed stock powers relating to such certificates) having a value (assuming a
value of $41.76 per share) equal to such amount not covered by cash, shall be
set aside and retained (to the extent available in the then remaining Combined
Escrow Fund) by the Escrow Agent as a reserve to cover such claim or claims.
(b) Following the Indemnity Termination Date, the Escrow Agent agrees
to hold such Escrow Fund Reserved Amount in the same manner as the Combined
Escrow Fund hereunder. The Escrow Fund Reserved Amount shall be disbursed by
the Escrow Agent in the same manner as the Combined Escrow Fund is to be
disbursed pursuant to Section 6, but only to cover the claims identified in the
notice sent pursuant to Section 9(a) that led to the establishment of such
Escrow Fund Reserved Amount. In addition, if at any time FBS determines in good
faith that it will not pursue or, under the terms of the Agreement, cannot
pursue any claim for indemnification to which all or any portion of the Escrow
Fund Reserved Amount relates, or a court of competent jurisdiction by final,
non-appealable judgment so finds, FBS shall direct the Escrow Agent to disburse
all or such portion of the Escrow Fund Reserved Amount to the Shareholders'
Representative; provided, however, that to the extent that the Escrow Fund
Reserved Amount
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consists in whole or in part of Escrow Shares and such determination or judgment
occurs prior to the Share Termination Date, such Escrow Shares shall not be
disbursed except in accordance with Sections 8(b) or 8(c).
10. No Transfer of Combined Escrow Fund. While any of the Cash
Escrow Fund or Escrow Shares shall continue to be held by the Escrow Agent,
neither the Indemnifying Shareholders nor the Shareholders' Representative will
transfer, sell, pledge, create a security interest in or otherwise dispose of
their rights to any of such funds or shares, or distributions with respect
thereto.
11. The Escrow Agent.
11.1. Indemnification of the Escrow Agent. FBS and the Shareholders'
Representative, on behalf of the Indemnifying Shareholders, jointly and
severally agree to indemnify and hold the Escrow Agent and its directors,
officers and employees harmless from and against any and all costs,
charges, damages and attorneys' fees which the Escrow Agent in good faith
may incur or suffer in connection with or arising out of this Escrow
Agreement.
11.2. Duties of the Escrow Agent. The Escrow Agent shall have no
duties other than those expressly imposed on it herein and shall not be
liable for any act or omission except for its own gross negligence or
willful misconduct.
11.3. Fees of the Escrow Agent. The fees and charges of the Escrow
Agent (including its attorneys fees and expenses) with respect to this
Agreement shall be paid equally by FBS and all the Indemnifying
Shareholders in accordance with the Escrow Agent's customary fees as
charged from time to time. The Shareholders' Representative, on behalf of
the Indemnifying Shareholders, agrees that the Escrow Agent may deduct from
the Combined Escrow Fund any unpaid fees due from the Indemnifying
Shareholders prior to the Escrow Agent's distributing any assets in
connection with the termination of the Combined Escrow Fund (including in
the form of Escrow Shares).
11.4. Escrow Agent to Follow Instructions of FBS and the
Shareholders' Representative. Any provision herein contained to the
contrary notwithstanding, the Escrow Agent shall at any time and from time
to time take such action hereunder with respect to the Combined Escrow Fund
as shall be agreed to in writing by FBS and the Shareholders'
Representative, provided that the Escrow Agent shall first be indemnified
to its satisfaction, jointly and severally, by FBS and the Indemnifying
Shareholders with respect to any of its costs or expenses which might be
involved.
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11.5. Resignation of the Escrow Agent. The Escrow Agent may resign
at any time by providing FBS and the Shareholders' Representative with
thirty (30) days' written notice of its intention to do so, provided that a
successor Escrow Agent has been appointed. The Escrow Agent's resignation
shall be effective upon delivery of the Combined Escrow Fund to the
successor Escrow Agent and the successor assuming the obligations, rights
and duties of the Escrow Agent hereunder.
12. Other Provisions.
12.1. Security Interest. (a) The Shareholders' Representative, on
behalf of the Indemnifying Shareholders, hereby grants to FBS a first
priority perfected security interest in the Escrow Shares and the Cash
Escrow Fund to secure FBS's rights to indemnification under Section 5.14(a)
of the Agreement and FBS's rights under this Escrow Agreement. The Escrow
Agreement shall constitute a security agreement under applicable law.
(b) The parties agree that this security interest shall attach as of
the execution of this Escrow Agreement. The parties agree that, for the
purpose of perfecting FBS's security interest in the above designated
Escrow Shares and Cash Escrow Fund held by the Escrow Agent pursuant to
this Escrow Agreement, FBS designates the Escrow Agent to acquire and
maintain possession of the Escrow Shares and Cash Escrow Fund and act as
bailee for FBS with notice of FBS's security interest in said property
under the Uniform Commercial Code and that by possession of the Escrow
Shares and Cash Escrow Fund, the Escrow Agent acknowledges that it holds
the Escrow Shares and Cash Escrow Fund for FBS for purposes of perfecting
the security interest. The Shareholders' Representative and the Escrow
Agent shall take all other actions requested by FBS to maintain the
perfection and priority of the security interest in the Escrow Shares and
Cash Escrow Fund.
(c) FBS shall release the security interest herein granted and the
security interest shall be terminated to the extent of any disbursement of
the Escrow Shares and the Cash Escrow Fund hereunder by the Escrow Agent in
accordance with the terms of this Escrow Agreement. Upon final
disbursement of any Escrow Shares and Cash Escrow Fund to the Shareholders'
Representative, FBS shall do all acts and things reasonably necessary to
release and extinguish such security interest. The Shareholders'
Representative, on behalf of the Indemnifying Shareholders and FBS hereby
specifically agree and acknowledge that the grant of this security interest
pursuant to this Section 12.1 shall not in any way modify either the
procedures the Indemnifying Shareholders and/or FBS must follow in order to
obtain possession of any of the Escrow Shares and Cash Escrow Fund from
those procedures and rights expressly provided for in this Escrow Agreement
or in the Agreement.
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12.2 Expenses of the Shareholders' Representative. The Shareholders'
Representative shall be entitled to reimbursement of any reasonable
expenses incurred in his role as Shareholders' Representative from Dividend
Income maintained in the Cash Escrow Fund. The Escrow Agent shall deliver
funds from such Dividend Income to the Shareholders' Representative in the
amount of such expenses following receipt of written notification from the
Shareholders' Representative that the Shareholders' Representative has
incurred such expenses.
12.3. Notices. All notices and other communications hereunder shall
be in writing and shall be sufficiently given if made by hand delivery, by
telex, by telecopier, or by registered or certified mail (postage prepaid
and return receipt requested) to the parties at the following addresses (or
at such other address for a party as shall be specified by it by like
notice) provided that communications given to the Escrow Agent shall be
considered given when received by the Escrow Agent and, provided further,
that any communications to the Escrow Agent directing it to make a
disbursement from the Combined Escrow Fund will be made by the Escrow Agent
only upon receipt of originally executed copies of such communication:
(a) If to FBS:
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: David J. Parrin
Senior Vice President and
Controller
Telephone number: (612) 973-0911
Telecopy number: (612) 973-0859
With a copy to:
Dorsey & Whitney P.L.L.P.
Pillsbury Center
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq.
Telephone Number: (612) 340-2780
Telecopy Number: (612) 340-8738
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(b) If to the Shareholders' Representative:
Raymond D. Pape, Jr.
________________________
________________________
With a copy to:
________________________
________________________
________________________
(c) If to the Escrow Agent:
LaSalle National Trust, N.A.
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Jeffrey S. Schiedemeyer
Telephone Number: (312) 904-2447
Telecopy Number: (312) 443-2236
12.4. Benefit and Assignment. The rights and obligations of each
party under this Escrow Agreement may not be assigned without the prior
written consent of all other parties. This Escrow Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Nothing in this Escrow Agreement,
expressed or implied, is intended to or shall (i) confer on any person
other than the parties hereto, or their respective successors or assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Escrow Agreement, or (ii) constitute the parties hereto as partners or
participants in a joint venture. The Escrow Agent shall not be obligated
to recognize any such succession or assignment, until satisfactory written
evidence thereof shall have been received by it.
12.5. Entire Agreement; Amendment. This Escrow Agreement and the
Agreement contain all the terms agreed upon by the parties with respect to
the subject matter hereof. This Escrow Agreement may be amended only by a
written instrument signed by the party against which enforcement of any
waiver, change, modification, extension or discharge is sought.
12.6. Headings. The INTRODUCTION provisions of this Escrow
Agreement constitute a material part of this agreement and are incorporated
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into this Escrow Agreement. The headings of the sections and subsections
of this Escrow Agreement are for ease of reference only and shall not be
deemed to evidence or affect the meaning or construction of any of the
provisions hereof.
12.7. Governing Law. This Escrow Agreement shall be construed, as to
both validity and performance, and enforced in accordance with and
interpreted and governed by the laws of the State of Minnesota.
12.8. Attorneys' Fees. Should any litigation be commenced between
FBS and the shareholders of Midwestern, the Indemnifying Shareholders or
the Shareholders' Representative concerning this Escrow Agreement or the
rights and duties of any party in relation thereto, the party prevailing in
such litigation shall be entitled, in addition to such other relief as may
be granted, to a reasonable sum as and for such party's attorneys' fees in
such litigation, which shall be determined by the court in such litigation
or in a separate action brought for that purpose.
12.9. Counterparts. This Escrow Agreement may be executed in
multiple counterparts, all of which taken together shall constitute one
instrument.
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IN WITNESS WHEREOF, FBS and the Escrow Agent have caused this Escrow
Agreement to be executed on the date first written above by their respective
duly authorized officers and the Shareholders' Representative being duly
authorized has executed this Escrow Agreement on behalf of the Indemnifying
Shareholders on the date first written above.
FIRST BANK SYSTEM, INC.
By:
------------------------
Its
-----------------------
SHAREHOLDERS' REPRESENTATIVE:
----------------------------
Raymond D. Pape, Jr.
LASALLE NATIONAL TRUST, N.A.
By:
------------------------
Its
-----------------------
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EXHIBIT B
_______________, 199__
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Ladies and Gentlemen:
1. I have been advised that I might be considered to be an "affiliate,"
as that term is defined for purposes of paragraphs (c) and (d) of Rule 145
("Rule 145") promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), of Midwestern Services, Inc, a Nebraska corporation ("Midwestern").
2. Pursuant to an Agreement and Plan of Merger dated ,
1995 (the "Agreement"), by and among First Bank System, Inc., a Delaware
corporation ("FBS"), Midwestern and Raymond D. Pape, Jr., in his capacity as
Shareholders' Representative, it is contemplated that Midwestern will merge with
and into FBS and that all of the outstanding common stock, par value $3.50 per
share, of Midwestern ("Midwestern Common Stock") will be converted into a
combination of cash and common stock, par value $1.25 per share, of FBS ("FBS
Common Stock") as set forth in the Agreement (the "Merger"). In connection with
the Merger, I will receive my pro rata portion of the shares of FBS Common Stock
upon distribution of the FBS Common Stock to the holders of Midwestern Common
Stock.
3. In addition to the provisions set forth in the Merger Agreement
relating to escrow provisions, I hereby agree as follows:
a. I will not offer to sell, transfer or otherwise dispose of any of
the shares of FBS Common Stock distributed to me pursuant to the Merger (the
"Stock"), except (i) in compliance with the applicable provisions of Rule 145,
(ii) in a transaction that is otherwise exempt from the registration
requirements of the Securities Act, or (iii) in an offering registered under the
Securities Act.
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First Bank System, Inc.
_______________, 199__
4. I consent to the endorsement of the Stock issued to me pursuant to the
Merger with a restrictive legend which will read substantially as follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933, as amended (the "Act"), applies, and may be sold or otherwise
transferred only in compliance with the limitations of such Rule 145,
or upon receipt by First Bank System, Inc. of an opinion of counsel
reasonably satisfactory to it that some other exemption from
registration under the Act is available, or pursuant to a registration
statement under the Act."
FBS's transfer agent shall be given an appropriate stop transfer order and
shall not be required to register any attempted transfer of the shares of the
Stock, unless the transfer has been effected in compliance with the terms of
this letter agreement.
5. It is understood and agreed that this letter agreement shall terminate
and be of no further force and effect and the legend set forth in paragraph 4
above shall be removed by delivery of substitute certificates without such
legend, and the related stop transfer restrictions shall be lifted forthwith, if
(i) any such shares of Stock shall have been registered under the Securities Act
for sale, transfer or other disposition by me or on my behalf and are sold,
transferred or otherwise disposed of, or (ii) any such shares of Stock are sold
in accordance with the provisions of paragraphs (c), (e), (f) and (g) of Rule
144 promulgated under the Securities Act, or (iii) I am not at the time an
affiliate of FBS and have been the beneficial owner of the Stock for at least
two years (or such other period as may be prescribed by the Securities Act and
the rules and regulations promulgated thereunder) and FBS has filed with the
Commission all of the reports it is required to file under the Securities
Exchange Act of 1934, as amended, during the preceding 12 months, or (iv) I am
not and have not been for at least three months an affiliate of FBS and have
been the beneficial owner of the Stock for at least three years (or such other
period as may be prescribed by the Securities Act and the rules and regulations
promulgated thereunder), or (v) FBS shall have received a letter from the staff
of the Commission, or an opinion of counsel reasonably acceptable to FBS, to the
effect that the stock transfer restrictions and the legend are not required.
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6. I have carefully read this letter agreement and the Agreement and have
discussed their requirements and other applicable limitations upon my ability to
offer to sell, transfer or otherwise dispose of shares of the Stock, to the
extent I felt necessary, with my counsel or counsel for Midwestern.
Sincerely,
___________________________
[Name]
Agreed and accepted this _____
day of ______________, 199____, by
FIRST BANK SYSTEM, INC.
By ________________________________
Its _____________________________
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EXHIBIT C
ESCROW DEPOSIT AGREEMENT
THIS AGREEMENT is made AND ENTERED INTO THIS 23ND DAY OF JUNE, 1995,
BY AND AMONG FIRST BANK SYSTEM, INC. ("FBS"), MIDWESTERN SERVICES, INC.
("MIDWESTERN") AND LASALLE NATIONAL TRUST, N.A. ("ESCROW AGENT").
Reference is made to the Agreement and Plan of Merger dated the date
hereof (the "Merger Agreement") among FBS, Midwestern and Raymond D. Pape, Jr.
acting in his capacity as representative of the shareholders of Midwestern. The
Merger Agreement provides that FBS shall deposit in an escrow account with
Escrow Agent for the benefit of Midwestern $750,000 (the "Escrow Funds"), which
Escrow Funds are to be held in escrow pursuant to the terms of the Merger
Agreement. The parties hereto desire that Escrow Agent hold, invest and
distribute the Escrow Funds, together with interest accrued thereon, all in the
manner set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants of the parties contained herein and in the Merger Agreement, and of
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by each of the parties, it is agreed as follows:
1. Definitions. Capitalized terms used and not defined herein shall
have the meaning given them in the Merger Agreement.
2. Appointment of Escrow Agent. FBS and Midwestern hereby appoint
and designate Escrow Agent as the escrow agent for the purposes set forth in
this Agreement, and Escrow Agent hereby accepts such appointment under the terms
and conditions set forth herein.
3. Escrow Deposit and Investment. Contemporaneous with the
execution and delivery of this Agreement, FBS has delivered the Escrow Funds to
Escrow Agent to be deposited in an escrow account with Escrow Agent (the "Escrow
Account"). Escrow Agent agrees to hold and invest such Escrow Funds, together
with interest accrued thereon, in money market funds rated AAA or higher by
Standard & Poor's Corporation (the "Permitted Investments"), and the interest
accrued thereon, until such funds and interest are released in accordance with
the provisions of Section 4 below. It is expressly agreed that any Permitted
Investments may be purchased by the Escrow Agent notwithstanding that an
affiliate of the Escrow Agent has underwritten, privately placed or made a
market for, any such Permitted Investment, or may in the future underwrite,
privately place or make a
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market in any such Permitted Investments. Escrow Agent shall have the right to
liquidate any investments held in order to provide funds necessary to make
required payments under this Agreement. Escrow Agent shall not be liable for any
loss incurred at such liquidation which is due to fluctuations in market rates
or penalties incurred because of early redemption.
4. Release of Escrow Funds. The Escrow Funds, and the interest
accrued thereon, shall be released in accordance with written instructions
signed by FBS and Midwestern delivered to Escrow Agent. FBS and Midwestern
agree that Article 8 of the Merger Agreement shall govern the manner in which
the Escrow Funds shall be released by Escrow Agent and that their written
instructions to Escrow Agent shall be in accordance with such Article 8.
5. Fees of Escrow Agent. Escrow Agent shall be entitled to a fee of
$750.00 for its services pursuant to this Agreement. Such fees shall be paid by
FBS upon invoice from the Escrow Agent. If the Escrow Funds are released to
Midwestern pursuant to this Agreement, then the escrow shall deduct $750.00 from
the interest and income earned from the investment and reinvestment of the
Escrow Funds and shall reimburse FBS for its payment of the fee of the Escrow
Agent.
6. Duty and Liability of Escrow Agent. The sole duty of Escrow Agent
shall be to receive, hold and distribute the Escrow Funds as provided in this
Agreement. Escrow Agent shall incur no liability with respect to any action
taken by it in reliance upon or in response to any joint notice, direction,
instruction or consent of the parties which may be given under the terms of this
Agreement, nor for any action or omission of Escrow Agent hereunder, except for
its own willful misconduct. The duties and responsibilities of Escrow Agent
shall be limited to those expressly set forth in this Agreement, and Escrow
Agent shall not be subject to nor bound by the terms of any other agreement
between the parties.
7. Assignment; Binding Effect. This Agreement shall extend to,
shall inure to the benefit of and shall be binding upon all of the parties
hereto and upon all of their respective successors and permitted assigns. This
Agreement shall not be assignable or transferable, in whole or in part, by any
of the parties hereto except upon the express prior written consent of all of
the other parties hereto, and nothing contained in this Agreement is intended to
confer upon any person, other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under, or
by reason of, this Agreement.
8. Amendment. This Agreement may be amended only by a written
instrument signed by all of the parties.
9. Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the internal laws of the State
of Minnesota, without giving effect to the principles of conflict of laws
thereof.
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10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute but one agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
FIRST BANK SYSTEM, INC.
By
--------------------------------------
David J. Parrin, Senior Vice President
and Controller
MIDWESTERN SERVICES, INC.
By
---------------------------------------
Its
------------------------------------
LASALLE NATIONAL TRUST, N.A.
By
---------------------------------------
Its
------------------------------------
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APPENDIX B
SHAREHOLDER VOTING AGREEMENT
This Shareholder Voting Agreement (the "Agreement"), dated as of June
23, 1995, is made and entered into among First Bank System, Inc., a Delaware
corporation ("FBS"), and Raymond D. Pape, Jr., Madeline Brady Pape Trust,
Matthew Pape Trust, Thomas F. McGowan, M. David Klipsch, Terry Klipsch and
Thomas A. Horeis (each, a "Shareholder," and collectively, the "Shareholders").
Unless otherwise specifically defined herein, capitalized terms used herein
shall have the meanings given to them in the Merger Agreement (as defined
below).
WHEREAS, FBS, Midwestern Services, Inc. ("Midwestern") and the
Shareholders' Representative are entering into an Agreement and Plan of Merger,
dated the date hereof (the "Merger Agreement"), providing for the merger of
Midwestern with and into FBS on the terms and subject to the conditions set
forth in the Merger Agreement (the "Merger");
WHEREAS, the Shareholders are the beneficial owners of an aggregate of
51,901.487 shares of Common Stock, par value $3.50 per share, of Midwestern (the
"Midwestern Common Stock"), representing approximately 67.9% of the outstanding
shares of Midwestern Common Stock;
WHEREAS, as a condition to the willingness of FBS to enter into the
Merger Agreement, the Shareholders have agreed to vote all of the shares of
Midwestern Common Stock owned by them as of the date hereof and any shares
acquired by the Shareholders after the date hereof (collectively, the "Shares"),
as provided in this Agreement.
NOW THEREFORE, for the consideration recited in the Merger Agreement,
in consideration of the representations and agreements contained herein, and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereby agree as follows:
SECTION 1
VOTING
1.1 Voting Agreement. At such time as Midwestern conducts a meeting
of its shareholders at which a resolution with respect to approval of the Merger
Agreement and the Merger is presented, or otherwise solicits written consents
from, or seeks a vote of, its shareholders, for the purpose of approving the
Merger Agreement and the Merger, the Shareholders agree to vote all of the
Shares in favor of the Merger Agreement and the Merger and all other actions
necessary or desirable for the consummation of the Merger. If Midwestern
conducts a meeting
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<PAGE>
of, solicits written consents from or otherwise seeks a vote or consent of its
shareholders with respect to any proposal, offer, tender offer or exchange offer
from any person or entity (including any of the officers or employees of
Midwestern or First Bank) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets or deposits of, or any equity interest in,
Midwestern or First Bank, or other similar transaction or business combination
involving Midwestern or First Bank other than the Merger (a "Competing
Transaction"), or any other matter which may contradict any provision of this
Agreement or the Merger Agreement or may make it more difficult or less
desirable for FBS to consummate the Merger, then the Shareholders further agree
not to vote the Shares in favor of a Competing Transaction or any such matter
and not to vote the Shares in any manner which otherwise supports a Competing
Transaction.
1.2 Limitation. The Shareholders will retain at all times the right
to vote the Shares, in the Shareholders' sole discretion, on all matters other
than those set forth in Section 1.1 which are at any time or from time to time
presented for a vote to Midwestern's shareholders generally.
SECTION 2
REPRESENTATIONS
2.1 Representations and Warranties of the Shareholders. The
Shareholders hereby represent and warrant to and agree with FBS, that:
(a) this Agreement has been duly authorized by all necessary action
on the part of the Shareholders that are trusts, has been duly executed and
delivered by the Shareholders and constitutes a valid and legally binding
obligation of the Shareholders enforceable in accordance with its terms;
(b) neither the execution and delivery of this Agreement nor the
consummation (in accordance with the terms hereof) of the transactions
contemplated hereby, will result in any breach or violation of, be in conflict
with, or will constitute a default under, the trust documents of the
Shareholders that are trusts, any indenture, loan or credit agreement or any
other agreement or instrument to which any Shareholder is a party, or by which
any Shareholder may be affected or is bound;
(c) except for compliance with applicable requirements of the Bank
Holding Company Act, the Nebraska Department of Banking and Finance and the
FDIA, no authorization, consent or approval of, or any filing with, any public
or governmental body or authority is necessary for, and no license, franchise,
permit, law, regulation, order, judgment or decree to which any Shareholder is
subject would be breached by, such Shareholder's execution, delivery and
performance of this Agreement and the consummation by such Shareholder of the
transactions contemplated hereby;
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<PAGE>
(d) as of the date of this Agreement, the Shares consist of
51,901.487 shares of Midwestern Common Stock, and all of the Shares have been
duly authorized and are validly issued, fully paid and nonassessable;
(e) each Shareholder is the sole record and beneficial owner of the
Shares set forth opposite such Shareholder's name on Schedule A hereto, and each
Shareholder has, and at all times up to the termination of this Agreement or the
earlier purchase by FBS of the Shares will have: (i) the unrestricted power to
vote such Shareholder's Shares, and (ii) the right, power and authority to enter
into this Agreement and perform its obligations hereunder; and
(f) each Shareholder does now, and will at all times up to the
termination of this Agreement or the earlier purchase by FBS of the Shares, own
the Shares (including, but not limited to, the Shares set forth opposite such
Shareholder's name on Schedule A hereto) free and clear of all liens, claims,
encumbrances, security interests, charges and rights or interests of others of
any kind, except such as are created by this Agreement.
2.2 Representations and Warranties of FBS. FBS hereby represents and
warrants to and agrees with the Shareholders, that this Agreement has been duly
authorized by all necessary corporate action on the part of FBS, has been duly
executed and delivered by FBS and constitutes a valid and legally binding
obligation of FBS enforceable in accordance with its terms.
SECTION 3
MISCELLANEOUS
3.1 Expenses. Each party hereto will pay its own expenses incurred
in connection with this Agreement.
3.2 Amendment. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
3.3 Notices. All notices and other communications hereunder shall be
in writing and shall be given and shall be deemed to have been duly given if
delivered in person, by cable, telegram, telex or facsimile transmission, to the
parties as follows:
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if to the Shareholders:
Raymond D. Pape, Jr.
285 Trails End Road
Elkhorn, Nebraska 68022
Fax:
with a copy to:
Kennedy, Holland, Delacy & Svoboda
Kennedy Holland Building
10306 Regency Parkway Drive
Omaha, Nebraska 68114
Attention: Robert J. Murray
Fax: (402) 397-7824
If to FBS:
First Bank System, Inc.
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Richard A. Zona, Vice Chairman
and Chief Financial Officer
Fax: (612) 973-0410
with a copy to:
Dorsey & Whitney P.L.L.P.
220 South Sixth Street
Pillsbury Center South
Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq.
Fax: (612) 340-8738
or to such other address as a party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
3.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document.
3.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nebraska, without regard for
principles of conflicts of laws thereof.
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<PAGE>
3.6 Binding Effect. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by the heirs, successors and permitted
assigns of the parties hereto. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person other than the
parties to this Agreement, or their respective heirs, successors or permitted
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
3.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
This Agreement may be amended or modified in whole or in part only by an
agreement in writing executed in the same manner as this Agreement.
3.8 Termination. This Agreement shall terminate on the earlier of
(i) the Effective Date or (ii) March 31, 1996. Upon termination, this Agreement
shall forthwith become void and there shall be no liability hereunder on the
part of any party hereto.
3.9 Severability. If any term, provision, covenant or restriction of
this Agreement is finally adjudicated by a court of competent jurisdiction to be
invalid, void or incapable of being enforced by any rule of law or public
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
3.10 Further Assurances. Each of the parties will, upon the request
of any other party, promptly execute and deliver such documents and take such
action reasonably deemed by such other party to be necessary or desirable to
effectuate the purposes of this Agreement.
3.11 Specific Performance. The parties hereto acknowledge that the
subject matter of this Agreement is unique, and that the failure of any of them
to perform any obligation or duty which it has agreed to perform will cause
irreparable harm to the other parties, which harm cannot be adequately
compensated for by money damages. The parties further agree that an order of
specific performance or for injunctive relief against a party in default under
this Agreement would be equitable and would not work a hardship on the
defaulting party. Accordingly, in the event of a default by any party hereto,
the non-defaulting party or parties, without any bond or other security being
required and in addition to whatever other remedies are or might be available at
law or in equity, shall have the right either to compel specific performance by,
or to obtain injunctive relief against, the defaulting party of any obligation
or duty herein or breach thereof, without the necessity of proving actual
damages and the defaulting party does hereby waive as a defense to any equitable
action the allegation that the non-defaulting party has an adequate remedy at
law. The foregoing provisions shall not be interpreted to diminish or otherwise
limit the right of a non-defaulting party to claim and recover damages or
B-5
<PAGE>
to obtain any equitable remedy in addition to specific performance or injunctive
relief to which it may otherwise be entitled by reason hereof.
3.12 Assignments. The rights and obligations of FBS hereunder may
not be assigned without the Shareholders' prior written consent; provided, that
FBS may transfer any of its rights or obligations hereunder to any affiliate of
FBS without such consent. The obligations of the Shareholders under this
Agreement may not be assigned, and any such purported assignment shall be null
and void.
3.13 Headings. The paragraph, section and other headings and
captions contained herein are used for the purpose of convenience only and are
not intended to define or limit the contents of any provision hereof.
B-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
First Bank System, Inc.
By:________________________________
David J. Parrin, Senior Vice President
and Controller
______________________________
Raymond D. Pape, Jr.
______________________________
Madeline Brady Pape Trust
______________________________
Matthew Pape Trust
______________________________
Thomas F. McGowan
______________________________
M. David Klipsch
______________________________
Terry Klipsch
______________________________
Thomas A. Horeis
B-7
<PAGE>
SCHEDULE A
Shares of Midwestern
Name of Shareholder Common Stock Owned
- ------------------- ------------------
Raymond D. Pape, Jr. 24,863.764
Madeline Brady Pape Trust 1,600.000
Matthew Pape Trust 1,600.000
Thomas F. McGowan 14,943.788
M. David Klipsch 5,288.139
Terry Klipsch 2,000.000
Thomas A. Horeis 1,605.796
===========
TOTAL: 51,901.487
B-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under Delaware law, the directors and officers of First Bank System, Inc.
(the "Company") are entitled, under certain circumstances, to be indemnified by
the Company against all expenses and liabilities incurred or imposed upon them
as a result of suits brought against them as such directors and officers, if
they act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful, except that no indemnification shall be made against expenses in
respect of any claim, issue or matter as to which they shall have been adjudged
to be liable to the Company, unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, they are fairly and reasonably entitled to be indemnified for such
expenses which such court shall deem proper. Any such indemnification may be
made by the Company only as authorized in each specific case upon a
determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
statutory standard of conduct.
Article Ninth of the Company's Restated Certificate of Incorporation, as
amended, provides that a director shall not be liable to the Company or its
stockholders for monetary damages for a breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provisions making directors personally liable for
unlawful dividends or unlawful stock repurchases or redemptions or (iv) for any
transaction from which the director derived an improper personal benefit.
The Bylaws of the Company provide that the officers and directors of the
Company and certain others shall be indemnified substantially to the same extent
permitted by Delaware law.
The Company maintains a standard policy of officers' and directors'
liability insurance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Merger dated June 23, 1995, by and among First
Bank System, Inc., Midwestern Services, Inc. and Raymond D. Pape, Jr.
(as Shareholders' Representative). (Included in Proxy
Statement/Prospectus as Appendix A.) The registrant agrees to furnish
supplementally a copy of omitted schedules to the Commission upon
request.
4.1 Restated Certificate of Incorporation, as amended, of First Bank
System, Inc. (Incorporated by reference to Exhibit 2.1 to the
registrant's Form 8-A/A-2 dated October 6, 1994, File No. 1-6880.)
4.2 Certificate of Designation for First Bank System, Inc. Series 1990A
Preferred Stock. (Incorporated by reference to Exhibit 4.4 to
Amendment No. 1 to the registrant's Registration Statement on Form S-
3, File No. 33-42650.)
4.3 Certificate of Designation for First Bank System, Inc. Series 1991A
Convertible Preferred Stock. (Incorporated by reference to Exhibit 4.3
to the registrant's Registration Statement on Form S-4, File No. 33-
50700.)
II-1
<PAGE>
4.4 Certificate of Designation for First Bank System, Inc. Series A Junior
Participating Preferred Stock, as amended. (Incorporated by reference
to Exhibit 2.4 to the registrant's Form 8-A/A-2 dated October 6, 1994,
File No. 1-6880.)
4.5 Bylaws of First Bank System, Inc. (Incorporated by reference to
Exhibit 3B to the registrant's Annual Report on Form 10-K for the year
ended December 31, 1993, File No. 1-6880.)
4.6 Rights Agreement dated as of December 21, 1988, between First Bank
System, Inc. and Morgan Shareholder Services Trust Company (now known
as First Chicago Trust Company of New York). (Incorporated by
reference to Exhibit 1 to the registrant's Current Report on Form 8-K
dated January 5, 1989, File No. 1-6880.)
4.7 Amendment No. 1 dated as of May 30, 1990, to Rights Agreement.
(Incorporated by reference to Exhibit 4(a) to the registrant's Current
Report on Form 8-K dated June 5, 1990, File No. 1-6880.)
4.8 Amendment No. 2 dated as of February 17, 1993, to Rights Agreement.
(Incorporated by reference to Exhibit 4(a) to the registrant's Current
Report on Form 8-K filed March 1, 1993, File No. 1-6880.)
4.9 Stock Purchase Agreement, dated as of May 30, 1990, among Corporate
Partners, L.P., Corporate Offshore Partners, L.P., The State Board of
Administration of Florida and First Bank System, Inc. (without
exhibits). (Incorporated by reference to Exhibit 4.8 to Amendment No.
1 to the registrant's Registration Statement on Form S-3, File No. 33-
42650.)
4.10 First Amendment, dated as of June 30, 1990, to Stock Purchase
Agreement among Corporate Partners, L.P., Corporate Offshore Partners,
L.P., The State Board of Administration of Florida and First Bank
System, Inc. (Incorporated by reference to Exhibit 4.9 to Amendment
No. 1 to the registrant's Registration Statement on Form S-3, File No.
33-42650.)
4.11 Second Amendment, dated July 18, 1990, to Stock Purchase Agreement
among Corporate Partners, L.P., Corporate Offshore Partners, L.P., The
State Board of Administration of Florida and First Bank System, Inc.
(Incorporated by reference to Exhibit 4.10 to Amendment No. 1 to the
registrant's Registration Statement on Form S-3, File No. 33-42650.)
4.12 Stock Purchase Agreement, dated as of May 30, 1990, between The State
Board of Administration of Florida and First Bank System, Inc.
(without exhibits). (Incorporated by reference to Exhibit 4.11 to
Amendment No. 1 to the registrant's Registration Statement on
Form S-3, File No. 33-42650.)
4.13 Form of Periodic Stock Purchase Right. (Incorporated by reference to
Exhibit 4.12 to Amendment No. 1 to the registrant's Registration
Statement on Form S-3, File No. 33-42650.)
4.14 Form of Risk Event Warrant. (Incorporated by reference to Exhibit 4.13
to Amendment No. 1 to the registrant's Registration Statement on Form
S-3, File No. 33-42650.)
4.15 Registration Rights Agreement, dated as of July 18, 1990, among
Corporate Partners, L.P., Corporate Offshore Partners, L.P., The State
Board of Administration of Florida and First Bank System, Inc.
(Incorporated by reference to Exhibit 4.14 to Amendment No. 1 to the
registrant's Registration Statement on Form S-3, File No. 33-42650.)
4.16 Registration Rights Agreement, dated as of July 18, 1990, between The
State Board of Administration of Florida and First Bank System, Inc.
(Incorporated by reference to Exhibit 4.14 to Amendment No. 1 to the
registrant's Registration Statement on Form S-3, File No. 33-42650.)
5.1 Opinion and consent of Dorsey & Whitney P.L.L.P. as to legality of the
securities being registered.
II-2
<PAGE>
8.1 Opinion and consent of Kennedy, Holland, DeLacy & Svoboda as to
certain federal income tax consequences described in the Proxy
Statement/Prospectus.
23.1 Consent of Dorsey & Whitney P.L.L.P. (Included in Exhibit 5.1.)
23.2 Consent of Kennedy, Holland, DeLacy & Svoboda. (Included in Exhibit
8.1.)
23.3 Consent of Ernst & Young LLP (relating to financial statements of
First Bank System, Inc.).
23.4 Consent of KPMG Peat Marwick LLP (relating to financial statements of
Midwestern Services, Inc.).
23.5 Consent of Arthur Andersen LLP (relating to consolidated financial
statements of FirsTier Financial, Inc. and subsidiaries).
24.1 Powers of Attorney.
99.1 Form of proxy for Special Meeting of shareholders of Midwestern
Services, Inc.
99.2 Articles of Incorporation of Midwestern Services, Inc., as amended.
99.3 Bylaws of Midwestern Services, Inc., as amended.
99.4 Shareholder Voting Agreement, dated as of June 23, 1995, by and among
the registrant, Raymond D. Pape, Jr., Madeline Brady Pape Trust,
Matthew Pape Trust, Thomas F. McGowan, M. David Klipsch, Terry Klipsch
and Thomas A. Horeis. (Included in Proxy Statement/Prospectus as
Appendix B.)
99.5 Form of Escrow Agreement to be entered into by and among the
registrant, Raymond D. Pape, Jr. (acting in his capacity as
representative of the Shareholders of Midwestern Services, Inc.) and
LaSalle National Trust, N.A. (Included in Proxy Statement/Prospectus
as Exhibit A to Appendix A.)
99.6 Escrow Deposit Agreement, dated June 23, 1995, by and among
registrant, Midwestern Services, Inc. and LaSalle National Trust, N.A.
(Included in Proxy Statement/Prospectus as Exhibit C to Appendix A.)
- -----------------------
To be filed by Amendment.
(b) Financial Statement Schedules.
None.
(c) Reports, Opinions and Appraisals.
None.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration
II-3
<PAGE>
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes: that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to its articles, bylaws or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one
II-4
<PAGE>
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on August 29, 1995.
FIRST BANK SYSTEM, INC.
By /s/ JOHN F. GRUNDHOFER
-----------------------------------------------
John F. Grundhofer
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ JOHN F. GRUNDHOFER August 29, 1995
--------------------------------------------
John F. Grundhofer,
Chairman, President, Chief Executive Officer
and Director (principal executive officer)
/s/ RICHARD A. ZONA August 29, 1995
--------------------------------------------
Richard A. Zona,
Vice Chairman and Chief Financial
Officer (principal financial officer)
/s/ DAVID J. PARRIN August 29, 1995
--------------------------------------------
David J. Parrin,
Senior Vice President and Controller
(principal accounting officer)
* August 29, 1995
--------------------------------------------
Roger L. Hale, Director
* August 29, 1995
--------------------------------------------
Delbert W. Johnson, Director
* August 29, 1995
--------------------------------------------
Norman M. Jones, Director
* August 29, 1995
--------------------------------------------
John H. Kareken, Director
II-6
<PAGE>
* August 29, 1995
--------------------------------------------
Richard L. Knowlton, Director
--------------------------------------------
Jerry W. Levin, Director
* August 29, 1995
--------------------------------------------
Kenneth A. Macke, Director
--------------------------------------------
Marilyn C. Nelson, Director
* August 29, 1995
--------------------------------------------
Edward J. Phillips, Director
* August 29, 1995
--------------------------------------------
James J. Renier, Director
* August 29, 1995
--------------------------------------------
S. Walter Richey, Director
* August 29, 1995
--------------------------------------------
Richard L. Robinson, Director
* August 29, 1995
--------------------------------------------
Richard L. Schall, Director
* August 29, 1995
--------------------------------------------
Lyle E. Schroeder, Director
* By /s/ DAVID J. PARRIN
--------------------------------------------
David J. Parrin,
Pro se and as Attorney-in-
II-7
<PAGE>
EXHIBIT INDEX
-------------
5.1 Opinion and consent of Dorsey & Whitney P.L.L.P. as to legality of the
securities being registered.
8.1 Opinion and consent of Kennedy, Holland, DeLacy & Svoboda as to
certain federal income tax consequences described in the Proxy
Statement/Prospectus.
23.1 Consent of Dorsey & Whitney P.L.L.P. (Included in Exhibit 5.1.)
23.2 Consent of Kennedy, Holland, DeLacy & Svoboda. (Included in Exhibit
8.1.)
23.3 Consent of Ernst & Young LLP (relating to financial statements of
First Bank System, Inc.).
23.4 Consent of KPMG Peat Marwick LLP (relating to financial statements of
Midwestern Services, Inc.).
23.5 Consent of Arthur Andersen LLP (relating to the consolidated
financial statements of FirsTier Financial, Inc. and subsidiaries).
24.1 Power of Attorney.
99.1 Form of proxy for Special Meeting of shareholders of Midwestern
Services, Inc.
99.2 Certificate of Incorporation of Midwestern Services, Inc., as
amended.
99.3 Bylaws of Midwestern Services, Inc., as amended.
<PAGE>
Exhibit 5.1
[Letterhead of Dorsey & Whitney]
August 29, 1995
First Bank System, Inc.
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to First Bank System, Inc., a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-4 (the "Registration Statement") relating to shares of the Company's common
stock, $1.25 par value (the "Common Stock"), to be issued in connection with the
merger (the "Merger") of Midwestern Services, Inc., a Nebraska corporation, with
and into the Company, as described in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") constituting part of the Registration Statement.
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinions set forth below.
In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties, and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials.
<PAGE>
First Bank System, Inc.
August 29, 1995
Page 2
Based on the foregoing, we are of the opinion that the shares of the
Common Stock to be issued in connection with the Merger, when issued in
accordance with the terms of the Merger Agreement (as defined in the Proxy
Statement/Prospectus), will be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the Delaware General
Corporation Law.
We hereby consent to your filing of this opinion as an exhibit to the
Registration Statement, and to the reference to this firm under the heading
"Legal Opinions" in the Proxy Statement/Prospectus.
Very truly yours,
/s/ Dorsey & Whitney
LRM
<PAGE>
Exhibit 8.1
[Letterhead of Kennedy, Holland, Delacy & Svoboda]
August 28, 1995
Midwestern Services, Inc.
c/o Raymond D. Pape, Jr.
Shareholders Representative
285 Trails End Road
Elkhorn, Nebraska 68022
Re: Agreement and Plan of Merger Between First Bank System, Inc.,
Midwestern Services, Inc., and Raymond D. Cape, Jr.,
Shareholders Representative
Ladies and Gentlemen:
You have requested our opinion with respect to the federal income tax
consequences of the proposed merger ("Merger") of Midwestern Services, Inc., a
Nebraska corporation, ("Midwestern"), with and into First Bank System Inc., a
Delaware corporation, ("FBS"), with FBS to be the surviving corporation. Under
the terms of the Merger, all of the outstanding common stock, $3.50 par value,
of Midwestern ("Midwestern Common Stock") will be converted into the right to
receive common stock, $1.25 par value, of FBS ("FBS Common Stock") and cash.
Each outstanding share of Midwestern Common Stock will be converted
under the Merger to (1) a number of shares of FBS Common Stock equal to 517,241
divided by the number of Midwestern common Stock shares outstanding on the
Effective Date of the Merger, ("Stock Consideration"); and (2) an amount of
cash equal to $14,400,000 divided by the number of shares of Midwestern Common
Stock outstanding on the Effective Date of the Merger, which amount will be paid
on January 2, 1996, or the Effective Date of the Merger, whichever is later,
("Deferred Cash Consideration").
Interest will accrue on the Deferred Cash Consideration from the
Effective Date of the Merger to January 2, 1996 at a rate equal to the 30-day
Treasury bill rate in effect on the Effective Date. The Midwestern Employee
Stock Ownership Plan (ESOP) trust, ("Midwestern ESOP"), has the option to elect
to accelerate the payment of the Deferred Cash Consideration to the Effective
Date of the Merger.
Under the Merger Agreement, the shareholders of Midwestern (other than
the Midwestern ESOP, the "Indemnifying Stockholders") are required to indemnify
FBS from and against any specified losses for a period of one (1) year following
the Effective Date of the Merger. The indemnification obligations of the
Indemnifying Stockholders are secured solely by an Indemnity Escrow Fund which
is funded with $917,280 of the Deferred Cash Consideration and 47,000 shares of
the Stock Consideration allocable to the Indemnifying Stockholders.
<PAGE>
Additionally, the Indemnifying Stockholders have warranted that none
of the Stock Consideration issued to them with respect to their Midwestern
Common Stock will be sold or otherwise transferred from the Effective Date of
the Merger until at least two (2) years thereafter. In order to establish such
intention, the balance of the Stock Consideration allocable to the Indemnifying
Stockholders shall be held in the Escrow Fund during such period.
Our opinion has been requested by Midwestern on its own behalf and on
behalf of its shareholders. No other individual or entity, whether or not a
party to the Merger, may rely upon this opinion without the express prior
written consent of both Midwestern and this firm.
Capitalized terms used in this opinion not otherwise defined herein
that are defined in the Merger Agreement will have the meaning given to those
terms in the Merger Agreement. For purposes of this opinion, "First Bank"
refers to First Bank, Omaha, Nebraska, a state-chartered bank which is a wholly-
owned subsidiary of Midwestern. In acting as counsel for Midwestern, and
arriving at the opinion expressed below, we have examined and relied on
originals or copies, certified or otherwise identified to our satisfaction, of
the Merger Agreement and such other documents as we deemed relevant for purposes
of this opinion.
The following opinion is based upon the currently enacted provisions
of the Internal Revenue Code of 1986, as amended, (the "Code"), Treasury
Regulations promulgated thereunder, ("Regulations"), current published
administrative rulings of the Internal Revenue Service, ("Rulings"), and
existing published judicial decisions ("Decisions"), any of which could be
modified, altered, amended or otherwise changed at any time. It is possible that
any such change may be retroactive and could significantly modify the opinion
expressed herein. We have no duty, and do not intend to update or modify this
opinion following any change in the Code, the Regulations, the Rulings, the
Decisions, or any interpretations thereof occurring after the date of this
opinion.
The following opinion is also based upon certain factual assumptions
regarding the Merger and the parties thereto. Any change in the facts and
assumptions stated below could modify the opinion expressed herein. Because
this opinion is being rendered at a date prior to the Effective Date, it
specifically assumes that there will be no changes in the terms of the
transactions described in the Merger Agreement, or in the underlying facts or
law between the date of this opinion and the Effective Date of the Merger, and
that the Merger and related transactions will be consummated as presently
provided for in the Merger Agreement.
In rendering the opinions expressed below, we have assumed without
independent investigation that:
-2-
<PAGE>
1. The merger of Midwestern with and into FBS, as described in the
Merger Agreement, will qualify as a statutory merger under
applicable state law and will be undertaken for a valid business
purpose.
2. The fair market value of the Stock Consideration plus the amount
of Cash Consideration to be received by each shareholder of
Midwestern Common Stock (each a "Midwestern Stockholder") will be
approximately equal to the fair market value of the Midwestern
Common Stock surrendered in exchange therefor.
3. There is no plan or intention by the Midwestern Stockholders to
sell, exchange, or otherwise dispose of a number of shares of FBS
Common Stock to be received in the Merger, including FBS Common
Stock to be held in escrow pursuant to Section 1.5(c) and 5.16 of
the Merger Agreement, and the maximum number of additional shares
of FBS Common Stock to be issued pursuant to Section 1.3 of the
Merger Agreement, that will reduce their ownership of FBS Common
Stock to a number of shares having a value as of the Effective
Date of the Merger, of less than fifty percent (50%) of the value
of all of the formerly outstanding Midwestern Common Stock as of
the same date.
For purposes of this assumption, shares of Midwestern Common Stock
exchanged for cash or exchanged for cash in lieu of fractional
shares of FBS Common Stock are being treated as outstanding
Midwestern Common Stock on the Effective Date of the Merger.
Further, shares of Midwestern Common Stock and shares of FBS
Common Stock held by holders of Midwestern Common Stock and
otherwise sold, redeemed or disposed of prior or subsequent to the
Effective Date of the Merger will be considered in making this
assumption.
4. FBS has no plan or intention to reacquire any of the FBS Common
Stock to be issued in the Merger, except for purchases of stock in
the open market in the ordinary course of business. In all events,
however, such purchases will not be directed toward the former
Midwestern Stockholders.
5. FBS has no plan or intention to sell or otherwise dispose of any
assets of Midwestern acquired pursuant to the Merger, except for
(a) dispositions made in the ordinary course of business, or (b)
transfers described in Section 368(a)(2)(C) of the Code.
6. The liabilities of Midwestern to be assumed by FBS , and the
liabilities to which transferred assets of Midwestern are subject,
were incurred by Midwestern in the ordinary course of business.
The assumption by FBS of Midwestern's liabilities pursuant to the
Merger is for a bona fide
-3-
<PAGE>
business purpose and the principal purpose of such assumption is
not the avoidance of federal income tax on the transfer of the
assets of Midwestern to FBS pursuant to the Merger.
7. Following the Merger, FBS will continue the historic business of
Midwestern, or use a significant portion of the historic business
assets of Midwestern in a business.
8. There is no intercorporate indebtedness existing between FBS and
Midwestern, or between FBS and First Bank, that was issued,
acquired or will be settled at a discount.
9. FBS, Midwestern and First Bank are not investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code
10. Midwestern and First Bank are not under the jurisdiction of the
court in a Title 11 or similar case under the meaning of Section
368(a)(3)(A) of the Code. The transaction does not involve a
receivership, foreclosure, or other similar proceeding before a
federal or state agency involving a financial institution referred
to in Section 581 or 591 of the Code,
11. The fair market value and adjusted tax basis of the assets of
Midwestern to be transferred to FBS will each equal or exceed the
sum of the liabilities assumed by FBS, plus the amount of
liabilities, if any, to which the transferred assets are subject.
12. The payment of cash in lieu of fractional shares of FBS Common
Stock is solely for the purpose of avoiding the expense and
inconvenience to FBS of issuing fractional shares and does not
represent separately bargained-for consideration. The aggregate
amount of cash that will be paid in the transaction to the holders
of Midwestern Common Stock in lieu of fractional shares of FBS
Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to the holders of
Midwestern Common Stock in exchange for their shares of Midwestern
Common Stock. The fractional share interests of each holder of
Midwestern Common Stock will be aggregated, and no holder of
Midwestern Common Stock will receive cash in lieu of fractional
shares in an amount equal to or greater than the value of one
whole share of FBS Common Stock.
13. None of the compensation received by any shareholder/employee of
Midwestern or First Bank pursuant to any employment, consulting or
similar arrangement is or will be separate consideration for, or
-4-
<PAGE>
allocable to, any of such shareholder's/employee's shares of
Midwestern Common Stock. None of the shares of FBS Common Stock
received by any shareholder/employee of Midwestern or First Bank
pursuant to the Merger are or will be separate consideration for,
or allocable to, any such employment, consulting or similar
arrangement. The compensation paid to any shareholder/employee of
Midwestern or First Bank pursuant to such employment, consulting
or similar arrangement is or will be for services actually
rendered and will be commensurate with the amount paid to third
parties bargaining at arm's-length for similar services.
14. There are valid business reasons for (a) immediate issuance of the
Stock Consideration to the Midwestern ESOP pursuant to Section
l.5(c) of the Merger Agreement; (b) provision for the Midwestern
ESOP's election to accelerate the payment of the Deferred Cash
Consideration to the Effective Date; and (c) Establishing the
escrow arrangement described in Section 1.5(c) and 5.15 of the
Merger Agreement
15. Neither the issuance of additional shares pursuant to Section 1.3
of the Merger Agreement, nor the return of Shares of FBS Common
Stock held in escrow pursuant to Section 1.5(c) and 5.15 of the
Merger Agreement will be triggered by an event the occurrence or
nonoccurrence of which is within the control of the former
Midwestern Stockholders, except for acts or omissions of the
Shareholders Representative in his capacity as such.
16. The shares of FBS Common Stock to be held in escrow pursuant to
Section 1.5(c) and 5.15 of the Merger Agreement will appear as
issued and outstanding on the balance sheet of FBS and such stock
will be legally outstanding under applicable state law.
17. None of the shares of FBS Common Stock held in escrow will be
subject to any restrictions requiring its return to FBS because of
death, failure to continue employment or similar restrictions.
18. During the continuation of the escrow established pursuant to
Section 1.5(c) and 5*15 of the Merger Agreement, (a) all dividends
to be paid on the shares of FBS Common Stock held in escrow will
be distributed in accordance with the Shareholder Representative
Agreement, and (b) all voting rights with respect to such shares
of FBS Common Stock held in escrow will be exercisable by or on
behalf of the former holders of Midwestern Common Stock (or their
authorized agents).
-5-
<PAGE>
19. At least one payment of Cash Consideration in exchange for the
Midwestern Common Stock is to be received after the close of the
taxable year in which the disposition of Midwestern Common Stock
occurs.
20. The deferred payment obligation of FBS under the Merger Agreement
with respect to the Deferred Cash Consideration does not
constitute a security and will not be registered with the
Securities and Exchange commission, nor traded on an established
market. Neither Midwestern, FBS nor the Midwestern Stockholders
have any plan or intention to take any steps to create a market
for the deferred payment obligation of FBS under the Merger
Agreement at the Effective Date of the Merger, or at any time
thereafter.
Based upon and subject to the foregoing, and subject to the
qualifications and limitations stated herein, we are of the opinion that
consummation of the Merger pursuant to the terms of the Merger Agreement, will
result in the following federal income tax consequences:
1. The Merger will qualify as a "reorganization" under Section
368(a) of the Code;
2. No gain or loss will be recognized by any Midwestern Stockholder
(except in connection with the receipt of cash) upon the receipt of FBS Common
Stock for Midwestern Common Stock in the Merger;
3. Gain, if any, but not loss will be recognized by any Midwestern
Stockholder upon the exchange of Midwestern Common Stock for Deferred Cash
Consideration in the Merger. Such gain will be recognized, but not in excess of
the amount of Deferred Cash Consideration received, in an amount equal to the
difference, if any, between the fair market value of the FBS Common Stock and
Deferred Cash Consideration received and the Midwestern Stockholder's adjusted
tax basis in the Midwestern Common Stock surrendered in exchange therefor
pursuant to the Merger. If, as described below, the exchange has the effect of a
distribution of a dividend, some or all of the gain recognized will be treated
as a dividend. If the exchange does not have the effect of a distribution of a
dividend, all of the gain recognized would be a capital gain (provided that the
MSI Common Stock of such Midwestern Stockholder was held as a capital asset at
the Effective Date);
4. The basis of the FBS Common Stock received by a Midwestern
Stockholder who exchanges Midwestern Common Stock for FBS Common Stock and
Deferred Cash Consideration will be the same as the basis of the Midwestern
Common Stock surrendered in exchange therefor, decreased by the amount of
Deferred Cash Consideration received by such shareholder, and increased by the
amount of capital gain
-6-
<PAGE>
recognized by such shareholder (subject to any adjustments required as the
result of receipt of cash in lieu of a fractional share of FBS Common Stock) and
the amount treated as a dividend to such shareholder, if any;
5. The holding period of the FBS Common Stock received by a Midwestern
Stockholder will include the period during which the Midwestern Common Stock
surrendered in exchange therefor was held (provided that the Midwestern Common
Stock of such Midwestern Stockholder was held as a capital asset at the
Effective Date);
6. Cash received by a Midwestern Stockholder in lieu of a fractional
share interest of FBS Common Stock will be treated as having been received an a
distribution in full payment in exchange for the fractional share interest of
FBS Common Stock which such shareholder would otherwise be entitled to receive,
and will qualify as capital gain or loss (assuming the FBS Common Stock was a
capital asset in such shareholder's hands at the Effective Date);
7. A Midwestern Stockhlder shall recognize ordinary interest income
with respect to all interest paid by FBS that is attributable to the Deferred
Cash Consideration; and
8. If the Effective Date is on or before December 31, 1995, any
taxable gain to be recognized by a Midwestern Stockholder in connection with
the receipt of cash, other than cash treated as a dividend, shall be reportable
under the installment method of Section 453 of the Code and should be subject to
the provisions of Section 453A with respect to obligations in excess of
$5,000,000.
The determination of whether the exchange of Midwestern Common Stock
for cash pursuant to the Merger has the effect of a distribution of a dividend
will be made, on a shareholder by shareholder basis, by applying the rules of
Section 302 of the Code and by comparing the proportionate, percentage interest
of a former Midwestern Stockholder in FBS after the Merger with the
proportionate, percentage interest such shareholder would have had if such
shareholder had received solely FBS Common Stock pursuant to the Merger. This
comparison is made as though FBS had issued in the Merger to such Midwestern
Stockholder solely its FBS Common Stock and in a hypothetical redemption FBS had
then redeemed a portion of its FBS Common Stock at the time of the Merger for
the amount of cash the Midwestern Stockholder actually received pursuant
thereto. In making this comparison, there must be taken into account (1) any
other shares of FBS Common Stock or other shares of capital stock of FBS
actually owned by such Midwestern Stockholder, and (2) any such shares
considered to be owned by such Midwestern Stockholder by reason of the
constructive ownership rules set forth in Section 318 of the Code. These
constructive ownership rules apply in certain specified circumstances to
attribute ownership of shares of a corporation from the Midwestern Stockholder
actually owning the shares, whether an individual, trust, partnership or
corporation, to certain members of such individual's family or to
-7-
<PAGE>
certain other individuals, trusts, partnerships or corporations. Under these
rules, a Midwestern Stockholder is also considered to own any shares with
respect to which the Midwestern Stockholder holds exercisable stock options.
Under applicable Internal Revenue Service guidelines, such a
hypothetical redemption, as described above, involving a holder of a minority
interest in FBS whose relative stock interest in FBS is minimal, who exercises
no control over the affairs of FBS and who experiences a reduction in the
shareholder's proportionate interest in FBS, both directly and by application of
the foregoing constructive ownership rules, generally will not be deemed to have
resulted in a distribution of a dividend under the rules set forth in Section
302(b)(1) of the Code. Because the determination of whether cash received
pursuant to the Merger will be treated as the distribution of a dividend
generally will depend upon the facts and circumstances peculiar to each
Midwestern Stockholder, such shareholders are strongly advised to consult with
their own tax advisers regarding the tax treatment of cash received pursuant to
the Merger.
Our opinion is limited only to the matters expressly set forth herein,
and no opinion should be inferred as to any other matters. Without limiting the
foregoing, no opinion is expressed as to the federal income tax consequences
with respect to (l) the delivery to FBS of FBS Common Stock or cash from the
Escrow Fund; (2) the payment of expenses in connection with the Merger or the
payment of Escrow Agent fees from the Escrow Fund; (3) the receipt of FBS Common
Stock by holders of Midwestern Common Stock other than in consideration for
shares of Midwestern Common Stock; or (4) the subsequent merger of First Bank
with and into a wholly-owned thrift subsidiary of FBS.
The foregoing opinion represents our best judgment as to the probable
outcome of the tax issues discussed and is not binding on the Internal Revenue
Service. We can give no assurance that the Internal Revenue Service will not
challenge our conclusions and prevail in the courts in such a manner as to cause
adverse tax consequences to FBS, Midwestern, First Bank, or any Midwestern
Stockholder.
The foregoing opinion is based upon and limited exclusively to the
Federal income tax laws of the United States. No opinion is rendered with
respect to foreign, state or local tax matters or the tax treatment of any
persons or entities other than the Midwestern Stockholders.
We are furnishing this opinion to you solely for your benefit in
connection with the transactions described above. It is not to be used,
circulated, quoted, or otherwise referred to for any other purpose. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement, to its use as part of the
-8-
<PAGE>
Registration Statement and to the use of our name in the Prospectus/Proxy
Statement constituting a part of the Registration Statement.
Very truly yours,
Kennedy, Holland, DeLacy & Svoboda
RJM:dle
-9-
<PAGE>
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of First Bank System,
Inc. for the registration of 517,241 shares of its common stock and to the
incorporation by reference therein of our report dated January 24, 1995, with
respect to the consolidated financial statements of First Bank System, Inc.
included in its Current Report on Form 8-K dated March 3, 1995, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
August 29, 1995
<PAGE>
Exhibit 23.4
Board of Directors
Midwestern Services, Inc.
and
Board of Directors
First Bank System, Inc.:
We consent to the inclusion of our report on the financial statements of
Midwestern Services, Inc. dated March 3, 1995 and March 4, 1994 included in the
Registration Statement dated August 30, 1995 (Registration Statement).
We also consent to the reference to our firm under the heading "Experts" in the
Registration Statement.
/s/ KPMG Peat Marwick LLP
August 28, 1995
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-4 Registration Statement of our report dated August 28,
1995, on FirsTier Financial, Inc. and Subsidiaries, included in First Bank
System, Inc.'s Form 8-K/A filed August 30, 1995, and to all references to our
Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
Omaha, Nebraska,
August 28, 1995
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Richard A. Zona, Michael J.
O'Rourke and David J. Parrin, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form S-4 relating to
the shares of Common Stock of First Bank System, Inc. (the "Company") to be
issued in connection with the merger of Midwestern Services, Inc. into the
Company, and any and all amendments thereto, including post-effective
amendments, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or the substitutes for such attorneys-in-
fact and agents, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Roger L. Hale Director August 18, 1995
- ---------------------------
Roger L. Hale
/s/ Delbert W. Johnson Director August 18, 1995
- ---------------------------
Delbert W. Johnson
/s/ Norman M. Jones Director August 18, 1995
- ---------------------------
Norman M. Jones
/s/ John H. Kareken Director August 18, 1995
- ---------------------------
John H. Kareken
/s/ Richard L. Knowlton Director August 18, 1995
- ---------------------------
Richard L. Knowlton
Director
- ---------------------------
Jerry W. Levin
/s/ Kenneth A. Macke Director August 18, 1995
- ---------------------------
Kenneth A. Macke
Director
- ---------------------------
Marilyn C. Nelson
/s/ Edward J. Phillips Director August 18, 1995
- ---------------------------
Edward J. Phillips
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James J. Renier Director August 18, 1995
- ---------------------------
James J. Renier
/s/ S. Walter Richey Director August 18, 1995
- ---------------------------
S. Walter Richey
/s/ Richard L. Robinson Director August 18, 1995
- ---------------------------
Richard L. Robinson
/s/ Richard L. Schall Director August 18, 1995
- ---------------------------
Richard L. Schall
/s/ Lyle E. Schroeder Director August 18, 1995
- ---------------------------
Lyle E. Schroeder
</TABLE>
-2-
<PAGE>
Exhibit 99.1
[MIDWESTERN LOGO]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
MIDWESTERN SERVICES, INC.
SPECIAL MEETING OF SHAREHOLDERS
_____________, 1995
The undersigned hereby appoints Raymond D. Pape, Jr. and M. David Klipsch,
and each of them, as attorneys and proxies, each with full power of
substitution, and hereby authorizes each of them to represent and vote all
shares of Common Stock of Midwestern Services, Inc. ("MSI") held of record by
the undersigned on ____________________________________, 1995, at the Special
Meeting of Shareholders of MSI (the "Special Meeting") to be held at
_______________, Omaha, Nebraska, on ______________, 1995 at ______ local time
and at any and all postponements or adjournments thereof, as set forth below.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY BELOW AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. THIS PROXY WILL BE VOTED AS
DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR
EACH OF THE PROPOSALS STATED. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
1. PROPOSAL TO APPROVE THE AGREEMENT OF AND PLAN OF MERGER, dated June 23,
1995 (the "Merger Agreement"), among First Bank System, Inc. ("FBS"), MSI
and Raymond D. Pape, Jr. in his capacity as representative of the
shareholders of MSI, and the transactions contemplated thereby. Pursuant to
the Merger Agreement, among other things, MSI will be merged with and into
FBS, and each issued and outstanding share of the Common Stock, $3.50 par
value, of MSI will be exchanged for the Merger Consideration (as defined in
the accompanying Proxy Statement/Prospectus dated ____________, 1995).
FOR AGAINST ABSTAIN
[_] [_] [_]
2. PROPOSAL TO APPROVE ADJOURNMENT OF THE SPECIAL MEETING to a later date to
permit further solicitation of proxies in the event an insufficient number
of shares is present in person or by proxy at the Special Meeting to
approve Proposal No. 1.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to such Common Stock of MSI, and hereby ratifies and
confirms all action that said attorneys and proxies, their substitutes, or any
of them may lawfully take by virtue hereof.
Please sign this card exactly as your name appears below. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
Dated: ____________________, 1995
_______________________________________
[SHAREHOLDER INFORMATION]
_______________________________________
SIGNATURE(S)
<PAGE>
Exhibit 99.2
ARTICLES OF INCORPORATION
OF
MIDWESTERN SERVICES, INC.
The undersigned, for the purpose of forming a corporation pursuant to the
Business Corporation Law of Nebraska, does hereby adopt the following Articles
of Incorporation.
1. NAME: Midwestern Services, Inc.
2. DURATION: The corporation shall have perpetual existence.
3. PURPOSE: The general nature of the business to be transacted by the
corporation shall be:
a) To buy, own, control, acquire, sell, manage, conduct, service and
otherwise deal in and with respect to banks, companies, service companies
and businesses, and to provide services in connection with said entities
and to own stock in said entities; and
b) To buy, sell, lease, own and hold and otherwise acquire or dispose
of real and personal property and facilities necessary, suitable or
desirable in the conduct of its business or for the gain of the
corporation.
4. POWERS: The corporation shall have all powers, rights and privileges
conferred upon corporations by the Nebraska Business Corporation Act and any
enlargement of such powers by subsequent legislative acts; in addition, the
corporation shall have and may exercise all powers, rights and privileges not
otherwise denied corporations by the laws of the State of Nebraska as are
necessary, suitable or expedient to the purposes set forth in Article 3 above.
5. CAPITAL STOCK: The corporation shall have two classes of stock, common
and preferred. It shall have the authority to issue 40,000 shares of common
stock of the par value of $3.50 per share and 35,000 shares of preferred stock
of the par value of $3.00 per share for a total authorized capital of
$245,000.00.
a) No stockholder of this corporation shall have any pre-emptive
rights whatsoever to subscribe or purchase any of the stock of this
corporation now or hereafter issued or authorized or any of the securities
of the corporation convertible into the stock of this corporation or
carrying any right to purchase the same but any such stock, warrants,
options or securities may not be issued and disposed of pursuant to the
resolution of the Board of Directors to such persons, firms, associations
or corporations and upon such terms as may be deemed advisable by the Board
of Directors, without first
<PAGE>
offering such stocks, securities or any part thereof of existing
stockholders, on a pro rata basis.
b) The corporation by appropriate By-laws may place restrictions upon
the alienation of shares of its stock and may prescribe conditions for the
transfer thereof.
c) Stock shall be paid for either in cash or by the transfer to the
corporation of property or for services rendered for the benefit of the
corporation of equivalent cash value and the judgment of the Board of
Directors as to the value of property or services exchanged for capital
stock shall be conclusive. Any and all shares so issued for which the
consideration so fixed has been paid or delivered to the corporation shall
be deemed fully paid stock and shall not be liable to any further call or
assessment thereon.
6. INTEREST OF DIRECTORS IN TRANSACTIONS: In the absence of fraud, no
contract or other transaction between the corporation and one or more directors,
or between the corporation and any corporation syndicate, partnership or
association in which one or more of its directors are directors, or are
financially interested, shall be either void or voidable by reason of the fact
that such director or directors are present and counted in determining the
quorum at the meeting of the Board of Directors authorizing such contract or
transaction or that his or their votes are counted for such purposes, if:
a) The fact of such common directorship or financial interest be
disclosed or known to the Board of Directors and noted in the minutes and
the Board shall authorize, approve or ratify such contract or transaction
in good faith; or
b) The fact of such common directorship or financial interest be
disclosed or known to the holders of the common stock and they approve or
ratify such contract or transaction in good faith; or
c) The contract or transaction be just and reasonable as to the
corporation at the time it was authorized or approved.
7. REGISTERED OFFICE AND REGISTERED AGENT: The street address of the
registered office of the corporation is 300 South 19th Street, Omaha, Nebraska
68102, and the name of the registered agent at that address is D.C. Bradford
III.
8. The name and address of the incorporator is: D.C. Bradford III, 300
South 19th Street, Omaha, Nebraska
________________________________________
D.C. Bradford III
Incorporator
-2-
<PAGE>
STATE OF NEBRASKA )
) ss.
COUNTY OF DOUGLAS )
On this ___ day of March, 1976, before me, a Notary Public, personally
appeared D.C. Bradford III to me known to be the person whose name is subscribed
to the foregoing instrument and he acknowledged the execution thereof to be his
voluntary act and deed.
IN WITNESS WHEREOF, I have set my hand and seal the date last above
written.
________________________________________
Notary Public
-3-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF MIDWESTERN SERVICES, INC.
The undersigned corporation hereby amends its Articles of Incorporation in
accordance with the Nebraska Business Corporation Act as follows:
ARTICLE I
NAME
----
The name of the corporation is MIDWESTERN SERVICES, INC.
ARTICLE II
AMENDMENT
---------
Section 5 of the original Articles of Incorporation shall be amended to
provide as follows:
5. Capital Stock. The corporation shall have three classes of stock as
follows:
(a) Common Stock. The aggregate number of shares of common stock
which the corporation shall have the authority to issue is 75,000
shares of common stock and the par value of each of said shares
shall be $3.50.
(b) Class A 6% Non-Voting, Non-Participating, Cumulative, Non-
Convertible Preferred Stock. The aggregate number of shares of
Class A Preferred Stock which the corporation shall have the
authority to issue 35,000 shares of Class A Preferred Stock and
the par value of each of said shares shall be $3.00.
(c) Class B, Non-Voting, Non-Participating, Cumulative, Non-
Convertible Preferred Stock. The aggregate number of shares of
Class B Preferred Stock which the corporation shall have the
authority to issue is 23,500 shares of Class B Preferred Stock and
the par value of each of said shares shall be $100.00.
No stockholder of this corporation shall have any pre-emptive
rights whatsoever to subscribe or purchase any of the stock of
-4-
<PAGE>
this corporation now or hereafter issued or authorized or any of
the securities of the corporation convertible into the stock of
this corporation or carrying any right to purchase the same.
The preferred stock shall be issued in one or more series. The
Board of Directors is hereby expressly authorized to issue the
shares of preferred stock in such series and to fix from time to
time before issuance the number of shares to be included in any
series and the designation, relative rights, preferences, and
limitations of all shares of such series. The authority of the
Board of Directors with respect to each series shall include,
without limitation thereto, the determination of any or all of the
following and the shares of each series may vary from the shares
of any other series in the following respects:
(i) The number of shares constituting such series and the
designation thereof to distinguish the shares of such
series from the shares of all other series;
(ii) The annual dividend rate on the shares of that series and
whether such dividends shall be cumulative and, if
cumulative, the date from which dividends shall
accumulate;
(iii) The redemption price or prices for the particular series,
if redeemable, and the terms and conditions of such
redemption;
(iv) The preference, if any, of shares of such series in the
event of any voluntary or involuntary liquidation,
dissolution, or winding up of the corporation;
(v) The voting rights, if any, in addition to the voting
rights prescribed by law and the terms of exercise of such
voting rights;
(vi) The right, if any, of shares of such series to be
converted into shares of any other series or class and the
terms and conditions of such conversion;
(vii) Sinking fund provisions, if any, for the redemption or
purchase of shares;
(viii) Any other relative rights, preferences, and limitations of
that series allowable under the laws of the State of
Nebraska.
-5-
<PAGE>
ARTICLE III
DATE OF ADOPTION
----------------
The amendment was adopted by the shareholders on the 8th day of October,
1984.
ARTICLE IV
CONSENT
-------
Consent to the amendment has been given in writing by all of the directors
and by the holders of all of the shares entitled to vote on such amendment.
DATED this 8th day of October, 1984.
MIDWESTERN SERVICES, INC.
By: ____________________________________
RAYMOND D. PAPE, President
By: ____________________________________
THOMAS F. MCGOWAN,
Secretary
-6-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF MIDWESTERN SERVICES, INC.
The undersigned corporation hereby amends its Articles of Incorporation in
accordance with the Nebraska Business Corporation Act as follows:
ARTICLE I
NAME
----
The name of the corporation is MIDWESTERN SERVICES, INC.
ARTICLE II
AMENDMENT
---------
Section 5(a) of the original Articles of Incorporation shall be amended to
provide as follows:
(a) Common Stock. The aggregate number of shares of common stock which
the corporation shall have the authority to issue is 80,000 shares
of common stock and the par value of each of said shares shall be
$3.50.
ARTICLE III
DATE OF ADOPTION
----------------
The amendment was adopted by the shareholders on the 20th day of December,
1984.
ARTICLE IV
CONSENT
-------
Consent to the amendment has been given in writing by all of the directors
and by the holders of all of the shares entitled to vote on such amendment.
DATED this 20th day of December, 1984.
MIDWESTERN SERVICES, INC.
-7-
<PAGE>
By:___________________________
RAYMOND D. PAPE, PRESIDENT
By:___________________________
THOMAS F. MCGOWAN,
Secretary
-8-
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
MIDWESTERN SERVICES, INC.
Pursuant to the provisions of Section 21-2015 of the Nebraska Business
Corporation Act, the undersigned corporation states as follows:
I.
NAME
----
The name of the corporation is MIDWESTERN SERVICES, INC.
II.
RESOLUTION
----------
The following resolution was adopted by the Board of Directors of the
corporation on February 15, 1985:
"RESOLVED, that the company shall be authorized to issue shares of its
Class A and Class B Preferred Stock with the following relative rights,
preferences and limitations:
(a) Class A 6% Non-Voting, Non-Participating, Cumulative, Non-Convertible
Preferred Stock. The relative rights and preferences of the authorized shares
of Class A Preferred Stock of the company shall be as follows:
(i) The Class A Preferred Stock shall have priority over all shares
of the common, as to payment of dividends and as to the
distribution of assets upon liquidation, distribution or
winding up of the Company, provided, however, the Class B
Preferred Stock shall have priority over all shares of Class A
Preferred Stock as to the payment of dividends and as to the
distribution of assets upon liquidation, distribution or
winding up of the Company.
(ii) The preferential dividend rate of the Class A Preferred Stock
shall be six per centum (6%) of the par value thereof per
share, per annum, payable on January 5, of each year. The
dividends upon the Class A Preferred Stock shall be cumulative
from the date of issue thereof so that if dividends for any
past dividend period shall not have been paid thereon, the
Deficiency shall be fully paid, but with interest from the
payment due date to the date of payment at a rate equal to the
dividend rate in effect for each respective year during which
the default continues, before any dividend or other
distribution in cash or otherwise shall be
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paid upon or set apart for the common stock. Any dividend
declared or paid on Class A Preferred Stock in any amount less
than the full dividend then accumulated and unpaid on all
outstanding shares shall be divided on a per share basis among
the holders of the Class A Preferred Stock. Whenever the full
dividend upon the Class A Preferred Stock for all past dividend
periods shall have been paid, and the full dividend thereon for
the then current dividend period shall have been paid,
dividends upon any common stock of the Company may be declared
by the Board of Directors out of the remainder of the assets
available therefor.
(iii) All, but not less than all, of the Class A Preferred Stock may
be called for redemption by the Company and its option at any
time from its date of issue, by paying therefor in cash the par
value thereof, plus accrued dividends, and interest thereon, if
any, prorated to the date fixed for redemption, such sum being
the redemption price. At least thirty (30) days' notice prior
to the redemption date, by prepaid certified mail, shall be
given to the holders of record of such Preferred Stock,
addressed to the last post office address shown on the records
of the Company or the address designated to the Company by any
holder of Class A Preferred Stock. On the date fixed for
redemption, and stated in such notice, each holder of such
Preferred Stock shall surrender such holder's certificate or
certificates at the place designated in such notice and
thereupon be entitled to receive payment of the redemption
price. If notice of redemption is duly given and if funds for
the redemption have been set aside prior to the redemption
date, notwithstanding the fact that a stockholder may have
failed to surrender the same, no dividend shall be payable on
such shares after the date fixed for redemption, and all rights
with respect to shares so called for redemption shall
forthwith, after such date, terminate, except only the right of
the holders to receive the redemption price thereof, without
interest.
(iv) In the event of any liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or involuntary,
the holders of Class A Preferred Stock shall be entitled,
before any assets of the Company shall be distributed among or
paid over to the holders of any other class of stock other than
the Class B Preferred Stock, to be paid the par value thereof,
together with a sum of money equivalent to dividends at the
rate provided herein from the date of issuance to the date of
payment thereof, less the amount of dividends, theretofore paid
thereon, and to no more. If, upon such liquidation,
dissolution or winding up, the assets of the Company
distributable as aforesaid among the
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holders of Class A Preferred Stock shall be insufficient to
permit payment to them of said amount, the entire assets shall
be distributed ratably among the holders of Class A Preferred
Stock issued and outstanding.
(b) Class B, Non-Voting, Non-Participating, Cumulative, Non-Convertible
Preferred Stock. The relative rights and preferences of the authorized shares
of Class B Preferred Stock of the Company shall be as follows:
(i) The Class B Preferred Stock shall have priority over all shares
of Class A Preferred Stock, as to payment of dividends and as
to the distribution of assets upon liquidation, distribution or
winding up of the Company.
(ii) The preferential dividend rate of the Class B Preferred Stock
shall be nine per centum (9%) of the par value thereof per
share, per annum, payable on January 5, of each year. The
dividends upon the Class B Preferred Stock shall be cumulative
from the date of issue thereof so that if dividends for any
past dividend period shall not have been paid thereon, the
deficiency shall be fully paid, but with interest from the
payment due date to the date of payment at a rate equal to the
dividend rate in effect for each respective year during which
the default continues, before any dividend or other
distribution in cash or otherwise shall be paid upon or set
apart for the common stock or Class A Preferred Stock. Any
dividend declared or paid on Class B Preferred Stock in any
amount less than the full dividend then accumulated and unpaid
on all outstanding shares shall be divided on a per share basis
among the holders of the Class B Preferred Stock. Whenever the
full dividend upon the Preferred Stock for all past dividend
periods shall have been paid, and the full dividend thereon for
the then current dividend period shall have been paid,
dividends upon any other class of stock of the Company may be
declared by the board of Directors out of the remainder of the
assets available therefor.
(iii) All, but not less than all, of the Class B Preferred Stock may
be called for redemption by the Company at its option at any
time from its date of issue, by paying therefor in cash the par
value thereof, plus accrued dividends, and interest thereon, if
any, prorated to the date fixed for redemption, such sum being
the redemption price. At least thirty (30) days' notice prior
to the redemption date, by prepaid certified mail, shall be
given to the holders of record of such Preferred Stock,
addressed to the last post office address shown on the records
of the Company or the address designated to the Company by any
holder of Class B Preferred Stock. On the date fixed for
redemption, and stated in
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such notice, each older of Preferred Stock shall surrender such
holder's certificate or certificates at the place designated in
such notice and thereupon be entitled to receive payment of the
redemption price. If notice of redemption is duly given and if
funds for the redemption have been set aside prior to the
redemption date, notwithstanding the fact that a stockholder
may have failed to surrender the same, no dividend shall be
payable on such shares after the date fixed for redemption, and
all rights with respect to shares so called for redemption
shall forthwith, after such date, terminate, except only the
right of the holders to receive the redemption price thereof,
without interest.
(iv) Without the written consent of the holders of all the shares of
this Class of Preferred Stock, at any time outstanding, given
in person or by proxy, either in writing or at a meeting of
shareholders at which the holders of this Class of Preferred
Stock shall vote separately as a class, the Company shall not
hereafter (a) issue or become obligated to issue any shares of
any class of its Stock having priority over or having parity
with Class B Preferred Stock as to payment of dividends
(including dividends in arrears or in default) or as to
distribution of assets upon liquidation, dissolution or winding
up of the Company; (b) amend the provisions set forth in this
Statement of Resolution establishing the terms of this Class B
Preferred Stock; or (c) redeem any shares of Class A Preferred
Stock of the Company.
(v) In the event of any liquidation, dissolution or winding up of
the affairs of the Company, whether voluntary or involuntary,
the holders of Class B Preferred Stock shall be entitled,
before any assets of the Company shall be distributed among or
paid over to the holders of any other class of stock, to be
paid the par value thereof, together with a sum of money
equivalent to dividends at the rate provided herein from the
date of issuance to the date of payment thereof, less the
amount of dividends theretofore paid thereon, and to no more.
If, upon such liquidation, dissolution or winding up, the
assets of the Company distributable as aforesaid among the
holders of Class B Preferred Stock shall be insufficient to
permit payment to them of said amount, the entire assets shall
be distributed ratably among the holders of Class B Preferred
Stock issued and outstanding.
(vi) Without the prior written approval of the holders of 100% of
the issued and outstanding shares of Class B Preferred Stock;
(a) The Company will not consolidate with or merge with or
into any corporation or other entity (whether the
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Company or such other corporation or entity is the
survivor);
(b) The Company will not cause or permit First Westside Bank
of Omaha, Omaha, Nebraska (the "Bank"), to consolidate
with or merge with or into any corporation or other entity
(whether the Bank or such other corporation or entity is
the survivor) or convert its charter other than to a
commercial bank;
(c) The Company will not, directly or indirectly, sell,
transfer or otherwise dispose of any shares of stock of
the Bank or warrants, rights or options to acquire such
shares, except as directors, qualifying shares if and to
the extent required by applicable law;
(d) The Company will not cause or permit the Bank, directly or
indirectly, to issue or sell any shares of its stock or
warrants, rights or options to acquire such shares except
to the Company or as directors, qualifying shares if and
to the extent required by applicable law;
(e) The Company will not sell all or substantially all of its
assets and the Company will not cause or permit the Bank
to sell all or substantially all of its assets;
(f) The Company will not cause or permit any subsidiary of the
Company, whether now owned or hereafter acquired, to issue
or have outstanding any shares of any class of stock which
are entitled to preference or priority over shares of
common stock of such subsidiary owned by the Company with
respect to either the payment of dividends or the
distribution of assets upon liquidation.
(g) The Company will not, directly or indirectly, contingently
or otherwise, remain, incur, assume or become liable for
indebtedness of itself or another in an aggregate amount
greater than the maximum amount of indebtedness which the
Company shall have immediately following acquisition of
control of the Bank, as represented by the Company in its
Application to the Board of Governors of the Federal
Reserve System for approval to acquire control of the
Bank; and the Company will not redeem, retire, purchase or
otherwise acquire, directly or indirectly, any shares of
any class of stock of the Company now or hereafter
outstanding (except shares of the Company's Class B
Preferred Stock in accordance with the provisions
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<PAGE>
of paragraph (iii) hereof, provided, however, that
notwithstanding the foregoing provisions of this
subparagraph (g), the Company can purchase or redeem
shares of its common stock if the gross consideration paid
by the Company for such purchase or redemption, when
aggregated with the gross consideration paid by the
Company for all such purchases or redemptions occurring
subsequently to issuance of its Class B Preferred Stock,
does not exceed 10% of the Company's consolidated net
worth at the time of such purchase or redemption and if
the Company is not them in default in payment of dividends
on its Class B Preferred Stock, and after such redemption,
Bank's capital-to-asset ratio is equal to or exceeds the
requirements of the Department of Banking and Finance of
the State of Nebraska, provided, a qualified Employee
Stock Option Plan of Company may purchase stock of the
Company without such purchase being deemed a violation of
this subparagraph (g); or
(h) The Company will not cause or permit "control" of the
Company, as that term is defined in 12 CFR
/section/225.2(d), as in effect on October 1, 1984, to
pass to any person who is not a holder of record of common
stock of the Company at the time of issuance of its Class
B Preferred Stock.
At least sixty (60) days prior to the occurrence of any
and each event described in subparagraphs (a) through (g)
of this paragraph (vi), the Company shall give notice in
writing to all holders of record of Class B Preferred
Stock of the proposed occurrence of such event. If 100%
of such holders do not give prior approval in writing to
the occurrence of such proposed event, then before the
Company will cause or permit such proposed event to occur,
and as a condition precedent thereto, the Company shall
redeem and pay the redemption price of all outstanding
Class B Preferred Stock in accordance with the terms of
paragraph (iii) hereof.
(vii) For so long as any shares of Class B Preferred Stock are issued
and outstanding, the Company shall provide to holders thereof,
at the same times and in the same manner as the Company
provides to holders of its common stock, the same financial
statements and other information with respect to the Company
and the Bank which the Company provides to holders of its
common stock, and the Company shall provide to holders of Class
B Preferred Stock, not less than annually, a certificate of an
officer of the Company stating that no event has occurred
which,
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pursuant to the provisions of paragraph (vi) hereof, required
prior Unanimous approval of holders of Class B Preferred Stock.
(c) Voting Rights. All shares of Class A and Class B Preferred Stock
shall be non-voting shares except as specifically provided herein or pursuant to
the Nebraska Business Corporation Act.
III.
AMENDMENT
---------
Upon the filing and recording in the office of the Secretary of State of
Nebraska of this document, the resolution stated herein establishing classes of
preferred stock and fixing and determining the relative rights and preferences
thereof shall become effective and shall constitute an amendment of Section 5 of
the original Articles of Incorporation.
Dated this ______ day of ___________________ , 1985.
MIDWESTERN SERVICES, INC.
By: ____________________________________
Raymond D. Pape, Jr.,
President
By: ____________________________________
Thomas F. McGowan, Secretary
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<PAGE>
Exhibit 99.3
BY-LAWS
OF
MIDWESTERN SERVICES, INC.
ARTICLE I
---------
OFFICE
------
The principal office of the corporation in the State of Nebraska shall be
located as follows:
Street Address: First Westside Bank, 72nd & Farnam
City of Omaha
County of Douglas
The corporation may have such other offices, either within or without the
State of Nebraska, as the Board of Directors may designate or as the business of
the corporation may require from time to time.
The registered office of the corporation required by the Nebraska Business
Corporation Act to be maintained in the State of Nebraska may be, but need not
be, identical with the principal office in the State of Nebraska, and the
address of the registered office may be changed from time to time by the Board
of Directors.
ARTICLE II
----------
SHAREHOLDERS
------------
1. Annual Meeting. The annual meeting of the shareholders shall be held
within 120 days after the close of the calendar year at a date, time and place
as set by the Board of Directors for the purposes of electing Directors and for
the transaction of such other business as may come before the meeting. If the
election of Directors shall not be held within the time designated herein for
any annual meeting of the shareholders, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as conveniently may be.
2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the Chairman, or by the Board of Directors and shall be called by the President
at the request of the holders of not less than one-tenth of all the outstanding
shares of the corporation entitled to vote at the meeting.
<PAGE>
3. Place of Meetings. The Board of Directors may designate any place,
either within or without the State of Nebraska, as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all shares entitled to vote at a meeting may
designate any place, either within or without the State of Nebraska as the place
of holding of such meeting. If no designation is made, or if a special meeting
be otherwise called, the place of meeting shall be the registered office of the
corporation.
4. Notice of Meeting. Written or printed notice stating the place, day
and hour of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the President, or the Secretary or the officer
or persons calling the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
5. Closing of Transfer Books or Fixing of Record Date. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other purpose, the Board of Directors of the corporation may provide that
the stock transfer books shall be closed for a stated period but not to exceed,
in any case, fifty days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten days
immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than fifty days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and the record date is fixed for the determination of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which the
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof.
6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at the registered office of the corporation and shall be
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subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or vote at any meeting of
shareholders.
7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
8. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his duly authorized attorney
in fact. Such proxy shall be filed with the Secretary of the corporation before
or at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
9. Voting of Shares. Subject to the provisions of Section 11 of this
Article II, the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater number of voting by classes is
required by the Nebraska Business Corporation Act or by the Articles of
Incorporation or by these by-laws. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation as
permitted under the Nebraska Business Corporation Act.
10. Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by such officer, agent or proxy as the by-laws
of such corporation may prescribe, or, in the absence of such provision, as the
Board of Directors of such corporation may determine, provided that no shares
held by another corporation of a majority of the shares entitled to vote for the
election of directors of such other corporation is held by the corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any such time.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
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<PAGE>
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority to do so may be
contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until his shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the corporation or held by it in a
fiduciary rapacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
On or after the date on which written notice of redemption of redeemable
shares has been mailed to the holders thereof and a sum sufficient to redeem
such shares has been deposited with a bank or trust company with irrevocable
instruction and authority to pay the redemption price to the holders upon
surrender of certificates therefor, such shares shall not be entitled to vote on
any matter and shall not be deemed to be outstanding shares.
11. Cumulative Voting. At all elections for directors every shareholder
entitled to vote at such elections shall have the right to vote, in person or by
proxy, the number of shares owned by him for as many persons as there are
directors to be elected and for whose election he has a right to vote, or to
cumulate his votes and give one candidate as many votes as the number of
directors multiplied by the number of his shares shall equal, or to distribute
such votes upon the same principle among any number of candidates.
12. Informal Action by Shareholders. Any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
Such consent shall nave the same force and effect as a unanimous vote of
shareholders, and may be stated as such in any articles or documents filed with
the Secretary of State under the Nebraska Business Corporation Act.
ARTICLE III
-----------
BOARD OF DIRECTORS
------------------
1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of the Board of Directors.
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<PAGE>
2. Number, Tenure and Qualifications. The number of directors of the
corporation shall be five (5). Each director shall hold office until the next
annual meeting of shareholders and until his successor shall have been elected
and qualified. Directors need not be residents of the State of Nebraska or
shareholders of the corporation.
3. Performance of Duties. A director shall perform his duties as a
director, including his duties as a member of any committee of the board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances.
In performing his duties, a director shall be entitled to rely on
information, opinions, reports, or statements, including financial statements
and other financial data as provided by law. A director shall be liable for the
performance of his duties as a director as provided by law.
4. Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action taken unless his
dissent shall be entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
5. Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this by-law immediately after, and at the same
place as, the annual meeting of shareholders. The Board of Directors may
provide, by resolution, the time and place, either within or without the State
of Nebraska, for the holding of additional regular meetings without other notice
than such resolution.
6. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the state of Nebraska, as the place for
holding any special meeting of the Board of Directors called by them.
7. Notice. Notice of any special meeting shall be given at least two
days previously thereto by written notice delivered personally or mailed to each
director at his business address, or by telegram. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. Any director may waive notice of any meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a
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<PAGE>
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
8. Quorum. A majority of the number of directors fixed by Section 2 of
this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, provided that the Chairman or Vice
Chairman is present, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice.
9. Manner of Acting. The act of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by the Articles of
Incorporation or by these by-laws. Any action required to be taken at a meeting
of the directors, or of any committee, may be taken without a meeting, if a
consent in writing setting forth the action so taken shall be signed by all of
the directors or all of the members of the committee, as the case may be. Such
consent shall have the same effect as a unanimous vote. The consent may be
executed by the directors in counterparts.
Members of the Board of Directors or any committee designated by such board
may participate in a meeting of such board or committee by means of a conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other at the same time. Participation by such
means shall constitute presence in person at a meeting.
10. Vacancies. Any vacancy occurring on the Board of Directors may be
filled by the affirmative vote of the majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
directors shall be filled by election at an annual meeting or at a special
meeting of shareholders called for that purpose.
11. Removal. At a meeting of shareholders called expressly for that
purpose, a director may be removed, with or without cause, in the manner
provided by law.
12. Financial Interest in Contract or Transactions. No contract or other
transaction between the corporation and one or more of its directors or any
other corporation, firm, association or entity in which one or more of its
directors are directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest or because such
director or directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose if:
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<PAGE>
(a) The fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent
sufficient for the purpose without counting the votes or consents
of such interested directors;
(b) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or
ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
13. Committees. The Board of Directors, by resolution adopted by a
majority of the full board of directors, may designate from its members an
executive committee and one or more other committees each of which, to the
extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, but -no such committee shall have the
authority of the Board of Directors in reference to amending the Articles of
Incorporation, adopting a plan of merger or consolidation, recommending to the
shareholders the sale, lease, exchange, mortgage, pledge or other disposition of
all or substantially all the property and assets of the corporation otherwise
than in the usual and regular course of its business, recommending to the
shareholders a voluntary dissolution of the corporation or a revocation thereof,
or amending the by-laws of the corporation. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed by
law.
14. Compensation. By resolution of the Board of Directors the directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors, and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
----------
OFFICERS
--------
1. Number. The officers of the corporation shall consist of a Chairman,
Vice-Chairman, President, one or more Vice Presidents (the number thereof to be
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determined by the Board of Directors), a Secretary, and a Treasurer, each of
whom shall be elected by the Board of Directors.
Such other officers and assistant officers as may be deemed necessary may
be elected or appointed by the Board of Directors. Any two or more offices may
be held by the same person.
2. Election and Term of Office. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
3. Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
4. Vacancies. A vacancy in an office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term.
5. Chairman. The Chairman shall be the principal executive officer of
the corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
corporation. He shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. He may sign, with the Secretary or
any other proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these by-
laws to some other officer or agent of the corporation, or shall be required by
law to be otherwise signed or executed; and in general shall perform all duties
incident to the office of Chairman and such other duties as may be prescribed by
the Board of Directors from time to time.
6. The Vice Chairman. In the absence of the Chairman or in the event of
his death, inability or refusal to act, the Vice Chairman shall perform the
duties of the Chairman, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chairman.
7. President. The President shall be the principal operations officer of
the corporation and, subject to the control of the Board of Directors and
Chairman, shall
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in general supervise and control the day-to-day business of the corporation. He
may sign, with the Secretary or any other proper officer of the corporation
thereunto authorized by the Board of Directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these by-laws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Board of Directors from time to time.
8. The Vice President. In the absence of the President or in the event
or his death, inability or refusal to act, the Vice President or in the event
there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or an Assistant Secretary, certificates for shares of the corporation;
and shall perform such other duties as from time to time may be assigned to him
by the President or the Board of Directors.
9. The Secretary. The Secretary shall: (a) keep the minutes of the
shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the Secretary by such shareholder; (e) sign with the President, or a Vice
President, certificates for shares of the corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors.
10. The Treasurer. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine. He shall:
(a) have charge and custody of and be responsible for all funds and securities
of the corporation; receive and give receipts for monies due and payable to the
corporation from any source whatsoever, and deposit all such monies in the name
of the corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with provisions of Article V of these by-laws; and (b)
in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to him by the President
or by the Board of Directors.
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11. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice President certificates for shares of the corporation, the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
12. Salaries. The salaries of the officers shall be fixed from time to
time by the Board of Directors and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the corporation.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of or on behalf of the corporation, and such authority
may be general or confined to specific instances.
2. Loans. No loans shall be contracted on behalf of the corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
3. Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
4. Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board of Directors may select.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
1. Certificates for Shares. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a Vice
President and by the
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Secretary or an Assistant Secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificates shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the cooperation
as the Board of Directors may prescribe. No certificate shall be issued for any
share until such share is fully paid.
2. Transfer of Shares. Transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the corporation shall end on the last day of December in
each year.
ARTICLE VIII
------------
DIVIDENDS
---------
The Board of Directors may, from time to time, declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and the Articles of Incorporation.
ARTICLE IX
----------
DISTRIBUTIONS FROM CAPITAL SURPLUS
----------------------------------
The Board of Directors may, from time to time, distribute to the
shareholders out of the capital surplus of the corporation a portion of its
assets in cash or property and upon the terms and conditions provided by law and
the Articles of Incorporation.
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ARTICLE X
---------
SEAL
----
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "Corporate Seal".
ARTICLE XI
----------
WAIVER OF NOTICE
----------------
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of these by-laws or under the provisions
of the Articles of Incorporation or under the provisions of the Nebraska
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XII
-----------
PARLIAMENTARY AUTHORITY
-----------------------
The rules contained in the current edition of Robert's Rules of Order,
Newly Revised, shall govern in all cases to which they are applicable and when
they are not inconsistent with these by-laws or any special rules of order the
Board of Directors may adopt. Violation of such rules shall not invalidate any
action taken at a meeting of the directors or shareholders unless the objecting
party shall file his written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the corporation on the next
business day after the adjournment of the meeting. Such right to dissent shall
not apply to a person who voted in favor of such action.
ARTICLE XIII
------------
STATE LAW PROVISIONS
--------------------
To the extent the laws of the State of Nebraska are or become in conflict
with these by-laws, such state law shall govern if the particular state law
mandates a result or procedure different from that provided in these by-laws.
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ARTICLE XIV
-----------
AMENDMENTS
----------
These by-laws may be altered, amended or repealed and new by-laws may be
adopted at any regular or special meeting, either by the shareholders or by the
Board of Directors, except that:
(a) A by-law shall not be amended or repealed by the Board of
Directors if it specifically provides that it shall not be amended
or repealed by the Directors; and
(b) No by-law shall be adopted by the Board of Directors which shall
require more than a majority of the voting shares for a quorum at
a meeting of shareholders, or more than a majority of the votes
cast to constitute action by the shareholders, except where higher
percentages are required by the Articles of Incorporation or by
the Nebraska Business Corporation Act.
I, Thomas McGowan, do hereby certify that the foregoing is a complete, true
and correct copy of the by-laws of the corporation as duly adopted by the
shareholders of Midwestern Services, Inc., a corporation duly organized and
existing under the laws of the State of Nebraska, on the 21st day of
February, 1985, and that I am the duly elected and qualified Secretary of such
corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of the said corporation, this 21st day of February, 1985.
(SEAL) /s/Thomas McGowan-Secretary
-------------------------------
Thomas McGowan, Secretary
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