<PAGE>
As filed with the Securities and Exchange Commission on November 7, 1994
Registration No. 033-56191
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0449260
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
Stanley S. Stroup, Esq. Copy to:
Executive Vice President and General Counsel H. Bernt von Ohlen, Esq.
Norwest Corporation Norwest Corporation
Norwest Center Norwest Center
Sixth and Marquette Sixth and Marquette
Minneapolis, Minnesota 55479-1026 Minneapolis,
612-667-8858 Minnesota 55479-1026
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
__________________
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If 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. [_]
================================================================================
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
101 SOUTH MAIN STREET
BELEN, NEW MEXICO 87002
November 8, 1994
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
American Republic Bancshares, Inc. ("ARBI") to be held in the Fourth Floor
Training Room of the First National Bank of Belen, 101 South Main Street,
Belen, New Mexico, on Friday, December 9, 1994, at 10:00 a.m., local time. At
the Special Meeting you will be asked to consider and vote upon the Agreement
and Plan of Reorganization, dated as of June 6, 1994, between ARBI and Norwest
Corporation ("Norwest"), and the related Agreement and Plan of Merger
(together, the "Merger Agreement"), providing for the merger of a wholly owned
subsidiary of Norwest with ARBI (the "Merger").
Under the terms of the Merger Agreement, the Merger will result in the
conversion of each share of ARBI Common Stock outstanding immediately prior to
the time the Merger becomes effective into a number of shares of Norwest
Common Stock determined in accordance with the provisions of the Merger
Agreement, which are described in the accompanying Proxy Statement-Prospectus
for the Special Meeting.
The enclosed Proxy Statement-Prospectus contains a more complete description
of the terms of the Merger. You are urged to read the Proxy Statement-
Prospectus carefully.
The Board of Directors has unanimously approved the Merger Agreement as being
in the best interest of ARBI's shareholders and recommends that you vote in
favor of the Merger. ARBI has received an opinion from Montgomery Securities,
an investment banking firm experienced in the valuation of banking
institutions, that as of the date thereof the consideration to be received by
ARBI's shareholders in the Merger is fair to ARBI's shareholders from a
financial point of view. Also, it is a condition to consummation of the
Merger that ARBI receive at closing an opinion of counsel to the effect that
the Merger will be treated as a tax-free reorganization for federal income tax
purposes. The Merger Agreement also provides for ARBI's formation of a
liquidating trust to hold certain assets of ARBI prior to the Merger and the
distribution of interests in such trust to the ARBI shareholders. This
distribution will be taxable to the shareholders of ARBI. YOU SHOULD CONSULT
YOUR OWN TAX ADVISOR CONCERNING THE FEDERAL, AND ANY APPLICABLE FOREIGN,
STATE, AND LOCAL, INCOME TAX CONSEQUENCES OF THE MERGER.
In order to ensure that your vote is represented at the Special Meeting,
PLEASE DATE, SIGN, AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
If you attend the meeting, you may vote in person if you wish, even though you
have previously returned your proxy.
James H. Foley
President and Chief Executive Officer
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
101 SOUTH MAIN STREET
BELEN, NEW MEXICO 87002
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 9, 1994
---------------------------------------------
A special meeting of shareholders (the "Special Meeting") of American
Republic Bancshares, Inc. ("ARBI"), a New Mexico corporation, will be held in
the Fourth Floor Training Room of the First National Bank of Belen, 101 South
Main Street, Belen, New Mexico, on Friday, December 9, 1994, at 10:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization,
dated as of June 6, 1994, (including the Agreement and Plan of Merger
attached thereto) between ARBI and Norwest Corporation ("Norwest"), a
Delaware corporation, a copy of which is included in the accompanying
Proxy Statement-Prospectus as Appendix A, under the terms of which a
wholly owned subsidiary of Norwest would be merged with ARBI (the
"Merger"), with ARBI as the surviving corporation, and each outstanding
share of Common Stock, par value $1.00 per share, of ARBI would be
converted into a number of shares of common stock, par value $1 2/3 per
share, of Norwest determined in accordance with the provisions of the
Agreement and Plan of Reorganization; and to authorize such further action
by the Board of Directors and officers of ARBI as may be necessary or
appropriate to carry out the intent and purposes of the Merger.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record on the books of ARBI at the close of business
on November 8, 1994, will be entitled to vote at the Special Meeting or any
adjournments thereof.
Your attention is directed to the Proxy Statement-Prospectus accompanying
this notice for a more complete statement regarding the matters to be acted
upon at the Special Meeting.
By Order of the Board of Directors
Karen K. Zamora
Secretary
November 8, 1994
HOLDERS OF ARBI 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.
<PAGE>
PROXY STATEMENT OF
AMERICAN REPUBLIC BANCSHARES, INC.
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 9, 1994
---------------------
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
---------------------
This Proxy Statement-Prospectus relates to up to 1,266,000 shares of the
common stock ("Norwest Common Stock"), par value $1 2/3 per share, of Norwest
Corporation ("Norwest") issuable to the shareholders of American Republic
Bancshares, Inc. ("ARBI") upon consummation of the proposed merger (the
"Merger") of a wholly owned subsidiary of Norwest with ARBI, with ARBI as the
surviving corporation, pursuant to the terms of an Agreement and Plan of
Reorganization dated as of June 6, 1994, as amended, between ARBI and Norwest
(together with the Agreement and Plan of Merger attached thereto, the "Merger
Agreement"). A copy of the Merger Agreement is attached as Appendix A to this
Proxy Statement-Prospectus and incorporated by reference herein.
This Proxy Statement-Prospectus is being furnished to the shareholders of
ARBI in connection with the solicitation of proxies by the Board of Directors
of ARBI for use at the Special Meeting of Shareholders of ARBI to be held on
December 9, 1994, and at any adjournments or postponements thereof (the
"Special Meeting").
Except as described herein, upon consummation of the Merger, each
outstanding share of Common Stock, par value $1.00 per share, of ARBI ("ARBI
Common Stock") will be converted into a number of shares of Norwest Common
Stock determined in accordance with a formula contained in the Merger
Agreement. The actual number of shares of Norwest Common Stock to be issued
upon consummation of the Merger will be based in part on the market price of
Norwest Common Stock determined during a measurement period provided for in
the Merger Agreement. Based on the conversion factor which would have been
applicable if the closing of the Merger had occurred on November 1, 1994,
approximately 2.96219 shares of Norwest Common Stock would have been issued
for each outstanding share of ARBI Common Stock. For a more complete
description of the Merger Agreement and the terms of the Merger, see "THE
MERGER."
The Merger Agreement also provides that, prior to the Merger, ARBI will
form a liquidating trust, for the pro rata benefit of its shareholders, and
that ARBI will distribute to such trust certain of ARBI's assets. The receipt
by the shareholders of ARBI of their ratable interests in the assets held by
the trust will be taxable to the shareholders of ARBI as a dividend. See "THE
MERGER--Terms of the Merger" and "--Certain Federal Income Tax
Considerations."
This Proxy Statement-Prospectus and the form of proxy are first being
mailed to shareholders of ARBI on or about November 9, 1994.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE 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 date of this Proxy Statement-Prospectus is November 7, 1994.
<PAGE>
AVAILABLE INFORMATION
Norwest is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, Norwest files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission").
Reports, proxy statements, and other information concerning Norwest can be
inspected and copied at the public reference facilities of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. Reports, proxy statements, and other
information filed by Norwest also may be inspected at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005 and at the
offices of the Chicago Stock Exchange at One Financial Place, 440 South
LaSalle Street, Chicago, Illinois 60605.
This Proxy Statement-Prospectus does not contain all of the information
set forth in the Registration Statement on Form S-4 and the exhibits thereto
(the "Registration Statement") covering the securities offered hereby that
Norwest has filed with the Commission. Certain portions of the Registration
Statement have been omitted pursuant to the rules and regulations of the
Commission. Reference is hereby made to such omitted portions for further
information with respect to Norwest, ARBI, and the securities offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
NORWEST, EXCLUDING EXHIBITS, UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO LAUREL A. HOLSCHUH,
SECRETARY, NORWEST CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE,
MINNEAPOLIS, MINNESOTA 55479-1026, TELEPHONE (612) 667-8655. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
DECEMBER 2, 1994.
The following documents filed by Norwest with the Commission are
incorporated by reference in, and made a part of, this Proxy Statement-
Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A dated May 13, 1994; (ii) Quarterly Report on
Form 10-Q for the quarters ended March 31, 1994, and June 30, 1994; and (iii)
Current Reports on Form 8-K dated February 15, 1994, July 21, 1994, and
November 1, 1994.
All documents filed by Norwest with the Commission pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of such filing. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part hereof.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION........................................................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 2
SUMMARY...................................................................... 5
The Companies............................................................ 5
Terms of the Merger...................................................... 6
Special Meeting and Vote Required........................................ 6
Reasons for the Merger; Recommendation of ARBI Board of Directors........ 7
Fairness Opinion......................................................... 7
Effective Date and Time of the Merger.................................... 8
Conditions and Termination............................................... 8
Accounting Treatment..................................................... 8
Regulatory Approvals..................................................... 8
Management and Operations After the Merger............................... 8
Interests of Certain Persons in the Merger............................... 9
Dissenters' Rights....................................................... 9
Certain Federal Income Tax Considerations................................ 9
Market Information....................................................... 9
Certain Differences in Rights of Shareholders............................ 10
Comparative Unaudited Per Share Data..................................... 10
Selected Financial Data.................................................. 12
MEETING INFORMATION.......................................................... 16
General.................................................................. 16
Date, Place, and Time.................................................... 16
Record Date; Vote Required............................................... 16
Principal Shareholders and Security Ownership of Management of ARBI...... 17
Voting and Revocation of Proxies......................................... 20
Solicitation of Proxies.................................................. 20
THE MERGER................................................................... 21
Background of and Reasons for the Merger................................. 21
Terms of the Merger...................................................... 23
Liquidating Trust........................................................ 25
Fairness Opinion......................................................... 27
Effective Date and Time of the Merger.................................... 32
Surrender of Certificates................................................ 32
Conditions to the Merger................................................. 33
Regulatory Approvals..................................................... 34
Conduct of Business Pending the Merger................................... 35
Certain Covenants........................................................ 35
Waiver, Amendment, and Termination....................................... 37
Management and Operations After the Merger............................... 37
Certain Differences in Rights of Shareholders............................ 38
Rights of Dissenting ARBI Shareholders................................... 45
Certain Federal Income Tax Considerations................................ 46
Resale of Norwest Common Stock........................................... 49
Dividend Reinvestment and Optional Cash Payment Plan..................... 50
Accounting Treatment..................................................... 50
Expenses................................................................. 50
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
INFORMATION ABOUT ARBI AND THE BANK.......................................... 51
General.................................................................. 51
Regulation and Supervision............................................... 51
Properties............................................................... 51
Competition.............................................................. 52
Legal Proceedings........................................................ 52
Market Information and Dividends......................................... 53
Management's Discussion and Analysis of Financial Condition and Results
of Operations of ARBI................................................. 54
MANAGEMENT OF ARBI........................................................... 86
Board of Directors....................................................... 86
Interests of Management and Others in Certain Transactions............... 86
CERTAIN REGULATORY CONSIDERATIONS............................................ 90
General................................................................. 90
Dividend Restrictions................................................... 90
Holding Company Structure............................................... 90
Capital Requirements.................................................... 91
Federal Deposit Insurance Corporation Improvement Act of 1991........... 92
FDIC Insurance.......................................................... 93
EXPERTS...................................................................... 94
LEGAL OPINION................................................................ 94
MANAGEMENT OF NORWEST AND ADDITIONAL INFORMATION............................. 94
INDEX TO ARBI FINANCIAL STATEMENTS........................................... F-1
</TABLE>
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION, AND AGREEMENT
AND PLAN OF MERGER
APPENDIX B OPINION OF MONTGOMERY SECURITIES
APPENDIX C NEW MEXICO STATUTES ANNOTATED, SECTIONS 53-15-3 AND
53-15-4
---------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE NORWEST
COMMON STOCK OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF NORWEST OR ARBI SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS.
4
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in
all respects by the more detailed information included in this Proxy
Statement-Prospectus, the Appendices hereto, and the documents incorporated by
reference herein. As used in this Proxy Statement-Prospectus, the terms
"Norwest" and "ARBI" refer to such entities, respectively, and where the
context requires, such entities and their respective subsidiaries. All
information concerning Norwest included in this Proxy Statement-Prospectus has
been furnished by Norwest for inclusion or incorporation herein, and all
information concerning ARBI included in this Proxy Statement-Prospectus has
been furnished by ARBI to Norwest for inclusion herein.
THE COMPANIES
NORWEST CORPORATION
Norwest Corporation is a regional bank holding company which was
organized under the laws of Delaware in 1929 and is registered under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As a diversified
financial services organization, Norwest operates through subsidiaries engaged
in banking and in related businesses. Norwest provides retail, commercial,
and corporate banking services to its customers through banks located in
Arizona, Colorado, Illinois, Iowa, Minnesota, Montana, Nebraska, New Mexico,
North Dakota, Ohio, South Dakota, Texas, Wisconsin, and Wyoming. Norwest
provides additional financial services to its customers through subsidiaries
engaged in various businesses, principally mortgage banking, consumer finance,
equipment leasing, agricultural finance, commercial finance, securities
brokerage and investment banking, insurance, computer and data processing
services, trust services, and venture capital investments.
At June 30, 1994, Norwest had consolidated total assets of $55.8 billion,
total deposits of $34.7 billion, and total stockholders' equity of $3.8
billion. Based on total assets at June 30, 1994, Norwest was the 13th largest
commercial banking organization in the United States.
Norwest regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of Norwest does
not make a public announcement about an acquisition until a definitive
agreement has been signed. Norwest has entered into definitive agreements for
the acquisition of various financial institutions, including ARBI, having
aggregate total assets at June 30, 1994, of approximately $3.3 billion.
Certain of these acquisitions were consummated subsequent to June 30, 1994,
and the others remain subject to regulatory approval and are expected to be
completed by the end of the first quarter of 1995. None of these acquisitions
are significant for the financial statements of Norwest, either individually
or in the aggregate.
Norwest's principal executive offices are located at Norwest Center,
Sixth and Marquette, Minneapolis, Minnesota 55479-1000, and its telephone
number is 612-667-1234.
Additional information concerning Norwest is included in the Norwest
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
5
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
ARBI is a one-bank holding company incorporated in New Mexico in 1983 for
the purpose of acquiring First National Bank of Belen (the "Bank"). As of
June 30, 1994, ARBI had consolidated total assets of approximately $222.5
million and total shareholders' equity of approximately $21.0 million. The
principal asset of ARBI is the common stock of the Bank. ARBI's executive
offices are located at 101 South Main Street, Belen, New Mexico 87002, and its
telephone number at that address is 505-864-5761.
The Bank is a national banking association chartered in 1903 which has
banking offices in Belen, Moriarty, Mountainair, Los Lunas, Bosque Farms, and
Rio Communities, New Mexico. As of June 30, 1994, the Bank had total assets
of approximately $215.4 million, net loans of approximately $79.0 million,
total deposits of approximately $195.1 million, and shareholder's equity of
approximately $19.1 million. The Bank had net income of approximately $1.4
million and $2.8 million for the six months ended June 30, 1994 and the year
ended December 31, 1993, respectively. The Bank is a full service commercial
bank which provides a full range of commercial banking services, including
traditional deposit services and commercial, interim construction, consumer,
home improvement, real estate, agricultural, and industrial loans. The Bank's
executive offices are located at 101 South Main Street, Belen, New Mexico
87002, and its telephone number at that address is 505-864-5761.
See "INFORMATION ABOUT ARBI AND THE BANK."
TERMS OF THE MERGER
The Merger Agreement provides for the merger of a wholly owned subsidiary
of Norwest with ARBI, with ARBI as the surviving corporation. Upon
consummation of the Merger, the outstanding shares of ARBI Common Stock (other
than shares as to which statutory dissenters' rights have been exercised and
not forfeited) will be converted into a number of shares of Norwest Common
Stock determined in accordance with the provisions of the Merger Agreement.
The exact number of shares of Norwest Common Stock into which each outstanding
share of ARBI Common Stock will be converted will be determined by a
conversion factor based on the average of the closing prices of Norwest Common
Stock during a specified period and the number of shares of ARBI Common Stock
outstanding at the Effective Time of the Merger (as defined below). The Merger
Agreement also provides that, prior to the Merger, ARBI will form a
liquidating trust, for the pro rata benefit of its shareholders, and that ARBI
will distribute to such trust certain of its assets. The receipt by the
shareholders of ARBI of their ratable interests in the trust will be taxable
to the shareholders of ARBI as a dividend. See "THE MERGER--Terms of the
Merger," "--Liquidating Trust," and "--Certain Federal Income Tax
Considerations."
SPECIAL MEETING AND VOTE REQUIRED
SPECIAL MEETING
The special meeting of ARBI shareholders to consider and vote on the
Merger will be held on Friday, December 9, 1994, at 10:00 a.m., local time, in
the Fourth Floor Training Room of the Bank, 101 South Main Street, Belen, New
Mexico. Only holders of record of ARBI Common Stock at the close of business
on November 8, 1994, will be entitled to
6
<PAGE>
receive notice of and to vote at the Special Meeting. At such date, there
were 410,095 shares of ARBI Common Stock outstanding. Each share of ARBI
Common Stock is entitled to one vote. For additional information relating to
the Special Meeting, see "MEETING INFORMATION."
VOTE REQUIRED
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of ARBI Common Stock. As of
the record date for the Special Meeting, directors and executive officers of
ARBI and their affiliates owned beneficially an aggregate of 78,818.9 shares
of ARBI Common Stock, or approximately 19.2% of the shares of ARBI Common
Stock outstanding on that date. ARBI's directors and officers have informed
ARBI that they intend to vote all of their shares in favor of approval of the
Merger Agreement. At the record date, directors and executive officers of
Norwest did not own beneficially any shares of ARBI Common Stock. See "MEETING
INFORMATION--Record Date; Vote Required" and "--Principal Shareholders and
Security Ownership of Management of ARBI."
REASONS FOR THE MERGER; RECOMMENDATION OF ARBI BOARD OF DIRECTORS
In reaching its determination to enter into the Merger Agreement, ARBI's
Board of Directors consulted with Montgomery Securities and ARBI's legal
advisors, and considered a number of factors, including but not limited to the
following: the oral opinion of Montgomery Securities, subsequently confirmed
in writing, that as of June 6, 1994, the consideration to be received by the
shareholders of ARBI pursuant to the Merger Agreement was fair to such
shareholders from a financial point of view; the current and prospective
economic environment and competitive constraints facing independent community-
based financial institutions, including the Bank, including the possible
effects of congressional approval of interstate banking; the ARBI Board's view
of reasonably available alternatives for the shareholders, including
continuing to operate as an independent community-based financial institution;
the economies of scale available to larger financial institutions, including
the ability of such institutions to develop new and innovative financial
products for customers; the nonfinancial terms of the Merger Agreement,
including the risks to completion of the Merger inherent in the conditions to
consummation of the transaction included therein; and the increased liquidity
and diversification of risk that the Merger would provide to ARBI's
shareholders. See "THE MERGER--Background of and Reasons for the Merger."
THE BOARD OF DIRECTORS OF ARBI UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE MERGER.
FAIRNESS OPINION
Montgomery Securities has delivered its written opinion to ARBI's Board of
Directors that, as of November 8, 1994, the consideration to be received by
the ARBI shareholders in the Merger is fair to ARBI's shareholders from a
financial point of view. A copy of this opinion is attached hereto as
Appendix B. See "THE MERGER--Fairness Opinion."
7
<PAGE>
EFFECTIVE DATE AND TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Merger
will be effective on the date on which the appropriate filing is made with the
Secretary of State of the State of New Mexico (the "Effective Date of the
Merger") at 11:59 p.m., New Mexico time (the "Effective Time of the Merger").
Such filing shall be made five business days following the satisfaction or
waiver of all conditions set forth in the Merger Agreement or on such other
date upon which the parties may agree. The closing of the Merger will occur
on the Effective Date of the Merger (the "Closing Date"). See
"THE MERGER--Effective Date and Time of the Merger" and
"--Conditions to the Merger."
CONDITIONS AND TERMINATION
The respective obligations of Norwest and ARBI to consummate the Merger
are subject to certain conditions, including the receipt of regulatory
approvals without unduly burdensome conditions, approval of the Merger
Agreement by the shareholders of ARBI, receipt by ARBI of an opinion regarding
the tax consequences to ARBI shareholders of the Merger, and certain other
conditions customary in transactions of this nature. See "THE MERGER--
Conditions to the Merger" and "THE MERGER--Regulatory Approvals."
The Merger Agreement may be terminated at any time prior to the time at
which the appropriate filing is made with the Secretary of State of the State
of New Mexico, whether prior to or after approval by ARBI's shareholders, by
either party under specified conditions, including if the Merger shall not
have been consummated by May 15, 1995, unless failure to consummate is due to
the failure of the party seeking termination to perform its respective
covenants and agreements under the Merger Agreement. In addition, ARBI may
terminate the Merger Agreement if the average price per share of Norwest
Common Stock over a specified period falls below $20.00 or below a benchmark
price computed by reference to the stock prices of a specified group of
regional bank holding companies. See "THE MERGER--Waiver, Amendment, and
Termination."
ACCOUNTING TREATMENT
Management of Norwest anticipates that the Merger will be accounted for as
a purchase under generally accepted accounting principles. See "THE MERGER--
Accounting Treatment."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). The approval of
the Federal Reserve Board has been received. See "THE MERGER--Regulatory
Approvals."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Merger, Norwest intends to operate at the Bank's present
locations and to offer products and services offered by Norwest affiliates.
Norwest plans to consolidate the Bank's branch in Moriarty and Norwest Bank
New Mexico, N.A.'s branch in Moriarty. See "THE MERGER--Management and
Operations After the Merger."
8
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain executive officers and members of the Boards of Directors of ARBI
and the Bank have certain interests in the Merger that are in addition to
their interests as shareholders of ARBI generally. These interests include,
among others, provisions in the Merger Agreement relating to indemnification
of such parties and the continuation of certain employee benefits. In
addition, Mr. James H. Foley will become entitled to certain payments as a
result of the Merger and may receive additional compensation pursuant to an
arrangement with ARBI if his employment is terminated following the Merger
under certain circumstances. See "MANAGEMENT OF ARBI--Interests of Management
and Others in Certain Transactions."
DISSENTERS' RIGHTS
Under New Mexico law, ARBI shareholders who dissent from the Merger are
entitled to obtain payment of the fair value of their shares in cash instead
of receiving Norwest Common Stock in the Merger. Failure to comply with
statutory procedures in the exercise of dissenters' rights will nullify such
rights. See "THE MERGER--Rights of Dissenting ARBI Shareholders."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
("Code"), and that as a result, for federal income tax purposes (i) no gain or
loss will be recognized by Norwest or ARBI as a result of the Merger, (ii) no
gain or loss will be recognized by holders of ARBI Common Stock upon the
receipt of Norwest Common Stock in exchange therefor pursuant to the Merger,
except with respect to cash received in lieu of fractional shares and except
for interests in the liquidating trust described below, and (iii) the
aggregate adjusted tax basis of the shares of Norwest Common Stock to be
received by holders of ARBI Common Stock will be the same as the aggregate
adjusted tax basis of the shares of ARBI Common Stock exchanged therefor,
reduced by the amount allocable to fractional share interests for which cash
is received. Consummation of the Merger is conditioned upon the receipt by
ARBI of an opinion of Bracewell & Patterson, L.L.P., Houston, Texas, counsel
for ARBI, substantially to such effect. See "THE MERGER--Certain Federal
Income Tax Considerations."
The Merger Agreement also provides that, prior to the Effective Date of
the Merger, ARBI will form a liquidating trust for the benefit of its
shareholders and that ARBI will distribute to such trust certain of ARBI's
assets, including cash, certain securities, and artwork. ARBI will distribute
interests in the trust pro rata to its shareholders. The receipt by the
shareholders of ARBI of their ratable interests in the the trust will be
taxable to the shareholders of ARBI as a dividend. See "THE MERGER--
Liquidating Trust" and "--Certain Federal Income Tax Considerations."
Shareholders should consult with their own tax advisors regarding the tax
consequences of the Merger in light of their personal tax situations.
MARKET INFORMATION
Norwest Common Stock is listed on the New York Stock Exchange (the
"NYSE") and the Chicago Stock Exchange (the "CHX"). On June 3, 1994, the last
trading day preceding
9
<PAGE>
public announcement of the proposed Merger, the closing price per share of
Norwest Common Stock on the NYSE was $27.25 and on November 4, 1994, the
price was $23.50. Shareholders of ARBI are advised to obtain current market
quotations for Norwest Common Stock. The market price for Norwest Common
Stock will fluctuate between the date of this Proxy Statement-Prospectus and
the Effective Date of the Merger, which may be a period of several weeks or
more. As a result, the market value per share of the Norwest Common Stock
that shareholders of ARBI ultimately receive in the Merger could be more or
less than its market value on the date of this Proxy Statement-Prospectus. No
assurance can be given concerning the market price of Norwest Common Stock
before or after the Effective Date of the Merger.
There is no public market for ARBI Common Stock. See "INFORMATION ABOUT
ARBI AND THE BANK--Market Information and Dividends."
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, shareholders of ARBI will become
stockholders of Norwest. As a result, such shareholders' rights will change
significantly. See "THE MERGER--Certain Differences in Rights of
Shareholders."
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for Norwest Common Stock on a historical and a pro forma combined basis and
for ARBI Common Stock on a historical and a pro forma equivalent basis giving
effect to the Merger using the purchase method of accounting. See "THE
MERGER--Accounting Treatment." This information is derived from the
consolidated historical financial statements of Norwest, including the related
notes thereto, incorporated by reference into this Proxy Statement-Prospectus
and the consolidated historical financial statements of ARBI, including the
notes thereto, appearing elsewhere in this Proxy Statement-Prospectus. This
information should be read in conjunction with such consolidated historical
financial statements and the related notes thereto. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "INDEX TO ARBI FINANCIAL STATEMENTS."
The pro forma data is not necessarily indicative of the results of the
future operations of the combined entity or the actual results that would have
occurred had the Merger been consummated prior to the periods indicated.
10
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
Norwest Common Stock ARBI Common Stock
--------------------- ----------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
June 30, 1994 $11.07 11.09 51.15 32.86
December 31, 1993 11.00 11.02 45.86 32.64
DIVIDENDS DECLARED (2):
Six Months Ended
June 30, 1994 0.370 0.370 0.500 1.096
Year Ended
December 31, 1993 0.640 0.640 0.500 1.896
NET INCOME (3):
Six Months Ended
June 30, 1994 1.17 1.17 2.64 3.48
Year Ended
December 31, 1993 1.86 1.86 6.28 5.50
</TABLE>
(1) The pro forma combined book values per share of Norwest Common Stock are
based upon the historical total combined common equity for Norwest and ARBI
divided by total pro forma common shares of the combined entities assuming
conversion of the outstanding ARBI Common Stock at a conversion factor of
2.96219. The difference between the historical total common equity of ARBI and
the total market value of Norwest Common Stock to be issued in the Merger is not
material. The pro forma equivalent book values per share of ARBI Common Stock
represent the pro forma combined amounts multiplied by the assumed conversion
factor. The assumed conversion factor used in this table is based on an assumed
aggregate number of shares of Norwest Common Stock to be issued in the Merger of
1,214,780 upon conversion of all outstanding shares of ARBI Common Stock. The
number of shares of Norwest Common Stock to be issued in the Merger was computed
based on assumed proceeds of $1,812,121 from the sale of the ARBI Portfolio
Stock (as defined under "THE MERGER--Terms of the Merger") based on market
prices of such stock as of October 31, 1994, which was added to the base merger
consideration of $27,950,000, resulting in a total value of approximately $29.8
million. This total value was divided by an assumed Norwest Measurement Price
(as defined under "THE MERGER--Terms of the Merger") as of October 31, 1994, of
$24.50. The market price for the ARBI Portfolio Stock and for Norwest Common
Stock, and therefore the Norwest Measurement Price, will fluctuate between the
date of this Proxy Statement-Prospectus and the Effective Date of the Merger.
Accordingly, no assurance can be given concerning the actual conversion factor
which will apply on the Closing Date. See "THE MERGER--Terms of the
Merger."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of ARBI Common Stock represent cash dividends declared per
share of Norwest Common Stock multiplied by 2.96219.
(3) The pro forma combined net income per share (based on fully diluted net
income and weighted average shares outstanding) is based upon the combined
historical net income for Norwest and ARBI divided by the average pro forma
common shares of the combined entities, assuming a conversion factor of 2.96219.
The pro forma equivalent net income per share of ARBI Common Stock represents
the pro forma combined net income per share multiplied by 2.96219.
11
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for Norwest and ARBI. The income statement and balance
sheet data included in the selected financial data for the five years ended
December 31, 1993, are derived from audited consolidated financial statements
of Norwest and ARBI for such five-year period. The selected financial data
for the six-month periods ended June 30, 1994 and 1993, are derived from the
unaudited historical financial statements of Norwest and ARBI. All financial
information derived from unaudited financial statements reflects, in the
respective opinions of management of Norwest and ARBI, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the six months ended June 30, 1994,
are not necessarily indicative of the results that may be expected for any
other interim period or for the year as a whole. This information should be
read in conjunction with the consolidated financial statements of Norwest and
the related notes thereto, included in documents incorporated herein by
reference, and in conjunction with the consolidated financial statements of
ARBI, including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
and "INDEX TO ARBI FINANCIAL STATEMENTS."
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
NORWEST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------------- ------------------------------------------------
1994 1993 1993(1) 1992(2) 1991 1990(3) 1989(4)
--------- -------- -------- -------- -------- -------- --------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------
Interest income $ 2,066.6 1,939.1 3,946.3 3,806.4 4,025.9 3,885.7 3,624.5
Interest expense 719.4 714.2 1,442.9 1,610.6 2,150.3 2,320.0 2,210.1
--------- -------- -------- -------- -------- -------- --------
Net interest income 1,347.2 1,224.9 2,503.4 2,195.8 1,875.6 1,565.7 1,414.4
Provision for credit losses 60.0 77.5 158.2 270.8 406.4 433.0 233.5
Non-interest income 821.0 770.8 1,585.0 1,273.7 1,064.0 896.3 728.5
Non-interest expense 1,528.1 1,439.4 3,050.4 2,553.1 2,041.5 1,744.5 1,525.9
--------- -------- -------- -------- -------- -------- --------
Income before income
taxes 580.1 478.8 879.8 645.6 491.7 284.5 383.5
Income tax expense 187.6 151.6 266.7 175.6 73.4 115.1 99.0
--------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of a change in
accounting method $ 392.5 327.2 613.1 470.0 418.3 169.4 284.5
Cumulative effect on years
prior to 1992 of change
in accounting method -- -- -- (76.0) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 392.5 327.2 613.1 394.0 418.3 169.4 284.5
========= ======== ======== ======== ======== ======== ========
PER SHARE DATA
- --------------
Net income per share:
Primary:
Before cumulative effect
of a change in accounting
method $ 1.20 1.01 1.89 1.44 1.33 0.59 1.00
Cumulative effect on years
prior to 1992 of change in
accounting method -- -- -- (0.25) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.20 1.01 1.89 1.19 1.33 0.59 1.00
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Before cumulative effect
of a change in accounting
method $ 1.17 0.99 1.86 1.42 1.32 0.59 1.00
Cumulative effect on years
prior to 1992 of change
in accounting method -- -- -- (0.23) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.17 0.99 1.86 1.19 1.32 0.59 1.00
========= ======== ======== ======== ======== ======== ========
Dividends declared per
common share $ 0.370 0.310 0.640 0.540 0.470 0.423 0.380
BALANCE SHEET DATA
- ------------------
At period end:
Total assets $55,756.8 51,203.2 54,665.0 50,037.0 45,974.5 43,523.0 38,322.0
Long-term debt 7,255.2 5,678.1 6,850.9 4,553.2 3,686.6 3,066.0 2,720.0
Total stockholders'
equity 3,836.6 3,592.1 3,760.9 3,371.8 3,192.3 2,434.0 2,288.2
</TABLE>
13
<PAGE>
(1) On January 14, 1994, First United Bank Group, Inc. ("First United"), a
$3.9 billion bank holding company headquartered in Albuquerque, New Mexico,
was acquired in a pooling transaction. Norwest's historical results have been
restated to include the historical results of First United. Appropriate
Norwest items reflect an increase in First United's provision for credit
losses of $16.5 million to conform with Norwest's credit loss reserve
practices and methods and $83.2 million in accruals and reserves for merger-
related expenses, including termination costs, systems and operations costs,
and investment banking, legal, and accounting expenses.
(2) On February 9, 1993, Lincoln Financial Corporation ("Lincoln"), a $2.0
billion bank holding company headquartered in Fort Wayne, Indiana, was
acquired in a pooling transaction. Norwest's historical results have been
restated to include the historical results of Lincoln. Appropriate Norwest
items reflect an increase in Lincoln's provision for credit losses of $60.0
million and $33.5 million in Lincoln's provisions and expenditures for costs
related to restructuring activities.
(3) On April 19, 1991, United Banks of Colorado, Inc. ("United"), a $5.5
billion financial institution headquartered in Denver, Colorado, merged with
Norwest in a pooling transaction. Norwest's historical results have been
restated to include the historical results of United. Appropriate Norwest
items reflect United's special provisions for credit losses and writedowns for
other real estate owned, which together totaled $165 million, and $31 million
of accruals for expected reorganization and restructuring costs for the year
ended December 31, 1990. The special provisions were due to deterioration of
several large commercial loan relationships, the anticipated results of the
then recent examination by the Office of the Comptroller of the Currency, and
the anticipated impact of the Resolution Trust Corporation's accelerated
efforts to liquidate foreclosed properties at deep discounts.
(4) On May 1, 1990, First Interstate Corporation of Wisconsin ("FIWI"), a
$2.0 billion financial institution headquartered in Sheboygan, Wisconsin,
merged with Norwest in a pooling transaction. Norwest's historical results
have been restated to include the historical results of FIWI. Appropriate
Norwest items reflect $12.0 million in charges resulting from FIWI's decision
to sell its portfolio of stripped mortgage-backed securities, an increase in
FIWI's provision for credit losses of $16.2 million, and $24.5 million in
FIWI's provisions and expenditures for costs related to restructuring
activities.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
AMERICAN REPUBLIC BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------- --------------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ----- ------ ------ ------- ------ -----
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
---------------------
Interest income $ 7.5 7.4 14.8 16.5 18.6 19.3 18.7
Interest expense 2.8 3.1 6.0 7.9 10.4 10.7 10.3
------ ----- ----- ----- ----- ----- -----
Net interest income 4.7 4.3 8.8 8.6 8.2 8.6 8.4
Provision (negative provision) for credit losses -- 0.3 (0.7) 1.5 4.3 1.3 0.3
Non-interest income 0.9 1.0 2.1 2.3 1.8 2.0 1.5
Non-interest expenses 4.2 3.9 7.9 7.6 7.0 6.7 6.3
------ ----- ----- ----- ----- ----- -----
Income (loss) before income taxes 1.4 1.1 3.7 1.8 (1.3) 2.6 3.3
Income tax expense (benefit) 0.3 0.3 1.1 0.4 (0.5) 0.8 0.9
------ ----- ----- ----- ----- ----- -----
Net income (loss) $ 1.1 0.8 2.6 1.4 (0.8) 1.8 2.4
====== ===== ===== ===== ===== ===== =====
PER SHARE DATA
--------------
Net income (loss) $ 2.64 1.89 6.28 3.39 (1.82) 4.28 5.24
Dividends $ 0.50 -- 0.50 -- 1.40 1.25 1.00
BALANCE SHEET DATA
------------------
At period end:
Total assets $222.5 213.0 218.8 212.1 218.6 206.4 194.6
Long-term debt 4.8 5.4 5.1 5.6 6.3 6.1 6.4
Total stockholders' equity 21.0 17.3 18.8 16.5 15.0 16.4 16.2
Book value per share $51.15 41.79 45.86 39.88 36.40 39.34 36.24
</TABLE>
15
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of ARBI
Common Stock in connection with the solicitation of proxies by the Board of
Directors of ARBI for use at the Special Meeting, to be held on Friday,
December 9, 1994, and any adjournments or postponements thereof, to consider
and take action upon a proposal to approve the Merger Agreement and such other
business as may properly come before the Special Meeting or any adjournments
thereof. Each copy of this Proxy Statement-Prospectus mailed to holders of
ARBI Common Stock is accompanied by a form of proxy for use at the Special
Meeting.
This Proxy Statement-Prospectus is also being furnished by Norwest to the
shareholders of ARBI as a prospectus in connection with the issuance by
Norwest of shares of Norwest Common Stock upon consummation of the Merger.
This Proxy Statement-Prospectus, the attached Notice of Special Meeting,
and the form of proxy for ARBI shareholders enclosed herewith are first being
mailed to shareholders of ARBI on or about November 9, 1994.
DATE, PLACE, AND TIME
The Special Meeting will be held in the Fourth Floor Training Room of the
Bank, 101 South Main Street, Belen, New Mexico, on Friday, December 9, 1994,
at 10:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of ARBI has fixed the close of business on November
8, 1994, as the record date for the determination of shareholders of ARBI
entitled to receive notice of, and to vote at, the Special Meeting. On the
record date there were 410,095 shares of ARBI Common Stock outstanding and
entitled to vote at the Special Meeting. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of ARBI Common Stock. The Merger cannot be consummated without the
requisite approval of the Merger Agreement by the holders of ARBI Common
Stock.
As of the record date for the Special Meeting, directors and officers of
ARBI and their affiliates owned beneficially an aggregate of 78,818.9 shares
of ARBI Common Stock or approximately 19.2% of the shares of ARBI Common Stock
outstanding on that date. ARBI's directors and officers have informed ARBI
that they intend to vote all of their shares in favor of the Merger Agreement.
Information regarding the shares of ARBI Common Stock beneficially owned,
directly or indirectly, by certain shareholders, by each director and
executive officer of ARBI, and by all directors and officers as a group is set
forth in the table under the heading "Principal Shareholders and Security
Ownership of Management of ARBI" below.
At the record date, directors and executive officers of Norwest did not
own beneficially any shares of ARBI Common Stock.
16
<PAGE>
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF ARBI
Set forth below are the names and addresses of, and the number of shares
and the percentage of outstanding shares beneficially owned as of the record
date for the Special Meeting by, each holder of record who owns of record, or
who is known by ARBI to be the beneficial owner of, more than 5% of the
outstanding shares of ARBI Common Stock. The ARBI Common Stock is the only
class of equity security of ARBI outstanding. Each shareholder named below
has sole voting and investment power with respect to the shares shown in the
table, unless otherwise indicated.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
<S> <C> <C>
Ralph P. Brower, M.D. 20,360.0 5.0%
101 N. Sixth St.
Belen, NM 87002
George B. Cree, Jr. 50,734.0 (1) 12.4%
P.O. Box 1821
Pampa, TX 79066-1821
Harold A. Cree 21,395.5 (2) 5.2%
P.O. Box 1821
Pampa, TX 79066-1821
Richard E. Cree 26,483.5 (3) 6.5%
1544 Valwood Pkwy., Ste. 102
Carrollton, TX 75006
William R. Cree 34,592.0 (4) 8.4%
P.O. Box 1821
Pampa, TX 79066-1821
James H. Foley 24,031.2 (5) 5.9%
513 Chaparral Dr.
Belen, NM 87002
Bettye Cree Reid 96,320.0 (6) 23.5%
P.O. Box 1821
Pampa, TX 79066-1821
</TABLE>
- -----------------
[FN]
(1) Includes (i) 12,825 shares held by Cree Production Company, a privately
held firm of which Mr. Cree is an officer, director, and a principal
shareholder, with respect to which Mr. Cree shares voting and investment
power, and (ii) 3,000 shares held of record by Mr. Cree's spouse, with
respect to which Mr. Cree shares voting and investment power.
(2) Includes an aggregate of 4,170.5 shares held of record by Harold A. Cree
as trustee of several trusts for the benefit of minor children of George
Cree, III and Richard E. Cree, with respect to which Harold A. Cree
disclaims beneficial ownership.
17
<PAGE>
(3) Includes (i) 553.5 shares held of record by Richard E. Cree as custodian
for his minor son under the Texas Uniform Gifts to Minors Act, with
respect to which Mr. Cree disclaims beneficial ownership, and (ii) an
aggregate of 4,430 shares held of record by Richard E. Cree as trustee of
several trusts for the benefit of minor children of Harold A. Cree, with
respect to which Richard E. Cree disclaims beneficial ownership.
(4) Includes 12,825 shares hold by Cree Production Company, a privately held
firm of which Mr. Cree is an officer, director, and a principal
shareholder, with respect to which Mr. Cree shares voting and investment
power.
(5) Includes (i) 18,222.8 shares held of record jointly by Mr. Foley and his
spouse, with respect to which Mr. Foley shares voting and investment
power, and (ii) 598.6 shares held of record by the ARBI Employee Stock
Ownership Plan and allocated to the account of Mr. Foley, with respect to
which Mr. Foley shares voting and investment power.
(6) Includes 12,825 shares held by Cree Production Company, a privately held
firm of which Mrs. Reid's husband is an officer, director, and a
principal shareholder, and with respect to which Mrs. Reid disclaims
beneficial ownership.
18
<PAGE>
Set forth below are the numbers of shares of ARBI Common Stock held by
each director and executive officer, and by all directors and executive
officers as a group, of ARBI as of the record date for the Special Meeting.
For information concerning the positions of such persons with ARBI, see
"INFORMATION ABOUT ARBI AND THE BANK." Each shareholder named below has sole
voting and investment power over the shares shown in the table, unless
otherwise indicated.
<TABLE>
<CAPTION>
Amount and Nature of
Name Beneficial Ownership Percent of Class
--------------------- -------------------- ----------------
<S> <C> <C>
Ralph P. Brower, M.D. 20,360.0 5.0%
Richard E. Cree 26,483.5(1) 6.5%
Robert J. Davey 4,288.0(2) 1.0%
James H. Foley 24,031.2(3) 5.9%
J. T. Turner 3,218.0 *
Ron G. Wiser 438.2(4) *
Directors and executive officers 78,818.9 19.2%
as a group (6 persons)
</TABLE>
-------------------------
*Less than one percent.
(1) Includes (i) 553.5 shares held of record by Richard E. Cree as custodian
for his minor son under the Texas Uniform Gifts to Minors Act, with
respect to which Mr. Cree disclaims beneficial ownership, and (ii) an
aggregate of 4,430 shares held of record by Richard E. Cree as trustee of
several trusts for the benefit of minor children of Harold A. Cree, with
respect to which Richard E. Cree disclaims beneficial ownership.
(2) Includes (i) 4,000 shares held of record by Valley Improvement
Association, a nonprofit community development association of which Mr.
Davey serves as President, with respect to which Mr. Davey disclaims
beneficial ownership, and (ii) 100 shares held of record jointly by Mr.
Davey and his spouse, with respect to which Mr. Davey shares voting and
investment power.
(3) Includes (i) 18,222.8 shares held of record jointly by Mr. Foley and his
spouse, with respect to which Mr. Foley shares voting and investment
power, and (ii) 598.6 shares held of record by the ARBI Employee Stock
Ownership Plan and allocated to the account of Mr. Foley, with respect to
which Mr. Foley shares voting and investment power.
(4) Includes (i) 200 shares held of record jointly by Mr. Wiser and his
spouse, with respect to which Mr. Wiser shares voting and investment
power, and (ii) 238.2 shares held of record by the ARBI Employee Stock
Ownership Plan and allocated to the account of Mr. Wiser, with respect to
which Mr. Wiser shares voting and investment power.
19
<PAGE>
VOTING AND REVOCATION OF PROXIES
Shares of ARBI Common Stock represented by a proxy properly signed and
received at, or prior to, the Special Meeting, unless subsequently revoked,
will be voted at the Special Meeting in accordance with the instructions
thereon. If a proxy is signed and returned without indicating any voting
instructions, shares of ARBI Common Stock represented by such proxy will be
voted FOR approval of the Merger Agreement. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted by filing either an instrument revoking it or a duly executed
proxy bearing a later date with the Secretary of ARBI prior to or at the
Special Meeting or by voting the shares subject to the proxy in person at the
Special Meeting. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy.
A proxy may indicate that all or a portion of the shares represented
thereby are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in
street name on certain proposals in the absence of instructions from the
beneficial owner. Shares that are not voted with respect to a specific
proposal will be considered as not present for such proposal, even though such
shares will be considered present for purposes of determining a quorum and
voting on other proposals. Abstentions on a specific proposal will be
considered as present, but not as voting in favor of such proposal. The
proposal to adopt the Merger Agreement must be approved by the holders of a
majority of the outstanding ARBI Common Stock. Because this proposal requires
the affirmative vote of a specified percentage of outstanding shares, the
nonvoting of shares or abstentions with regard to this proposal will have the
same effect as votes against the proposal.
The Board of Directors of ARBI is not aware of any business to be acted
upon at the Special Meeting other than the business described herein. If,
however, other matters are properly brought before the Special Meeting, or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act on such matters according to their best
judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees
of ARBI may solicit proxies from the shareholders of ARBI, either personally
or by telephone, telegram, or other form of communication. None of the
foregoing persons who solicit proxies will be specifically compensated for
such services. Nominees, fiduciaries, and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed
for their reasonable expenses incurred in sending proxy material to beneficial
owners. ARBI will bear its own expenses in connection with any solicitation
of proxies for the Special Meeting. See "THE MERGER--Expenses."
ALL SHAREHOLDERS OF ARBI ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO ARBI IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE.
20
<PAGE>
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects
of the Merger. The following description does not purport to be complete and
is qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to this Proxy Statement-Prospectus and is incorporated
by reference herein. All shareholders are urged to read the Merger Agreement
in its entirety.
BACKGROUND OF AND REASONS FOR THE MERGER
Since 1990 management of ARBI from time to time received informal
inquiries from a number of bank holding companies regarding the possibility of
engaging in a business combination. Neither the board of directors of ARBI
nor the holders of a majority of the shares subject to a Stock Restriction
Agreement dated as of May 18, 1983, which imposes certain limitations on the
disposition of shares of ARBI Common Stock, initially were interested in
considering any such proposal. However, in November 1991, ARBI engaged a
financial advisor to determine the level of interest in such a combination.
As a result of the lack of interest generated in such a proposal at that time,
no further action was taken.
The Board of Directors of ARBI continued to monitor developments in bank
acquisitions in New Mexico along with developments in the banking industry
generally. As a result of a perceived improvement in the acquisition market
and the prospect of increased competition from the authorization of branching
in New Mexico and the increasing possibility of interstate banking, the board
of directors determined to again investigate the possibility of a business
combination. In August 1993, the board met with representatives of Montgomery
Securities to discuss these matters. As a result of this meeting, on August
17, 1993, the Board engaged Montgomery Securities as its financial advisor for
the purpose of identifying opportunities for the sale of ARBI and
participating on ARBI's behalf in negotiations resulting from these
opportunities.
On August 18, 1993, the Board of Directors of ARBI met with
representatives of Montgomery Securities to discuss the manner in which
Montgomery Securities should proceed. At this meeting it was determined that
a competitive bidding process would be most likely to obtain the highest offer
to acquire ARBI. The Board of Directors authorized Montgomery Securities to
contact a list of possible acquirors and developed a timetable governing the
submission of indications of interest and conducting due diligence
examinations. Thereafter, Montgomery Securities contacted seven potential
acquirors to assess their interest in the New Mexico market. As a result,
confidentiality agreements were concluded with three institutions and each of
these companies was provided limited nonpublic information during an initial
due diligence period. During the week of March 7, 1994, each of the three
companies submitted nonbinding indications of interest, subject to the
completion of due diligence and the negotiation of an acceptable merger
agreement. Representatives of Montgomery Securities met with the Board of
ARBI on March 11, 1994, to consider these indications of interest. As a
result, all three companies were invited to conduct on-site due diligence.
Two of the three companies accepted this invitation.
The two potential bidders conducted due diligence at the offices of ARBI
from March 21 through April 18, 1994. Subsequent to the completion of due
diligence, but prior to the submission of bids, Montgomery Securities was
contacted about the possibility of submitting a bid by one of the seven
original invitees that had initially declined to participate. This company
was encouraged to execute a confidentiality agreement as soon as possible and
commence its due diligence, but it ultimately declined to do so.
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In the weeks following the completion of on-site due diligence, ARBI and
its legal counsel attempted to negotiate the terms of definitive merger
agreements with legal counsel for the two prospective bidders. Although
considerable progress was made with both parties, neither party was willing to
incur the expense of a complete negotiation prior to the completion of the
auction. Consequently, on May 9, 1994, final bids were submitted by the two
companies that had conducted on-site due diligence. At a meeting of the Board
of Directors of ARBI on May 12, 1994, representatives of Montgomery Securities
and ARBI's legal counsel reviewed the two bids in detail, along with the
status of the contract negotiations with each party and the outstanding issues
relating thereto. The Board of ARBI also reviewed the strategic options
available to it other than a sale of ARBI for stock or cash. Based on this
review, the Board considered the acquisition proposals to be more attractive
to the shareholders of ARBI than the available alternatives.
Upon the review of the two proposals, each of which was subject to the
negotiation of a satisfactory definitive merger agreement, it was clear that
Norwest's proposal, which involved the use of equity securities of Norwest and
provided for additional consideration to the shareholders by means of the
distribution of certain assets to the liquidating trust discussed elsewhere
herein, provided the highest value to the shareholders of ARBI. The competing
proposal provided for a lower price per share to be paid in cash in a taxable
transaction. After considering the two proposals, including the favorable tax
treatment associated with the stock-for-stock exchange offered by Norwest and
the possibility for the realization of additional value by means of the
ultimate disposition of the assets distributed to the liquidating trust, and
the oral opinion of Montgomery Securities that the Norwest proposal was fair,
from a financial point of view, to the shareholders of ARBI, the Board of ARBI
determined to accept the proposal submitted by Norwest, subject to the
negotiation of certain changes thereto to provide price protection to the ARBI
shareholders in the event of a decline in the price of Norwest's common stock
(a "collar") and certain other changes. At this meeting, the Board of ARBI
authorized its management to negotiate the terms of a definitive agreement to
be submitted to the Board for its consideration.
During the next several weeks, management of ARBI and its legal counsel
negotiated the terms of a proposed merger agreement with Norwest. At a
meeting held June 4, 1994, the Board of Directors of ARBI considered in detail
the terms of the Merger Agreement. The Board also reviewed a draft of a
fairness opinion which Montgomery Securities was prepared to render regarding
the financial terms of the transaction. In reaching its decision to approve
the terms of the Merger Agreement, the Board of Directors of ARBI considered a
number of factors, including, without limitation, the following:
1. The Board's familiarity with ARBI's business, operations, financial
condition, earnings, and prospects, and its investigation of similar matters
concerning Norwest.
2. The current and prospective economic environment and competitive
constraints facing ARBI, including specifically the increasing regulatory
burdens on small, community based banks and the superior products and services
which larger competitors can offer to customers. In this regard, the possible
effect of then pending legislation to permit interstate banking was also
considered, as were the cost advantages of larger banks.
3. The price to be received by the ARBI shareholders in relation to
prices recently received by other similarly situated banks, and the relation
of such price to the Board's view of the value of possible alternatives to the
Merger, including the range of possible values to the ARBI shareholders of
such alternatives and the timing and likelihood of actually receiving, and the
risks associated with seeking to obtain, those values. In this regard, the
Board noted that
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the price offered by Norwest was the highest price offered after a nationwide
search for potential merger partners conducted by Montgomery Securities over
an extended period of time.
4. The financial presentation of Montgomery Securities, ARBI's
independent financial advisor, at the May 1994 board meeting, the update
thereof presented by Montgomery Securities at the June 1994 board meeting, and
the opinion of Montgomery Securities that, as of the date of such opinion, the
consideration to be received by the ARBI shareholders pursuant to the Merger
Agreement is fair to such shareholders from a financial point of view. A copy
of such opinion, updated through the date of this Proxy Statement-Prospectus,
is attached hereto as Appendix B and is incorporated herein by reference. See
"Fairness Opinion" below.
5. The expectation that the receipt of the Norwest Common Stock
generally will be a tax-free transaction to the ARBI shareholders.
6. The potential for the realization of additional value in cash by the
ARBI shareholders as the result of the ultimate sale of the artwork and
securities to be distributed to the liquidating trust and the federal income
tax consequences to the ARBI shareholders as a result thereof.
7. The ARBI Board's evaluation of the risks to the consummation of the
Merger, including the risks associated with obtaining all necessary regulatory
approvals without the imposition of terms or conditions which would fail to
satisfy the conditions to the consummation of the Merger.
8. The increased liquidity that the Merger would provide to current ARBI
shareholders.
9. The protection afforded to ARBI by the Merger Agreement in the event
of a decline in the price of the Norwest Common Stock to be issued in the
merger relative to the prices of the shares of a group of regional bank
holding companies which the Board believed are generally comparable to
Norwest.
In its deliberations, the ARBI Board of Directors did not assign any
specific weights to these or any other factors.
THE BOARD OF DIRECTORS OF ARBI UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE MERGER.
TERMS OF THE MERGER
At the Effective Time of the Merger, a wholly owned subsidiary of Norwest
to be organized as a corporation under New Mexico law ("Merger Co.") will
merge into ARBI, with ARBI as the surviving corporation, and the outstanding
shares of ARBI Common Stock (other than shares as to which statutory
dissenters' rights have been exercised and not forfeited) will be converted
into a number of shares of Norwest Common Stock determined in accordance with
the provisions of the Merger Agreement. The conversion factor, used to
determine the number of shares of Norwest Common Stock into which each
outstanding share of ARBI Common Stock will be converted, will be calculated
by dividing the Adjusted Norwest Shares by the number of shares of ARBI Common
Stock outstanding. The "Adjusted Norwest Shares" means the number determined
by dividing $27,950,000 plus the net proceeds
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(sales price less commissions) from the sale by ARBI, not later than five
business days prior to the Effective Date of the Merger, of the shares of
stock of First Security Corporation and Wachovia Corporation held by ARBI as
investments (the "ARBI Portfolio Stock") by (i) $26.50, if the Norwest
Measurement Price is equal to or greater than $26.50, (ii) $24.50, if the
Norwest Measurement Price is equal to or less than $24.50, or (iii) the
Norwest Measurement Price, if the Norwest Measurement Price is more than
$24.50 but less than $26.50. The "Norwest Measurement Price" is the average of
the closing prices of Norwest Common Stock on the NYSE during the period of 20
trading days ending on the day immediately preceding the Special Meeting.
Based on the pricing provisions of the Merger Agreement, if the Special
Meeting had been held on November 1, 1994, assuming no change in the number of
shares of ARBI Common Stock outstanding and assuming that the proceeds from
the sale of the ARBI Portfolio Stock were $1,812,121, the applicable Norwest
Measurement Price would have been $24.50 and each share of outstanding ARBI
Common Stock would be converted into approximately 2.96219 shares of Norwest
Common Stock. The foregoing information is provided solely for purposes of
illustration. No assurance can be given concerning the actual conversion
factor that will apply on the Closing Date.
The market price for Norwest Common Stock will fluctuate between the date
of this Proxy Statement-Prospectus and the Effective Date of the Merger, which
may be a period of several weeks or more, and the Norwest Measurement Price
will fluctuate accordingly. As a result, the market value of each share of
Norwest Common Stock that shareholders of ARBI ultimately receive in the
Merger could be more or less than its market value on the date of this Proxy
Statement-Prospectus or the Norwest Measurement Price. Similarly, the market
value of the ARBI Portfolio Stock required to be sold prior to the Effective
Date of the Merger will fluctuate between the date of this Proxy Statement-
Prospectus. Accordingly, no assurance can be given as to the net proceeds
which ultimately may be realized upon the sale of the ARBI Portfolio Stock.
The Merger Agreement provides that if, between the date of the Merger
Agreement and the Effective Time of the Merger, shares of Norwest Common Stock
are changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares,
readjustment, or similar transaction, or if a stock dividend thereon is
declared with a record date within the same period, the conversion factor
provided for in the Merger Agreement will be adjusted accordingly.
No fractional shares of Norwest Common Stock will be issued in the Merger.
Instead, Norwest will pay to each holder of ARBI Common Stock who would
otherwise be entitled to a fractional share an amount of cash equal to the
fraction of a share of Norwest Common Stock to which the shareholder of ARBI
would otherwise be entitled multiplied by the average of the closing prices of
a share of Norwest Common Stock on the NYSE for each of the five trading days
immediately preceding the Effective Date of the Merger.
As of the Effective Time of the Merger, each share of the common stock of
Merger Co. outstanding will be converted into and exchanged for one share of
common stock of ARBI. Thereafter, ARBI will be a wholly owned subsidiary of
Norwest.
Shares of Norwest Common Stock issued and outstanding immediately prior to
the Effective Time of the Merger will remain issued and outstanding.
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LIQUIDATING TRUST
BACKGROUND
In the course of its operations over past years, ARBI and the Bank have
acquired an extensive collection of Western art, including original paintings
and sculptures as well as prints and quality reproductions. In addition, ARBI
has also acquired for investment over the years shares of the equity
securities of certain entities in the financial services business. As of the
date of this Proxy Statement-Prospectus, ARBI or the Bank owns shares of
common stock of First Security Corporation, Wachovia Corporation, and New
Mexico Financial Corporation.
In connection with the process by which ARBI solicited bids from potential
purchasers, Norwest indicated that it was not in a position to acquire the
artwork or certain investment securities owned by ARBI or the Bank. As a
result of negotiations, Norwest and ARBI agreed that the shares of common
stock of First Security Corporation and Wachovia Corporation owned by ARBI or
the Bank would be sold prior to the Effective Date of the Merger and the net
proceeds of such sales added to the purchase price to be paid by Norwest in
the Merger. Additionally, ARBI and Norwest agreed that, prior to the
Effective Date of the Merger, ARBI would distribute the artwork and all shares
of the common stock of New Mexico Financial Corporation, the holding company
for Ranchers State Bank, located in Belen, New Mexico, to the ARBI Liquidating
Trust (the "Trust"), a New Mexico express trust to be formed for the ratable
benefit of the shareholders of ARBI. Additionally, in order to defray
expenses associated with the operation of the Trust, cash in the amount of
$50,000 will also be distributed to the Trust. The Trust is also required to
assume all indebtedness related to the artwork, which as of the date of the
Proxy Statement-Prospectus totals $20,465. The artwork, securities and cash
initially distributed to the Trust, and any earnings thereon, are referred to
herein as the "Trust Assets."
Pursuant to the terms of the Merger Agreement, the Trust provides that
from and after the conveyance of the Trust Assets to the Trust, neither ARBI
nor any ARBI subsidiary will have any rights or obligations with respect to
the Trust, the Trustee (as defined below) in his official capacity thereof,
the beneficiaries of the Trust in their capacities as beneficiaries thereof,
or the assets of the Trust. Except for liability for corporate taxes payable
by ARBI or the Bank on the distribution at fair market value of the Trust
Assets and any related indebtedness assumed by the Trust, ARBI and the Bank
will have no further liability with respect to the assets and liabilities of
the Trust after its formation.
Set forth below is a description of the expected material terms of the
Trust. The description below is qualified in its entirety by reference to the
final trust instrument.
TERMS OF THE TRUST
The Trust will be formed prior to the Effective Date of the
Merger. The beneficiaries of the Trust will be the shareholders of ARBI
immediately prior to the Effective Date of the Merger. On establishment of
the Trust, each such ARBI shareholder will receive a fractional interest in
the net assets held in the Trust equal to the ratio which the number of
shares of capital stock of ARBI held of record by such shareholder bears to
the total number of issued and outstanding shares of ARBI Common Stock on such
date. Prior to the Effective Date, an individual or institution will be
selected to serve as trustee (the "Trustee") of the Trust. The Trustee will
maintain a ledger reflecting the interest of each former ARBI shareholder in
the Trust Assets. Interests in the Trust will be nontransferable, except for
transfer effected by death, divorce, bankruptcy, or other transfers effected
by operation of law.
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The purpose of the Trust is to receive the initial distribution of the
Trust Assets; to cause, to the extent practicable, the Trust Assets to be
converted into cash; to invest cash proceeds from the collection, liquidation,
or conversion into cash of Trust Assets pending their disposition in
accordance with the terms of the Trust; to discharge all debts, liabilities,
and obligations of the Trust; and to distribute, in one or more distributions,
the remaining Trust Assets to the former ARBI shareholders as promptly as
practicable. The Trust will be expressly prohibited from engaging, directly
or indirectly, in any form of trade or business for profit.
Pursuant to the terms of the Trust, the Trustee will have broad authority
to deal with the Trust Assets for the benefit of former ARBI shareholders.
The Trustee will receive, on behalf of the former ARBI shareholders and for
their benefit, the Trust Assets from ARBI and the Bank. The Trustee will be
authorized to deal with the Trust Assets in any manner the Trustee reasonably
believes will benefit the former ARBI shareholders, including the sale, lease
or exhibition of any Trust Asset. The Trustee will be authorized to collect,
liquidate, and otherwise convert the Trust Assets into cash and to distribute
the proceeds thereof, net of expenses, to the former ARBI shareholders. The
Trustee may invest and reinvest the Trust Assets and the proceeds received on
disposition thereof, borrow money for the purposes of the Trust, contest and
liquidate claims, execute documents of transfer and conveyance, retain
professional advisors, discharge expenses of the Trust's operations, and file
all tax and other returns which may be required in connection with the
operation of the Trust. The Trustee must keep records of the investments,
receipts, and disbursements of the Trust, and such records will be available
for inspection at reasonable times by the former ARBI shareholders. The
Trustee will be required to provide an annual accounting to the former ARBI
shareholders with respect thereto. The Trustee will be required to
distribute, at least annually, to the former ARBI shareholders such portion of
the Trust Assets as may not then be required to be retained for the purposes
of the Trust.
In consideration of his services on behalf of the Trust, the Trustee will
be paid a reasonable fee for his services in equal monthly installments and
will be reimbursed for reasonable expenses incurred by him for the benefit of
the Trust. The Trust will provide that the Trustee will not be personally
liable with respect to any action taken or omitted to be taken thereunder,
provided that such action or omission does not constitute gross negligence or
willful misconduct on the part of the Trustee and that the Trustee at all
times has exercised good faith in the discharge of his duties. The Trustee
will be indemnified by the Trust against any costs and expenses, including
counsel fees, actually and necessarily incurred in connection with the defense
of any civil, criminal, administrative, or other claim, action, suit, or
proceeding in which he may become involved or with which he may be threatened
by reason of serving as Trustee, and against any payments in settlement of any
such claim, action, suit, or proceeding or in satisfaction of any related
judgment, fine, or penalty.
The Trustee may resign upon giving 30 days' notice in writing to all
former ARBI shareholders, with such resignation becoming effective upon the
selection of a successor trustee. The Trustee may be removed, with or without
cause, by the written consent of the holders of a majority of the interests in
the Trust.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATED TO THE TRUST
The Trust is intended to qualify as a "grantor trust" under the rules of
the Internal Revenue Service. As such, it may not engage in any trade or
business for profit, as distinct from the process of liquidating the Trust
Assets. A grantor trust is not a tax paying entity under the Internal Revenue
Code. Rather, the Trustee, on behalf of the Trust, will file
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information returns with the Internal Revenue Service. Gains or losses
incurred by the Trust will be reported by the former ARBI shareholders as the
beneficiaries thereof on their respective personal federal income tax returns.
The Trustee will distribute to each beneficiary, on an annual basis during the
Trust's existence, the appropriate Treasury form so that the results of the
Trust's operations may be reported on the individual tax returns of the
former ARBI shareholders.
The receipt by ARBI shareholders of an interest in the Trust will be
treated as the receipt by them of a dividend of appreciated property from ARBI
and will be taxable to such shareholders as ordinary income in the year in
which it is received, whether or not any cash is actually distributed to the
shareholders in respect of the liquidation of assets of the Trust during that
year. Accordingly, the receipt of the interest in the Trust may result in a
tax liability to the former ARBI shareholders under circumstances in which no
cash has been distributed to them in order to pay the tax due. For any ARBI
shareholder, the taxable value of the interest in the Trust received by such
shareholder will be equal to such shareholder's pro rata share of the fair
market value of the property distributed to the Trust. Although ARBI intends,
prior to the distribution of the Trust Assets to the Trust, to obtain an
appraisal of the artwork included therein, no assurance may be given that the
Internal Revenue Service will concur in such valuation.
During the time the Trust is in existence, the Trustee will dispose of the
Trust Assets. To the extent that Trust Assets are disposed of at prices in
excess of the fair market value thereof at the time such assets were received
by the Trust and the Trust interests were distributed to the ARBI
shareholders, the Trust will recognize gain in the amount of such excess. If
the proceeds from the sale of the Trust assets are less than the fair market
value of such assets as of the date the Trust interests were distributed to
the ARBI shareholders, each holder of a Trust interest will recognize a loss
equal to the amount of such difference. Assuming that each holder of a Trust
interest holds such interest for investment purposes, this gain or loss will
be characterized as capital gain or loss.
As indicated above, although the purpose of the Trust is to sell the Trust
Assets and distribute the proceeds thereof to the former ARBI shareholders,
the terms of the Trust give the Trustee substantial discretion with respect to
the timing of such sales and distributions. Accordingly, no assurance may be
given that the Trustee will distribute the proceeds of any sale giving rise to
a taxable gain in time for the former ARBI shareholders to pay the federal
income tax due in respect of such distribution. In such event, the former ARBI
shareholders may incur tax liability as a result of the actions of the Trustee
and not receive the funds necessary to pay such tax liability.
FAIRNESS OPINION
Pursuant to an engagement letter dated August 17, 1993, ARBI retained
Montgomery Securities ("Montgomery") to act as its financial advisor for the
purpose of identifying opportunities for the sale of ARBI, advising ARBI
concerning opportunities for the sale of ARBI and, if requested, participating
on ARBI's behalf in negotiations resulting from these opportunities.
Montgomery is a nationally recognized firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. ARBI selected Montgomery as its
financial advisor on the basis of its experience and expertise in transactions
similar to the Merger and its reputation in the banking and investment
communities.
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At the May 12, 1994, meeting of ARBI's Board of Directors, Montgomery
delivered its oral opinion, subsequently confirmed in writing both as of June
6, 1994, and as of November 8, 1994, that the shares of Norwest Common Stock
and the interests in the Trust to be received by ARBI's shareholders in the
Merger are fair to ARBI's shareholders from a financial point of view as of
such dates. No limitations were imposed by ARBI on Montgomery with respect to
the investigations made or procedures followed in rendering its opinion. THE
FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO ARBI'S BOARD OF DIRECTORS IS
ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT-PROSPECTUS. THE FOLLOWING SUMMARY OF MONTGOMERY'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
MONTGOMERY'S OPINION DOES NOT CONSTITUTE A REPORT OR VALUATION WITHIN THE
MEANING OF SECTION 11 OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
SHOULD NOT BE ACCORDED THE DEGREE OF RELIANCE PLACED ON SUCH REPORTS AND
VALUATIONS. MONTGOMERY HAS NOT ASSUMED RESPONSIBILITY FOR PERFORMING THE LEVEL
OF DILIGENCE OR INDEPENDENT VERIFICATION THAT WOULD BE REQUIRED FOR IT TO
RENDER A REPORT OR VALUATION FOR PURPOSES OF THE SECURITIES ACT. MONTGOMERY'S
OPINION IS ADDRESSED TO ARBI'S BOARD OF DIRECTORS ONLY AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY ARBI SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE SPECIAL MEETING.
In connection with its opinion, Montgomery, among other things: (i)
reviewed certain publicly available financial and other data with respect to
ARBI and Norwest including their respective consolidated financial statements
for recent years and the interim period to March 31, 1994, and certain other
relevant financial and operating data relating to ARBI and Norwest made
available to Montgomery from published sources and from the internal records
of ARBI; (ii) reviewed the Merger Agreement; (iii) reviewed certain historical
market prices and trading volumes of Norwest Common Stock as reported by the
NYSE; (iv) compared ARBI and Norwest from a financial point
of view with certain other companies in the banking industry that Montgomery
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in
the banking industry that Montgomery deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
management of ARBI and Norwest certain information of a business and financial
nature regarding ARBI and Norwest, furnished to Montgomery by ARBI and
Norwest, including financial forecasts and related assumptions of ARBI; (vii)
reviewed and discussed with representatives of the management of ARBI the
September 26, 1991, appraisal obtained by ARBI of certain assets being
distributed to the Trust by ARBI; (viii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related
thereto with ARBI's counsel; and (ix) performed such other analyses and
examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery did not assume any
responsibility for the independent verification of any of the foregoing
information with respect to ARBI or Norwest, and relied on all such
information and assumed all such information was complete and accurate in all
material respects. With respect to the financial forecasts for ARBI provided
to Montgomery by ARBI's management, Montgomery assumed for purposes of its
opinion that they were reasonably prepared on bases reflecting the best
available estimates and judgments of ARBI's management at the time of
preparation as to the future financial performance of ARBI and that they
provided a reasonable basis upon which Montgomery could form its opinion.
With respect to the appraisal obtained by ARBI of certain assets being
distributed to the Trust by ARBI, Montgomery assumed for purposes of its
opinion that the appraisal reflected a reasonable estimate as to the amount
realizable by the Trust upon liquidation of such assets. Montgomery also
assumed that there were no material changes in ARBI's or Norwest's assets,
financial condition, results of operations, business, or prospects since the
dates of their last financial statements made available to
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Montgomery. Montgomery relied on advice of counsel to ARBI as to all legal
matters with respect to ARBI, the Merger, the Proxy Statement-Prospectus, and
the Merger Agreement. Montgomery is not expert in the evaluation of loan
portfolios for purposes of assessing the adequacy of the allowance for losses
with respect thereto and assumed that such allowances for each of ARBI and
Norwest were in the aggregate adequate to cover such losses. In addition,
Montgomery did not assume any responsibility for reviewing any individual
credit files or making an independent evaluation, appraisal or physical
inspection of the assets or individual properties of ARBI or Norwest. Further,
Montgomery's opinion was based on economic, monetary and market conditions
existing on, and the information made available to Montgomery as of, the date
thereof and on the assumption that the Merger would be consummated in
accordance with the terms of the Merger Agreement, without any amendment
thereto and without any waiver of the conditions therein.
Set forth below is a brief summary of the report presented by Montgomery
to ARBI's Board of Directors on May 12, 1994, in connection with its oral
opinion. The summary set forth below does not purport to be a complete
description of the presentation by Montgomery to ARBI's Board of Directors or
of the analyses performed by Montgomery. The preparation of a fairness
opinion necessarily is not susceptible to partial analysis or summary
description. Montgomery believes that its analyses and the summary set forth
below must be considered as a whole and that selecting portions of its
analyses and of the factors considered, without considering all analyses and
factors, would create an incomplete view of the process underlying the
analyses set forth in its presentation to ARBI's Board of Directors. In
addition, Montgomery may have given various analyses more or less weight than
other analyses, and may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Montgomery's
view of the actual value of ARBI or the combined company. The fact that any
specific analysis has been referred to in the summary below is not meant to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ARBI and Norwest. The
analyses performed by Montgomery are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely
as part of Montgomery's analysis of the fairness of the Merger to ARBI
shareholders and were provided to ARBI's Board of Directors in connection with
the delivery of Montgomery's opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold
or the prices at which any securities may trade at the present time or at any
time in the future. Montgomery used in its analyses various projections of
future performance prepared by the management of ARBI. The projections are
based on numerous variables and assumptions which are inherently unpredictable
and must be considered not certain of occurrence as projected. Accordingly,
actual results could vary significantly from those set forth in such
projections.
As described above, Montgomery's opinion and presentation to ARBI's Board
of Directors were among the many factors taken into consideration by ARBI's
Board of Directors in making its determination to approve the Merger.
ANALYSIS OF SELECTED BANK MERGER TRANSACTIONS
Montgomery reviewed the consideration paid in recently announced
transactions whereby certain banks were acquired. Specifically, Montgomery
reviewed 148 transactions announced since January 1990 involving acquisitions
of banks in the Southwest (Arizona, Colorado, New Mexico, Nevada, Texas, Utah,
and Wyoming) (the "Southwest Bank Mergers"), and nine
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transactions announced since January 1990 involving acquisitions of banks in
New Mexico (the "New Mexico Bank Mergers").
For each such transaction Montgomery calculated, among other things, the
ratio of premium (price in excess of tangible book value) to core deposits,
price to book value, price to last twelve-months' ("LTM") earnings, and price
to total deposits. The calculations for the Southwest Bank Mergers and the
New Mexico Bank Mergers yielded (i) a median percentage of premium to core
deposits of 3.66% and 1.40%, respectively, (ii) a ratio of price to book value
of 1.40 and 1.15, respectively, (iii) a ratio of price to LTM earnings of 11.8
and 13.8, respectively, and (iv) a ratio of price to total deposits of 11.96%
and 11.48%, respectively. In comparison, assuming that the total
consideration payable in the Merger equals $31.9 million, of which
approximately $3.9 million is attributable to the sale of the ARBI Portfolio
Stock and the sale of the Trust Assets being distributed to the Trust,
Montgomery determined that the consideration to be paid to ARBI shareholders
in the Merger represented a percentage of premium to core deposits of 5.74%, a
ratio of price to book value of 1.59, a ratio of price to LTM earnings of
14.2, and a ratio of price to total deposits of 16.47%.
No other company or transaction used in the above analysis as a
comparison is identical to ARBI or the Merger. Accordingly, an analysis of
the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the
public trading value of the companies to which ARBI and the Merger are being
compared.
CONTRIBUTION ANALYSIS
Montgomery analyzed the contribution of each of ARBI and Norwest to,
among other things, total equity and net income of the pro forma combined
company for the year ended December 31, 1993, and for the three-month period
ended March 31, 1994. This analysis showed, among other things, that based on
pro forma combined balance sheets and income statements for ARBI and Norwest
as of and for the year ended December 31, 1993, and as of and for the three-
month period ended March 31, 1994, ARBI would have contributed 0.50% and
0.54%, respectively, of the total equity and 0.42% and 0.27%, respectively, of
the net income of the combined company. Assuming the total consideration
payable in the Merger equals $31.9 million, ARBI shareholders would own 0.40%
of the combined company.
PRESENT VALUE ANALYSIS
In performing the present value analysis, Montgomery assumed that the
Merger was consummated as of January 1, 1994, on the basis of an exchange
ratio of 2.691 shares of Norwest Common Stock for each share of ARBI Common
Stock. Montgomery calculated the 2.691 exchange ratio by excluding an assumed
$3.9 million of consideration attributable to ARBI's sale of the ARBI
Portfolio Stock and the Trust's sale of the Trust Assets from the total
consideration being paid in the Merger. In performing the analysis, Montgomery
estimated the present value of the future streams of annual pre-tax dividend
income that the combined company could produce over a five-year period under
various assumptions. One such assumption was that the proceeds from the
anticipated sales of the ARBI Portfolio Stock and the Trust Assets by ARBI and
the Trust, respectively, were paid out as a dividend in the first year.
Montgomery then estimated the terminal value of 2.691 shares of the combined
company at the end of the five-year period by applying various multiples
(ranging from 10x to 14x) to the combined company's projected 1998 earnings.
Montgomery then added the dividend stream to each of the terminal values and
discounted the sums using a 10% discount rate. This present value analysis
indicated a reference range of between $79.06 and $103.52 per 2.691 shares of
Norwest Common Stock. In comparison, Montgomery
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noted that, if ARBI were to remain independent, based on the sum of the
present value of the future stream of annual pretax dividend income that ARBI
could produce over a five-year period and certain terminal values derived from
applying multiples ranging from 8x to 12x to ARBI's projected 1998 earnings,
and discounting such sums using a 14% discount rate (reflecting the higher
risks associated with remaining an independent community bank), the present
value of one share of ARBI Common Stock ranged between $47.80 and $67.96.
ANALYSIS OF IMPACT ON ARBI SHAREHOLDERS
Based on forecasts of ARBI's and Norwest's financial results and other
information, Montgomery calculated the earnings, book value and dividends for
the pro forma combined company per 2.691 shares of ARBI Common Stock, without
taking into account the assumed $3.9 million in consideration attributable to
ARBI's sale of ARBI Portfolio Stock and the Trust's sale of the Trust Assets.
The calculations indicated that the pro forma combined company's 1994 earnings
per 2.691 shares of Norwest Common Stock were 15.1% greater than the earnings
per share projected for such period for ARBI. The calculations also showed
that the combined company's book value as of March 31, 1994, per 2.691 shares
of Norwest Common Stock was approximately 40.8% less than ARBI's book value
per share as of such date, and that the combined company's dividends per 2.691
shares of Norwest Common Stock were 99% greater than the then current
dividends per share of ARBI.
COMPARABLE COMPANY ANALYSIS
Using public and other available information, Montgomery compared certain
financial ratios of ARBI and Norwest (including equity to assets, return on
average assets, and return on average equity) and certain credit ratios of
ARBI and Norwest as of December 31, 1993, to 24 other banks in New Mexico, in
ARBI's case, and the top 50 commercial banking companies as measured in terms
of assets (the "Top 50") and the 41 non-money center companies included in
such Top 50 (the "Regional Banks"), in Norwest's case. No company used in the
analysis is identical to ARBI. The analysis necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies. Some of these commercial banking companies
are included in Montgomery's Quarterly Bank Monitor, a research publication
that tracks 50 banking companies nationally.
RATIO ANALYSIS
Montgomery analyzed certain financial and credit ratios of ARBI, Norwest,
and the pro forma combined company, including return on average assets, return
on average equity, common equity to assets, non-performing assets to average
assets and to total loans, and loan loss reserves to non-performing assets and
total loans, assuming the Merger was accounted for as a pooling of interests
and without taking into account any synergies that might be realized upon
consummation of the Merger. Such analyses indicated that, with the exception
of the ratio of common equity to assets, the combined company would be
stronger in each category than ARBI on a stand-alone basis. Montgomery
calculated that the Merger would produce a pro forma ratio of common equity to
assets of 6.35% compared to a ratio of 9.38% for ARBI on a stand-alone basis
at March 31, 1994.
HISTORICAL COMMON STOCK PRICE, VOLUME, AND OTHER STUDIES
Montgomery reviewed the historical common stock prices and volume history
of Norwest. In addition, Montgomery reviewed Norwest's earnings per share,
price to book value, price to
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earnings, and dividend yield histories. Montgomery also compared the price
and earnings per share of Norwest Common Stock from May 12, 1989, through May
6, 1994, to a bank industry proxy consisting of the 33 commercial banking
companies followed by Montgomery and the Standard & Poor's 500.
COMPENSATION
Pursuant to a letter agreement dated August 17, 1993 (the "Engagement
Letter"), ARBI engaged Montgomery to act as its financial advisor in
connection with a possible sale of ARBI. ARBI has paid Montgomery $150,000 to
date for its services pursuant to the terms of the Engagement Letter. ARBI
has also agreed to pay Montgomery, upon consummation of the Merger, a fee
equal to 1.5% of the total consideration payable in the Merger, but in no
event less than $250,000. The $150,000 paid by ARBI to date is to be credited
against the amount owing upon consummation of the Merger. ARBI also has
agreed to reimburse Montgomery for its reasonable out-of-pocket expenses.
Pursuant to a separate letter agreement, ARBI has agreed to indemnify
Montgomery, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees, and controlling persons against
certain liabilities, including liabilities under the federal securities laws.
In the ordinary course of its business, Montgomery actively trades equity
securities of Norwest for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. Certain partners of Montgomery also own shares of Norwest Common
Stock.
EFFECTIVE DATE AND TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Effective
Date of the Merger will be the date on which executed Articles of Merger are
filed with the Secretary of State of the State of New Mexico. Such filing
will be made five business days following the satisfaction or waiver of all
conditions of the Merger Agreement or on such other date upon which the
parties agree, and the time at which such filing will be made is hereinafter
referred to as the "Time of Filing." The "Effective Time of the Merger" will
be 11:59 p.m., New Mexico time, on the Effective Date of the Merger. Norwest
and ARBI anticipate that the closing will occur as soon as practicable in
January 1995. See "Terms of the Merger," "Conditions to the Merger," and
"Regulatory Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Merger, Norwest
Bank Minnesota, National Association, acting in the capacity of exchange agent
for Norwest (the "Exchange Agent"), will mail to each former holder of record
of shares of ARBI Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's stock certificates for a
certificate representing Norwest Common Stock.
SHAREHOLDERS OF ARBI SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of one or more certificates for ARBI
Common Stock, together with a properly completed letter of transmittal, there
will be issued and mailed to the holder a certificate representing the number
of whole shares of Norwest Common Stock to which such holder is entitled and,
where applicable, a check for the amount representing any
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fractional share. A certificate for Norwest Common Stock may be issued in a
name other than the name in which the surrendered certificate is registered
only if (i) the certificate surrendered is properly endorsed and otherwise in
proper form for transfer and (ii) the person requesting the issuance of such
certificate either pays to the Exchange Agent any transfer or other taxes
required by reason of the issuance of a certificate for such shares in a name
other than the registered holder of the certificate surrendered or establishes
to the satisfaction of the Exchange Agent that such tax has been paid or is
not applicable.
All Norwest Common Stock issued pursuant to the Merger will be deemed
issued as of the Effective Time of the Merger. No dividends in respect of the
Norwest Common Stock with a record date after the Effective Time of the Merger
will be paid to the former shareholders of ARBI entitled to receive
certificates for shares of Norwest Common Stock until such shareholders
surrender their certificates representing shares of ARBI Common Stock. Upon
such surrender, there shall be paid to the shareholder in whose name the
certificates representing such shares of Norwest Common Stock are issued any
dividends the record and payment dates of which shall have been after the
Effective Time of the Merger and before the date of such surrender. After
such surrender, there shall be paid to the person in whose name the
certificate representing such shares of Norwest Common Stock is issued, on the
appropriate dividend payment date, any dividend on such shares of Norwest
Common Stock which shall have a record date after the Effective Time of the
Merger, as the case may be, and prior to the date of surrender, but a payment
date subsequent to the surrender. In no event shall the persons entitled to
receive such dividends be entitled to receive interest on amounts payable as
dividends.
CONDITIONS TO THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
requisite vote of the holders of ARBI Common Stock. Consummation of the
Merger is subject to the satisfaction of certain other conditions, unless
waived, to the extent waiver is permitted by applicable law. Such conditions
include, but are not limited to: (i) the continued accuracy in all material
respects of representations and warranties by the other party; (ii) the
performance by the other party of its obligations under the Merger Agreement;
(iii) the receipt of certain certificates from officers of the other party;
(iv) the receipt of all necessary regulatory approvals, including the approval
of the Merger by the Federal Reserve Board, and the expiration of all
applicable waiting and appeal periods, provided that no regulatory approval,
license, or consent shall contain any condition or requirement relating to
ARBI or the Bank that Norwest in good faith judges unreasonably burdensome;
(v) the absence of any order of a court or agency of competent jurisdiction
restraining, enjoining, or otherwise prohibiting consummation of the
transactions contemplated by the Merger Agreement; and (vi) the continued
effectiveness of the Registration Statement of which this Proxy Statement-
Prospectus is a part and receipt by Norwest of all state securities law or
blue sky authorizations necessary for the Merger.
ARBI's obligation to consummate the Merger is also subject to (i)
authorization for listing on the NYSE and CHX of the shares of Norwest Common
Stock issuable pursuant to the Merger and (ii) the receipt of an opinion of
counsel for ARBI to the effect that for federal income tax purposes the Merger
will be a tax-free reorganization.
Norwest's obligation to consummate the Merger is also subject to (i) the
receipt by ARBI and each of its subsidiaries of any and all material consents
or waivers from third parties to loan agreements, leases, or other material
contracts required for the consummation of the Merger, and the receipt by ARBI
and each of its subsidiaries of any and all material permits,
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authorizations, consents, waivers, and approvals required for the consummation
of the Merger; (ii) the total number of shares of ARBI Common Stock (including
phantom shares and other share equivalents, other than certain performance
shares held by ARBI's Chief Executive Officer) outstanding and subject to
issuance upon exercise of all warrants, options, conversion rights, phantom
shares, or other share equivalents, not having exceeded 410,095; (iii) the
receipt of a letter signed by ARBI's Chief Executive Officer and Chief
Financial Officer concerning the accuracy and completeness of certain of
ARBI's financial statements and related information and the absence of any
changes in such financial statements and related information subsequent to the
date of such financial statements; (iv) the requirement that ARBI and its
subsidiaries considered as a whole shall not have sustained since March 31,
1994, any material loss or interference with their business from any civil
disturbance or any fire, explosion, flood, or other calamity, whether or not
covered by insurance; (v) the absence of any reasonable basis for any
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition, on ARBI or any of its
subsidiaries of any liability related to the release of hazardous substances
as defined under any local, state, or federal environmental statute,
regulation, or ordinance which has had or could reasonably be expected to have
a material adverse effect upon ARBI and its subsidiaries taken as a whole;
(vi) the absence, since March 31, 1994, of any change, other than changes in
banking laws or regulations that affect the banking industry generally or
changes in the general level of interest rates, or any circumstance which has
had or might reasonably be expected to have a material adverse effect on the
financial condition, results of operations, business, or prospects of ARBI and
its subsidiaries taken as a whole; (vii) the termination of a Stock
Restriction Agreement, dated as of May 18, 1983, to which certain ARBI
shareholders are a party; and (viii) the delivery to Norwest by ARBI at the
Closing of stock certificates evidencing all of the outstanding capital stock
of all of ARBI's subsidiaries free and clear of any lien, claim, charge,
option, encumbrance, or agreement with respect thereto.
REGULATORY APPROVALS
Transactions such as the Merger are subject to prior approval by the
Federal Reserve Board under Sections 3 and 4 of the Bank Holding Company Act
of 1956, as amended (the "BHC Act"), which requires that the Federal Reserve
Board 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. By letter dated October 7, 1994,
the Federal Reserve Bank informed Norwest that it had approved the Merger.
As required by New Mexico law, Norwest notified the Director of the
Financial Institutions Division of the New Mexico Regulation and Licensing
Department of its intent to acquire ARBI. By letter dated August 31, 1994,
the Financial Institutions Division informed Norwest that it had no objection
to the proposed acquisition.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the Merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed Merger.
Norwest and ARBI are not aware of any governmental approvals or compliance
with banking laws and regulations that are required for consummation of the
Merger other than those described above. Should any other approval or action
be required, it is presently contemplated that such approval or action would
be sought. There can be no assurance that any such approval or action, if
needed, could be obtained and, if such approvals or actions are obtained,
there can be no assurance as to the timing thereof. The Merger cannot proceed
in
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the absence of all requisite regulatory approvals. See "Conditions to the
Merger," "Effective Date and Time of the Merger," and "Waiver, Amendment, and
Termination."
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Merger Agreement, each of ARBI and its subsidiaries is obligated
to maintain the general character of its business and conduct its business in
the ordinary and usual manner; and Norwest is obligated to conduct and to
cause its subsidiaries to conduct their respective businesses in compliance
with all material obligations and duties imposed by laws, regulations, rules,
and ordinances, and by judicial orders, judgments, and decrees applicable to
them, their businesses, or their properties.
CERTAIN COVENANTS
Pursuant to the Merger Agrement, ARBI and Norwest have each agreed (i) to
furnish all information required for inclusion in the Registration Statement
to be filed with the Securities and Exchange Commission (the "SEC") and the
proxy statement or statements included therein and in any statement or
application to any governmental body in connection with the transactions
contemplated by the Merger Agreement; (ii) to take all necessary corporate and
other action to obtain all regulatory approvals, consents, and other approvals
required to carry out the transactions contemplated by the Merger Agreement
and to cooperate with the other party in obtaining such approvals; (iii) to
hold in confidence all documents and information concerning the other party
and its subsidiaries furnished in connection with the transactions furnished
by the Merger Agreement and not to release or disclose such information,
except as required by law or to outside professional advisers; and (iv) to
consult with each other concerning the form and substance of any press release
or public disclosure of matters related to the Merger Agreement and
transactions contemplated thereby.
The Merger Agreement includes a number of covenants of ARBI which are
customary in transactions such as the Merger. Such covenants include, but are
not limited to, the following: ARBI and each of its subsidiaries will
maintain its corporate existence in good standing; extend credit in accordance
with existing lending policies, except that it shall not, without the prior
written consent of Norwest, make any new loan or modify, restructure, or renew
any existing loan, except pursuant to commitments made prior to June 6, 1994,
to any borrower if the amount of the resulting loan, when aggregated with all
other loans or extensions of credit to such person, would be in excess of
$200,000; maintain proper business and accounting records in accordance with
generally accepted principles; maintain its properties in good repair and
condition, ordinary wear and tear excepted; maintain in all material respects
presently existing insurance coverage; use its best efforts to preserve its
business organization intact, to keep the services of its present principal
employees, and to preserve its goodwill and the goodwill of its suppliers,
customers, and others having business relationships with it; use its best
efforts to obtain any approvals or consents required to maintain existing
leases and other contracts in effect following the Merger; comply in all
material respects with all laws, regulations, ordinances, codes, orders,
licenses, and permits applicable to the properties and operations of ARBI and
each of its subsidiaries the noncompliance with which reasonably could be
expected to have a material adverse effect on ARBI and its subsidiaries taken
as a whole; and permit Norwest and its representatives to examine its and its
subsidiaries' books, records, and properties, and to interview officers,
employees, and agents at all reasonable times when it is open for business.
The Merger Agreement also provides that, prior to the Closing Date, neither
ARBI nor any of its subsidiaries may, without the prior written consent of
Norwest: (i) amend or otherwise change its articles of incorporation or
association or bylaws; (ii) issue or sell, or authorize for issuance or sale,
or grant any options or make other agreements with
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respect to the issuance or sale, or conversion of, any shares of its capital
stock, phantom shares, or other share equivalents, or any other of its
securities; (iii) authorize or incur any long-term debt (other than deposit
liabilities); (iv) mortgage, pledge, or subject to lien or other encumbrance
any of its properties, except in the ordinary course of business; (v) enter
into any material agreement, contract, or commitment in excess of $50,000
except banking transactions in the ordinary course of business and in
accordance with policies and procedures in effect on June 6, 1994; (vi) make
any investments except investments made by bank subsidiaries in the ordinary
course of business for terms of up to one year and in amounts of $100,000 or
less; (vii) amend or terminate any "employee benefit plan" within the meaning
of the Employee Retirement Income Security Act of 1974, as amended, except as
required by law; (viii) make any contributions to any such plan except as
required by the terms of such plan in effect as of June 6, 1994; (ix) declare,
set aside, make, or pay any dividend or other distribution with respect to its
capital stock, except any dividend declared by a subsidiary's Board of
Directors in accordance with applicable law and regulation and except for a
regular quarterly cash dividend on ARBI Common Stock of not more than $0.25
per share for the third and fourth quarters of 1994 and, if the Effective Time
of the Merger is after March 31, 1995, the first quarter of 1995; (x) redeem,
purchase, or otherwise acquire, directly or indirectly, any of the capital
stock of ARBI; (xi) increase the compensation of any officers, directors, or
executive employees, except pursuant to existing compensation plans and
practices and except that ARBI or the Bank may pay an aggregate of $150,000 in
bonuses to persons who, on the day before the Effective Date of the Merger,
are employees of ARBI or the Bank; (xii) sell or otherwise dispose of any
shares of the capital stock of any subsidiary; or (xiii) sell or otherwise
dispose of any of its assets or properties other than in the ordinary course
of business. In addition, ARBI has agreed to (i) deliver resale letters from
its affiliates under Rule 145 of the SEC; (ii) establish such additional
accruals and reserves as necessary to conform ARBI's accounting and credit
loss practices to those of Norwest; (iii) deliver environmental assessment
reports on certain properties prepared at its own expense, (iv) deliver title
commitments and surveys for each of its bank facilities at its own expense;
(v) apply funds from a loan to be made to it by Norwest to discharge
certain debt secured by stock of the Bank; (vi) convey certain of its assets
and the Bank's assets to the Trust; (vii) maintain the provision for loan
losses at an amount in excess of zero; (viii) attempt to dispose of the Bank's
entire interest in El Pueblo Properties; (ix) sell all of the ARBI Portfolio
Stock; and (x) prepay certain indebtedness secured by stock of the Bank.
Neither ARBI nor the Bank, nor any director, officer, representative, or
agent thereof, will, directly or indirectly, solicit, authorize the
solicitation of, or enter into any discussions with any corporation,
partnership, person, or other entity or group (other than Norwest) concerning
any offer or possible offer (i) to purchase any shares of ARBI Common Stock,
any option or warrant to purchase any shares of ARBI Common Stock, any
securities convertible into any shares of ARBI Common Stock, or any other
equity security of ARBI or any of its subsidiaries; (ii) to make a tender or
exchange offer for any shares of ARBI Common Stock or other equity security;
(iii) to purchase, lease, or otherwise acquire the assets of ARBI or any of
its subsidiaries, except in the ordinary course of business; or (iv) to merge,
consolidate, or otherwise combine with ARBI or any of its subsidiaries. Any
offer or inquiry to ARBI or any of its subsidiaries concerning any of the
foregoing must be promptly disclosed, along with the terms thereof, to
Norwest.
The Merger Agreement includes a number of covenants of Norwest which are
customary in transactions such as the Merger. In addition, pursuant to the
Merger Agreement Norwest has agreed to (i) give ARBI written notice of the
receipt of all regulatory approvals; (ii) permit ARBI and its representative
to examine Norwest's books, records, and properties, and to interview
Norwest's officers, employees, and agents, for a period of up to 15 days prior
to the Closing Date; (iii) loan to ARBI funds sufficient to enable ARBI to pay
in full all indebtedness of ARBI secured by the stock of any of its
subsidiaries; (iv) use all reasonable efforts to
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maintain, for three years following the Effective Time of the Merger,
directors' and officers' liability insurance for future claims arising out of
occurrrences prior to the Effective Time of the Merger; (v) deposit with the
Exchange Agent, prior to the Effective Time of the Merger, the shares of
Norwest Common Stock and the cash in lieu of fractional shares to be issued to
shareholders of ARBI at Closing; (vi) deliver to ARBI, from the date of the
Merger Agreement to the Effective Date of the Merger, any quarterly and annual
reports filed by Norwest with the SEC; and (vii) file with the SEC such
reports as Norwest is otherwise required to file necessary to permit
shareholders of ARBI who may be deemed affiliates of ARBI to sell the Norwest
Common Stock they receive in the Merger pursuant to Rule 145.
WAIVER, AMENDMENT, AND TERMINATION
The parties may, in writing, give any consent, take any action with
respect to termination of the Merger Agreement, or waive any inaccuracies in
the representations and warranties of the other party or compliance by the
other party with any of the covenants and conditions in the Merger Agreement.
At any time before the Time of Filing the parties may amend the Merger
Agreement by action of their respective Boards of Directors or pursuant to
authority delegated by their respective Boards of Directors; provided,
however, that no such amendment occurring after approval of the Merger by ARBI
shareholders may adversely affect the consideration to be received by ARBI
shareholders.
The Merger Agreement provides that it may be terminated at any time prior
to the Time of Filing (i) by mutual written consent of the parties; (ii) by
either party by written notice to the other if the Merger shall not have been
consummated by May 15, 1995, unless such failure of consummation is due to the
failure of the party seeking termination to perform or observe in all material
respects the covenants and agreements to be performed or observed by it under
the Merger Agreement; (iii) by either party by written notice to the other if
any court or governmental authority of competent jurisdiction shall have
issued a final order restraining, enjoining, or otherwise prohibiting the
consummation of the transactions contemplated by the Merger Agreement; or (iv)
by ARBI, within 5 days after the end of the period of 20 trading days used in
the calculation of Norwest Measurement Price if (A) the Norwest Measurement
Price is less than $20.00 and (B) the quotient obtained by dividing the
Norwest Measurement Price by $27.25 is less than 85% of the quotient obtained
by dividing (x) the weighted average closing prices per share of the common
stock of each company in a group of 23 regional bank holding companies (the
"Index Group") over such period of 20 trading days by (y) the weighted average
closing prices per share of the common stock of each company in the Index
Group on June 3, 1994.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
As of the Effective Time of the Merger, ARBI will become a subsidiary of
Norwest and the Bank will become an indirect subsidiary of Norwest. As soon
as possible after the Closing, management of Norwest plans to merge the Bank
into Norwest Bank New Mexico, N.A. and to consolidate the Bank's branch in
Moriarty and the existing branch of Norwest Bank New Mexico, N.A. in Moriarty.
After the Closing, with the exception of the consolidation of the Moriarty
branches, the Bank will continue to operate at its present locations,
providing products and services offered by Norwest affiliates. See "Terms of
the Merger."
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CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
ARBI is incorporated as a corporation under the laws of New Mexico, and
Norwest is incorporated as a corporation under the laws of Delaware.
Shareholders of ARBI, whose rights are governed by ARBI's Articles of
Incorporation and Bylaws and by the New Mexico Business Corporation Act (the
"NMBCA"), will, upon consummation of the Merger, become stockholders of
Norwest. The rights of former shareholders of ARBI will then be governed by
Norwest's Certificate of Incorporation and By-Laws and by the Delaware General
Corporation Law (the "DGCL"). The following is a summary of certain
significant differences between the rights of shareholders of ARBI and
stockholders of Norwest.
CAPITAL STOCK
ARBI. ARBI's Articles of Incorporation authorize the issuance of
1,000,000 shares of common stock, par value $1.00 per share, and 1,000,000
shares of cumulative preferred stock, par value $1.00 per share. At June 30,
1994, 410,095 shares of ARBI Common Stock were issued and outstanding.
Although shares of ARBI's cumulative preferred stock are issuable in series by
action of the Board of Directors, no shares of ARBI's preferred stock are
issued and outstanding as of the date of this Proxy Statement-Prospectus.
Accordingly, no class or series has any preference over the ARBI Common Stock
with respect to dividends and distributions upon the liquidation of ARBI.
NORWEST. Norwest's Certificate of Incorporation authorizes the issuance of
500,000,000 shares of Common Stock, par value $1 2/3 per share, and 5,000,000
shares of preferred stock, without par value ("Preferred Stock"). At June 30,
1994, 323,084,474 shares of Common Stock were issued, of which 315,457,227
were outstanding and 7,627,247 were held as treasury shares, and 2,306,000
shares of Preferred Stock were outstanding consisting of 1,127,125 shares of
10.24% Cumulative Preferred Stock, 1,143,750 shares of Cumulative Convertible
Preferred Stock, Series B, and 35,125 shares of ESOP Cumulative Convertible
Preferred Stock. In addition, 1,000,000 shares of Preferred Stock are reserved
for issuance under the Rights Agreement dated as of November 22, 1988, between
Citibank, N.A. as Rights Agent, and Norwest (the "Rights Agreement"). Norwest
has also authorized for issuance from time to time and registered with the
Commission an additional 1,700,000 shares of Preferred Stock. Norwest has also
authorized for issuance from time to time and registered or filed for
registration with the SEC, pursuant to two universal shelf registration
statements, an indeterminate number of securities (the "Shelf Securities")
with an aggregate initial offering price, as of November 4, 1994, not to
exceed $2,025,000,000. The Shelf Securities may be issued as Preferred Stock
or as securities convertible into shares of Preferred Stock or Common Stock.
Based on the current number of shares of Preferred Stock and Common Stock
authorized for issuance under Norwest's Certificate of Incorporation, the
maximum number of shares of Preferred Stock and Common Stock, respectively,
that could be issued pursuant to the effective shelf registration statements,
when added to shares of Preferred Stock and Common Stock already reserved for
issuance, issued, or outstanding, could not exceed respectively, 5,000,000
shares of Preferred Stock and 500,000,000 shares of Common Stock. All or any
portion of the authorized but unissued Preferred Stock or Shelf Securities
issuable as Preferred Stock or convertible into Preferred Stock or Common
Stock, may be issued by the Board of Directors of Norwest without further
action by stockholders. Holders of Preferred Stock have certain rights and
preferences with respect to dividends and upon liquidation that are superior
to those of holders of Common Stock. The relative rights and preferences of
any Preferred Stock issued in the future may be established by Norwest's Board
of Directors without stockholder action. Although Norwest has no current plans
for the issuance of any shares of Preferred Stock, except as disclosed in this
Prospectus, such shares, when and if issued, could have dividend, liquidation,
voting and other rights superior to those of the Common Stock.
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Subject to any prior rights of any Preferred Stock then outstanding,
holders of Common Stock are entitled to receive such dividends as are declared
by Norwest's Board of Directors out of funds legally available for that
purpose. For information concerning legal limitations on the ability of
Norwest's banking subsidiaries to supply funds to Norwest, see "CERTAIN
REGULATORY CONSIDERATIONS." Subject to the rights, if any, of any Preferred
Stock then outstanding, all voting rights are vested in the holders of Common
Stock, each share being entitled to one vote. Subject to any prior rights of
any Preferred Stock, in the event of liquidation, dissolution, or winding up
of Norwest, holders of shares of Common Stock are entitled to receive pro rata
any assets distributable to stockholders in respect of shares held by them.
Holders of shares of Common Stock do not have any preemptive right to
subscribe for any additional securities which may be issued by Norwest. The
outstanding shares of Common Stock are, and the Shares offered hereby will be,
fully paid and nonassessable. The transfer agent and registrar for the Common
Stock is Norwest Bank Minnesota, N.A. Each share of Common Stock also
includes, and each share offered hereby will include, a right to purchase
certain Preferred Stock. See "Rights to Purchase Preferred Stock" below.
The foregoing description of the material terms of the Common Stock does
not purport to be complete and is qualified in its entirety by reference to
Article Fourth of Norwest's Certificate of Incorporation.
RIGHTS TO PURCHASE NORWEST PREFERRED STOCK. On November 22, 1988, the
Board of Directors of Norwest declared a dividend of one preferred share
purchase right (collectively, the "Rights") for each outstanding share of
Norwest Common Stock. The dividend was paid on December 9, 1988, to
stockholders of record on that date. Holders of shares of Norwest Common
Stock issued subsequent to that date, including those to be issued in
connection with the Merger, will receive the Rights with their shares. The
Rights trade automatically with shares of Norwest Common Stock and become
exercisable only under certain circumstances. The Rights are designed to
protect the interests of Norwest and its stockholders against coercive
takeover tactics. The purpose of the Rights is to encourage potential
acquirors to negotiate with Norwest's Board of Directors prior to attempting a
takeover and to give the Board leverage in negotiating on behalf of all
stockholders the terms of any proposed takeover. The Rights may, but are not
intended to, deter takeover proposals.
Upon becoming exercisable, each Right will entitle the registered holder
to purchase from Norwest one four-hundredth of a share of Norwest Series A
Junior Participating Preferred Stock (collectively, the "Junior Preferred
Shares"). The stated purchase price for each one one-hundredth of a Junior
Preferred Share is $175.00. Until a Right is exercised, the holder of a
Right, as such, will have no rights with respect to the Junior Preferred
Shares including, without limitation, the right to vote or receive dividends.
The purchase price is subject to adjustment upon the occurrence of certain
events, including stock dividends on the Junior Preferred Shares or issuance
of warrants for, or securities convertible on certain terms into, Junior
Preferred Shares. The number of Rights outstanding and the number of Junior
Preferred Shares issuable upon exercise of the Rights are subject to
adjustment in the event of a stock split of, or a stock dividend on, Norwest
Common Stock.
The Rights will become exercisable only if a person or group acquires or
announces an offer to acquire 25% or more of the outstanding shares of Norwest
Common Stock. This triggering percentage may be reduced to no less than 15%
by the Board of Directors prior to the time the Rights become exercisable.
The Rights have certain additional features that will be triggered upon the
occurrence of specified events:
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(1) If a person or group acquires at least the triggering percentage of
Norwest Common Stock, the Rights permit holders of the Rights, other than
such person or group, to acquire Norwest Common Stock at 50% of market
value. However, this feature will not apply if a person or group which
owns less than the triggering percentage acquires at least 85% of the
outstanding shares of Norwest Common Stock pursuant to a cash tender offer
for 100% of the outstanding Norwest Common Stock.
(2) After a person or group acquires at least the triggering percentage
and before the acquiror owns 50% of the outstanding shares of Norwest
Common Stock, the Board of Directors may exchange each Right, other than
Rights owned by such acquiror, for one share of Norwest Common Stock or
one four-hundredth of a Junior Preferred Share.
(3) In the event of certain business combinations involving Norwest or
the sale of 50% or more of the assets or earning power of Norwest, the
Rights permit holders of the Rights to purchase the stock of the acquiror
at 50% of market value.
The Junior Preferred Shares will not be redeemable. Each Junior Preferred
Share will be entitled to a minimum preferential quarterly dividend payment of
$1.00 per share but will be entitled to an aggregate dividend of 400 times the
dividend declared per share of Norwest Common Stock. In the event of
liquidation, the holders of the Junior Preferred Shares will be entitled to a
minimum preferential liquidation payment of $400.00 per share but will be
entitled to an aggregate payment of 400 times the payment made per share of
Norwest Common Stock. Each Junior Preferred Share will have 400 votes, voting
together with the Norwest Common Stock. Finally, in the event of any merger,
consolidation, or other Reorganization in which Norwest Common Stock is
exchanged, each Junior Preferred Share will be entitled to receive 400 times
the amount received per share of Norwest Common Stock. These rights are
protected by customary antidilution provisions.
At any time prior to the acquisition by a person or group of the
triggering percentage or more of the outstanding shares of Norwest Common
Stock, the Board of Directors may redeem the Rights in whole, but not in part,
at a price of $.0025 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis, and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only remaining right of the holders of Rights
will be to receive the Redemption Price.
The Rights will expire on November 23, 1998, unless extended or earlier
redeemed by Norwest. Generally, the terms of the Rights may be amended by the
Board of Directors without the consent of the holders of the Rights.
AMENDMENT OF CORPORATE CHARTER AND BYLAWS
ARBI. Generally, under the NMBCA, amendments to articles of incorporation
require the affirmative vote of the holders of a majority of the shares
entitled to vote on the proposed amendment. Where class voting is required by
the NMBCA, approval requires the affirmative vote of the holders of both a
majority of the shares of each class entitled to vote on the proposed
amendment and a majority of the total shares entitled to vote thereon. ARBI's
Bylaws provide that only the Board of Directors has the power to alter, amend,
or repeal its Bylaws, or adopt new Bylaws.
NORWEST. The provisions of the DGCL governing the amendment of Norwest's
Certificate of Incorporation are essentially the same as those of New Mexico
law. However,
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Norwest's By-Laws provide that they may be altered or amended by the
affirmative vote of a majority of the Board of Directors or the holders of a
majority of the outstanding Norwest stock entitled to vote on the amendment.
DISSENTERS' RIGHTS
ARBI. Under the NMBCA, shareholders of ARBI are entitled to exercise
dissenters' rights and obtain payment of the fair value of their shares in
cash if ARBI engages in certain transactions. The transactions which give
rise to dissenters' rights under New Mexico law are (i) mergers and
consolidations to which the corporation is a party (unless the shareholders of
the surviving corporation are not entitled to a vote with respect thereto);
(ii) any sale or exchange of all or substantially all of the property and
assets of the corporation not made in the usual and regular course of
business, including a sale in dissolution, but excluding a sale pursuant to a
court order or a sale for cash on terms requiring that all or substantially
all of the net proceeds of sale be distributed to the shareholders in
accordance with their respective interests within one year of the sale; (iii)
any plan of exchange to which the corporation is a party as the corporation
the shares of which are to be acquired; (iv) any amendment to the articles of
incorporation which materially and adversely affects the rights appurtenant to
the shares of the dissenting shareholders by altering or abolishing a
preferential right of the shares, creating, altering or abolishing a
redemption or sinking fund right in respect of the shares, or excluding or
limiting the right of any holder of such to shares to vote on any manner, or
to cumulate his votes; and (v) any other corporate action for which the
articles of incorporation, bylaws, or a resolution of the Board of Directors
provides for a right to dissent. See the more detailed discussion below under
"Rights of Dissenting ARBI Shareholders."
NORWEST. Under the DCGL, a stockholder is generally entitled to receive
payment of the appraised value of such stockholder's shares if the stockholder
dissents from a merger or consolidation. However, appraisal rights are not
available to holders of (a) shares listed on a national securities exchange or
held of record by more than 2,000 persons or (b) shares of the corporation
surviving a merger, if the Merger did not require the approval of the
stockholders of such corporation, unless in either case, the holders of such
stock are required by the terms of the Merger to accept anything other than
(i) shares of stock of the surviving corporation, (ii) shares of stock of
another corporation which are also listed on a national securities exchange or
held by more than 2,000 holders, or (iii) cash in lieu of fractional shares of
such stock. Appraisal rights are not available to Norwest stockholders for a
sale of assets or an amendment to the Certificate of Incorporation. Because
shares of Norwest Common Stock are listed on both the NYSE and the CHX, and
Norwest has more than 2,000 stockholders of record, its stockholders are not,
subject to the aforementioned exceptions, entitled to any rights of appraisal
in connection with mergers or consolidations involving Norwest.
SPECIAL MEETINGS OF SHAREHOLDERS
ARBI. Under the NMBCA, a special meeting of shareholders may be called by
ARBI's Board of Directors, the holders of not less than ten percent of all of
the shares entitled to vote at the meeting and such other persons as may be
authorized by the articles of incorporation or bylaws. ARBI's Bylaws permit
special meetings of shareholders to be called by the President or the Board of
Directors, and require the President to call a special meeting upon the
request of the holders of not less than ten percent of the outstanding shares
of ARBI Common Stock.
NORWEST. Under the DCGL and the By-Laws of Norwest, a special meeting of
stockholders may be called only by the Chairman of the Board, a Vice Chairman,
the President, or a majority of the Board of Directors.
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DIRECTORS' DUTIES
ARBI. Under the NMBCA, a director is required to perform his or her
duties as a director in good faith, in a manner he or she believes to be in or
not opposed to the best interests of the corporation, and with such care as an
ordinarily prudent person would use under similar circumstances in a like
position. The NMBCA further provides that in determining what is in or not
opposed to the best interests of the corporation, a director must consider the
interests of the corporation's shareholders and may consider (i) the interests
of the corporation's employees, suppliers, creditors, and customers; (ii) the
economy of the state and the nation; (iii) the impact of any action upon the
communities in or near which the corporation's facilities or operations are
located; and (iv) the long-term interests of the corporation and its
shareholders, including the possibility that those interests may be best
served by the continued independence of the corporation.
NORWEST. Unlike the NMBCA, the DGCL does not specifically enumerate
directors' duties. In addition, the DGCL does not contain any provision
equivalent to the New Mexico statute specifying what factors a director must
and may consider in determining a corporation's best interests. However,
judicial decisions in Delaware have established that directors, in performing
their duties, are bound to use that amount of care which ordinarily prudent
men would use in similar circumstances.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
ARBI. Under the NMBCA and ARBI's Articles of Incorporation, a director of
ARBI is not liable for any action taken as a director or for any failure to
take any action if he or she performed the duties of a director's office in
good faith, with the care an ordinarily prudent person in a similar position
would exercise under similar circumstances, and in a manner the director
believes to be in the best interests of the corporation.
Under the NMBCA and its Articles of Incorporation, ARBI may indemnify its
officers and directors made a party to any proceeding, whether civil or
criminal, from any judgments, penalties, fines, settlements, and reasonable
expenses, including attorneys' fees, if such person was made a party to the
action by reason of the fact that he or she was an officer or director of ARBI
and he or she conducted himself or herself in good faith and reasonably
believed (i) in the case of conduct in his or her official capacity with ARBI,
that his or her conduct was in the best interests of ARBI; (ii) in all other
cases, that his or her conduct was at least not opposed to ARBI's best
interests; and (iii) in the case of criminal proceedings, that he or she had
no reasonable cause to believe the conduct was unlawful.
No indemnification is available where the officer or director is adjudged
liable to ARBI or in which the officer or director has been adjudged liable on
the basis that he or she improperly received a personal benefit. If the Board
of Directors of ARBI is of the opinion, reasonably based on the facts,
circumstances, and outcome of the proceeding, that the director has been
wholly successful, on the merits or otherwise, in the defense of the
proceeding, then indemnification of the director for reasonable expenses
incurred in the proceeding is mandatory. A court of appropriate jurisdiction,
upon application of the director, may order indemnification if the court
determines that the director has been wholly successful in the defense of the
proceeding or if the court determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not the director has met the statutory standards of
conduct or has been liable for receiving an improper personal benefit. If the
action was by or in the right of ARBI (a "derivative action"), indemnification
is only available for any reasonable expenses incurred.
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ARBI's Bylaws provide that expenses incurred in defending any action may
be paid by ARBI in advance of the final disposition of such action upon
receipt of an undertaking by a director or officer to repay such amount unless
it is ultimately determined that he or she is entitled to be indemnified. The
indemnification provided by ARBI's Bylaws is substantially similar to the
indemnification provisions in the NMBCA.
NORWEST. Under the DGCL, absent a provision in the certificate of
incorporation to the contrary, directors can be held liable for gross
negligence in connection with the decisions made on behalf of the corporation
and the performance of their duty of care, but will not be liable for simple
negligence. As permitted under Delaware law, Norwest's Certificate of
Incorporation provides that a director (including an officer who is also a
director) of Norwest shall not be liable personally to Norwest or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability arising out of (i) any breach of a director's duty of
loyalty to Norwest or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) payment of a dividend or approval of a stock repurchase in violation of
Section 174 of the DGCL, or (iv) any transaction from which the director
derives improper personal benefit. This provision protects Norwest's
directors against personal liability for monetary damages from breaches of
their duty of care. However, it does not eliminate the director's duty of
care. For example, this provision in Norwest's Certificate of Incorporation
has no effect on the availability of equitable remedies, such as an injunction
or rescission, based upon a director's breach of his duty of care.
Delaware law provides that directors, officers, and other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits, or proceedings, whether civil, criminal, administrative, or
investigative (other than a derivative action) if they acted in good faith and
in a manner they reasonably believed to be in, or not opposed to, the best
interests of the corporation, and regarding any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. A similar
standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred
in connection with the defense or settlement of such actions. In the case of
derivative actions, Delaware law requires court approval before there can be
any indemnification where the person seeking indemnification has been found
liable to the corporation. To the extent that a person otherwise eligible to
be indemnified is successful on the merits of any claim or defense described
above, indemnification for expenses (including attorneys' fees) actually and
reasonably incurred is mandated by Delaware law.
Norwest's Certificate of Incorporation provides that Norwest must
indemnify, to the fullest extent authorized by Delaware law, each person who
was or is made a party to, is threatened to be made a party to, or is involved
in, any action, suit, or proceeding because he is or was a director or officer
of Norwest (or was serving at the request of Norwest as a director, trustee,
officer, employee, or agent of another entity) while serving in such capacity
against all expenses, liabilities, or loss incurred by such person in
connection therewith, provided that indemnification in connection with a
proceeding brought by such person will be permitted only if the proceeding was
authorized by the Norwest Board of Directors. Norwest's Certificate of
Incorporation also provides that Norwest must pay expenses incurred in
defending the proceedings specified above in advance of their final
disposition, provided that if so required by Delaware law, such advance
payments for expenses incurred by a director or officer may be made only if he
undertakes to repay all amounts so advanced if it is ultimately determined
that the person receiving such payments is not entitled to be indemnified.
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Norwest's Certificate of Incorporation authorizes Norwest to provide
similar indemnification to employees or agents of Norwest.
Pursuant to Norwest's Certificate of Incorporation, Norwest may maintain
insurance, at its expense, to protect itself and any directors, officers,
employees, or agents of Norwest or another entity against any expense,
liability, or loss, regardless of whether Norwest has the power or obligation
to indemnify that person against such expense, liability, or loss under
Delaware law.
The right to indemnification is not exclusive of any other right which
any person may have or acquire under any statute, provision of Norwest's
Certificate of Incorporation or By-Laws, agreement, vote of stockholders or
disinterested directors, or otherwise.
ANTITAKEOVER STATUTES
ARBI. The NMBCA does not include any provision that regulates the
accumulation of shares of voting stock of, or business combinations with, New
Mexico corporations.
NORWEST. The Delaware antitakeover statute governs business combinations
between a publicly held Delaware corporation having certain numbers of
stockholders or listed on certain exchanges and an interested stockholder.
This statute is designed primarily to regulate the second step of a two-tiered
takeover attempt. Delaware law broadly defines a "business combination" as
including a merger, sale of assets, issuance of voting stock, and various
other types of transactions with an interested stockholder and other related
parties. An "interested stockholder" is defined as any person who
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting stock of a corporation. Delaware law prohibits a corporation from
engaging in a business combination with an interested stockholder for a period
of three years following the date on which the stockholder became an
interested stockholder, unless (a) the board of directors approved the
business combination before the stockholder became an interested stockholder,
(b) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, such stockholder owned at least 85% of the
voting stock outstanding when the transaction began, excluding in computing
such percentage shares held by certain types of stockholders, or (c) the board
of directors approved the business combination after the stockholder became an
interested stockholder and the business combination was approved by at least
two-thirds of the outstanding voting stock not owned by such stockholder.
In addition to being subject to the laws of Delaware, Norwest and ARBI, as
bank holding companies, are subject to various provisions of federal law with
respect to mergers, consolidations, and certain other corporate transactions.
RESTRICTIONS ON DECLARATION OF DIVIDENDS
ARBI. Under the NMBCA, ARBI's Board of Directors may authorize and ARBI
may pay dividends to its shareholders, provided that no such distribution of
dividends may be made if, after giving effect thereto, either (i) ARBI would
be unable to pay its debts as they become due in the usual course of its
business or (ii) ARBI's total assets would be less the sum of its total
liabilities and the amount payable, in any liquidation, in respect of all
shares having liquidation preference.
NORWEST. Under the DGCL, Norwest's Board of Directors may authorize and
pay dividends to its shareholders either (i) out of surplus, which is that
part of a corporation's net assets which is in excess of the amount determined
by the board of directors to be capital,
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provided that, for corporation like Norwest with par value capital stock, a
corporation's capital may not be less than the aggregate par value of its
issued shares, or (ii) if there is no surplus, out of the corporation's net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. The board of directors of a Delaware corporation may
reduce the corporation's capital, provided that the corporation's assets
remaining after the reduction are sufficient to pay any of the corporation's
debts for which payment has not otherwise been provided.
RIGHTS OF DISSENTING ARBI SHAREHOLDERS
Shareholders of ARBI are entitled to exercise dissenters' rights under
Sections 53-15-3 and 53-15-4 of the NMBCA. Shareholders electing to demand
the appraisal of their shares may not vote in favor of the Merger and must
deliver a written objection to the Merger to ARBI at its principal executive
offices either before the date of the Special Meeting or before the taking of
the vote on the Merger at the Special Meeting. By properly executing a proxy
card with no voting instructions indicated thereon, a shareholder will vote in
favor of the approval and adoption of the Merger Agreement and, accordingly,
will not be entitled to exercise dissenters' rights in connection with the
Merger. If the Merger is approved, the shareholder may, within ten days after
the date on which the vote on the Merger is taken, make written demand on
ARBI, as the surviving corporation, for payment of the fair value of the
shareholder's shares in cash. Such demand will be sufficient if it reasonably
informs ARBI of the identity of the shareholder and that the shareholder
intends thereby to demand the appraisal of the shareholder's shares. Because
a proxy or vote against the Merger will not constitute such a demand, a
separate written demand is required. Failure to comply with these procedures,
including without limitation the failure to demand payment within ten days
following approval of the Merger Agreement by the ARBI shareholders, will
cause the shareholder to lose his dissenters' rights with respect to such
shares.
Within ten days after the Effective Date of the Merger, ARBI will give
written notice to each shareholder who has made a demand for appraisal of the
effectiveness of the Merger and will make a written offer to each such
shareholder to pay for such shares at a specified price deemed by ARBI to be
the fair value of the shares. The notice and offer must be accompanied by
ARBI's balance sheet as of the latest available date (but no more than 12
months prior to the making of the offer) and a profit and loss statement for
the 12-month period ended on the date of the balance sheet. If, within 30
days after the Effective Date of the Merger, the shareholder and ARBI reach an
agreement as to the fair value of the shareholder's shares, ARBI will remit
the fair value payment agreed upon to the shareholder within 90 days after the
Effective Date of the Merger and upon surrender of the certificates
representing such shares. If ARBI and the shareholder do not agree upon the
fair value of the shareholder's shares within such 30-day period, then, within
30 days after receipt of written demand from any dissenting shareholder which
is given within 60 days after consummation of the Merger, ARBI shall, or at
ARBI's election at any time within such 60-day period ARBI may, file a
petition in the Thirteenth Judicial District Court, County of Valencia, State
of New Mexico (the "Court"), asking that the Court determine the fair value of
the shares. If ARBI fails to file such a petition, any shareholder demanding
appraisal rights may do so on ARBI's behalf. All shareholders asserting
appraisal rights will be made parties to any court action filed to determine
such fair value. No demand for appraisal may be withdrawn without the consent
of ARBI. If a demand is withdrawn with the consent of ARBI, the shareholder's
status will be restored and he will participate in the Merger in accordance
with its terms.
At a hearing on a petition for appraisal, the Court may, in its
discretion, appoint one or more appraisers to receive evidence and to
recommend a decision on the question of fair value.
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The appraisers shall have such power and authority as may be specified in the
order of their appointment. The fair value of the shares is to be determined
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. The fair value of the
shares, as determined by the Court, together with interest, if any, will be
required to be paid by ARBI to all dissenting holders of ARBI Common Stock who
have complied with Section 53-15-4.
The Court will assess the costs and expenses of such proceeding, including
reasonable compensation for and the expenses of the appraiser, but excluding
fees and expenses of counsel and experts, against ARBI, except that the Court
may assess such costs and expenses as it deems appropriate against any or all
of the dissenting shareholders if it finds that their failure to accept ARBI's
offer of payment was arbitrary, vexatious, or otherwise not in good faith.
The Court may award fees of counsel and experts in amounts the Court finds
reasonable against ARBI if the determined fair value of the shares materially
exceeds the amount offered by ARBI or if ARBI fails to make a required offer.
Upon receiving a demand for payment from a dissenting shareholder, ARBI is
required to make an appropriate notation in its shareholder records. Within
20 days of demanding payment for such shareholder's shares, each holder of
shares represented by certificates demanding payment shall submit the
certificates to the corporation for notation thereon that such demand has been
made. The failure of a shareholder to do so shall, at the option of ARBI,
terminate such shareholder's right to seek appraisal of the shares unless a
court of competent jurisdiction, for good and sufficient cause shown,
otherwise directs.
From and after the Effective Date of the Merger, no shareholder who has
demanded appraisal rights will be entitled to vote such shareholder's shares
of ARBI Common Stock for any purpose or to receive payment of dividends or
other distributions on such stock.
Any demands, notices, or other documents required to be sent to ARBI
should be sent to ARBI at the address at the forepart of this Proxy Statement-
Prospectus.
THE FOREGOING SUMMARY OF DISSENTERS' RIGHTS DOES NOT PURPORT TO BE A
COMPLETE STATEMENT OF THE PROCEDURE OUTLINED IN THE RELEVANT PROVISIONS OF THE
NMBCA, WHICH ARE REPRODUCED IN THEIR ENTIRETY AS APPENDIX C TO THIS PROXY
STATEMENT-PROSPECTUS. FURTHERMORE, BECAUSE OF THE COMPLEXITY OF THE PROCEDURES
DESCRIBED ABOVE, ANY SHAREHOLDER WISHING TO EXERCISE THE RIGHT TO AN APPRAISAL
MAY WISH TO CONSULT WITH COUNSEL.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
This description of certain federal income tax considerations with respect
to the Merger is included solely for the information of ARBI shareholders. No
information is provided with respect to the consequences of any applicable
state, local, or foreign tax laws. Applicability of the alternative minimum
tax and other tax consequences of the Merger to an ARBI shareholder will
depend upon the individual situation of such shareholder. Furthermore,
special tax considerations may apply to ARBI shareholders who are insurance
companies, securities dealers, financial institutions, and foreign persons.
Therefore, EACH ARBI SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER.
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It is intended that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code and that, accordingly, for federal
income tax purposes: (i) no gain or loss will be recognized by Norwest or ARBI
as a result of the Merger; (ii) no gain or loss will be recognized by holders
of ARBI Common Stock upon the receipt of Norwest Common Stock in exchange for
ARBI Common Stock pursuant to the Merger, except as discussed below with
respect to cash received in lieu of a fractional share interest in common
stock and the receipt of the interest in the Trust; and (iii) the aggregate
adjusted tax basis of the shares of Norwest Common Stock received by the
holders of ARBI Common Stock surrendered in exchange therefor will be equal to
the tax basis of such shareholder's shares of ARBI Common Stock (reduced by
the amount allocable to fractional share interests for which cash is
received).
ARBI does not intend to apply for a ruling from the IRS with respect to
the federal income tax consequences of the Merger. Instead, it intends to
rely on the opinion of its legal counsel. Consummation of the Merger is
conditioned upon receipt by ARBI of the opinion of Bracewell & Patterson,
L.L.P., Houston, Texas, dated as of the Closing Date, substantially to the
effect that, on the basis of facts, representations and assumptions set forth
or referred to in such opinions, the principal federal income tax consequences
of the Merger under current law will be as set forth above. An opinion of
counsel is not binding upon the IRS or the courts. The tax opinion will be
based upon certain factual assumptions and upon certain representations and
assurances made by ARBI. The tax opinion will not address the consequences of
the Merger on ARBI shareholders under applicable state or local income tax
laws.
One of the requirements for tax-free reorganization treatment is that
shareholders of the acquired corporation acquire a substantial and continuing
interest in the acquiring corporation. The tax opinion received by ARBI will
be based on the assumption that the shareholders of ARBI have no plan or
intention at the time of the Merger to sell or otherwise dispose of an amount
of Norwest Common Stock to be received in the Merger that would reduce their
aggregate ownership of Norwest Common Stock to a number of shares having in
the aggregate a value at the time of the Merger of less than 50% of the total
value of ARBI Common Stock outstanding immediately prior to the Merger. For
purposes of such determination, shares of ARBI Common Stock that are exchanged
for cash or other property, or surrendered by ARBI shareholders exercising
dissenters' appraisal rights, or exchanged for cash in lieu of the issuance of
fractional shares of Norwest Common Stock, will be treated as outstanding
shares of ARBI Common Stock immediately prior to the Merger.
Holders of ARBI Common Stock who participate in the Merger and who receive
cash in lieu of a fractional share of Norwest Common Stock will be treated as
having received such cash in redemption of such fractional share interest.
Each such shareholder must determine his or her taxable gain or loss on such
redemption. The amount of gain or loss will be the difference between the
cash received and the basis of the fractional share interest surrendered.
Provided ARBI stock and the fractional share interest were held as a capital
asset at the time of the redemption, such gain or loss will constitute capital
gain or loss, and such gain or loss will be long term capital gain or loss if
the holding period for such fractional share interest was greater than one
year.
Holders of ARBI Common Stock who do not participate in the Merger and who
receive cash pursuant to the exercise of dissenters' rights must consult with
their individual tax advisors to determine the correct income tax treatment of
such amount. Such tax treatment will depend upon the individual situation of
such holders; receipt of cash on exercise of dissenters' rights could either
constitute (i) a taxable proceed from the sale of ARBI Common Stock or (ii) a
dividend distribution received on account of such stock.
47
<PAGE>
Those ARBI shareholders who elect to participate in the Merger will treat
ARBI's distribution of Trust interests as a noncash, dividend-type
distribution on account of their ARBI stock. The amount of the distribution
will be the fair market value of such interest (the pro rata share of the fair
market value of the Trust assets represented by such interest). To the extent
ARBI has current or accumulated earnings and profits equal to or in excess of
the value of the Trust interests distributed, each such ARBI shareholder will
treat the distribution as a dividend taxable at ordinary income rates in the
year received. To the extent the value of the distributed Trust interests
exceeds ARBI's current and accumulated earnings and profits, such excess will
be treated (i) first, as a recovery of such shareholder's basis in his or her
ARBI stock, and (ii) second, as a sale of such stock. Each such shareholder
will take a tax basis in his or her Trust interest equal to the fair market
value of such interest as of the date of distribution. Although ARBI will
obtain, prior to the Effective Date of the Merger, an appraisal of the artwork
which constitutes the corpus of the Trust in order to determine the fair
market value of the Trust interests, there can be no assurance that the IRS
will concur in such valuation.
Holders of ARBI Common Stock who do not participate in the Merger must
consult with their individual tax advisors to determine the correct income tax
treatment of the Trust interests received from ARBI. The proper tax treatment
will depend upon the individual situation of each holder.
The Trust is a liquidating trust for federal income tax purposes.
Therefore, the items of income, gain, loss, and deduction realized by the
Trust will pass through to the holders of Trust interests. The Trust itself
will not pay taxes, but will be a pure "flow through" entity for tax purposes.
The purpose of the Trust is to hold the assets until they can be sold. If the
Trust assets are disposed of at prices which exceed their fair market value as
of the date the Trust interests were distributed to ARBI shareholders, each
holder of a Trust interest will recognize gains in the amount of such excess.
If the proceeds from the sale of the Trust Assets are less than the fair
market value of such assets as of the date the Trust interests were
distributed to the ARBI shareholders, each holder of a Trust interest will
recognize a loss equal to the amount of such difference. Assuming that each
holder of a Trust interest holds such interest for investment purposes, this
gain or loss will be characterized as capital gain or loss. Although the
purpose of the Trust is to sell the Trust Assets and distribute the net
proceeds thereof to the holders of interests therein, the terms of the Trust
give the Trustee substantial discretion with respect to the timing of such
distributions. Accordingly, no assurance may be given that the Trustee will
distribute the proceeds of any sale giving rise to a taxable gain in time for
the holders of interests in the Trust to pay the federal income tax due in
respect of such disposition. In such event, holders of interests in the Trust
may incur tax liability as a result of the actions of the Trustee and not
receive the funds necessary to pay such tax liability. See "Liquidating
Trust" for a discussion of the terms of the Trust.
Shareholders of ARBI stock who receive Norwest Common Stock pursuant to
the Merger will receive certain rights to acquire additional Norwest stock
under certain circumstances. See "Certain Differences in Rights of
Shareholders--Capital Stock." Based upon the current ruling position of the
IRS, such rights will not constitute other property the receipt of which will
be taxable to such shareholders.
ARBI shareholders should also be aware that the IRS may examine
transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate,
or in some cases to determine whether shareholders will be taxed on other
economic benefits that are included as part of the overall transaction.
48
<PAGE>
Thus, loan transactions between parties, compensation arrangements, noncompete
agreements, consulting arrangements, and other transactions could be reviewed
by the IRS and be determined to constitute taxable income to specific parties
to the Merger or could be a basis for assertion that reorganization treatment
is not appropriate for the Merger. Furthermore, if the IRS were to establish
as to some ARBI shareholders that part of the Norwest Common Stock received in
the Merger is severable from the Merger, resulting in a proportionally
increased equity interest being received in the Merger by other ARBI
shareholders, ARBI shareholders whose equity interests were deemed to be
constructively increased by the Merger may be treated as having received a
taxable stock dividend. THUS, NOTWITHSTANDING THE TAX OPINION, SHAREHOLDERS
SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE
MERGER.
Under Section 3406 of the Code, ARBI shareholders may be subject to
"backup withholding" at the rate of 31% on "reportable payments" to be
received by them if they fail to furnish their correct taxpayer identification
numbers or for certain other reasons. Norwest will report to these persons
and to the IRS for each calendar year the amount of any reportable payments
during that year and the amount of tax withheld, if any, with respect to those
reportable payments.
The Code also imposes an alternative minimum tax and excise taxes on
certain types of transactions. Applicability of such taxes is usually
controlled, in whole or in part, by other matters unrelated to the Merger or
by the unique characteristics of the particular taxpayer. ACCORDINGLY, ARBI
SHAREHOLDERS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS IF THEY ARE OR MIGHT
BE SUBJECT TO SUCH TAXES.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of ARBI upon
consummation of the Merger have been registered under the Securities Act.
Such shares may be traded freely and without restriction by those shareholders
not deemed to be "affiliates" of ARBI or Norwest as that term is defined in
the rules under the Securities Act. Norwest Common Stock received by those
shareholders of ARBI who are deemed to be "affiliates" of ARBI may be resold
without registration as provided for by Rule 145, or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of ARBI
generally include individuals or entities that control, are controlled by or
are under common control with, ARBI, and may include the executive officers
and directors of ARBI as well as certain principal shareholders of ARBI. In
the Merger Agreement, ARBI has agreed to use its best efforts to cause each
ARBI shareholder who is an executive officer or director of ARBI or who may
otherwise reasonably be deemed to be an affiliate of ARBI to enter into an
agreement with Norwest providing that such affiliate will not sell, transfer,
or otherwise dispose of the shares of Norwest Common Stock to be received by
such person in the Merger except in compliance with the applicable provisions
of the Securities Act and the rules and regulations promulgated thereunder.
This Proxy Statement-Prospectus does not cover any resales of Norwest Common
Stock received by affiliates of ARBI.
The Merger Agreement provides for the filing by Norwest of listing
applications with the NYSE and the CHX covering the shares of Norwest Common
Stock issuable upon consummation of the Merger. It is a condition to the
consummation of the Merger that such shares of Norwest Common Stock shall have
been authorized for listing on the NYSE and the CHX.
49
<PAGE>
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
Norwest currently has an automatic Dividend Reinvestment and Optional Cash
Payment Plan which provides in substance, for those stockholders who elect to
participate, that dividends on Norwest Common Stock will be reinvested in
shares of Norwest Common Stock at market price (as defined in the plan). The
plan also permits participants to invest through voluntary cash payments,
within certain dollar limitations, in additional shares of Norwest Common
Stock at the market price (as defined in the plan) of such stock at the time
of purchase. It is anticipated that after the Effective Time of the Merger,
Norwest will continue to offer its Dividend Reinvestment and Optional Cash
Payment Plan and that shareholders of ARBI who receive Norwest Common Stock in
the Merger will have the right to participate therein.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "purchase"
transaction in accordance with generally accepted accounting principles.
EXPENSES
Norwest and ARBI will each pay their own expenses in connection with the
Merger, including fees and expenses of their respective accountants and
counsel.
50
<PAGE>
INFORMATION ABOUT ARBI AND THE BANK
GENERAL
ARBI is a one-bank holding company registered under the BHC Act. ARBI
was incorporated and organized as a New Mexico business corporation in 1983
for the purpose of acquiring the Bank, which acquisition was completed in
1984. ARBI's principal place of business is located at 101 South Main Street,
Belen, New Mexico 87002, and its telephone number at that address is (505)
864-5761.
The Bank is a national banking association chartered in 1903, which has
its principal place of business at 101 South Main Street, Belen, New Mexico
87002. It has branches located in the towns of Moriarty, Mountainair, Los
Lunas, and Bosque Farms, and the nearby Rio Communities area, New Mexico. The
Bank's market area consists primarily of areas located within Valencia and
Torrance counties, New Mexico, and adjacent counties in the Middle Rio Grande
Valley of New Mexico. The City of Albuquerque is included in the Bank's trade
area. The Bank had total assets of approximately $222.5 million and $218.8
million at June 30, 1994 and December 31, 1993, respectively. The Bank is a
full service, independent community bank which provides a full range of
commercial banking services, including traditional deposit services and
commercial, interim construction, consumer, home improvement, real estate,
agricultural, and industrial loans.
REGULATION AND SUPERVISION
As a bank holding company, ARBI is subject to regulation by and files
quarterly reports with the Federal Reserve Board. The Federal Reserve Board
is authorized to conduct examinations of ARBI and any of its subsidiaries.
The Federal Reserve Board may also exercise cease and desist powers over bank
holding companies and their nonbank affiliates if their actions represent
unsafe or unsound practices or violations of law.
The Bank and its operations are affected by various restrictions and
requirements under the laws of the United States and the State of New Mexico.
Under these generally applicable federal and state restrictions and
requirements, the Bank must maintain reserves against deposits and is
restricted with respect to the nature and amount of loans which it may make,
the interest that it may charge on those loans and the conditions under which
it may pay dividends on its capital stock.
PROPERTIES
ARBI conducts its operations in the Bank's principal offices located at
101 South Main Street, Belen, New Mexico. The principal asset of ARBI is the
common stock of the Bank. As bank holding company, ARBI conducts its
operations through its subsidiary, the Bank.
51
<PAGE>
The Bank leases its principal executive offices and main banking facility
in Belen, New Mexico, from ARBI. Set forth below is certain information
regarding the properties of ARBI and the Bank:
<TABLE>
<CAPTION>
Location Address Square Footage Date Opened
- -------- ------- -------------- -----------
<S> <C> <C> <C>
Belen 101 South Main St. 44,200 1987
Belen, NM
Moriarty 901 Highway 66, N.W. 3,200 1964
Moriarty, NM
Mountainair 111 West Broadway 2,500 1961
Mountainair, NM
Los Lunas 1027 Main St., S.E. 6,700 1961
Los Lunas, NM
Bosque Farms 970 Bosque Farms Blvd. 4,700 1967
Bosque Farms, NM
Rio Communities 394 Rio Communities Blvd. 4,260 1973
Belen, NM
</TABLE>
The Bank's main banking facility in Belen consists of a single structure
located on an approximately four acre tract of land at the corner of Main
Street and Becker in Belen, New Mexico. The main facility is a four story,
44,200 square foot structure which houses the Bank's lending and teller
operations, accounting, computer, and electronic data processing facilities,
as well as the executive offices of the Bank and ARBI.
COMPETITION
The Bank experiences considerable competition in both attracting deposits
and lending funds. Competition in lending comes principally from other
commercial banks and savings and loan associations located in the Bank's
market area and, to a lesser extent, from mortgage companies, insurance
companies, governmental agencies, credit unions, real estate investment
trusts, and other financial institutions. Competition for deposits comes
principally from other commercial banks, savings and loan associations, and
credit unions. The primary factors in competing for deposits among these
institutions are interest rates paid on accounts, convenience of office
locations, and extent of services offered. In the conduct of certain aspects
of its banking business, the Bank competes not only with the above mentioned
institutions, but additionally with insurance companies, small loan companies
and other financial institutions.
LEGAL PROCEEDINGS
The nature of the Bank's business causes it to be involved in routine
legal proceedings from time to time. Other than such proceedings incidental to
the Bank's business, management of the Bank believes that there are no pending
or threatened legal proceedings which, upon resolution, would have a material
adverse effect on the financial condition or results of operation of the Bank.
52
<PAGE>
MARKET INFORMATION AND DIVIDENDS
MARKET INFORMATION; SHAREHOLDERS
There has been no public market for shares of ARBI Common Stock. As of
the date of this Proxy Statement-Prospectus, there are issued and outstanding
410,095 shares of ARBI Common Stock, held by approximately 154 holders of
record.
DIVIDENDS
As a result of limitations imposed by the Federal Reserve Board, ARBI paid
no dividends during 1992 or the first six months of 1993. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Regulatory Matters." In the last six months of 1993 ARBI declared dividends on
ARBI Common Stock totaling $0.50 per share. From January 1 through June 30,
1994, ARBI has declared dividends on ARBI Common Stock totaling $0.50 per
share. The amount of dividends that ARBI is permitted to pay is limited by the
supervisory policy of the Federal Reserve Board. See "CERTAIN REGULATORY
CONSIDERATIONS--Dividend Restrictions."
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is management's discussion and analysis of the significant factors
affecting ARBI's results of operations and financial condition. This should be
read in conjunction with ARBI's audited and unaudited consolidated financial
statements and accompanying footnotes and other selected financial data
presented elsewhere herein.
ARBI, a one-bank holding company headquartered in Belen, New Mexico, derives
substantially all of its revenues and income from the operation of its wholly-
owned subsidiary, the Bank. The Bank is a full service, independent community
bank which provides a full range of commercial banking services. See
"Information About ARBI--General." References to the operations of ARBI include
the operations of the Bank, unless the context otherwise requires.
ARBI's earnings depend primarily on the Bank's net interest income, the
difference between the income earned on the Bank's loans and investments and the
interest paid on its deposits. Among the factors affecting net interest income
are the type, volume and quality of the Bank's assets the type and volume of its
deposits, and the relative sensitivity of the Bank's interest earning assets and
its interest bearing deposits to changes in interest rates. See "--CERTAIN
SELECTED STATISTICAL INFORMATION -- Average Balance Sheets and Average Yields
Earned and Rates Paid." In addition, the Bank's income is significantly
affected by the fees it receives from other banking services, by gains and
losses on its investment portfolio, by its required provisions for loan losses
and by the level of its operating expenses. All aspects of the Bank's
operations are affected by general market, economic and competitive conditions.
FINANCIAL CONDITION
Total assets increased by $3,689,000, or 1.7%, during the first six months of
1994 to $222,522,000 at June 30, 1994 following an increase of $6,753,000, or
3.2%, during 1993 to $218,833,000 at December 31, 1993. These increases were
primarily in investment securities, but were largely offset by a 15.4% decrease
in loans during 1993.
Loans increased approximately 0.9% in the first six months of 1994 by $725,000
to $81,555,000 at June 30, 1994 and decreased $14,679,000 during 1993 to
$80,830,000 at December 31, 1993. The modest net increase in loans during the
six months ended June 30, 1994 was primarily the result of increases in
commercial business and consumer loans of $3,471,000 and $713,000, respectively,
and decreases in residential and agricultural real estate loans of $2,180,000
and $989,000, respectively. During 1993, decreases occurred in all major
categories of loans except commercial real estate and real estate construction
loans, which increased moderately. The decreases in 1993 were attributable to
weak loan demand, residential real estate loan refinancing activity and
managements' continued focus on strengthening lending controls and underwriting
standards. See "--REGULATORY MATTERS."
Investment securities increased in the first six months of 1994 by $9,381,000,
or 8.3%, to $122,161,000 at June 30, 1994 and increased $19,736,000, or 21.2%,
during 1993 to $112,780,000 at December 31, 1993. The increases occurred
primarily in securities of the U.S. Treasury, U.S. Government Agencies and state
and political subdivisions. The increase during the first six months of 1994
was primarily funded by an increase in average deposits and a decrease in
federal funds sold and is largely attributable to weak loan demand. The 1993
increase was funded by a decrease in average loans which was mainly due to weak
loan demand and the other factors discussed in the preceding paragraph.
RESULTS OF OPERATIONS
Net interest income is the primary source of income for ARBI and represents
54
<PAGE>
the amount by which interest and fees generated by earning assets exceed the
cost of funds, primarily interest paid to the Bank's depositors on interest
bearing accounts. The "interest rate spread" is the difference in the average
annual interest rate received by the Bank on its interest earning assets and the
average annual interest rate paid by the Bank on its interest bearing
liabilities. The "net interest margin" is the quotient obtained by dividing net
interest income by average earning assets, and thus takes into account any
imbalance between the volume of interest earning assets when compared to the
volume of interest bearing liabilities, which is not considered in the
calculation of interest rate spread. Where net interest margin exceeds interest
rate spread, it usually means that the volume of interest earning assets (such
as loans) exceeds the volume of interest bearing liabilities (such as interest
bearing deposits).
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1994 AND 1993
EARNINGS PERFORMANCE
ARBI earned net income of $567,000 and $393,000 for the three months ended June
30, 1994 and 1993, respectively. The 44.3% increase in 1994 second quarter net
income of $174,000 was primarily attributable to a 14.3% increase in net
interest income of $307,000 and a decrease in the provision for loan losses from
$150,000 to zero, partially offset by a 9.0% decrease in non-interest income of
$47,000 and a 9.6% increase in non-interest expense of $192,000.
The consolidated annualized return on average assets was 1.00% for the second
quarter of 1994, compared to .75% for the second quarter of 1993. Annualized
return on average stockholders' equity was 10.87% for the second quarter of
1994, compared to 9.21% for the second quarter of 1993. The improvement in
these ratios was primarily attributable to the increase in net income discussed
in the preceding paragraph. On a per-share basis, net income for the second
quarter of 1994 and 1993 were $1.38 and $0.95, respectively.
The following is a condensed summary of the consolidated statements of
operations (dollars in thousands):
<TABLE>
<CAPTION>
Three months Percentage
ended Increase
June 30 (Decrease)
-------------------------
1994 1993 1994/1993
- -------------------------------------------------------
<S> <C> <C> <C>
Net interest income $2,448 2,141 14.3
Provision for loan losses - 150 (100.0)
Non-interest income 475 522 (9.0)
Non-interest expense 2,182 1,990 9.6
Net income 567 393 44.3
</TABLE>
NET INTEREST INCOME
ARBI's net interest income is affected by changes in yields earned on interest
earning assets and rates paid on interest bearing deposits and other borrowed
funds, referred to as "rate change." It is also affected by changes in the
amount and mix of interest earning assets and interest bearing liabilities,
referred to as "volume change."
The following table is provided to show the percentage change in interest income
and expense from significant interest-bearing assets and liabilities
(dollars in thousands):
<TABLE>
<CAPTION>
Three months
ended
June 30 Percentage
------------- increase
1994 1993 (decrease)
- -----------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $2,058 2,111 (2.5)%
Securities 1,815 1,515 19.9
Federal funds sold 10 27 (63.0)
- -----------------------------------------------
Total interest income 3,883 3,653 6.3
- -----------------------------------------------
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C>
Interest expense:
Deposits 1,339 1,400 (4.4)
Short-term borrowings 12 10 20.0
Notes payable 84 102 (17.7)
- -----------------------------------------------
Total interest expense 1,435 1,512 (5.1)
- -----------------------------------------------
Net interest income $2,448 2,141 14.3 %
===============================================
</TABLE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Three months ended
June 30, 1994-1993
----------------------------------
Total Attributable to change
----------------------
Interest-earning Assets change in volume in rate
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(52,909) (266,263) 213,354
Securities 300,761 429,786 (129,025)
Federal funds sold (17,578) (24,382) 6,804
- ----------------------------------------------------------------------
Total interest income $230,274 139,141 91,133
======================================================================
Interest-bearing Liabilities
- ----------------------------------------------------------------------
Deposits $(61,016) 65,952 (126,968)
Short-term borrowings 1,539 3,918 (2,379)
Notes payable (17,976) (10,538) (7,438)
- ----------------------------------------------------------------------
Total interest expense $(77,453) 59,332 (136,785)
======================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated to
the change due to rate and the change due to volume on the basis of the
percentage that results by dividing the change in each volume and rate by the
sum of the changes in volume and rate (excluding the combined rate/volume
component).
The following table presents average asset and liability balances and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
Three months ended increase
June 30 (decrease)
------------------------------
1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 80,999 91,980 (11.9)%
Securities 123,991 93,870 32.1
Federal funds sold 1,000 3,709 (73.0)
- -------------------------------------------------------
Total average
interest-earning assets $205,990 189,559 8.7
=======================================================
Deposits:
Non-interest-bearing demand $ 27,021 24,143 11.9
Interest-bearing demand 63,152 62,229 1.5
Savings 50,495 38,073 32.6
Time 57,206 62,629 (8.7)
- -------------------------------------------------------
Total average
interest-bearing deposits 170,853 162,931 4.9
- -------------------------------------------------------
Short-term borrowings 1,263 883 43.0
Notes payable 4,868 5,484 (11.2)
- -------------------------------------------------------
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total average
interest-bearing liabilities $176,984 169,298 4.5 %
=======================================================
</TABLE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Three months
ended June 30
-------------
1994 1993
- -------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 10.19% 9.21%
Securities 5.98 6.47
Federal funds sold 3.90 2.95
Total interest-earning assets 7.64 7.73
- -------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.14 3.45
Short-term borrowings 3.84 4.79
Notes payable 7.24 7.86
Total interest-bearing liabilities 3.26 3.59
- -------------------------------------------------------
Interest rate spread 4.38% 4.14%
=======================================================
</TABLE>
57
<PAGE>
The following table shows the annualized net yield on interest-earning assets
for the three months ended June 30:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------
<S> <C> <C>
Average yield earned 7.64% 7.73%
Interest expense to average earning assets 2.82 3.20
- ---------------------------------------------------------
Net yield on interest-earning assets 4.82% 4.53%
=========================================================
</TABLE>
Net interest income was $2,448,000 for the second quarter of 1994, compared with
$2,141,000 for the second quarter of 1993. The 14.3% increase was due primarily
to higher securities balances, and lower rates paid on interest-bearing
liabilities partially offset by lower loan balances net of the benefit of an
increased average loan interest yield.
Total interest income increased to $3,883,000 or 6.3% for the second quarter of
1994 as compared to $3,653,000 for the second quarter of 1993. Average
interest-earning assets increased to $205,990,000 in 1994 from $189,559,000 in
1993. Earning asset yields decreased 9 basis points for the second quarter of
1994 as compared to 1993. The decrease in earning asset yields was due to a
decrease in average yield earned on securities offset by increases in average
yields on loans and federal funds sold.
Total interest expense for the second quarter of 1994 of $1,435,000 declined
from $1,512,000 for the second quarter of 1993. This 5.1% decline was
attributable primarily to rates on interest-bearing liabilities decreasing 33
basis points to 3.26% in 1994, from 3.59% in 1993.
The movements in earning asset yields and average rates paid on interest-bearing
liabilities discussed above were caused primarily by general economic and market
conditions which moved interest rates lower in 1993 with an uptrend during the
first six months of 1994. Although interest rates were trending upward in the
second quarter of 1994, average yield earned on securities and rates paid on
interest-bearing liabilities did not fully respond to such increases during such
period due to contractual maturities of securities and time deposits and
relatively weak market demand for bank deposits. The increase in average yield
earned on loans was also, in part, due to a decrease in nonaccrual loans.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level deemed appropriate by management based on
management's evaluation of the loan portfolio, economic conditions, prior loss
experience, review of specific problem loans, and other pertinent factors.
Actual losses on loans are charged against the allowance for loan losses and
recoveries on charged-off loans are credited to the allowance. ARBI's provision
for loan losses was $-0- and $150,000 for the second quarter of 1994 and 1993,
respectively.
There were net recoveries (recoveries net of charge-offs) of $351,000 for the
second quarter of 1994 and $4,000 for the second quarter of 1993. The allowance
for loan losses as a percentage of loans was 3.02% and 3.56% at June 30, 1994
and 1993, respectively.
NON-INTEREST INCOME
The Bank's principal source of non-interest income is service charges on deposit
accounts. Other sources are net gains or losses from sales of securities, loans
and other assets and a variety of other service charges and fees, including safe
deposit box rent, printed check sales and credit life insurance sales.
Non-interest income decreased to $475,000 for the second quarter of 1994
compared to $522,000 for the second quarter of 1993. The $47,000 (9.0%)
decrease is primarily due to decreases of approximately $16,000 and $41,000 in
58
<PAGE>
deposit account service charges and net gains from loan sales, respectively,
partially offset by net increases in a variety of other non-interest income
items, none of which individually exceeded $15,000.
NON-INTEREST EXPENSE
The following table presents a summary of non-interest expense and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
increase
1994 1993 (decrease)
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $1,032 971 6.3 %
Occupancy of bank premises 191 211 (9.5)
Legal and professional fees 315 130 142.3
Furniture and equipment 121 138 (12.3)
Federal deposit insurance corporation fees 134 133 0.8
Other 389 407 (4.4)
- -----------------------------------------------------------------------
$2,182 1,990 9.6 %
=======================================================================
</TABLE>
Total non-interest expenses increased to $2,182,000 for the second quarter of
1994, compared to $1,990,000 for the second quarter of 1993. The 9.6% increase
is primarily due to legal, professional and officer/employee expenses of
approximately $350,000 relating to the prospective sale of ARBI partially offset
by decreases in a variety of expense items.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1994 AND 1993
EARNINGS PERFORMANCE
ARBI earned net income of $1,083,000 and $785,000 for the six months ended June
30, 1994 and 1993, respectively. The 38.0% increase in net income of $298,000
is largely attributable to an increase in net interest income of $350,000 and a
decrease in the provision for loan losses from $275,000 to zero, partially
offset by a decrease in non-interest income of $68,000 and an increase in non-
interest expense of $187,000.
The consolidated annualized return on average assets was .98% for the first six
months of 1994, compared to .75% for the first six months of 1993. Annualized
return on average stockholders' equity was 10.52% for the first six months of
1994, compared to 9.36% for the first six months of 1993. The improvement in
these ratios was primarily attributable to the increase in net
59
<PAGE>
income discussed in the preceding paragraph. On a per-share basis, net income
for the first six months of 1994 and 1993 were $2.64 and $1.89, respectively.
The following is a condensed summary of the consolidated statements of
operations (dollars in thousands):
<TABLE>
<CAPTION>
Six months Percentage
ended Increase
June 30 (Decrease)
-------------------------
1994 1993 1994/1993
- -------------------------------------------------------
<S> <C> <C> <C>
Net interest income $4,697 4,347 8.1
Provision for loan losses - 275 (100.0)
Non-interest income 890 958 (7.1)
Non-interest expense 4,165 3,978 4.7
Net income 1,083 785 38.0
</TABLE>
NET INTEREST INCOME
ARBI's net interest income is affected by changes in yields earned on interest
earning assets and rates paid on interest bearing deposits and other borrowed
funds, referred to as "rate change." It is also affected by changes in the
amount and mix of interest earning assets and interest bearing liabilities,
referred to as "volume change."
The following table is provided to show the percentage change in interest income
and expense from significant interest-bearing assets and liabilities (dollars in
thousands):
<TABLE>
<CAPTION>
Six months Percentage
ended increase
June 30 (decrease)
-------------------------
1994 1993 1994/93
- ------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $3,955 4,335 (8.8)%
Securities 3,543 3,022 17.3
Federal funds sold 29 57 (49.1)
- ------------------------------------------
Total interest income 7,527 7,414 1.5
- ------------------------------------------
Interest expense:
Deposits 2,637 2,842 (7.2)
Short-term borrowings 24 21 14.3
Notes payable 169 204 (17.0)
- ------------------------------------------
Total interest expense 2,830 3,067 (7.7)
- ------------------------------------------
Net interest income $4,697 4,347 8.1 %
==========================================
</TABLE>
60
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Six months ended
June 30, 1994-1993
-----------------------------------
Attributable to change
Total ----------------------
Interest-earning Assets change in volume in rate
- -------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(380,608) (537,229) 156,621
Securities 521,862 730,760 (208,898)
Federal funds sold (27,979) (34,612) 6,633
- -------------------------------------------------------------------
Total interest income $ 113,275 158,919 (45,644)
===================================================================
Interest-bearing Liabilities
- -------------------------------------------------------------------
Deposits $(205,810) 98,077 (303,887)
Short-term borrowings 3,886 4,956 (1,070)
Notes payable (34,698) (18,361) (16,337)
- -------------------------------------------------------------------
Total interest expense $(236,622) 84,672 (321,294)
===================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated
to the change due to rate and the change due to volume on the basis of the
percentage that results by dividing the change in each volume and rate by the
sum of the changes in volume and rate (excluding the combined rate/volume
component).
The following table presents average asset and liability balances and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
Six months ended increase
June 30 (decrease)
-----------------------------
1994 1993 1994/93
- ------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 80,508 91,538 (12.1)%
Securities 121,756 95,255 27.8
Federal funds sold 1,713 3,832 (55.3)
- ------------------------------------------------------
Total average
interest-earning assets $203,977 190,625 7.0
======================================================
Deposits:
Non-interest-bearing demand $ 26,354 23,343 12.9
Interest-bearing demand 62,924 62,937 -
Savings 49,832 37,091 34.4
Time 56,519 63,452 (10.9)
- ------------------------------------------------------
Total average
interest-bearing deposits 169,275 163,480 3.5
- ------------------------------------------------------
Short-term borrowings 1,197 866 38.3
Notes payable 4,966 5,508 (9.8)
- ------------------------------------------------------
Total average
interest-bearing liabilities $175,438 169,854 3.3 %
======================================================
</TABLE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
61
<PAGE>
<TABLE>
<CAPTION>
Six months
ended June 30
-------------
1994 1993
- -------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 9.91% 9.55%
Securities 6.01 6.40
Federal funds sold 3.37 2.98
Total interest-earning assets 7.54 7.84
- -------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.14 3.51
Short-term borrowings 4.11 4.78
Notes payable 7.18 7.87
Total interest-bearing liabilities 3.26 3.65
- -------------------------------------------------------
Interest rate spread 4.28% 4.19%
=======================================================
</TABLE>
The following table shows the annualized net yield on interest-earning assets
for the six months ended June 30:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------
<S> <C> <C>
Average yield earned 7.54% 7.84%
Interest expense to average earning assets 2.84 3.24
- ---------------------------------------------------------
Net yield on interest-earning assets 4.70% 4.60%
=========================================================
</TABLE>
Net interest income was $4,697,000 for the first six months of 1994, compared
with $4,347,000 for the first six months of 1993. The 8.1% increase was due
primarily to higher securities balances net of the effect of a lower average
securities interest yield and lower rates paid on interest-bearing liabilities
partially offset by lower loan balances net of the benefit of increased average
loan interest yield.
Total interest income increased to $7,527,000 or 1.5% for the first six months
of 1994 as compared to $7,414,000 for the first six months of 1993. Average
interest-earning assets increased 7.0% to $203,977,000 in 1994 from $190,625,000
in 1993. Earning asset yields decreased 30 basis points for the first six
months of 1994 as compared to 1993. The decrease in earning asset yields was
due to a decrease in average yield earned on securities offset by increases in
average yields on loans and federal funds sold.
Total interest expense for the first six months of 1994 of $2,830,000 declined
from $3,067,000 or 7.7% for the first six months of 1993. This decline was
attributable primarily to average rates paid on interest-bearing liabilities
decreasing 39 basis points to 3.26% in 1994, from 3.65% in 1993.
The movements in earning asset yields and average rates paid on interest-bearing
liabilities discussed above were caused primarily by general economic and market
conditions which caused interest rates to decline in 1993, followed by an
uptrend during the first six months of 1994. Although interest rates have
increased during the first six months of 1994, average yield earned on
securities and rates paid on interest-bearing liabilities did not fully respond
to such increases during such period, due to contractual maturities of
securities and time deposits and relatively weak market demand for bank
deposits. The increase in average yield earned on loans was also, in part, due
to a decrease in nonaccrual loans.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level deemed appropriate by management based on
management's evaluation of the loan portfolio, economic conditions, prior loss
experience, review of specific problem loans, and other pertinent factors.
Actual losses on loans are charged against the allowance for loan losses and
62
<PAGE>
recoveries on charged-off loans are credited to the allowance. ARBI's provision
for loan losses was $-0- and $275,000 for the first six months of 1994 and 1993,
respectively.
There were net recoveries (recoveries net of charge-offs) of $312,000 for the
first six months of 1994 and net charge-offs of $191,000 for the first six
months of 1993. The allowance for loan losses as a percentage of loans was
3.02% and 3.56% at June 30, 1994 and 1993, respectively.
NON-INTEREST INCOME
The Bank's principal source of non-interest income is service charges on deposit
accounts. Other sources are net gains or losses from sales of securities, loans
and other assets and a variety of other service charges and fees, including safe
deposit box rent, printed check sales and credit life insurance sales.
Non-interest income decreased to $890,000 for the first six months of 1994
compared to $958,000 for the first six months of 1993. The $68,000 (7.1%)
decrease is primarily due to decreases of approximately $26,000, $42,000 and
$55,000 in deposit account service charges, net gains/losses on sales of
securities and net gains from loan sales, respectively, partially offset by net
increases in a variety of other non-interest income items, none of which
individually exceeded $30,000.
63
<PAGE>
NON-INTEREST EXPENSE
The following table presents a summary of non-interest expense and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
increase
1994 1993 (decrease)
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $1,942 1,937 0.3 %
Occupancy of bank premises 396 418 (5.3)
Legal and professional fees 546 296 84.5
Furniture and equipment 244 269 (9.3)
Federal deposit insurance corporation fees 268 266 0.8
Other 769 792 (2.9)
- ------------------------------------------------------------------------
$4,165 3,978 4.7 %
========================================================================
</TABLE>
Total non-interest expense increased to $4,165,000 for the first six months of
1994, compared to $3,978,000 for the first six months of 1993. The 4.7%
increase is primarily due to legal, professional and officer/employee expenses
in the second quarter of 1994 of approximately $350,000 relating to the
prospective sale of ARBI, partially offset by decreases in a variety of expense
items.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
EARNINGS PERFORMANCE
ARBI earned net income of $2,596,000 in 1993 and $1,396,000 in 1992. In 1991,
there was a net loss of $752,000. The 86.0% increase in net income of
$1,200,000 in 1993 compared to 1992 is attributable to a 2.3% increase in net
interest income of $195,000 and a 145.3% decrease in the provision for loan
losses of $2,165,000, partially offset by an 11.3% decrease in non-interest
income of $262,000 and increases in non-interest expense and income taxes of
$210,000 (or 2.8%) and $688,000 (or 177.8%), respectively. The increase in net
income to $1,396,000 in 1992 compared to a loss of $752,000 in 1991 is partially
attributable to a 4.4% increase in net interest income of $363,000 and a 29.0%
increase in non-interest income of $521,000. Also contributing to the improved
results in 1992 was a 65.2% decrease in the provision for loan losses of
$2,788,000, partially offset by increases in non-interest expense and income
taxes of $605,000 (or 8.6%) and $919,000 (or 172.7%), respectively.
The decreases in the provision for loan losses from $4,278,000 in 1991 to
$1,490,000 in 1992 and to a negative provision of ($675,000) in 1993 were the
primary reason for the improvements in net income in 1992 and 1993 discussed
above. Such decreases in the provision for loan losses were possible as a
result of managements' efforts to enhance loan underwriting and servicing,
improve the quality and objectivity of the loan review function and strengthen
the special assets function, which among other things, is responsible for
workout and resolution of problem assets. See "--REGULATORY MATTERS." Such
management efforts have produced steady and significant reductions in net loan
charge-offs in 1992 and 1993 (See "--COMPARISON OF THE YEARS ENDED DECEMBER 31,
1993, 1992, AND 1991--Provision for Loan Losses"), as well as improvements in
non-current and classified/criticized assets. These factors, among others,
including improved national and local economic conditions between 1991 and 1993,
were material in managements' evaluation of the quality of the loan portfolio
and managements' determination that loan quality had improved sufficiently to
warrant the decrease in the provision for loan losses in 1992. Also, based on
these factors, a reduction in the allowance of $1,000,000 was recorded as of
December 31, 1993 to bring the total allowance to a level considered appropriate
by management, resulting in a negative provision of $675,000.
64
<PAGE>
The consolidated return (loss) on average assets was 1.21% in 1993 compared to
.65% in 1992 and (.36)% in 1991. Return (loss) on average stockholders' equity
was 14.96% in 1993 compared to 8.81% and (4.58)% in 1992 and 1991, respectively.
The improvements in these ratios were primarily attributable to the increases in
net income/loss discussed in the second preceding paragraph. On a per share
basis, net income (loss) for the years 1993, 1992 and 1991 were $6.28, $3.39 and
$(1.82), respectively.
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
-----------------------
1993 1992 1991 1993/1992 1992/1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $8,784 8,589 8,226 2.3 4.4
Provision (negative provision)
for loan losses (675) 1,490 4,278 (145.3) (65.2)
Non-interest income 2,054 2,316 1,795 (11.3) 29.0
Non-interest expense 7,842 7,632 7,027 2.8 8.6
Income taxes (benefit) 1,075 387 (532) 177.8 172.7
Net income (loss) 2,596 1,396 (752) 86.0 285.6
</TABLE>
NET INTEREST INCOME
ARBI's net interest income is affected by changes in yields earned on interest
earning assets and rates paid on interest bearing deposits and other borrowed
funds, referred to as "rate change." It is also affected by changes in the
amount and mix of interest earning assets and interest bearing liabilities,
referred to as "volume change."
65
<PAGE>
The following table is provided to show the percentage of change in interest
income and expense from significant interest-bearing assets and liabilities
(dollars in thousands):
<TABLE>
<CAPTION>
Percentage increase
(decrease)
-------------------
1993 1992 1991 1993/92 1992/91
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 8,323 10,470 13,487 (20.5)% (22.4)%
Securities 6,337 5,933 4,875 6.8 21.7
Federal funds sold 121 104 272 16.4 (61.8)
- ----------------------------------------------------
Total interest income 14,781 16,507 18,634 (10.5) (11.4)
- ----------------------------------------------------
Interest expense:
Deposits 5,566 7,411 9,694 (24.9)% (23.5)%
Short-term borrowings 43 83 126 (48.1) (34.1)
Notes payable 388 424 588 (8.4) (27.9)
- ----------------------------------------------------
Total interest expense 5,997 7,918 10,408 (24.3) (23.9)
- ----------------------------------------------------
Net interest income $ 8,784 8,589 8,226 2.3% 4.4%
====================================================
</TABLE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1993-1992
---------------------------------------
Attributable to change
Total -------------------------
Interest-earning Assets change in volume in rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(2,147,210) (1,701,013) (446,197)
Securities 404,526 984,881 (580,355)
Federal funds sold 17,279 32,459 (15,180)
- ----------------------------------------------------------------------------------
Total interest income $(1,725,405) (683,673) (1,041,732)
==================================================================================
Interest-bearing liabilities
- ----------------------------------------------------------------------------------
Deposits $(1,845,375) (179,849) (1,665,526)
Short-term borrowings (39,709) (45,915) 6,206
Notes payable (35,739) (19,249) (16,490)
- ----------------------------------------------------------------------------------
Total interest expense $(1,920,823) (245,013) (1,675,810)
==================================================================================
1992-1991
---------------------------------------
Attributable to change
Total -------------------------
Interest-earning Assets change in volume in rate
- ----------------------------------------------------------------------------------
Loans $(3,017,145) (1,435,646) (1,581,499)
Securities 1,058,084 1,409,464 (351,380)
Federal funds sold (168,460) (89,163) (79,297)
- ----------------------------------------------------------------------------------
Total interest income $(2,127,521) (115,345) (2,012,176)
==================================================================================
Interest-bearing liabilities
- ----------------------------------------------------------------------------------
Deposits $(2,283,028) 380,482 (2,663,510)
Short-term borrowings (43,589) (39,608) (3,981)
Notes payable (163,836) (24,805) (139,031)
- ----------------------------------------------------------------------------------
Total interest expense $(2,490,453) 316,069 (2,806,522)
==================================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior year's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior year's volume.
The change due to combined rate/volume variance is allocated to the change due
to rate and the change due to volume on the basis of the percentage that results
by dividing the change in each volume and rate by the sum of the changes in
volume and rate (excluding the combined
66
<PAGE>
rate/volume component).
The following table presents average asset and liability balances and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage increase
(decrease)
1993 1992 1991 1993/92 1992/91
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $ 88,767 106,737 120,356 (16.8)% (11.3)%
Securities 98,112 83,377 63,830 17.7 30.6
Federal funds sold 4,038 3,002 5,036 34.5 (40.4)
- ----------------------------------------------------------------
Total average
interest-earning assets $190,917 193,116 189,222 (1.1) 2.1
================================================================
Deposits:
Non-interest-bearing demand $ 24,681 21,577 21,219 14.4 1.7
Interest-bearing demand 62,948 64,428 59,797 (2.3) 7.7
Savings 40,604 30,700 21,243 32.3 44.5
Time 61,119 73,734 81,222 (17.1) (9.2)
- ----------------------------------------------------------------
Total average
interest-bearing deposits 164,671 168,862 162,262 (2.5) 4.1
- ----------------------------------------------------------------
Short-term borrowings 925 1,927 2,850 (52.0) (32.4)
Notes payable 5,436 5,714 5,978 (4.9) (4.4)
- ----------------------------------------------------------------
Total average
interest-bearing liabilities $171,032 176,503 171,090 (3.1)% 3.2 %
================================================================
</TABLE>
The following table shows the average interest yield on interest-earning assets
and the average interest rate paid on interest-bearing liabilities:
<TABLE>
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned:
Loans 9.38% 9.81% 11.21%
Securities 6.46 7.12 7.64
Federal funds sold 3.01 3.47 5.41
Total interest-earning assets 7.74 8.55 9.85
- ------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.38 4.39 5.97
Short-term borrowings 4.63 4.28 4.42
Notes payable 7.55 7.87 10.47
Total interest-bearing liabilities 3.51 4.49 6.10
- ------------------------------------------------------------
Interest rate spread 4.23% 4.06% 3.75%
============================================================
</TABLE>
Short-term borrowings primarily consist of repurchase agreements with various
bank customers. These repurchase agreements are short term with specific
maturity dates and are generally issued for periods less than one year. They
have fixed interest rates. Terms of the agreements require the sale and
subsequent repurchase of specified U.S. Treasury or Government Agency securities
at a fixed price. Banks are not required to maintain reserves on repurchase
agreements or incur FDIC charges with respect thereto. Also included in short
term borrowings were funds borrowed from time to time under a line of credit
with a commercial bank to facilitate repurchase of shares of ARBI Common Stock.
The following table shows the net yield on interest-earning assets:
67
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned 7.74% 8.55% 9.85%
Interest expense to average earning assets 3.14 4.10 5.50
- ----------------------------------------------------------------
Net yield on interest-earning assets 4.60% 4.45% 4.35%
================================================================
</TABLE>
Net interest income increased from $8,589,000 in 1992 to $8,784,000 in 1993, an
improvement of 2.3%. During 1992 net interest income increased 4.4% compared
with the $8,226,000 earned in 1991. During the three years ended December 31,
1993 interest rates in the United States were in a general decline with short-
term interest rates falling faster than long-term rates.
Total interest income decreased to $14,781,000 or 10.5% in 1993 as compared to
$16,507,000 in 1992, which was down 11.4% from $18,634,000 in 1991. Earning
asset yields declined to 7.74% in 1993 as compared to 8.55% and 9.85% in 1992
and 1991, respectively, as a result of declining interest rates. The lower net
interest income was also attributable to a 16.8% decrease in average loans to
$88,767,000 in 1993, compared to $106,737,000 and $120,356,000 in 1992 and 1991,
respectively. These decreases were partially offset by an increase of 17.7% in
average investment securities to $98,112,000 in 1993, compared to $83,377,000 in
1992, which in turn represented a 30.6% increase over the $63,830,000 average
balance in 1991. See "CERTAIN SELECTED STATISTICAL INFORMATION" for information
regarding ARBI's average balances during the three years ended December 31,
1993.
Total interest expense in 1993 of $5,997,000 declined 24.3% from $7,918,000 in
1992, which was down 23.9% from $10,408,000 in 1991. This decline was
attributable primarily to rates on interest-bearing liabilities declining to
3.51% in 1993, from 4.49% in 1992 and 6.10% in 1991. The 98 basis point decline
from 1992 to 1993 and the 161 basis point decline from 1991 to 1992 were caused
by general economic and market conditions.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level deemed appropriate by management based on
management's evaluation of the loan portfolio, economic conditions, prior loss
experience, review of specific problem loans, and other pertinent factors.
Actual losses on loans are charged against the allowance and recoveries on
charged-off loans are credited to the allowance. ARBI's provision (negative
provision) for loan losses was $(675,000), $1,490,000 and $4,278,000 in 1993,
1992 and 1991, respectively. See "--COMPARISON OF THE YEARS ENDED DECEMBER
31, 1993, 1992 AND 1991--Earnings Performance." Net loans charged off were
$298,415, $1,993,861 and $2,226,460 in 1993, 1992 and 1991, respectively.
The allowance for loan losses as a percentage of loans was 2.66%, 3.27% and
3.11% at December 31, 1993, 1992 and 1991, respectively.
NON-INTEREST INCOME
The following table presents a summary of non-interest income and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage increase
(decrease)
-------------------
1993 1992 1991 1993/92 1992/91
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts $1,468 1,519 1,384 (3.4)% 9.8%
Gain on sale of
securities 92 573 153 (83.9)% 274.5%
Other service charges
and fees 147 146 153 .7% (4.6)%
Other 347 78 105 344.9% (25.7)%
- ---------------------------------------------
$2,054 2,316 1,795 (11.3)% 29.0%
- ---------------------------------------------
</TABLE>
68
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
$2,054 2,316 1,795 (11.3)% 29.0%
========================================================
</TABLE>
The Bank's principal source of non-interest income is service charges on deposit
accounts. Other sources are net gains or losses from sales of securities, loans
and other assets and a variety of other service charges and fees, including safe
deposit box rent, printed check sales and credit life insurance sales.
Non-interest income decreased 11.3% to $2,054,000 in 1993 compared to $2,316,000
in 1992, which was up 29.0% from $1,795,000 in 1991. The decrease in 1993 was
primarily due to an 83.9% decrease in the net gain on sale of investments to
$92,000 from $573,000 and a 3.4% decrease in deposit account service charges
partially offset by a 344.9% increase in other income from $78,000 in 1992 to
$347,000 in 1993. The 1993 increase in other income was attributable to a one
time New Mexico gross receipts tax refund of $110,000, $117,000 in net gains
from loan sales which were zero in 1992 and net increases in a variety of other
non-interest income items none of which individually exceeded $50,000. The
increase in 1992 from 1991 was primarily attributable to a 274.5% increase in
the net gain on sale of securities and a 9.8% increase in deposit account
service charges partially offset by a 25.7% net decrease in a variety of other
non-interest income items.
69
<PAGE>
NON-INTEREST EXPENSE
The following table presents a summary of non-interest expenses and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage increase
(decrease)
-------------------
1993 1992 1991 1993/92 1992/91
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee
benefits $3,784 3,552 3,161 6.5% 12.4%
Occupancy of bank premises 801 770 713 4.0 8.0
Legal and professional fees 546 568 279 (3.9) 103.6
Furniture and equipment 524 529 564 (0.9) (6.2)
Federal deposit insurance
corporation fees 530 427 370 24.1 15.4
Other 1,657 1,786 1,940 (7.2) (7.9)
- ---------------------------------------------------
$7,842 7,632 7,027 2.8% 8.6%
===================================================
</TABLE>
Total non-interest expense increased 2.8% to $7,842,000 in 1993, compared to
$7,632,000 in 1992, which in turn represented an 8.6% increase over the
$7,027,000 for 1991. These increases were largely attributable to additional
staff, consultants and attorneys in 1993 and 1992 to help develop and implement
a corrective action plan pursuant to the memorandum discussed under
"--REGULATORY MATTERS" below.
FDIC insurance assessments increased to $530,000 or 24.1% in 1993 from $427,000
in 1992, which was up 15.4% from $370,000 in 1991. The increases were primarily
due to increased premium rates in these periods, attributable, in part, to the
matters discussed under "--REGULATORY MATTERS" below.
REGULATORY MATTERS
In June 1992, the Board of Directors of the Bank entered into a Memorandum of
Understanding ("Memorandum") with the Office of the Comptroller of the Currency
("OCC") that required the Bank to take a number of actions to strengthen the
Bank's financial condition, including a review of the allowance for loan losses
and submission of a three-year capital plan. In addition, the Memorandum
required the formulation and enhancement of certain departments along with the
establishment and implementation of a number of administrative policies and
procedures relating to, among other things, loan review, appraisals and the
process of determining the adequacy of the allowance for possible loan losses.
The Memorandum also required the Bank to maintain certain minimum capital levels
and obtain the approval of the OCC prior to the declaration or payment of any
dividends.
The OCC conducted an examination of the Bank as of December 31, 1993, which
disclosed that the overall condition of the Bank was satisfactory and that the
Bank was in substantial compliance with the Memorandum. As a result, the
Memorandum was terminated on March 15, 1994.
70
<PAGE>
INCOME TAXES
ARBI is subject to Federal and New Mexico income taxes which fluctuate from
period to period with fluctuations in ARBI's earnings performance.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. During 1993, ARBI
adopted SFAS 109. The change in method of accounting for income taxes had no
significant effect.
The Financial Accounting Standards Board has issued Statement 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan." The Statement applies to
all creditors and all loans, including those that are restructured in troubled
debt restructurings with a modification of terms. Excluded are large groups of
homogeneous loans with small balances that are evaluated collectively, loans
measured at fair value or at the lower of cost or fair value, leases and debt
securities. SFAS 114 requires loans, to which it applies, to be measured at the
discounted amounts of their expected future cash flows using the loan's
effective interest rate or at the observable market price or the fair value of
the collateral for collateral dependent loans. The Statement is effective for
fiscal years beginning after December 15, 1994. The effects of this Statement
have not yet been evaluated.
Effective January 1, 1994, ARBI adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," (FAS 115). Accordingly, beginning on January 1, 1994, pursuant to
ARBI's investment policy, certain securities are designated to be available for
sale and are reported at estimated fair value (based on quoted market prices).
Net unrealized gains and losses on such securities are not included in earnings,
but are reported as a separate component of stockholders' equity. On January 1,
1994, ARBI recorded an increase of $1,970,000, net of tax, in stockholders'
equity. At June 30, 1994 the stockholders' equity component for net unrealized
gains on securities available for sale was $1,292,000. The remaining securities
are deemed to be held to maturity and are reported at amortized cost. On
January 1 and June 30, 1994 net unrealized gains/(losses) on securities held to
maturity were approximately $3,633,000 and ($1,947,000), respectively. The
$678,000 net decrease in stockholders' equity discussed above and the $5,580,000
net unrealized depreciation of held to maturity securities during the six months
ended June 30, 1994 was largely attributable to rising market interest rates.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
ARBI relies primarily on the Bank for its source of cash. The cash flow from
the Bank to ARBI comes in the form of dividends and tax benefits. The Bank is
presently restricted in paying dividends only by the general regulatory
capital requirements that apply to all banks. See "Capital Management of the
Bank." At June 30, 1994, the Bank estimates that it has excess accumulated
earnings of over $5,000,000 available for distribution.
The assets of the Bank are primarily funded through the use of borrowings in the
form of deposits and short-term borrowings. The maintenance of an adequate
level of liquidity is necessary to ensure that sufficient funds are available to
meet customers' loan demand and deposit withdrawals. The primary sources of
asset liquidity consist of federal funds, maturing loans and investment
securities.
71
<PAGE>
The Bank's funds management committee is charged with the responsibility of
maintaining an adequate level of liquidity and managing the risks associated
with interest rate changes while sustaining stable growth in net interest
income. The Bank's basic strategy is to minimize interest rate risk through
matching the repricing periods of earning assets and interest-bearing
liabilities.
CAPITAL MANAGEMENT OF THE BANK
Bank regulatory agencies measure capital adequacy through standardized risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance sheet obligations.
Under the rules effective December 31, 1992, all financial institutions are
required to maintain a level of core capital (known as tier 1 capital) which
must be at least 4.0% of risk-weighted assets, and a minimum level of total
capital of at least 8.0% of risk-weighted assets. Tier 1 capital consists
principally of stockholders' equity less goodwill. Total capital is comprised
of tier 1 capital, certain debt instruments and a portion of the allowance for
loan losses.
The Bank's actual risk-based capital requirement and excess risk-based capital
at June 30, 1994 and December 31, 1993 (dollars in thousands) are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
-------------------- --------------------
Amount Percent(1) Amount Percent(1)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $19,143 19.1% $18,226 18.1%
Allowable portion of allowance
for loan losses 1,266 N/A 1,272 N/A
- ----------------------------------------------------------------------------
Total risk-based capital $20,409 20.4% $19,498 19.3%
============================================================================
Risk-based capital requirement $ 8,007 8.0% $ 8,069 8.0%
============================================================================
Excess risk-based capital $12,402 12.4% $11,429 11.3%
============================================================================
</TABLE>
(1) Percentage based on risk-weighted assets of $100,088,000 and $100,868,000
at June 30, 1994 and December 31, 1993, respectively.
72
<PAGE>
As a supplement to the risk-based capital guidelines, the Federal Reserve Board
has also adopted a minimum ratio of tier 1 capital to total average assets known
as the tier 1 leverage ratio. The principal objective of this measure is to
place a constraint on the maximum degree to which a banking organization can
leverage its equity capital base. This regulation has established a minimum
level of tier 1 capital to total assets of 3.0%. First National Bank of Belen's
actual tier 1 leverage ratio was 8.8% at both June 30, 1994 and December 31,
1993.
INFLATION
Management has considered the effects and potential effects of inflation on its
past and future operations and earnings performance. Inflation has not had in
recent years, nor is it expected to have in the foreseeable future, a
significant effect.
73
<PAGE>
CERTAIN SELECTED STATISTICAL INFORMATION
The following tables set forth certain comparative information with respect to
ARBI's operations during the periods or as of the dates indicated.
AVERAGE BALANCE SHEETS AND AVERAGE YIELDS EARNED AND RATES PAID
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
American Republic Bancshares, Inc. (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended June 30
----------------------------------------------------------------------
1994 1993
---------------------------------- -----------------------
Average Average Average Average
Assets balance Interest Yield/rate(1) balance Interest yield/rate(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 80,999 $2,058 10.19% $ 91,980 $2,111 9.21%
Investment securities 123,991 1,815 5.98% 93,870 1,515 6.47%
Federal funds sold 1,000 10 3.90% 3,709 27 2.95%
- ----------------------------------------------------------------------------------------------------------
Total earning assets 205,990 3,883 7.64% 189,559 3,653 7.73%
- ----------------------------------------------------------------------------------------------------------
Allowance for loan losses (2,213) (3,146)
Cash and due from banks 8,680 9,367
Other assets 13,842 15,572
- ----------------------------------------------------------------------------------------------------------
Total Assets $226,299 $3,883 $211,352 $3,653
==========================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits $ 27,021 $ 24,143
Interest-bearing demand deposits 63,152 $ 354 2.25% 62,229 $ 403 2.60%
Saving deposits 50,495 434 3.45% 38,073 328 3.46%
Time deposits 57,206 551 3.86% 62,629 669 4.28%
Short-term borrowings 1,263 12 3.84% 883 10 4.79%
Notes payable 4,868 84 7.24% 5,484 102 7.86%
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 176,984 1,435 3.26% 169,298 1,512 3.59%
- ----------------------------------------------------------------------------------------------------------
Other liabilities 1,372 797
Stockholders' equity 20,922 17,114
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $226,299 $211,352
==========================================================================================================
Net interest income $2,448 $2,141
==========================================================================================================
Interest rate spread 4.38% 4.14%
Net interest income to average
earning assets (net interest
margins) 4.82% 4.53%
</TABLE>
(1) Yield/rate is annualized
74
<PAGE>
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
American Republic Bancshares, Inc. (dollars in thousands):
<TABLE>
<CAPTION>
Six months ended June 30
----------------------------------------------------------------------
1994 1993
---------------------------------- ---------------------------------
Average Average Average Average
Assets balance Interest Yield/rate(1) balance Interest yield/rate(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 80,508 $3,955 9.91% $ 91,538 $4,335 9.55%
Investment securities 121,756 3,543 6.01% 95,255 3,022 6.40%
Federal funds sold 1,713 29 3.37% 3,832 57 2.98%
- ----------------------------------------------------------------------------------------------------------
Total earning assets 203,977 7,527 7.54% 190,625 7,414 7.84%
- ----------------------------------------------------------------------------------------------------------
Allowance for loan losses (2,334) (3,267)
Cash and due from banks 8,842 9,104
Other assets 13,432 14,315
- ----------------------------------------------------------------------------------------------------------
Total Assets $223,917 $7,527 $210,777 $7,414
==========================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits $ 26,354 $ 23,343
Interest-bearing demand deposits 62,924 $ 702 2.25% 62,937 $ 823 2.64%
Saving deposits 49,832 852 3.45% 37,091 638 3.47%
Time deposits 56,519 1,083 3.86% 63,452 1,381 4.39%
Short-term borrowings 1,197 24 4.11% 866 21 4.78%
Notes payable 4,966 169 7.18% 5,508 204 7.87%
- ----------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 175,438 $2,830 3.26% 169,854 $3,067 3.65%
- ----------------------------------------------------------------------------------------------------------
Other liabilities 1,365 667
Stockholders' equity 20,760 16,913
- ----------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $223,917 $210,777
==========================================================================================================
Net interest income $4,697 $4,347
==========================================================================================================
Interest rate spread 4.28% 4.19%
Net interest income to average
earning assets (net interest 4.70% 4.60%
margin)
</TABLE>
(1) Yield/rate is annualized
75
<PAGE>
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
American Republic Bancshares, Inc. (dollars in thousands):
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------------------------------------------------------
1993 1992 1991
------------------- -------------------- --------------------
Average Average Average
Average yield/ Average yield/ Average yield/
Assets balance Interest rate balance Interest rate balance Interest rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 88,767 $ 8,323 9.38% $106,737 $10,470 9.81% $120,356 $13,487 11.21%
Investment securities 98,112 6,337 6.46% 83,377 5,933 7.12% 63,830 4,875 7.64%
Federal funds sold 4,038 121 3.01% 3,002 104 3.47% 5,036 272 5.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 190,917 14,781 7.74% 193,116 16,507 8.55% 189,222 18,634 9.85%
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (3,234) (3,744) (2,217)
Cash and due from banks 9,284 8,336 7,106
Other assets 16,985 17,205 15,921
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $213,952 $14,781 $214,913 $16,507 $210,032 $18,634
===================================================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing
deposits $ 24,681 $ 21,577 $ 21,219
Interest-bearing demand
deposits 62,948 $ 1,585 2.52% 64,428 $ 2,104 3.27% 59,797 2,985 4.99%
Saving deposits 40,604 1,404 3.46% 30,700 1,249 4.07% 21,243 1,104 5.20%
Time deposits 61,119 2,577 4.22% 73,734 4,058 5.50% 81,222 5,605 6.90%
Short-term borrowings 925 43 4.63% 1,927 83 4.28% 2,850 126 4.42%
Notes payable 5,436 388 7.55% 5,714 424 7.87% 5,978 588 10.47%
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 171,032 $ 5,997 3.51% 176,503 $ 7,918 4.49% 171,090 $10,408 6.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Other liabilities 882 989 1,291
Stockholders' Equity 17,357 15,844 16,432
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $213,952 $214,913 $210,032
===================================================================================================================================
Net interest income $ 8,784 $ 8,589 $ 8,226
===================================================================================================================================
Interest rate spread 4.23% 4.06% 3.75%
Net interest income to average
earning assets (net 4.60% 4.45% 4.35%
interest margin)
</TABLE>
76
<PAGE>
SECURITIES
Following is a table of the carrying value (dollars in thousands) of securities:
<TABLE>
<CAPTION>
December 31
June 30 ----------------------
1994 1993 1992 1991
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and agencies $ 82,037 74,009 56,831 66,516
State and political subdivisions 17,750 14,644 8,803 8,959
Collateralized mortgage obligations 7,112 9,998 16,237 -
Mortgage-backed securities 12,777 13,662 5,705 -
Equity securities 2,485 467 467 467
Other - - 5,000 -
- ------------------------------------------------------------------------
$122,161 112,780 93,043 75,942
========================================================================
</TABLE>
The following table reflects the contractual maturity distribution of each
investment security category and the approximate weighted-average annual yield
at June 30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------
In one After After
year or 1-5 5-10 After
less years years 10 years Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $2,995 $50,874 $28,168 - $ 82,037
Weighted average yield 5.63% 6.26% 6.57% - 6.32%
State and political subdivisions $ 300 $ 2,599 $ 7,438 $ 7,413 $ 17,750
Weighted average yield,
Federal tax equivalent 9.84% 9.19% 8.46% 7.43% 8.22%
Collateralized mortgage obligations - $ 192 $ 3,475 $ 3,445 $ 7,112
Weighted average yield - 5.24% 5.90% 5.94% 5.84%
Mortgage-backed securities - $ 1,688 $ 9,128 $ 1,961 $ 12,777
Weighted average yield - 6.59% 5.54% 4.21% 5.47%
Equity securities $2,485 - - - $ 2,485
Weighted average yield 16.87% - - - 16.87%
- ----------------------------------------------------------------------------------------
Total $5,780 $55,353 $48,209 $12,819 $122,161
========================================================================================
Weighted average yield 7.44% 6.40% 6.62% 6.53% 6.52%
========================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
77
<PAGE>
The following table reflects the contractual maturity distribution of each
security category and the approximate weighted-average yield at December 31,
1993 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------
In one After After
year or 1-5 5-10 After
less years years 10 years Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury and agencies $2,998 $46,498 $24,513 - $ 74,009
Weighted average yield 7.74% 6.28% 6.56% - 6.43%
State and political subdivisions $ 714 $ 2,652 $ 6,223 $ 5,055 $ 14,644
Weighted average yield,
Federal tax equivalent 12.46% 8.03% 8.83% 7.51% 8.41%
Collateralized mortgage obligations - $ 410 $ 2,871 $ 6,717 $ 9,998
Weighted average yield - 4.18% 5.31% 5.48% 5.37%
Mortgage-backed securities - $ 2,029 $ 9,344 $ 2,289 $ 13,662
Weighted average yield - 6.45% 5.85% 4.60% 5.74%
Equity securities $ 467 - - - $ 467
Weighted average yield 15.15% - - - 15.15%
- ----------------------------------------------------------------------------------------
Total $4,179 $51,589 $42,951 $14,061 $112,780
========================================================================================
Weighted average yield 9.41% 6.36% 6.65% 6.07% 6.54%
========================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
78
<PAGE>
LOAN PORTFOLIO
The following table classifies loans by major category (dollars in thousands):
<TABLE>
<CAPTION>
December 31
June 30 ----------------------------------------
1994 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial business $ 9,894 6,423 12,621 16,568 24,284 22,375
Agricultural 4,257 4,123 6,352 11,000 7,106 3,854
Real Estate:
Commercial 31,185 31,345 28,769 30,515 27,811 27,195
Residential 21,984 24,164 30,175 35,712 37,985 39,135
Agricultural 5,135 6,124 8,100 7,560 7,900 9,186
Construction 2,291 2,555 1,426 3,932 4,266 3,154
Consumer 6,809 6,096 8,066 11,444 13,324 14,338
- ----------------------------------------------------------------------
Total Loans $81,555 80,830 95,509 116,731 122,676 119,237
======================================================================
</TABLE>
The following tables present maturities and sensitivities of loans to changes in
interest rates as of June 30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
After
One year 1-5 After
or less years 5 years Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturities
Commercial business
and Agricultural $ 4,164 6,220 3,767 14,151
Real Estate 8,980 17,639 33,976 60,595
Consumer 3,001 3,658 150 6,809
- ---------------------------------------------------------------------
$16,145 27,517 37,893 81,555
=====================================================================
Sensitivities
Amount of loans due after
five years which have:
Predetermined interest rates $ 7,179
Floating/adjustable rates 30,714
- ---------------------------------------------------------------------
$37,893
=====================================================================
</TABLE>
79
<PAGE>
The following tables present maturities and sensitivities of loans to changes in
interest rates as of December 31, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
After
One year 1-5 After
or less years 5 years Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturities
Commercial business
and Agricultural $ 4,020 3,962 2,564 10,546
Real Estate 10,842 18,985 34,361 64,188
Consumer 2,777 3,147 172 6,096
- ---------------------------------------------------------------------
$17,639 26,094 37,097 80,830
=====================================================================
Sensitivities
Amount of loans due after
five years which have:
Predetermined interest rates $ 6,582
Floating/adjustable rates 30,515
- ---------------------------------------------------------------------
$37,097
=====================================================================
</TABLE>
80
<PAGE>
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
June 30 ----------------------------
1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $1,496 2,932 4,916 5,329 2,061 2,256
Restructured loans 716 508 356 1,676 1,542 619
Loans past due 90
days or more and
still accruing 0 158 16 399 585 656
- -----------------------------------------------------------
$2,212 3,598 5,288 7,404 4,188 3,531
===========================================================
</TABLE>
The impact on interest income for the six months ended June 30, 1994 and the
year ended December 31, 1993 for nonaccrual and restructured loans was
approximately $97,000 and $472,000, respectively.
81
<PAGE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
----------------------------------------------
June 30, 1994 1993 1992
------------------ --------------- ---------------
Allowance Allowance Allowance
Loans for loan Loans for loan Loans for loan
outstanding losses outstanding losses outstanding losses
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial &
Agricultural $ 14,151 1,095 10,546 1,204 18,973 1,340
Real estate 60,595 1,330 64,188 883 68,470 1,730
Consumer 6,809 35 6,096 61 8,066 52
- -------------------------------------------------------------------------------------------
$ 81,555 2,460 80,830 2,148 95,509 3,122
===========================================================================================
December 31
------------------------------------------------------------------------
1991 1990 1989
------------------ --------------- ---------------
Allowance Allowance Allowance
Loans for loan Loans for loan Loans for loan
outstanding losses outstanding losses outstanding losses
- -------------------------------------------------------------------------------------------
Commercial &
Agricultural $ 27,568 1,707 31,390 741 26,229 520
Real estate 77,719 1,865 77,962 810 78,670 568
Consumer 11,444 53 13,324 23 14,338 17
- -------------------------------------------------------------------------------------------
$116,731 3,625 122,676 1,574 119,237 1,105
===========================================================================================
</TABLE>
82
<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months
ended Years ended December 31
June 30 ------------------------------------
1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance beginning of period $2,148 3,122 3,625 1,574 1,105 1,098
Provision (negative provision)
for loan losses - (675) 1,490 4,278 1,278 355
Charge-offs:
Commercial and
Agricultural 183 635 2,102 1,628 525 268
Consumer 13 26 80 55 120 97
Real Estate - - 283 650 209 97
- --------------------------------------------------------------------------------------
Total loan losses 196 661 2,465 2,333 854 462
Recoveries:
Commercial and
Agricultural 432 298 231 45 15 64
Consumer 46 19 39 27 17 49
Real Estate 30 45 202 34 13 1
- --------------------------------------------------------------------------------------
Total Recoveries 508 362 472 106 45 114
Net (recoveries) charge-offs (312) 299 1,993 2,227 809 348
- --------------------------------------------------------------------------------------
Balance end of period $2,460 2,148 3,122 3,625 1,574 1,105
======================================================================================
Net charge-offs (recoveries)
as a percent of average loans (0.4)% 0.3 1.9 1.9 0.7 0.3
Allowance for loan losses to:
Total loans at period-end 3.0% 2.7 3.3 3.1 1.3 0.9
Net charge-offs NM 7.2x 1.6 1.6 1.9 3.2
Provision (negative provision)
for loan losses to average loans 0.0% (0.8) 1.4 3.6 1.1 0.3
NM = Not meaningful
x = Times
</TABLE>
83
<PAGE>
MATURITY OF TIME DEPOSITS OF $100,000 OR MORE
JUNE 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Over Over
months 3-6 6-12 Over 12
or less months months months Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates and other time deposits $2,095 3,277 1,724 3,398 10,494
</TABLE>
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Over Over
months 3-6 6-12 Over 12
or less months months months Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates and other time deposits $3,774 1,165 1,943 1,214 8,096
</TABLE>
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30 Years ended December 31
------------- ------------- -----------------------
1994 1993 1994 1993 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Average balance $1,263 883 1,197 866 925 1,927 2,850
Average interest 3.84% 4.79% 4.11% 4.78% 4.63% 4.28% 4.42%
rate
Maximum month-end $3,451 999 3,451 1,137 1,190 5,314 5,710
balance
</TABLE>
84
<PAGE>
OTHER INFORMATION
<TABLE>
<CAPTION>
Three months Six months
ended June 30 ended June 30 Years ended December 31
--------------------- --------------------- --------------------------
1994 1993 1994 1993 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return (loss)
on average
assets 1.00%(1) 0.75%(1) 0.98%(1) 0.75%(1) 1.21% 0.65% (.36)%
Return (loss)
on average
equity 10.87%(1) 9.21%(1) 10.52%(1) 9.36%(1) 14.96% 8.81% (4.58)%
Average
equity to
average
assets 9.25% 8.10% 9.27% 8.02% 8.11% 7.37% 7.82%
Dividends
declared
per share $.25 - $.50 - $.50 - $1.40
(1) Annualized
</TABLE>
85
<PAGE>
MANAGEMENT OF ARBI
BOARD OF DIRECTORS
The following table sets forth information as of the Record Date
concerning the executive officers and members of the Board of Directors of
ARBI:
<TABLE>
<CAPTION>
Name Age Position with ARBI and Business Experience
- ---- --- ------------------------------------------
<S> <C> <C>
Ralph Brower 74 Director. Osteopathic physician for more
than the past five years.
Richard E. Cree 45 Director. For more than the past five years,
President of Gateway Technologies, a
privately held telecommunications firm.
Robert J. Davey 51 Director. For more than the past five years,
Chief Executive Officer of Valley Improvement
Association, a nonprofit community
development association.
James H. Foley 52 Chairman of the Board of Directors. For more
than the past five years, President and Chief
Executive Officer of ARBI and the Bank.
J. T. Turner 68 Director. For more than the past five years,
the owner of a firm engaged in gift retailing.
Ron G. Wiser 38 Vice President and Treasurer of ARBI, and
Executive Vice President and Chief Operating
Officer of the Bank, where he has been
employed for more than the past five years.
</TABLE>
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In considering the recommendation of the ARBI Board of Directors with
respect to the Merger Agreement, shareholders should be aware that certain
executive officers and directors of ARBI have certain interests in the Merger
that are in addition to the interests of the shareholders of ARBI generally.
The ARBI Board of Directors was aware of these interests and considered them,
among other matters, in approving the Merger Agreement.
Pursuant to the Merger Agreement, Norwest has agreed, among other things,
to (i) use reasonable efforts to maintain, for three years following the
Effective Time of the Merger, directors' and officers' liability insurance for
future claims arising out of occurrences prior to the Effective Time of the
Merger having terms and conditions substantially similar to those policies
customarily maintained by similar financial institutions, and (ii) insure that
all rights to indemnification in ARBI's Articles of Incorporation and Bylaws,
and in the Articles of Association and Bylaws of the Bank, as in effect on June
6, 1994, shall, with respect to claims arising out of occurrences prior to the
Effective Time of the Merger and with respect to those persons who are covered
by such provisions prior to the Effective Time of the Merger, survive the Merger
and continue in full force and effect for three years after the Effective Time
of the Merger.
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<PAGE>
Certain of the principal shareholders of ARBI and the directors and
executive officers of ARBI and the Bank are presently customers of the Bank or
are officers, directors, or shareholders of corporations, or owners of a
participation or other interest in entities or ventures which currently have
or in the past have had transactions with the Bank. In order to comply with
regulations promulgated under the Federal Reserve Act, such transactions are
required to be made in the ordinary course of business of the Bank, on
substantially the same terms, including interest rate, collateral, and
repayment terms, as those prevailing at the time for comparable transactions
with other persons not affiliated with the Bank or ARBI, and should not
involve more than the normal risk of collectability or present other
unfavorable features. The aggregate indebtedness to the Bank of its and
ARBI's principal shareholders, executive officers, and directors, or their
affiliates, directly or indirectly, as of June 30, 1994, was $775,334, or
approximately 3.7% of shareholders' equity at such date.
No loans to any director or executive officer of ARBI or the Bank or any
of the respective "associates" of such person are past due, or non-accrual,
restructured, considered a potential problem loan, or classified as
substandard, doubtful, or loss by regulatory examiners.
As of the record date, the directors and executive officers of ARBI owned
a total of 78,818.9 shares of ARBI Common Stock, representing approximately
19.2% of such class. Such shares will be converted into shares of Norwest
Common Stock in the Merger on the same basis as the shares of ARBI Common
Stock held by the other ARBI shareholders. Each of the directors and
executive officers of ARBI has separately indicated his intention to vote in
favor of the Merger.
Mr. Foley, the President of ARBI, is currently a party to three
agreements with either or both of ARBI and the Bank that provide for payments
to him in the event of a change of control of ARBI or the Bank or if his
employment with such companies ceases after a change of control. These
agreements are (i) the Executive Supplemental Income Agreement dated October
2, 1989, as amended May 12, 1994, between the Bank and Mr. Foley (the
"Supplemental Agreement"), (ii) the Employment Agreement dated January 14,
1992, as amended May 12, 1994, among Mr. Foley, ARBI, and the Bank (the
"Employment Agreement"), and (iii) the Performance Share Incentive Bonus Plan
dated December 21, 1993, between Mr. Foley and ARBI (the "Plan").
Additionally, Mr. Wiser, the Executive Vice President and Chief Operating
Officer of the Bank and the Vice President and Treasurer of ARBI, is a party
to an Executive Supplemental Income Agreement dated October 26, 1989, as
amended October 8, 1993 (the "Wiser Agreement"), which provides for payments
to Mr. Wiser in the event his employment with such companies ceases after a
change in control. The material terms of each of these agreements are
summarized below.
THE SUPPLEMENTAL AGREEMENT AND THE WISER AGREEMENT
In October 1989 the Bank entered in to the Supplemental Agreement with
Mr. Foley, and entered into the Wiser Agreement with Mr. Wiser, in order to
provide supplemental retirement benefits to such executives. The Supplemental
Agreement and the Wiser Agreement provide generally that, if the executive has
been continuously employed by the Bank, at age 65 the executive will receive
an annual retirement benefit calculated in accordance with such agreement. The
amount of the current annual post-retirement benefits payable to Messrs. Foley
and Wiser would be equal to 37% and 24%, respectively, of their respective
salaries as of the date of retirement. The Supplemental Agreement and the
Wiser Agreement permit early retirement with full benefits upon approval of
the Board of Directors of the Bank after the age of 55 if the executive has
completed 15 years of service. The agreements also provide for death benefits
over a term of years in the event of death prior to retirement age.
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<PAGE>
If after a change of control of the Bank, however, the executive
voluntarily terminates his employment or is fired without cause (as defined in
the agreement), or becomes permanently disabled, the executive's actuarially
determined benefits under the agreement become fully vested and
nonforfeitable. Generally, the amount of the executive's actuarially
determined benefits is equal to the amount of benefits otherwise payable to
the executive multiplied by the ratio that the executive's years of actual
service bears to the total number of possible years of service from the date
of employment to age 65. For Messrs. Foley and Wiser, these amounts currently
are estimated to be $18,477 and $2,425, respectively, which their agreements
would require to be paid each year in ratable monthly installments over a 15-
year period. In addition, after a change of control of the Bank the
Supplemental Agreement and the Wiser Agreement each permit the executive to
retire at age 55, rather than 65, without satisfying any minimum years of
service or obtaining board approval.
At ARBI's annual meeting of shareholders held in April 1994, the
shareholders ratified and approved the terms of the Supplemental Agreement.
Subsequent to such ratification, ARBI and Mr. Foley amended the Supplemental
Agreement to limit Mr. Foley's compensation thereunder and under the
Employment Agreement (defined below), in the event of a change of control, to
299% of his base salary, as defined by IRS regulation, in order to avoid any
possibility that the IRS could successfully challenge the deductibility of the
payments by ARBI to Mr. Foley thereunder.
THE EMPLOYMENT AGREEMENT
ARBI and Mr. Foley entered into the Employment Agreement in 1992. This
agreement initially provided for the employment of Mr. Foley through February
28, 1995, subject to automatic one-year renewals commencing March 1, 1993,
unless three months prior notice of nonrenewal is given by either party.
Accordingly, the Employment Agreement currently provides for the employment of
Mr. Foley through February 28, 1997, unless his employment is terminated prior
to that time by ARBI for cause (generally, conduct that involves dishonesty or
moral turpitude in connection with his employment or that is demonstrably and
materially injurious to the financial condition of ARBI) or for any other
reason. Mr. Foley may also terminate his employment for good reason
(generally, the acquisition by any other person of all or substantially all of
the business of ARBI or the Bank, other than one arranged by a government
agency) or for any other reason. The Merger will constitute good reason
within the meaning of the Employment Agreement.
In the event that ARBI terminates Mr. Foley's employment for cause, it is
liable to Mr. Foley only for the payment of amounts of salary, incentive
compensation, benefits, and expense reimbursements earned but unpaid at the
date of termination. If, however, ARBI terminates Mr. Foley's employment
other than for cause, Mr. Foley will receive his salary and benefits for a
six-month period after termination.
Should an acquisition giving rise to good reason occur, Mr. Foley is
permitted to terminate his employment prior to any termination by ARBI and, in
such event, Mr. Foley will receive his salary and benefits for the remaining
term of the agreement. If such events were to have occurred as of December
31, 1994, Mr. Foley would have been entitled to (i) receive an annual salary
of $163,887 through February 28, 1997, and (ii) continue to participate in all
employee benefit programs through such date. If, however, Mr. Foley
terminates his employment other than for good reason, ARBI has no further
obligation to Mr. Foley other than to pay to him the salary, incentive
compensation, benefits, and expense reimbursements earned but unpaid on the
date of termination.
At ARBI's annual meeting of shareholders held in April 1994, the
shareholders ratified and approved the terms of the Employment Agreement.
Subsequent to such ratification, ARBI and Mr.
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<PAGE>
Foley amended the Employment Agreement to limit Mr. Foley's compensation
thereunder and under the Supplemental Agreement, in the event of a change of
control, to 299% of his base salary, as defined by IRS regulation, in order to
avoid any possibility that the IRS could successfully challenge the
deductibility of the payments by ARBI to Mr. Foley thereunder.
THE PERFORMANCE SHARE INCENTIVE BONUS PLAN
Pursuant to the Plan, Mr. Foley was granted 20,000 "performance shares"
as of January 1, 1993 (the "Determination Date"). A performance share is a
monetary amount equal to the difference between the fair market value of one
share of common stock of the Bank on the date the performance shares are
exercised and the value of one share of common stock of the Bank on the
Determination Date. The fair market value of one share of common stock of the
Bank is determined in good faith by the Board of Directors of ARBI in its sole
discretion. As of the Determination Date, the Board of Directors of ARBI
determined such value to be $40.50.
The performance shares vest ratably over a five-year period, but become
fully vested immediately upon certain events, such as the termination of Mr.
Foley's employment due to his death or disability or the sale or change of
control of the Bank. For purposes of the Plan, the Bank is considered to have
been sold if 80% or more of the common stock of the Bank or ARBI, or if 80% or
more of the assets of the Bank, is sold or exchanged to persons not
shareholders of ARBI as of December 21, 1993. A "change of control" will be
deemed to have occurred for purposes of the Plan if more than 50% of the
common stock of the Bank or ARBI is sold or exchanged to persons not
shareholders of ARBI as of December 21, 1993. The Merger will constitute a
"change of control" within the meaning of the Plan.
In the event of a sale of the Bank or ARBI within the meaning of the plan
occurs, ARBI is obligated to purchase the vested shares held by Mr. Foley, or
in the event of his death, by his estate, heirs or devisees, 180 days after
the first to occur of (i) the termination of Mr. Foley's employment by ARBI or
the Bank or (ii) the closing of the sale of the Bank. Consequently, as a
result of the Merger, ARBI estimates that Mr. Foley will become entitled to
receive from ARBI within 180 days after the Effective Time of the Merger a
cash payment of $642,720.
The terms of the Plan were ratified and approved by the shareholders of
ARBI at the annual meeting of shareholders held April 19, 1994.
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<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, Norwest is subject to supervision and
examination by the Federal Reserve Board. Norwest's banking subsidiaries are
subject to supervision and examination by applicable federal and state banking
agencies. The deposits of Norwest's banking subsidiaries are insured by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"), and
therefore such banking subsidiaries are subject to regulation by the FDIC. In
addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
DIVIDEND RESTRICTIONS
Various federal and state statutes and regulations limit the amount of
dividends the subsidiary banks can pay to Norwest without regulatory approval.
The approval of the OCC is required for any dividend by a national bank if the
total of all dividends declared by the bank in any calendar year would exceed
the total of its net profits, as defined by regulation, for that year combined
with its retained net profits for the preceding two years less any required
transfers to surplus or a fund for the retirement of any preferred stock. In
addition, a national bank may not pay a dividend in an amount greater than its
net profits then on hand after deducting its losses and bad debts. For this
purpose, bad debts are defined to include, generally, loans which have matured
and are in arrears with respect to interest by six months or more, other than
such loans which are well secured and in the process of collection. Under
these provisions Norwest's national bank subsidiaries could have declared, as
of June 30, 1994, aggregate dividends of at least $384.2 million without
obtaining prior regulatory approval and without reducing the capital of the
banks below their respective minimum levels. Norwest also has several state
bank subsidiaries that are subject to state regulations limiting dividends;
however, the amount of dividends payable by Norwest's state bank subsidiaries,
with or without state regulatory approval, would represent an immaterial
contribution to Norwest's revenues.
If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice
and hearing, that such bank cease and desist from such practice. The Federal
Reserve Board, the OCC, and the FDIC have issued policy statements which
provide that FDIC-insured banks and bank holding companies should generally
pay dividends only out of current operating earnings.
HOLDING COMPANY STRUCTURE
Norwest is a legal entity separate and distinct from its banking and
nonbanking subsidiaries. Accordingly, the right of Norwest, and thus the
rights of Norwest's creditors, to participate in any distribution of the
assets or earnings of any subsidiary is necessarily subject to the prior
claims of creditors of such subsidiary, except to the extent that claims of
Norwest in its capacity as a creditor may be recognized. The principal
sources of Norwest's revenues are dividends and fees from its subsidiaries.
Norwest's banking subsidiaries are subject to restrictions under federal
law which limit the transfer of funds by the subsidiary banks to Norwest and
its nonbanking subsidiaries, whether in the form of loans, extensions of
credit, investments, or asset purchases. Such transfers by any
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<PAGE>
subsidiary bank to Norwest or any nonbanking subsidiary are limited in amount
to 10% of the bank's capital and surplus and, with respect to Norwest and all
such nonbanking subsidiaries, to an aggregate of 20% of such bank's capital
and surplus. Furthermore, such loans and extensions of credit are required to
be secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. This support may be required at times when Norwest may not
have the resources to provide it. Any capital loans by Norwest to any of the
subsidiary banks are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank. In addition, the Crime
Control Act of 1990 provides that in the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC after
August 9, 1989, in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the
FDIC to a commonly controlled FDIC-insured depository institution in danger of
default. "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence
of certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance.
Federal law (12 U.S.C. (S)55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any
such pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. Similarly,
the laws of certain states provide for such assessment and sale with respect
to banks chartered by such states. Norwest, as the sole shareholder of
certain of its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as stand-by letters of
credit) is 8%. At least half of the total capital is to be comprised of
common stock, minority interests, and noncumulative perpetual preferred stock
("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of hybrid
capital instruments, perpetual debt, mandatory convertible debt securities, a
limited amount of subordinated debt, other preferred stock, and a limited
amount of loan and lease loss reserves. In addition, the Federal Reserve
Board's final minimum "leverage ratio" (the ratio of Tier 1 capital to
quarterly average total assets) guidelines for bank holding companies provide
for a minimum leverage ratio of 3% for bank holding companies that meet
certain specified criteria, including that they have the highest regulatory
rating. All other bank holding companies are required to maintain a leverage
ratio of 3% plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "tangible
Tier 1 leverage ratio" in evaluating proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 capital, less all intangibles, to total assets, less all
intangibles. Each of Norwest's banking
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subsidiaries is also subject to capital requirements adopted by applicable
regulatory agencies which are substantially similar to the foregoing. At June
30, 1994, Norwest's Tier 1 and total capital (the sum of Tier 1 and Tier 2
capital) to risk-adjusted assets ratios were 10.00% and 12.40%, respectively,
and Norwest's leverage ratio for the quarter ended June 30, 1994, was 6.85%.
Neither Norwest nor any subsidiary bank has been advised by the appropriate
federal regulatory agency of any specific leverage ratio applicable to it.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised
the bank regulatory and funding provisions of the Federal Deposit Insurance
Act and makes revisions to several other federal banking statutes. Among
other things, FDICIA requires the federal banking regulators to take "prompt
corrective action" in respect of FDIC-insured depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
significantly undercapitalized," and "critically undercapitalized." Under
applicable regulations, an FDIC-insured depository institution is defined to
be well capitalized if it maintains a leverage ratio of at least 5%, a risk-
adjusted Tier 1 capital ratio of at least 6%, and a risk-adjusted total
capital ratio of at least 10%, and is not subject to a directive, order, or
written agreement to meet and maintain specific capital levels. An insured
depository institution is defined to be adequately capitalized if its meets
all of its minimum capital requirements as described above. An insured
depository institution will be considered undercapitalized if it fails to meet
any minimum required measure, significantly undercapitalized if it has a risk-
adjusted total capital ratio of less than 6%, risk-adjusted Tier 1 capital
ratio of less than 3%, or a leverage ratio of less than 3%, and critically
undercapitalized if it fails to maintain a level of tangible equity equal to
at least 2% of total assets. An insured depository institution may be deemed
to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to a wide range of limitations on operations and activities, including
growth limitations, and are required to submit a capital restoration plan.
The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository institution's
capital. In addition, for a capital restoration plan to be acceptable, the
depository institution's parent holding company must guarantee that the
institution will comply with such capital restoration plan. The aggregate
liability of the parent holding company is limited to the lesser of (i) an
amount equal to 5% of the depository institution's total assets at the time it
became undercapitalized and (ii) the amount which is necessary (or would have
been necessary) to bring the institution into compliance with all capital
standards applicable with respect to such institution as of the time it fails
to comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
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FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the agency deems
appropriate. The FDIC, in consultation with the other federal banking
agencies, has adopted a final rule and guidelines with respect to external and
internal audit procedures and internal controls in order to implement those
provisions of FDICIA intended to facilitate the early identification of
problems in financial management of depository institutions. The FDIC has
also issued proposed rules prescribing standards relating to certain other of
the management and operational standards listed above. The full impact of
such rule and guidelines and proposed standards on Norwest cannot yet be
ascertained.
FDICIA also contains a variety of other provisions that may affect the
operations of Norwest, including new reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provisions,
and the requirement that a depository institution give 90 days' notice to
customers and regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA a bank cannot accept
brokered deposits (that is, deposits obtained through a person engaged in the
business of placing deposits with insured depository institutions or with
interest rates significantly higher than prevailing market rates) unless (i)
it is "well capitalized" or (ii) it is "adequately capitalized" and receives a
waiver from the FDIC. A bank is defined to be "adequately capitalized" if it
meets all of its minimum capital requirements. A bank that cannot receive
brokered deposits also cannot offer "pass-through" insurance on certain
employee benefit accounts, unless it provides certain notices to affected
depositors. In addition, a bank that is "adequately capitalized" and that has
not received a waiver from the FDIC may not pay an interest rate on any
deposits in excess of 75 basis points over certain prevailing market rates.
There are no such restrictions on a bank that is "well capitalized." At June
30, 1994, all of Norwest's banking subsidiaries were well capitalized and
therefore were not subject to these restrictions.
FDIC INSURANCE
Effective January 1, 1993, the deposit insurance assessment rate for the
Bank Insurance Fund ("BIF") increased as part of the adoption by the FDIC of a
transitional risk-based assessment system. In June 1993, the FDIC published
final regulations making the transitional system permanent effective January
1, 1994, but left open the possibility that it may consider expanding the
range between the highest and lowest assessment rates at a later date. An
institution's risk category is based upon whether the institution is well
capitalized, adequately capitalized, or less than adequately capitalized.
Each insured depository institution is also to be assigned to one of the
following "supervisory subgroups": Subgroup A, B, or C. Subgroup A
institutions are financially sound institutions with few minor weaknesses;
Subgroup B institutions are institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
effective action is taken to correct the areas of weakness. Based on its
capital and supervisory subgroups, each BIF member institution will be
assigned an annual FDIC assessment rate ranging from 0.23% per annum (for well
capitalized Subgroup A institutions) to 0.31% (for undercapitalized Subgroup C
institutions). Adequately capitalized institutions will be assigned
assessment rates ranging from 0.26% to 0.30%. Norwest incurred $72.4 million
of FDIC insurance expense in 1993.
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EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, incorporated by reference herein, have been
incorporated herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of ARBI and subsidiary as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, have been included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, included
herein, and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINION
A legal opinion to the effect that the shares of Norwest Common Stock
offered hereby, when issued in accordance with the Merger Agreement, will be
validly issued and fully paid and nonassessable, has been rendered by Stanley
S. Stroup, Executive Vice President and General Counsel of Norwest
Corporation. At June 30, 1994, Mr. Stroup was the beneficial owner of 108,083
shares and held options to acquire 215,931 additional shares of Norwest Common
Stock.
NORWEST MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and
related transactions, and other related matters concerning Norwest is included
or incorporated by reference in its Annual Report on Form 10-K for the year
ended December 31, 1993, and Form 10K/A dated May 13, 1994, which are
incorporated in this Proxy Statement-Prospectus by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of ARBI
desiring copies of such documents may contact Norwest at its address or phone
number indicated under "AVAILABLE INFORMATION" above.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
AMERICAN REPUBLIC BANCSHARES, INC., AND SUBSIDIARY
<TABLE>
<CAPTION>
Beginning
Page
- ----------------------------------------------------------------------------------
<S> <C>
AMERICAN REPUBLIC BANCSHARES, INC. AND SUBSIDIARY,
CONSOLIDATED FINANCIAL STATEMENTS:
INTERIM PERIODS:
Consolidated Balance Sheets as of June 30, 1994 (unaudited) and
December 31, 1993 F-2
Consolidated Statements of Operations for the three and
six month periods ended June 30, 1994 and 1993 (unaudited) F-3
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 1994 (unaudited) F-5
Consolidated Statements of Cash Flows for the six months ended
June 30, 1994 and 1993 (unaudited) F-6
Notes to Consolidated Financial Statements (unaudited) F-8
FULL FISCAL YEARS (AUDITED):
INDEPENDENT AUDITORS' REPORT FOR 1993 AND 1992 F-14
Consolidated Balance Sheets as of December 31, 1993 and 1992 F-15
Consolidated Statements of Operations for the years ended
December 31, 1993 and 1992 F-16
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1993 and 1992 F-18
Consolidated Statements of Cash Flows for the years ended
December 31, 1993 and 1992 F-19
Notes to Consolidated Financial Statements for 1993 and 1992 F-21
INDEPENDENT AUDITORS' REPORT FOR 1992 AND 1991 F-41
Consolidated Balance Sheets as of December 31, 1992 and 1991 F-42
Consolidated Statements of Operations for the years ended
December 31, 1992 and 1991 F-43
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1992 and 1991 F-44
Consolidated Statements of Cash Flows for the years ended
December 31, 1992 and 1991 F-45
Notes to Consolidated Financial Statements for 1992 and 1991 F-47
</TABLE>
F-1
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1994 1993
------ ---- ----
(unaudited)
<S> <C> <C>
Cash and due from banks $ 6,650,033 8,537,037
Federal funds sold 1,000,000 4,500,000
Investment securities (notes 1 and 2) 122,161,170 112,779,715
Loans (notes 3 and 4) 81,555,493 80,829,737
Less:
Unearned interest (54,943) (124,319)
Allowance for loan losses (2,460,098) (2,148,155)
------------ -----------
Net loans 79,040,452 78,557,263
------------ -----------
Premises and equipment 6,159,160 6,315,752
Accrued interest receivable 2,547,919 2,257,160
Excess of cost over net assets of subsidiary, net
of accumulated amortization of $712,433 and
$677,681 in 1994 and 1993, respectively 677,682 712,434
Other real estate (note 4) 2,338,650 2,876,575
Other assets (note 1) 1,946,604 2,296,986
------------ -----------
Total assets $222,521,670 218,832,922
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits: $ 24,952,507 28,017,750
Non-interest-bearing
Interest-bearing 170,023,033 164,987,192
------------ -----------
Total deposits 194,975,540 193,004,942
Short-term borrowings 527,588 1,190,485
Long-term debt 4,811,665 5,116,192
Accrued expenses and other liabilities (note 5) 1,229,942 714,357
------------ -----------
Total liabilities 201,544,735 200,025,976
------------ -----------
Stockholders' equity:
Common stock, $1 par value. Authorized
1,000,000 shares; issued and outstanding
410,095 shares in 1994 and 1993 410,095 410,095
Capital surplus 729,589 729,589
Undivided profits 18,768,964 17,890,975
Net unrealized gains on securities
available for sale (note 1) 1,292,000 -
Less guaranteed Employee Stock
Ownership Plan debt (223,713) (223,713)
------------ -----------
Total stockholders' equity 20,976,935 18,806,946
Commitment (note 5)
------------ -----------
Total liabilities and stockholders' equity $222,521,670 218,832,922
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans (note 4) $2,058,106 2,111,015 3,954,523 4,335,131
Interest on investment securities:
Taxable 1,556,628 1,348,811 3,053,127 2,700,275
Nontaxable 258,978 166,034 490,650 321,640
Interest on federal funds sold 9,721 27,299 28,614 56,593
---------- --------- --------- ---------
Total interest income 3,883,433 3,653,159 7,526,914 7,413,639
Interest expense:
Deposits 1,339,214 1,400,230 2,636,631 2,842,441
Short-term borrowings 12,085 10,546 24,392 20,506
Long-term debt 83,816 101,792 168,834 203,532
---------- --------- --------- ---------
Total interest expense 1,435,115 1,512,568 2,829,857 3,066,479
---------- --------- --------- ---------
Net interest income 2,448,318 2,140,591 4,697,057 4,347,160
Provision for loan losses (note 3) - 150,000 - 275,000
---------- --------- --------- ---------
Net interest income after
provision for loan losses 2,448,318 1,990,591 4,697,057 4,072,160
Other income:
Service charges on deposit accounts 363,528 379,649 720,257 746,252
Gain/(loss) on sale of investment
securities - 7,792 (26,281) 16,169
Other service charges and fees 48,735 26,491 114,015 59,287
Other 63,143 107,991 82,098 136,239
---------- --------- --------- ---------
Total other income 475,406 521,923 890,089 957,947
Other expense:
Salaries and employee benefits (note 5) 1,032,564 971,141 1,942,066 1,936,800
Occupancy of bank premises 190,946 210,977 395,693 417,618
Legal and professional fees 314,678 130,364 545,585 295,897
Furniture and equipment 120,724 137,882 244,341 268,701
Federal Deposit Insurance
Corporation fees 134,164 132,789 268,328 265,577
Office supplies 51,664 50,972 96,601 102,082
Postage and freight 36,123 34,631 72,609 73,267
========== ========= ========= =========
Other real estate owned expenses, net $ 36,816 47,427 52,556 32,016
Appraisal fees 12,704 24,140 21,602 49,973
Other 251,181 249,538 525,728 535,819
---------- --------- --------- ---------
Total other expense 2,181,564 1,989,861 4,165,109 3,977,750
---------- --------- --------- ---------
</TABLE>
F-3
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
1994 1993 1994 1993
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Income before income
taxes 742,160 522,653 1,422,037 1,052,357
Income taxes (note 1) 175,000 129,859 339,000 267,856
---------- --------- --------- ---------
Net income $ 567,160 392,794 1,083,037 784,501
========== ========= ========= =========
Weighted average number of shares
outstanding 410,095 414,262 410,095 414,286
========== ========= ========= =========
Per common share:
Net income $1.38 .95 2.64 1.89
========== ========= ========= =========
Dividends $.25 - .50 -
========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1994
(unaudited)
<TABLE>
<CAPTION>
NET UNREALIZED GUARANTEED
GAINS ON EMPLOYEE
COMMON STOCK SECURITIES STOCK
------------------ CAPITAL UNDIVIDED AVAILABLE OWNERSHIP
SHARES PAR VALUE SURPLUS PROFITS FOR SALE PLAN DEBT TOTAL
------ --------- ------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 410,095 $410,095 729,589 17,890,975 - (223,713) 18,806,946
Dividends - - - (205,048) - - (205,048)
Adjustment for net unrealized
gains on securities available
for sale, net of tax - - - - 1,292,000 1,292,000
Net income - - - 1,083,037 - - 1,083,037
------- -------- ------- ---------- --------- -------- ----------
Balance at June 30, 1994 410,095 $410,095 729,589 18,768,964 1,292,000 (223,713) 20,976,935
======= ======== ======= ========== ========= ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
---------------------------
1994 1993
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 7,494,031 7,467,542
Fees and other income received 867,089 834,393
Interest paid (2,892,744) (3,068,523)
Cash paid to suppliers and employees (3,934,307) (3,702,070)
Income taxes (paid) received, net (444,086) 120,000
Other, net 472,917 81,714
------------ -----------
Net cash provided by
operating activities 1,562,900 1,733,056
------------ -----------
Cash flows from investing activities:
Purchase of investment securities (19,630,261) (26,583,987)
Proceeds from maturities of
investment securities 8,683,552 15,582,446
Proceeds from sales of investment securities 3,238,097 6,663,512
Net decrease (increase) in loans made to
customers (476,882) 3,826,748
Additions to premises and equipment (58,242) (50,821)
Proceeds from sales of premises and equipment 9,200 15,502
Proceeds from OREO sales 589,030 704,003
------------ -----------
Net cash provided (used) by
investing activities (7,645,506) 157,403
Cash flows from financing activities:
Net increase in demand deposit and
savings accounts 96,780 5,157,111
Net increase (decrease) in time deposits 1,873,818 (4,467,336)
Net decrease in short-term borrowings (662,897) (428,533)
Payments on long-term debt and
subordinated debentures (304,527) (1,167,666)
Issuance of long-term debt - 970,000
Proceeds from sale of common stock - 119,452
Purchase of common stock - (68,706)
Dividends paid (307,572) -
------------ -----------
Net cash provided by
financing activities 695,602 114,322
------------ -----------
Net increase (decrease) in cash
and cash equivalents (5,387,004) 2,004,781
Cash and cash equivalents at beginning of period 13,037,037 11,287,225
------------ -----------
Cash and cash equivalents at end of period $ 7,650,033 13,292,006
============ ===========
</TABLE>
F-6
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
---------------------------
1994 1993
---- ----
<S> <C> <C>
Reconciliation of net income to net cash provided
by operating activities:
Net income $1,083,037 784,501
---------- ---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 214,834 247,916
Provision for loan losses - 275,000
(Gain) loss on sales of investment
securities 26,281 (16,169)
Net gain on sales and market declines
of other real estate (18,831) (30,456)
Increase in interest receivable (290,759) (74,841)
Increase (decrease) in accrued expenses and
other liabilities 515,585 (24,295)
Other, net 32,753 571,400
---------- ---------
Total adjustments 479,863 948,555
---------- ---------
Net cash provided by operating activities $1,562,900 1,733,056
========== =========
</TABLE>
Supplementary disclosure of noncash investing and financing activities:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net loans transferred to other
real estate owned $ 34,000 543,000
======== =======
Loans made to customers for sale of
other real estate owned and premises
and equipment $441,000 247,000
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Changes in Accounting Policy
----------------------------
During 1993, American Republic Bancshares, Inc. (the Company) adopted
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting
for Income Taxes." Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The change in method of accounting for
income taxes resulting from adoption of SFAS 109 had no significant effect
on the accompanying financial statements.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," (FAS 115). Accordingly, beginning on January 1,
1994, pursuant to the Company's investment policy, certain securities are
designated to be available for sale and are reported at estimated fair
value (based on quoted market prices). Net unrealized gains and losses on
such securities are not included in earnings, but are reported as a
separate component of stockholders' equity. On January 1, 1994, the
Company recorded an increase of $1,970,000, net of tax, in stockholders'
equity. The remaining securities are deemed to be held to maturity and are
reported at amortized cost. On January 1, 1994 net unrealized gains on
securities held to maturity were approximately $3,633,000. Premiums and
discounts on both securities available for sale and held to maturity are
amortized/accreted to interest income on investment securities using the
effective interest method over the term of the security.
Prior to the adoption of FAS 115, investment securities are reported at
amortized cost.
Realized gains and losses on the sale of investment securities are
recognized using the identified certificate method.
F-8
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
(2) Investment Securities
---------------------
The amortized cost and estimated fair values of investment securities
follow:
<TABLE>
<CAPTION>
June 30, 1994
------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
Available for sale: cost gains losses value
- ------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and agencies $ 18,535,632 386,877 243,339 18,679,170
State and political
subdivisions 1,123,192 58,278 - 1,181,470
Collateralized
mortgage obligations 3,618,260 - 114,112 3,504,148
Mortgage-backed securities 4,717,285 - 149,459 4,567,826
Equity securities 466,571 2,018,558 - 2,485,129
------------ --------- --------- ----------
28,460,940 2,463,713 506,910 30,417,743
========= ========= ==========
Held to maturity:
- -----------------
U.S. Treasury and agencies 63,357,352 736,146 1,829,403 62,264,095
State and political
subdivisions 16,568,315 235,808 585,830 16,218,293
Collateralized
mortgage obligations 3,608,341 1,538 82,505 3,527,374
Mortgage-backed securities 8,209,419 10,108 433,203 7,786,324
------------ --------- --------- ----------
91,743,427 983,600 2,930,941 89,796,086
========= ========= ==========
Adjustment to estimated
fair value of securities
available for sale 1,956,803
------------
Total $122,161,170
============
</TABLE>
F-9
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
(2) Investment Securities (continued)
---------------------------------
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 74,009,480 3,915,843 33,480 77,891,843
and agencies
State and political 14,643,541 986,453 29,768 15,600,226
subdivisions
Collateralized 9,998,453 31,731 42,251 9,987,933
mortgage obligations
Mortgage-backed 13,661,660 53,027 33,953 13,680,734
securities
Equity securities 466,581 1,779,195 -- 2,245,776
------------ --------- ------- -----------
Total $112,779,715 6,766,249 139,452 119,406,512
============ ========= ======= ===========
</TABLE>
The amortized cost and estimated fair value of investment securities at
June 30, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Available for sale Held to maturity
----------------------- ------------------------
Estimated Estimated
Amortized fair Amortized fair
Due: cost value cost value
- ---- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
In one year or less $ 2,466,533 4,480,017 1,300,000 1,302,741
After one through five 16,989,978 17,218,140 38,135,164 37,222,906
years
After five through ten 5,087,054 4,938,045 43,271,204 42,637,046
years
After ten years 3,917,375 3,781,541 9,037,059 8,633,393
----------- ---------- ---------- ----------
$28,460,940 30,417,743 91,743,427 89,796,086
=========== ========== ========== ==========
</TABLE>
Proceeds and gross realized gains and losses from sales of securities
available for sale are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1994 June 30, 1994
------------------ ----------------
<S> <C> <C>
Proceeds from sales $ - 3,238,097
Gross realized gains $ - 18,929
Gross realized losses $ - 45,210
</TABLE>
F-10
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
(3) Loans and Allowance for Loan Losses
-----------------------------------
A summary of the loan portfolio by major category follows:
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
------------- -----------------
<S> <C> <C>
Real estate $60,594,810 64,188,226
Commercial, financial and
agricultural 14,152,091 10,545,579
Installment and other consumer
loans 6,808,592 6,095,932
----------- ----------
$81,555,493 80,829,737
=========== ==========
</TABLE>
A summary of the changes in the allowance for loan losses is presented
below:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------- ----------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning
of period $2,108,930 3,051,747 2,148,155 3,121,570
Provision charged to
expense - 150,000 - 275,000
Recoveries of loans
previously charged
off 359,409 100,172 508,225 167,166
Loans charged off (8,241) (96,414) (196,282) (358,231)
---------- --------- --------- ---------
Balance at end
of period $2,460,098 3,205,505 2,460,098 3,205,505
========== ========= ========= =========
</TABLE>
F-11
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(unaudited)
(4) Non-performing Assets and Loans Past Due 90 Days or More
--------------------------------------------------------
A summary of non-performing assets and loans past due 90 days or more
follows:
<TABLE>
<CAPTION>
June 30 December 31,
--------------------- ------------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Nonaccrual loans $1,496,357 4,956,186 2,931,843
Restructured loans 715,927 529,485 507,839
---------- --------- ---------
Total nonaccrual and
restructured loans 2,212,284 5,485,671 3,439,682
Other real estate owned 2,338,650 3,199,446 2,876,575
---------- --------- ---------
Total nonperforming assets 4,550,934 8,685,117 6,316,257
Loans past due 90 days or
more not included above - 164,781 158,011
---------- --------- ---------
Total $4,550,934 8,849,898 6,474,268
========== ========= =========
</TABLE>
The approximate amount of foregone interest income on nonaccrual and
restructured loans was as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C>
$40,000 116,000 97,000 225,000
</TABLE>
F-12
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONCLUDED
(unaudited)
(5) Executive Incentive and Employment Agreements
---------------------------------------------
In April 1994, the Company's stockholders approved a performance share
incentive bonus plan (Plan) for its President. This Plan grants stock
appreciation rights to the President, which, if fully vested, would have a
value of approximately $670,000 at June 30, 1994. These rights vest
ratably over a five year period beginning January 1, 1993, but become
fully vested immediately upon certain events such as the termination of
the President's employment due to his death or disability or the sale or
change of control of the Company.
A vested benefit of approximately $134,000 accrued to the President upon
stockholder approval of the Plan. Such vested benefit is reflected in
accrued expenses as of June 30, 1994, and in salaries and employee
benefits expense during the three and six month periods then ended.
The Company also has an employment agreement (Agreement) with its
President. The Agreement includes a provision that if any other
corporation or entity acquires the Company (unless such acquisition is
arranged or assisted by a government agency), the President may, at his
option, terminate his employment and receive from the Company up to three
years annual compensation, which would approximate $500,000.
F-13
<PAGE>
[LOGO -- KPMG Peat Marwick]
Certified Public Accountants
6565 Americas Parkway, NE-#700
Post Office Box
Albuquerque, NM 87190
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
American Republic Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of American
Republic Bancshares, Inc. and subsidiary as of December 31, 1993 and 1992, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company'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 American Republic
Bancshares, Inc. and subsidiary 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.
/s/ KPMG Peat Marwick LLP
March 18, 1994
F-14
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992
------ -------------- ------------
<S> <C> <C>
Cash and due from banks (note 2) $ 8,537,037 6,287,225
Federal funds sold 4,500,000 5,000,000
Investment securities (notes 3 and 8) 112,779,715 93,043,293
Loans (note 4) 80,829,737 95,509,161
Less:
Unearned interest (124,319) (517,659)
Allowance for loan losses (2,148,155) (3,121,570)
------------ -----------
Net loans 78,557,263 91,869,932
------------ -----------
Premises and equipment (notes 5 and 8) 6,315,752 6,709,791
Accrued interest receivable 2,257,160 2,078,337
Excess of cost over net assets of subsidiary, net of accumulated
amortization of $677,681 and $608,176 in 1993 and 1992,
respectively 712,434 781,939
Other real estate 2,876,575 2,839,072
Other assets (note 9) 2,296,986 3,470,755
------------ -----------
Total assets $218,832,922 212,080,344
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing $ 28,017,750 24,011,089
Interest-bearing (note 6) 164,987,192 164,092,391
------------ -----------
Total deposits 193,004,942 188,103,480
Short-term borrowings (note 7) 1,190,485 1,156,389
Long-term debt and subordinated debentures (note 8) 5,116,192 5,643,960
Accrued expenses and other liabilities 714,357 672,150
------------ -----------
Total liabilities 200,025,976 195,575,979
------------ -----------
Stockholders' equity (notes 11, 12 and 15):
Common stock, $1 par value. Authorized 1,000,000 shares;
issued and outstanding 410,095 shares in 1993 and 413,830
shares in 1992 410,095 413,830
Capital surplus 729,589 882,444
Undivided profits 17,890,975 15,500,015
Less guaranteed Employee Stock Ownership Plan debt (notes
8 and 10) (223,713) (291,924)
------------ -----------
Total stockholders' equity 18,806,946 16,504,365
Commitments (notes 4, 10 and 16)
------------ -----------
Total liabilities and stockholders' equity $218,832,922 212,080,344
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
------------ ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 8,322,641 10,469,851
Interest on investment securities:
Taxable 5,631,386 5,317,167
Nontaxable 697,979 603,924
Interest on federal funds sold 121,408 104,129
Other 7,886 11,634
----------- ----------
Total interest income 14,781,300 16,506,705
----------- ----------
Interest expense:
Deposits 5,566,081 7,411,456
Short-term borrowings 42,795 82,504
Long-term debt and subordinated debentures 388,284 424,023
----------- ----------
Total interest expense 5,997,160 7,917,983
----------- ----------
Net interest income 8,784,140 8,588,722
Provision (negative provision) for loan losses (note 4) (675,000) 1,490,000
----------- ----------
Net interest income after
provision for loan losses 9,459,140 7,098,722
----------- ----------
Other income:
Service charges on deposit accounts 1,467,781 1,519,273
Gain on sale of investment securities 92,489 573,487
Other service charges and fees 147,205 145,637
Other 346,483 77,391
----------- ----------
Total other income 2,053,958 2,315,788
----------- ----------
Other expense:
Salaries and employee benefits (note 10) 3,783,847 3,552,095
Occupancy of bank premises 801,197 770,134
Legal and professional fees 545,685 568,180
Furniture and equipment 524,173 528,695
Federal Deposit Insurance Corporation fees 529,943 426,983
Office supplies 205,576 199,329
=========== ==========
</TABLE>
(Continued)
F-16
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Operations, Continued
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Postage and freight $ 136,621 155,434
Other real estate owned expenses, net 153,326 159,100
Appraisal fees 51,584 147,196
Other 1,110,282 1,124,646
---------- ---------
Total other expense 7,842,234 7,631,792
---------- ---------
Income before income taxes 3,670,864 1,782,718
Income taxes (note 9) 1,074,856 386,531
---------- ---------
Net income $2,596,008 1,396,187
========== =========
Weighted average number of shares outstanding 413,652 412,106
========== =========
Per common share:
Net income $ 6.28 3.39
========== =========
Dividends $ .50 -
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
Guaranteed
Employee
Common stock Stock
-------------------- Capital Undivided Ownership
Shares Par value surplus profits Plan debt Total
-------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 411,040 $411,040 775,859 14,103,828 (329,103) 14,961,624
Purchase of common stock (1,000) (1,000) (36,550) - - (37,550)
Sale of common stock 3,790 3,790 143,135 - - 146,925
Reduction of Guaranteed Employee Stock
Ownership Plan debt - - - - 37,179 37,179
Net income - - - 1,396,187 - 1,396,187
------- -------- -------- ---------- ---------- ----------
Balance at December 31, 1992 413,830 413,830 882,444 15,500,015 (291,924) 16,504,365
Purchase of common stock (6,640) (6,640) (269,403) - - (276,043)
Sale of common stock 2,905 2,905 116,548 - - 119,453
Dividends - - - (205,048) - (205,048)
Reduction of Guaranteed Employee Stock
Ownership Plan debt - - - - 68,211 68,211
Net income - - - 2,596,008 - 2,596,008
------- -------- -------- ---------- ---------- ----------
Balance at December 31, 1993 410,095 $410,095 729,589 17,890,975 (223,713) 18,806,946
======= ======== ======== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 14,903,381 17,279,434
Fees and other income received 1,843,987 1,788,437
Interest paid (6,125,591) (8,256,315)
Cash paid to suppliers and employees (7,297,819) (6,980,622)
Income taxes paid (202,856) (471,577)
Other, net 474,506 164,787
------------ -----------
Net cash provided by operating activities 3,595,608 3,524,144
------------ -----------
Cash flows from investing activities:
Purchase of investment securities (63,145,680) (66,038,139)
Proceeds from maturities of investment
securities 30,590,044 34,621,604
Proceeds from sales of investment securities 12,613,966 14,721,219
Net decrease in loans made to customers 13,013,898 17,870,943
Additions to premises and equipment (111,685) (573,776)
Proceeds from sales of premises and equipment 24,627 40,890
Proceeds from OREO sales 952,147 776,089
------------ -----------
Net cash provided (used) by investing
activities (6,062,683) 1,418,830
------------ -----------
Cash flows from financing activities:
Net increase in demand deposit and savings accounts 13,288,831 16,056,980
Net decrease in time deposits (8,387,369) (18,637,105)
Net increase (decrease) in short-term borrowings 34,096 (5,068,433)
Payments on long-term debt and subordinated debentures (1,429,557) (229,234)
Issuance of long-term debt 970,000 82,098
Proceeds from sale of common stock 119,453 146,925
Purchase of common stock (276,043) (37,550)
Dividends paid (102,524) -
------------ -----------
Net cash provided (used) by financing
activities 4,216,887 (7,686,319)
------------ -----------
Net increase (decrease) in cash and cash
equivalents 1,749,812 (2,743,345)
Cash and cash equivalents at beginning of year 11,287,225 14,030,570
------------ -----------
Cash and cash equivalents at end of year $ 13,037,037 11,287,225
============ ===========
</TABLE>
(Continued)
F-19
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income $2,596,008 1,396,187
---------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 499,931 546,528
Provision (negative provision) for loan losses (675,000) 1,490,000
Gain on sale of investment securities (92,489) (573,487)
(Gain) loss on sale and market declines of other
real estate (21,855) 54,445
(Increase) decrease in interest receivable (178,823) 602,654
Increase (decrease) in accrued expenses and other
liabilities 42,207 (268,546)
Other, net 1,425,629 276,363
---------- ---------
Total adjustments 999,600 2,127,957
---------- ---------
Net cash provided by operating
activities $3,595,608 3,524,144
========== =========
Supplementary disclosure of noncash investing and financing activities:
1993 1992
---------- ---------
Net loans transferred to other real estate
owned $1,439,000 2,230,000
========== =========
Loans made to customers for sale of other
real estate owned and premises and
equipment $ 458,000 301,000
========== =========
</TABLE>
The Company has an employee stock ownership plan and has guaranteed a loan to
the plan from an unrelated institution. The plan repaid $68,211 of this debt
during 1993.
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1993 and 1992
(1) Summary of Significant Accounting Policies
The accounting policies of American Republic Bancshares, Inc. (Bancshares)
and subsidiary (collectively referred to as the Company) conform to
generally accepted accounting principles and to general practice within
the banking industry. The following is a summary of the more significant
of those policies:
(a) Basis of Presentation
The consolidated financial statements include Bancshares and its
wholly-owned subsidiary, First National Bank of Belen (Bank).
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Investment Securities
Investment securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts. The lower of cost or market is
not used for securities valuation since the Bank has the ability and
intent to hold the securities to maturity, except that costs of
individual securities are written down to market when the ultimate
realization of the recorded amounts is not reasonably assured. Gains
or losses on the sale of investment securities are recognized using
the identified certificate method.
(c) Allowance for Loan Losses
Loan losses are charged to the allowance for loan losses and
recoveries are credited to it. The provision for loan losses charged
to expense is based on past loan loss experience, management's
evaluation of the loan portfolio and other factors which, in
management's judgment, deserve current recognition in estimating
possible loan losses. Such other factors considered by management
include growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans,
collateral values and economic conditions. The determination of the
allowance for loan losses and the valuation of real estate in
connection with the satisfaction of loans are material estimates
that are susceptible to change in the near term. Management does,
however, obtain independent appraisals for significant properties
that secure loans.
(Continued)
F-21
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
A substantial portion of the Bank's loans are secured by real estate,
primarily in New Mexico. The ultimate collectibility of a substantial
portion of the Bank's loan portfolio is therefore susceptible to
changes in real estate market conditions.
Management believes that the allowance for losses on loans is
adequate. While management uses 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 the Bank's allowance for losses on loans. Such
agencies may require the Bank to adjust the allowance based on their
judgments about information available to them at the time of their
examination.
(d) Income on Loans
Interest is accrued on loans unless, in the opinion of management,
collectibility of the interest is not probable. When accrual of
interest is discontinued, any previously accrued uncollected interest
is charged against interest income. Interest received on nonaccrual
loans is applied as a reduction of principal if there is doubt as to
the collectibility in full of the outstanding balance.
Unearned interest on installment loans is amortized into income in
amounts that approximate the interest method.
Loan origination fees and direct costs of originating loans are
amortized into income over the lives of the loans using a method that
approximates the interest method.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line and
declining-balance methods over the estimated useful lives of the
assets.
Maintenance and repairs are charged to expense in the year incurred.
Renewals and material betterments are capitalized. Gains or losses on
dispositions are credited or charged to income.
(f) Other Real Estate
Other real estate is comprised of foreclosed properties where the Bank
has actually received title or which are "in-substance" foreclosures.
Loans are classified as in-substance foreclosures when the bank
receives physical possession of the borrower's collateral even though
formal foreclosure proceedings may not have
(Continued)
F-22
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
taken place. Such properties are carried at the lower of the
investment in the related loan or estimated net realizable value. The
fair value of such properties is determined based on independent
appraisals and other relevant factors.
Any writedowns required prior to or at the time of acquisition are
charged against the allowance for loan losses.
Declines in value, subsequent to acquisition, are accounted for as a
charge to losses on other real estate and are included in other
expenses in the period in which a decline in value is determined.
Operating expenses, including rental or lease income and depreciation,
and gains or losses from sales of other real estate are charged or
credited to other operating expenses or income as incurred.
(g) Excess of Cost Over Net Assets of Subsidiary
The excess of cost over net assets of the subsidiary is amortized
using the straight-line method over 20 years.
(h) Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
During 1993, the Company adopted Statement 109. The change in method
of accounting for income taxes had no significant effect.
Bancshares files consolidated federal and state income tax returns
with its subsidiary.
(Continued)
F-23
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(i) Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold.
(j) Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement 114
(FASB No. 114), "Accounting by Creditors for Impairment of a Loan."
The Statement applies to all creditors and all loans, including those
that are restructured in troubled debt restructuring with a
modification of terms. Excluded are large groups of homogeneous loans
with small balances that are evaluated collectively, loans measured at
fair value or at the lower of cost or fair value, leases and debt
securities. The Statement requires applicable loans to be measured at
the discounted amounts of their expected future cash flows using the
loan's effective interest rate or at the observable market price or
the fair value of the collateral for collateral dependent loans. The
Statement is effective for fiscal years beginning after December 15,
1994, with earlier application encouraged. The Bank has not decided
whether or not this Statement will be applied early, nor have the
effects of this Statement been evaluated.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Adoption of SFAS No. 115 is required for fiscal years beginning after
December 15, 1993, with early adoption permitted. The Company adopted
the new standard effective January 1, 1994. Certain securities at
January 1, 1994 are deemed by management to be available for sale and,
in accordance with SFAS No. 115, are reported at fair value (based on
quoted market prices) with net unrealized gains and losses reported as
a separate component of stockholders' equity. At January 1, 1994, the
Company recorded an increase of $1,970,000, net of tax, in
stockholders' equity. The remaining securities are deemed by
management to be held-to-maturity and are therefore reported at
amortized cost.
(k) Reclassifications
Certain 1992 amounts have been reclassified to conform with the 1993
financial statement presentation.
(Continued)
F-24
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Restricted Cash Balance
Included in cash and due from banks are balances which are maintained to
meet reserve requirements established by the Federal Reserve Board. At
December 31, 1993, the required balance was $2,460,000.
(3) Investment Securities
The book and estimated market values of investment securities follow:
<TABLE>
<CAPTION>
1993
-------------------------------------------------
Gross Gross Estimated
Book unrealized unrealized market
value gains losses value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 30,134,026 2,698,725 7,968 32,824,783
Securities of U.S.
government agencies
and corporations 43,875,454 1,217,118 25,512 45,067,060
Obligations of state and
political subdivisions 14,643,541 986,453 29,768 15,600,226
Collateralized mortgage
obligations - fixed
rate 7,169,117 30,121 37,880 7,161,358
Collateralized mortgage
obligations - variable
rate 2,829,336 1,610 4,371 2,826,575
Mortgage-backed
securities - fixed
rate 11,816,168 53,027 26,012 11,843,183
Mortgage-backed
securities - variable
rate 1,845,492 - 7,941 1,837,551
Other 466,581 1,779,195 - 2,245,776
------------ --------- ------- -----------
Total $112,779,715 6,766,249 139,452 119,406,512
============ ========= ======= ===========
</TABLE>
(Continued)
F-25
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1992
-----------------------------------------------
Gross Gross Estimated
Book unrealized unrealized market
value gains losses value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $28,047,690 1,704,498 6,251 29,745,937
Securities of U.S.
government agencies
and corporations 28,783,461 924,685 40,087 29,668,059
Obligations of state and
political subdivisions 8,802,809 525,302 1,664 9,326,447
Collateralized mortgage
obligations - fixed
rate 10,465,784 1,117 216,159 10,250,742
Collateralized mortgage
obligations - variable
rate 5,771,655 1,956 45,221 5,728,390
Mortgage-backed
securities - fixed
rate 1,546,240 58,814 1,117 1,603,937
Mortgage-backed
securities - variable
rate 4,159,073 - 78,405 4,080,668
Money market mutual fund 5,000,000 - - 5,000,000
Other 466,581 407,289 - 873,870
----------- --------- ------- ----------
Total $93,043,293 3,623,661 388,904 96,278,050
=========== ========= ======= ==========
</TABLE>
(Continued)
F-26
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The following table shows the maturity distribution of the investment portfolio
at December 31, 1993:
<TABLE>
<CAPTION>
Maturity distribution
-----------------------------------------------------------
Within One to Five to After
one year five years ten years ten years Total
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $1,499,591 17,034,603 11,599,832 - 30,134,026
Securities of U.S. govern-
ment agencies and
corporations 1,499,275 29,462,914 12,913,265 - 43,875,454
Obligations of state and
political subdivisions 714,037 2,652,609 6,222,406 5,054,489 14,643,541
Collateralized mortgage
obligations - fixed rate - 409,864 2,475,426 4,283,827 7,169,117
Collateralized mortgage
obligations - variable
rate - - 396,101 2,433,235 2,829,336
Mortgage-backed
securities - fixed rate - 2,028,895 9,343,869 443,404 11,816,168
Mortgage-backed
securities - variable
rate - - - 1,845,492 1,845,492
Other 466,581 - - - 466,581
---------- ---------- ---------- ---------- -----------
$4,179,484 51,588,885 42,950,899 14,060,447 112,779,715
========== ========== ========== ========== ===========
Estimated market
value $6,014,808 54,893,641 45,465,718 13,032,345 119,406,512
========== ========== ========== ========== ===========
</TABLE>
During 1993 and 1992, the Bank sold a portion of its investment securities. The
proceeds received from such sales were $12,613,966 and $14,721,219 for the years
ended December 31, 1993 and 1992, respectively. In 1993, the Bank recognized
gross realized gains and losses from these transactions of $131,099 and $38,610,
respectively. In 1992, the Bank recognized gross realized gains from these
transactions of $573,487.
(Continued)
F-27
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 1993, securities with a book value of approximately
$16,194,000 are pledged to secure deposits as required by law.
(4) Loans and Allowance for Loan Losses
A summary of the loan portfolio by major category follows:
<TABLE>
<CAPTION>
1993 1992
------------ ----------
<S> <C> <C>
Real estate $64,486,461 69,017,597
Commercial, financial and
agricultural 10,181,196 18,383,556
Installment and other consumer
loans 6,094,287 8,070,416
Other 67,793 37,592
----------- ----------
$80,829,737 95,509,161
=========== ==========
</TABLE>
Nonaccrual loans were approximately $2,932,000 and $6,185,000 at
December 31, 1993 and 1992, respectively. The amount of foregone interest
income on these loans was approximately $468,000 in 1993 and $611,000 in
1992.
Direct and indirect loans receivable from directors, executive officers,
principal stockholders, employees and their related entities aggregated
approximately $1,560,000 and $2,380,000 at December 31, 1993 and 1992,
respectively.
At December 31, 1993, the Bank was committed under unfunded lines of credit
for approximately $4,169,000 which are not reflected in the accompanying
consolidated financial statements.
A summary of the changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Balance at beginning of year $3,121,570 3,625,431
Provision (negative provision) charged to expense (675,000) 1,490,000
Recoveries of loans previously charged off 362,720 471,448
Loans charged off (661,135) (2,465,309)
---------- ----------
Balance at end of year $2,148,155 3,121,570
========== ==========
</TABLE>
(Continued)
F-28
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Premises and Equipment
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
Depreciable lives 1993 1992
----------------- ------------ -----------
<S> <C> <C> <C>
Land - $ 875,916 867,060
Premises 10 - 50 years 6,785,862 6,971,768
Furniture and equipment 3 - 7 years 2,901,013 2,861,434
------------ -----------
10,562,791 10,700,262
Less accumulated
depreciation (4,247,039) (3,990,471)
------------ -----------
$ 6,315,752 6,709,791
============ ===========
</TABLE>
(6) Interest-bearing Deposits
A summary of interest-bearing deposits follows:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Demand:
NOW accounts $ 39,994,093 38,685,108
Money market 20,358,409 24,380,734
Savings 47,557,261 35,561,750
Time:
$100,000 or more 8,171,005 11,924,842
Other 48,906,424 53,539,957
------------ -----------
$164,987,192 164,092,391
============ ===========
</TABLE>
(7) Short-term Borrowings
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Securities sold under agreements
to repurchase $ 640,485 641,389
============ ===========
</TABLE>
(Continued)
F-29
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1993 1992
----------- ---------
<S> <C> <C>
Line of credit ($1,000,000) to unrelated bank,
interest payable monthly at
Citibank, N.A. prime plus .5 percent (6.5% at
December 31, 1993); secured by all
Bank stock; remaining balance due
March 16, 1994 $ 550,000 515,000
---------- ---------
$1,190,485 1,156,389
========== =========
</TABLE>
At December 31, 1993, securities sold under agreements to repurchase
consist of corporate repurchase agreements.
The Company obtained a $7,500,000 line of credit from an unrelated bank
(bank) that matures on May 1, 1994 for the purpose of purchasing federal
funds. Any advances under this line are to be secured by a pledge of
specific investment securities, and bears interest at the bank's quoted
rate on the date of any advance. At December 31, 1993 and 1992, there
were no amounts outstanding under this line of credit.
(8) Long-term Debt and Subordinated Debentures
A summary of long-term debt and subordinated debentures follows:
<TABLE>
<CAPTION>
1993 1992
----------- ---------
<S> <C> <C>
Note payable to unrelated bank, payable in
monthly installments of $19,031 in 1994 plus
interest at Citibank, N.A. prime with a
floor of 7% and a ceiling of 12% (7% at
December 31, 1993); secured by all Bank
stock and first mortgage on land and Bank
building with a net book value of
approximately $4,100,000; remaining
balance due November 1996 $4,028,000 4,238,000
11% subordinated debentures, interest
due semiannually, redeemed on June 30, 1993 - 969,210
========== =========
</TABLE>
(Continued)
F-30
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Note payable to unrelated bank, interest
payable quarterly at Citibank, N.A. prime plus 1.5%
(7.5% at December 31, 1993); starting September 30,
1994 payable in quarterly installments of $48,500
plus interest; secured by certain investment securities;
remaining balance due June 30, 1999 $ 825,000 -
Guaranteed Employee Stock Ownership Plan debt
to an unrelated bank, principal due in
increasing amounts ($46,222 due in 1994)
with interest payments due annually at
Citibank, N.A. prime rate (6.0% at
December 31, 1993); remaining balance due
in 1999 (note 10) 223,713 291,924
Other 39,479 144,826
---------- ---------
$5,116,192 5,643,960
========== =========
</TABLE>
The $4,028,000 note payable may be renewed with the agreement of both
parties beginning November 16, 1996. At renewal, payments will be
calculated using a 15-year amortization, with interest continuing to be
based on Citibank, N.A. prime.
Required principal repayments, assuming the renewals discussed in the
preceding paragraph, of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1994 $ 397,258
1995 511,640
1996 530,165
1997 386,557
1998 287,520
Thereafter 3,003,052
----------
$5,116,192
==========
</TABLE>
(Continued)
F-31
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Income Taxes
Components of federal income tax expense are:
<TABLE>
<CAPTION>
1993 1992
----------- -------
<S> <C> <C>
Current $ 730,859 101,000
Deferred 343,997 285,531
---------- -------
$1,074,856 386,531
========== =======
</TABLE>
Included in other assets in the accompanying consolidated balance sheets
are deferred income taxes of $242,000 and $586,000 at December 31, 1993 and
1992, respectively, and income taxes receivable of $8,000 and $525,000 at
December 31, 1993 and 1992.
The change in the deferred income tax asset represents the effect of
changes in the amounts of temporary differences. The types of temporary
differences that give rise to significant portions of the deferred tax
asset are presented below:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Allowance for loan losses $ 199,000 663,000
Business combination (44,000) (41,000)
Depreciation (261,000) (238,000)
Other real estate 215,000 186,000
Other, net 133,000 16,000
--------- --------
$ 242,000 586,000
========= ========
</TABLE>
The Company can realize the deferred tax asset at December 31, 1993 through
carryback provisions and, therefore, no valuation allowance has been
recorded.
(Continued)
F-32
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The actual tax expense differs from the "expected" (34 percent of income
before income taxes) tax expense as follows:
<TABLE>
<CAPTION>
1993 1992
------------ ---------
<S> <C> <C>
Computed "expected" tax
expense (benefit) $1,248,094 606,124
Tax-exempt interest (237,000) (186,446)
Other, net 63,762 (33,147)
---------- --------
$1,074,856 386,531
========== ========
Effective income tax rate 29.3% 21.7%
==== ====
</TABLE>
(10) Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially all
of its employees. Prior to 1989, the benefits were based on years of
service and the employee's highest consecutive 5-years compensation
during the last 10 years of service. The Plan was amended, effective
January 1, 1989, to provide a monthly retirement benefit of .75 percent
of a participant's career average compensation multiplied by the years of
service with a minimum monthly benefit of $5.00 multiplied by the years
of service up to 40 years. Vesting occurs on a graduating basis, with
full vesting achieved at the end of 7 years. The Company's funding policy
is to annually contribute amounts necessary to maintain substantially
full funding. The Company contributed $47,609 and $46,701 during the
years ending December 31, 1993 and 1992, respectively, to this plan.
At December 31, 1993, the fair value of the Plan's assets of $370,683
(consisting primarily of cash and cash equivalents, U.S. government
securities and mutual funds) exceeded the Plan's accumulated benefit
obligation of $209,767. The weighted average discount rate used in
projecting the accumulated benefit obligation was 8.0 percent and the
expected long-term rate of return on assets and rate of increase in future
compensation levels were 8.5 percent and 5.0 percent, respectively. Net
periodic pension costs incurred were $32,948 and $4,890 in 1993 and 1992,
respectively.
(Continued)
F-33
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company also has a 401(k) savings plan under which the Company may
match a portion of the employee's contribution up to 100 percent based on
return on average assets, and a profit-sharing plan under which the Company
may make contributions of up to 15 percent of the employee's compensation.
Participation is available to substantially all employees. Vesting occurs
on a graduating basis, with full vesting achieved at the end of 7 years.
The Company may terminate either plan at any time. The Company contributed
$27,238 and $24,147 to this plan in 1993 and 1992, respectively.
The Company also has an Employee Stock Ownership Plan (ESOP) for
substantially all of its employees. Total shares allocated to participants
is based upon the employer's annual contribution. Such shares are
allocated to individual participants based on the ratio of each
participant's compensation to total participants' compensation. Vesting
occurs on a graduating basis with full vesting achieved at the end of 7
years. The ESOP obtained a loan from an unrelated bank (note 8) that was
used to purchase 13,513 outstanding shares of common stock from a
stockholder. Contributions made by the Company to the ESOP are intended to
pay principal and interest on the ESOP debt and, in turn, allocate a
proportionate amount of the ESOP common stock shares to the participating
employees. Any dividends on unallocated shares are also used to pay
principal, interest and plan expenses. The ESOP debt is guaranteed by
Bancshares and, therefore, is presented as long-term debt and a reduction
of stockholders' equity. The Company contributed $108,744 and $63,160 to
the ESOP of which $17,545 and $20,981 was attributable to interest on the
ESOP debt for the years ending December 31, 1993 and 1992, respectively.
The Company also has a supplemental benefit plan designed to provide
certain employees with supplemental retirement benefits. The plan was
funded with a single contribution of $755,000. Benefits accrue to the
employees over their employment and will provide the employees with salary
continuation benefits upon retirement or death. As part of the plan, the
Company has obtained insurance contracts on the plan participants in
amounts sufficient to discharge the Company's obligations under the plan.
Other assets include $752,651 and $1,065,798 at December 31, 1993 and 1992,
respectively, of cash surrender value for the insurance contracts
purchased; and accrued liabilities include $47,733 and $40,666 relating to
benefits for the years ending December 31, 1993 and 1992, respectively.
The Company recorded an expense of $13,635 and $3,241 in 1993 and 1992,
respectively, for benefits accruing under this plan.
The Company also has a compensation arrangement with its president whereby
under certain circumstances it may incur an obligation to this individual
of up to 3 years annual compensation, which would approximate $500,000.
(Continued)
F-34
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Dividend Restrictions
Undivided profits of the Bank include $13,000,000 not available for
dividends to its stockholder because of regulatory requirements.
(12) Risk-based Capital and Leverage Ratios
In January 1989, the Federal Reserve Board and the Office of the
Comptroller of the Currency issued guidelines which establish a risk-
adjusted ratio relating capital to various categories of recorded assets
and off-balance sheet commitments adjusted for relative credit risk. The
guidelines require a minimum total risk-based capital ratio of 8.0
percent. At December 31, 1993, Bancshares' total risk-based capital ratio
was 18.35 percent.
In early 1990, the Federal Reserve Board proposed a new minimum leverage
ratio representing the minimum capital to total assets standard for
banking organizations. The minimum leverage ratio required for those
banks with the highest regulatory rating is 3.00 percent. At December 31,
1993, Bancshares' leverage ratio was 8.53 percent.
(13) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (FAS 107) requires that Bancshares
disclose estimated fair values for its financial instruments. Fair value
estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time Bancshares' entire holdings of a particular
financial instrument. Because no market exists for a significant portion
of Bancshares' financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and
other factors. 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.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets
(Continued)
F-35
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
and liabilities that are not considered financial assets or liabilities
include premises and equipment and other real estate owned. 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 the estimates.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash, Short-term Investments and Short-term Borrowings:
The fair value of the short-term instruments approximates the carrying
amounts because they mature in 90 days or less.
Investment Securities:
The fair value of securities is based on quoted market prices or dealer
quotes, if available. If a quoted market price for a specific security
is not available, fair value is estimated using quoted market prices
for similar securities.
Loans:
The fair value of loans is estimated by discounting the anticipated cash
flows using appropriate current discount rates to determine their
present value. The yield on the U.S. Treasury security having a term
which most closely corresponds to the term of the loan is the risk-free
discount rate used. The risk-free rate is adjusted for the operating
expense component and the estimated credit quality component, which is
the annualized yield needed to cover the expected loan losses. The
credit quality component is based on an analysis of under performing
loans and gross charge-off experience.
Deposit Liabilities:
The fair value of deposits with no stated maturity, such as demand
deposits, savings accounts, NOW accounts and money market deposits is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is based on the discounted
anticipated cash flows using the appropriate risk free discount rate
adjusted for the estimated credit quality relating to the "market view"
of the creditworthiness of the institution based on selected financial
ratios and the operating expense component.
(Continued)
F-36
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Long-term Debt:
The fair value of long-term debt approximates the carrying amount as the
majority of the debt is tied to floating interest rates thereby repricing
the debt at current market values on a continual basis.
The estimated fair values of Bancshares' financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1993
(thousands)
------------------
Carrying Fair
amount value
--------- -------
<S> <C> <C>
Financial assets:
Cash and short-term
investments $ 13,037 13,037
Investment securities 112,780 119,407
Loans, net 78,557 82,449
Accrued interest receivable 2,257 2,257
-------- -------
Total financial assets $206,631 217,150
======== =======
Financial liabilities:
Deposits $193,005 193,450
Short-term borrowings 1,190 1,190
Long-term debt and
subordinated debentures 5,116 5,116
Interest payable on deposits 387 387
-------- -------
Total financial
liabilities $199,698 200,143
======== =======
</TABLE>
(14) Condensed Financial Information of Parent Company
The assets of Bancshares consist primarily of an investment in its
subsidiary bank and the Bank's operating facilities. As discussed in note
11, dividends paid by the Bank are limited by bank regulatory agencies.
The principal source of Bancshares' revenue is dividends from the
subsidiary bank, which are utilized for payments of debt service,
operating costs and dividends to Bancshare stockholders. Condensed
financial information of Bancshares at December 31, 1993 and 1992
follows:
(Continued)
F-37
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Statements
of Financial Condition
----------------------
1993 1992
------- -------
Assets (thousands)
------ -----------
<S> <C> <C>
Cash $ 202 93
Investment in subsidiary - First National Bank of Belen 18,226 16,485
Dividends receivable from subsidiary 500 -
Premises and equipment 4,367 4,506
Excess of cost over net assets of subsidiary,
net of accumulated amortization 712 782
Other assets 764 805
------- ------
Total assets $24,771 22,671
======= ======
Liabilities and Stockholders' Equity
-------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 104 1
Short-term borrowing 550 515
Long-term debt and subordinated debentures 5,116 5,563
Other liabilities 194 88
Stockholders' equity 18,807 16,504
------- ------
Total liabilities and
stockholders' equity $24,771 22,671
======= ======
Condensed Statements 1993 1992
of Operations ------- -------
-------------------- (thousands)
Income from subsidiary: -----------
Dividends $ 600 100
Rental income 483 481
Other 46 3
------- ------
Total income 1,129 584
Operating expenses 773 815
------- ------
Operating income (loss) before
undistributed income of subsidiary 356 (231)
Undistributed income of subsidiary 2,240 1,627
------- ------
Net income $ 2,596 1,396
======= ======
</TABLE>
(Continued)
F-38
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Statements 1993 1992
of Cash Flows -------- -------
-------------------- (thousands)
-----------------
<S> <C> <C>
Cash flows from operating activities:
Dividends from subsidiary $ 600 100
Rent income received 483 481
Income taxes received 75 102
Interest paid (419) (457)
Other, net (13) 11
------- ------
Net cash provided by operating
activities 726 237
------- ------
Cash flows from investing activities - purchases of assets (15) (30)
------- ------
Cash flows from financing activities:
Net increase in short-term borrowings 35 -
Payments on long-term debt (1,347) (229)
Proceeds from issuance of long-term debt 970 -
Proceeds from sale of common stock 119 147
Purchases of common stock (276) (38)
Dividends paid (103) -
------- ------
Net cash used for financing activities (602) (120)
------- ------
Net increase in cash and cash equivalents 109 87
Cash and cash equivalents at beginning of year 93 6
------- ------
Cash and cash equivalents at end of year $ 202 93
======= ======
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 2,596 1,396
------- ------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 220 242
Other assets 44 138
Other liabilities 106 88
Undistributed income of subsidiary (2,240) (1,627)
------- ------
Total adjustments (1,870) (1,159)
------- ------
Net cash provided by operating
activities $ 726 237
======= ======
</TABLE>
(Continued)
F-39
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(15) Regulatory Matters
In June 1992, the Board of Directors of the Bank entered into a Memorandum
of Understanding (Memorandum) with the Office of the Comptroller of the
Currency (OCC) that required the Bank to take a number of actions to
strengthen the Bank's financial condition and required the approval of
the OCC prior to the declaration or payment of any dividends.
The OCC conducted an examination of the Bank as of December 31, 1993, which
disclosed that the overall condition of the Bank was satisfactory and
that the Bank was in substantial compliance with the Memorandum. As a
result, the Memorandum was terminated on March 15, 1994.
(16) Legal Proceedings
The Company is party to various legal proceedings in the normal course of
business. In management's opinion, after consultation with outside legal
counsel, the disposition of these matters will not materially affect the
financial position of the Company.
F-40
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
American Republic Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of American
Republic Bancshares, Inc. and subsidiaries as of December 31, 1992 and 1991, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company'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 American Republic
Bancshares, Inc. and subsidiaries at December 31, 1992 and 1991, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in note 15 to the consolidated financial statements, the Board of
Directors of the Bank entered into a Memorandum of Understanding (Memorandum)
with the Office of the Comptroller of the currency (OCC) in June 1992 that
required the Bank to take a number of actions to strengthen the Bank's financial
condition. Since the implementation of the Memorandum, the OCC conducted
another on-site examination as of November 30, 1992. The OCC has indicated in a
draft examination report that the Bank's overall compliance with the Memorandum
is not yet at a desirable level. As a result, the Memorandum will remain in
effect until terminated by the OCC. Failure to obtain total compliance with the
Memorandum in a timely manner could result in additional administrative action
by the OCC.
/s/ KPMG Peat Marwick LLP
---------------------
March 6, 1993
F-41
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1992 and 1991
<TABLE>
<CAPTION>
Assets 1992 1991
------ -------------- ------------
<S> <C> <C>
Cash and due from banks (note 2) $ 6,287,225 7,530,570
Federal funds sold 5,000,000 6,500,000
Investment securities (note 3) 93,043,293 75,941,675
Loans (note 4) 94,240,465 116,731,453
Less:
Unearned interest (517,659) (911,185)
Allowance for loan losses (3,121,570) (3,625,431)
------------ -----------
Net loans 90,601,236 112,194,837
------------ -----------
Premises and equipment (note 5) 6,709,791 6,707,716
Accrued interest receivable 2,078,337 2,680,991
Excess of cost over net assets of subsidiaries, net of accumulated
amortization of $608,176 and $538,670 in 1992 and 1991,
respectively 781,939 851,445
Other real estate 4,107,768 2,705,645
Other assets (note 9) 3,470,755 3,526,143
------------ -----------
Total assets $212,080,344 218,639,022
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Non-interest-bearing $ 24,011,089 20,166,610
Interest-bearing (note 6) 164,092,391 170,516,995
------------ -----------
Total deposits 188,103,480 190,683,605
Short-term borrowings (note 7) 1,156,389 5,709,822
Long-term debt and subordinated debentures (note 8) 5,643,960 6,343,275
Accrued expenses and other liabilities 672,150 940,696
------------ -----------
Total liabilities 195,575,979 203,677,398
------------ -----------
Stockholders' equity (notes 11, 12 and 15):
Common stock, $1 par value. Authorized 1,000,000 shares;
issued and outstanding 413,830 shares in 1992 and 411,040
shares in 1991 413,830 411,040
Capital surplus 882,444 775,859
Undivided profits 15,500,015 14,103,828
Less--Guaranteed Employee Stock Ownership
Plan debt (notes 8 and 10) (291,924) (329,103)
------------ -----------
Total stockholders' equity 16,504,365 14,961,624
Commitments (notes 4 and 10)
------------ -----------
Total liabilities and stockholders' equity $212,080,344 218,639,022
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1992 and 1991
<TABLE>
<CAPTION>
1992 1991
------------ ------------
<S> <C> <C>
Interest income:
Interest and fees on loans $10,469,851 13,486,996
Interest on investment securities:
Taxable 5,317,167 4,077,523
Nontaxable 603,924 782,121
Other 115,763 287,586
----------- -----------
Total interest income 16,506,705 18,634,226
----------- -----------
Interest expense:
Deposits 7,411,456 9,694,484
Short-term borrowings 82,504 126,093
Long-term debt and subordinated debentures 424,023 587,859
----------- -----------
Total interest expense 7,917,983 10,408,436
----------- -----------
Net interest income 8,588,722 8,225,790
Provision for loan losses (note 4) 1,490,000 4,278,000
----------- -----------
Net interest income after provision for loan losses 7,098,722 3,947,790
----------- -----------
Other income:
Service charges on deposit accounts 1,519,273 1,384,499
Gain on sale of investment securities 573,487 153,265
Other service charges and fees 145,637 153,294
Credit life insurance commissions 67,881 76,495
Other 9,510 27,722
----------- -----------
Total other income 2,315,788 1,795,275
----------- -----------
Other expense:
Salaries and employee benefits (note 10) 3,552,095 3,160,807
Occupancy of bank premises 770,134 713,170
Legal and professional fees 568,180 279,276
Furniture and fixtures 528,695 564,093
Federal Deposit Insurance Corporation fees 426,983 370,300
Office supplies 199,329 192,881
Postage and freight 155,434 152,548
Other real estate owned expenses, net 159,100 523,920
Appraisal fees 147,196 23,845
Other 1,124,646 1,045,739
----------- -----------
Total other expense 7,631,792 7,026,579
----------- -----------
Income (loss) before income taxes 1,782,718 (1,283,514)
Income taxes (benefit) (note 9) 386,531 (531,946)
----------- -----------
Net income (loss) $ 1,396,187 (751,568)
=========== ===========
Weighted average number of shares outstanding 412,106 412,017
=========== ===========
Per common share:
Net income (loss) $ 3.39 (1.82)
=========== ===========
Dividends $ - $ 1.40
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1992 and 1991
<TABLE>
<CAPTION>
Guaranteed
Employee
Stock
Common stock Capital Undivided Ownership
--------------------
Shares Par value surplus profits Plan debt Total
-------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 417,550 $417,550 976,807 15,431,050 (400,385) 16,425,022
Purchase of common stock (10,060) (10,060) (342,598) - - (352,658)
Sale of common stock 3,550 3,550 141,650 - - 145,200
Common stock dividends - - - (575,654) - (575,654)
Reduction of Guaranteed Employee Stock Ownership
Plan debt - - - - 71,282 71,282
Net loss - - - (751,568) - (751,568)
------- -------- -------- ---------- ---------- ----------
Balance at December 31, 1991 411,040 411,040 775,859 14,103,828 (329,103) 14,961,624
Purchase of common stock (1,000) (1,000) (36,550) - - (37,550)
Sale of common stock 3,790 3,790 143,135 - - 146,925
Reduction of Guaranteed Employee Stock Ownership
Plan debt - - - - 37,179 37,179
Net income - - - 1,396,187 - 1,396,187
------- -------- -------- ---------- ---------- ----------
Balance at December 31, 1992 413,830 $413,830 882,444 15,500,015 (291,924) 16,504,365
======= ======== ======== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1992 and 1991
<TABLE>
<CAPTION>
1992 1991
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 17,279,434 18,370,568
Fees and other income received 1,788,437 1,700,006
Interest paid (8,256,315) (10,450,560)
Cash paid to suppliers and employees (6,980,622) (6,039,599)
Income taxes paid (471,577) (498,128)
Proceeds from OREO sales 776,089 883,161
Other, net 164,787 (740,702)
------------ -----------
Net cash provided by operating activities 4,300,233 3,224,746
------------ -----------
Cash flows from investing activities:
Purchase of investment securities (66,038,139) (56,464,991)
Proceeds from maturities of investment
securities 34,621,604 29,943,396
Proceeds from sales of investment securities 14,721,219 6,309,823
Net decrease in loans made to customers 17,870,943 2,272,430
Additions to premises and equipment (573,776) (628,247)
Proceeds from sales of premises and equipment 40,890 100
------------ -----------
Net cash provided (used) by investing
activities 642,741 (18,567,489)
------------ -----------
Cash flows from financing activities:
Net increase in demand deposit and savings accounts 16,056,980 8,309,392
Net increase (decrease) in time deposits (18,637,105) 5,501,029
Net increase (decrease) in short-term borrowings (5,068,433) 261,529
Payments on long-term debt and subordinated debentures (229,234) (759,185)
Issuance of long-term debt 82,098 1,041,600
Proceeds from sale of common stock 146,925 145,200
Purchase of common stock (37,550) (352,658)
Dividends paid - (575,654)
------------ -----------
Net cash provided (used) by financing
activities (7,686,319) 13,571,253
------------ -----------
Net decrease in cash and cash
equivalents (2,743,345) (1,771,490)
Cash and cash equivalents at beginning of year 14,030,570 15,802,060
------------ -----------
Cash and cash equivalents at end of year $ 11,287,225 14,030,570
============ ===========
</TABLE>
(Continued)
F-45
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1992 1991
---------- ---------
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
operating activities:
Net income (loss) $1,396,187 (751,568)
---------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 546,528 556,717
Provision for loan losses 1,490,000 4,278,000
Gain on sale of investment securities (573,487) (153,265)
Loss on sale and market declines of other
real estate 54,445 425,112
(Increase) decrease in interest receivable 602,654 (245,844)
Decrease in accrued expenses and other liabilities (268,546) (575,107)
Other, net 1,052,452 (309,299)
---------- ---------
Total adjustments 2,904,046 3,976,314
---------- ---------
Net cash provided by operating
activities $4,300,233 3,224,746
========== =========
Supplementary disclosure of noncash investing and financing activities:
1992 1991
---------- ---------
Net loans transferred to other real estate
owned $2,230,000 1,260,000
========== =========
Loans made to customers for sale of other
real estate owned and premises and
equipment $ 301,000 343,000
========== =========
</TABLE>
The Company has an employee stock ownership plan and has guaranteed a loan of
$459,442 to the Plan from an unrelated institution. The plan repaid $37,179 of
this debt during 1992.
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1992 and 1991
(1) Summary of Significant Accounting Policies
The accounting policies of American Republic Bancshares, Inc. (Bancshares)
and subsidiaries (collectively referred to as the Company) conform to
generally accepted accounting principles and to general practice within
the banking industry. The following is a summary of the more significant
of those policies:
(a) Basis of Presentation
The consolidated financial statements include Bancshares and its
wholly owned subsidiary, First National Bank of Belen (Bank). The
consolidated financial statements also include Bancshares' wholly
owned subsidiary, Scientific Management Systems, Inc. (SMS), for the
year ended December 31, 1991. During 1992, Bancshares dissolved SMS
and combined its operations with Bancshares. SMS was not material to
the operation of Bancshares.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Investment Securities
Investment securities are stated at cost, adjusted for amortization of
premiums and accretion of discounts. The lower of cost or market is
not used for securities valuation since the Bank has the ability and
intent to hold the securities to maturity, except that costs of
individual securities are written down to market when the ultimate
realization of the recorded amounts are not reasonably assured.
Gains or losses on the sale of investment securities are recognized
using the identified certificate method.
(c) Allowance for Loan Losses
Loan losses are charged to the allowance for loan losses and
recoveries are credited to it. The provision for loan losses charged
to expense is based on past loan loss experience, management's
evaluation of the loan portfolio and other factors which, in
management's judgment, deserve current recognition in estimating
possible loan losses. Such other factors considered by management
include growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans,
collateral values and economic conditions. Material estimates that
are particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses and the
valuation of real estate in connection with the satisfaction of
loans. Management obtains independent appraisals for significant
properties that secure loans.
(Continued)
F-47
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A substantial portion of the Bank's loans are secured by real estate
in weak markets, primarily in New Mexico. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio
is susceptible to changes in real estate market conditions in New
Mexico.
Management believes that the allowance for losses on loans is
adequate. While management uses 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 the Bank's allowance for losses on
loans. Such agencies may require the Bank to recognize additions to
the allowance based on their judgments about information available
to them at the time of their examination.
(d) Income on Loans
Interest is accrued on loans unless, in the opinion of management,
collectibility of the interest is not probable. When accrual of
interest is discontinued, any previously accrued uncollected
interest is charged against interest income. Interest on nonaccrual
loans is recognized on a cash basis.
Unearned interest on installment loans is amortized into income in
amounts that approximate the interest method.
Loan origination fees and direct costs of originating loans are
amortized into income over the lives of the loans using a method
that approximates the interest method.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line and
declining-balance methods over the estimated useful lives of the
assets.
Maintenance and repairs are charged to expense in the year incurred.
Renewals and material betterments are capitalized. Gains or losses
on dispositions are credited or charged to income.
(f) Other Real Estate
Other real estate is comprised of foreclosed properties where the Bank
has actually received title or which are "in-substance"
foreclosures. Loans are classified as in-substance foreclosures when
the debtor has: (a) formally or informally abandoned control of the
collateral to the Bank, or (b) retained control of the collateral
but the economic prospects for the debtor and/or the
(Continued)
F-48
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
collateral make it doubtful that the debtor will be able to rebuild
equity. Such properties are carried at the lower of the investment
in the related loan or estimated net realizable value. Fair value of
such assets is determined based on independent appraisals and other
relevant factors.
Declines in value, subsequent to acquisition, are accounted for as a
charge to losses on other real estate and are included in other
expenses in the period in which a decline in value is determined.
Operating expenses, including rental or lease income and
depreciation, and gains or losses from sales of other real estate
are charged or credited to other operating expenses or income as
incurred.
A substantial portion of the other real estate is located in the same
weak markets as discussed in note 1(c). Accordingly, the ultimate
recovery of the Bank's carrying amount of other real estate is
susceptible to changes in the real estate market conditions in New
Mexico. In addition, such carrying values are periodically reviewed
by the various regulatory agencies. Such agencies may require the
Bank to recognize losses on other real estate based on their
judgments about information available to them at the time of their
examination.
(g) Excess of Cost Over Net Assets of Subsidiaries
The excess of cost over net assets of the subsidiaries is amortized
using the straight-line method over 20 years.
(h) Income Taxes
The Company uses the asset and liability method of accounting for
income taxes.
Bancshares files consolidated federal and state income tax returns
with its subsidiaries.
(i) Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold.
(j) Reclassifications
Certain 1991 amounts have been reclassified to conform with the 1992
financial statement presentation.
(2) Restricted Cash Balance
Included in cash and due from banks are balances which are maintained to
meet reserve requirements established by the Federal Reserve Board. At
December 31, 1992, the required balance was $2,313,000.
(Continued)
F-49
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Investment Securities
The book and estimated market values of investment securities follows:
<TABLE>
<CAPTION>
1992
-----------------------------------------------
Gross Gross Estimated
Book unrealized unrealized market
value gains losses value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $28,047,690 1,704,498 6,251 29,745,937
Securities of U.S.
government agencies
and corporations 28,783,461 924,685 40,087 29,668,059
Obligations of state and
political subdivisions 8,802,809 525,302 1,664 9,326,447
Collateralized mortgage
obligations - fixed
rate 10,465,784 1,117 216,159 10,250,742
Collateralized mortgage
obligations - variable
rate 5,771,655 1,956 45,221 5,728,390
Mortgage-backed
securities - fixed rate 1,546,240 58,814 1,117 1,603,937
Mortgage-backed
securities - variable
rate $ 4,159,073 - 78,405 4,080,668
Money market mutual fund 5,000,000 - - 5,000,000
Other 466,581 407,289 - 873,870
----------- --------- ------- ----------
Total $93,043,293 3,623,661 388,904 96,278,050
=========== ========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1991
-----------------------------------------------
Gross Gross Estimated
Book unrealized unrealized market
value gains losses value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $31,055,664 1,821,664 - 32,877,328
Securities of U.S. government
agencies and corporations 35,460,679 1,110,282 26,002 36,544,959
Obligations of state and
political subdivisions 8,958,751 232,468 19,683 9,171,536
Other 466,581 99,645 - 566,226
----------- --------- ------ ----------
Total $75,941,675 3,264,059 45,685 79,160,049
=========== ========= ====== ==========
</TABLE>
(Continued)
F-50
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table shows the maturity distribution of the investment portfolio
at December 31, 1992:
<TABLE>
<CAPTION>
Maturity distribution
-----------------------------------------------------------
Within One to Five to After
one year five years ten years ten years Total
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 4,000,005 13,493,950 10,553,735 - 28,047,690
Securities of U.S. govern-
ment agencies and
corporations 6,028,600 18,179,455 4,575,406 - 28,783,461
Obligations of state
and political sub-
divisions 649,906 2,573,875 4,715,293 863,735 8,802,809
Collateralized mortgage
obligations - fixed rate - 995,298 5,872,711 3,597,775 10,465,784
Collateralized mortgage
obligations - variable
rate - - - 5,771,655 5,771,655
Mortgage-backed
securities - fixed rate - 1,546,240 - - 1,546,240
Mortgage-backed
securities - variable rate - - - 4,159,073 4,159,073
Money market mutual
fund 5,000,000 - - - 5,000,000
Other 466,581 - - - 466,581
----------- ---------- ---------- ---------- ----------
$16,145,092 36,788,818 25,717,145 14,392,238 93,043,293
=========== ========== ========== ========== ==========
Estimated market
value $16,763,986 38,568,938 26,654,469 14,290,657 96,278,050
=========== ========== ========== ========== ==========
</TABLE>
During 1992 and 1991, the Bank sold a portion of its investment securities.
The proceeds received from such sales were $14,721,219 and $6,309,823 for
the years ended December 31, 1992 and 1991, respectively. In 1992, the
Bank recognized gross realized gains from these transactions of $573,487.
In 1991, the Bank recognized gross realized gains and losses from these
transactions of $174,315 and $21,050, respectively.
At December 31, 1992, securities with a book value of approximately
$15,529,000 are pledged to secure deposits as required by law.
(Continued)
F-51
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Loans and Allowance for Loan Losses
A summary of the loan portfolio by major category follows:
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Real estate $68,471,078 77,718,604
Commercial, financial and agricultural 17,666,379 27,481,658
Installment and other consumer loans 8,065,416 11,443,878
Other 37,592 87,313
----------- -----------
$94,240,465 116,731,453
=========== ===========
</TABLE>
Nonaccrual loans were approximately $4,916,000 and $5,313,000 at December
31, 1992 and 1991, respectively. The amount of foregone interest income
on these loans was approximately $494,000 in 1992 and $220,000 in 1991.
Direct and indirect loans receivable from directors, executive officers,
principal stockholders, employees and their related entities aggregated
approximately $2,380,000 and $2,598,000 at December 31, 1992 and 1991,
respectively.
At December 31, 1992, the Bank was committed under unfunded lines of credit
for approximately $4,215,000 which are not reflected in the accompanying
consolidated financial statements.
A summary of the changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 3,625,431 1,573,891
Provision charged to expense 1,490,000 4,278,000
Recoveries of loans previously charged off 471,448 105,812
Loans charged off (2,465,309) (2,332,272)
----------- ----------
Balance at end of year $ 3,121,570 3,625,431
=========== ==========
</TABLE>
(Continued)
F-52
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Premises and Equipment
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
Depreciable lives 1992 1991
----------------- ------------ -----------
<S> <C> <C> <C>
Land - $ 867,060 867,060
Premises 10-50 years 6,971,768 6,769,962
Furniture, fixtures and
equipment 3-7 years 2,861,434 2,608,955
------------ ----------
10,700,262 10,245,977
Less accumulated
depreciation (3,990,471) (3,538,261)
------------ ----------
$ 6,709,791 6,707,716
============ ==========
</TABLE>
(6) Interest-bearing Deposits
A summary of interest-bearing deposits follows:
<TABLE>
<CAPTION>
1992 1991
------------ -----------
<S> <C> <C>
Demand:
NOW accounts $ 38,685,108 36,253,305
Money market 24,380,734 27,781,745
Savings 35,561,750 22,380,040
Time:
$100,000 or more 11,924,842 21,977,821
Other 53,539,957 62,124,084
------------ -----------
$164,092,391 170,516,995
============ ===========
</TABLE>
(7) Short-term Borrowings
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
---------- ---------
<S> <C> <C>
Securities sold under agreements
to repurchase $ 641,389 5,709,822
Note payable to unrelated bank, interest
payable monthly at Citibank, N.A. prime
(6.0% at December 31, 1992); secured by
all Bank stock; remaining balance due
March 16, 1993 515,000 -
---------- ---------
$1,156,389 5,709,822
========== =========
</TABLE>
(Continued)
F-53
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1992, securities sold under agreements to repurchase are
represented by corporate repurchase agreements. At December 31, 1991,
these agreements were substantially with the County Treasurer's office.
(8) Long-term Debt and Subordinated Debentures
A summary of Bancshares' long-term debt and subordinated debentures
follows:
<TABLE>
<CAPTION>
1992 1991
----------- ---------
<S> <C> <C>
Note payable to unrelated bank, payable in monthly
installments of $17,227 plus interest at Citibank,
N.A. prime with a floor of 7% and a ceiling of 12%
(7% at December 31, 1992); secured by all Bank
stock and first mortgage on land and Bank building
with a net book value of approximately $4,240,000
(note 5); remaining balance due November 1996 $4,238,000 4,430,000
11% subordinated debentures, interest due
semiannually; principal due April 1994 969,210 985,400
Note payable to unrelated bank, interest payable
monthly at Citibank, N.A. prime (6.0% at
December 31, 1992); secured by all Bank stock;
remaining balance due March 16, 1993 - 515,000
Guaranteed Employee Stock Ownership Plan debt
to an unrelated bank - principal due in increasing
amounts ($41,455 due in 1993) with interest payments
due annually at Citibank, N.A. prime rate (6.0%
at December 31, 1992); remaining balance due in
1999 (note 10) 291,924 329,103
Other 144,826 83,772
---------- ---------
$5,643,960 6,343,275
========== =========
</TABLE>
The $4,028,000 note payable may be renewed with the agreement of both
parties beginning November 16, 1996. At renewal, payments will be
calculated using a 15-year amortization, with interest continuing to be
based on Citibank, N.A. prime.
The subordinated debentures are unsecured debt obligations of Bancshares
and are subordinated to all present and future senior debt of Bancshares
or any present or future guarantee of such indebtedness by Bancshares.
Bancshares may, at its option, redeem the debentures, in whole or in part
at par.
(Continued)
F-54
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Required principal repayments, assuming the renewals discussed in the
second preceding paragraph, of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1993 $ 353,526
1994 1,269,468
1995 317,640
1996 312,940
1997 192,911
Thereafter 3,197,475
----------
$5,643,960
==========
</TABLE>
Effective May 1992, the Company obtained a $7,500,000 line of credit from
an unrelated bank (bank) that matures on May 1, 1993 for the purpose of
purchasing federal funds. Any advances under this line are to be secured
by a pledge of specific investment securities, and bears interest at the
bank's quoted rate on the date of any advance. At December 31, 1992,
there were no amounts outstanding under this line of credit.
(9) Income Taxes
Components of federal income tax expense (benefit) are:
<TABLE>
<CAPTION>
1992 1991
-------- --------
<S> <C> <C>
Current $101,000 122,157
Deferred 285,531 (654,103)
-------- --------
$386,531 (531,946)
======== ========
</TABLE>
Included in other assets in the accompanying balance sheets are deferred
income taxes of $586,000 and $871,000 at December 31, 1992 and 1991,
respectively, and income taxes receivable of $525,000 and $154,000 at
December 31, 1992 and 1991.
The change in the deferred income tax asset represents the effect of
changes in the amounts of temporary differences. The types of temporary
differences that give rise to significant portions of the deferred tax
asset are presented below:
<TABLE>
<CAPTION>
1992 1991
--------- --------
<S> <C> <C>
Allowance for loan losses $ 663,000 911,000
Business combination (41,000) (52,000)
Depreciation (238,000) (257,000)
Alternative minimum tax credit - 109,000
Other, net 202,000 160,000
--------- --------
$ 586,000 871,000
========= ========
</TABLE>
(Continued)
F-55
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The actual tax expense (benefit) differs from the "expected" (34 percent of
income before income taxes) tax expense as follows:
<TABLE>
<CAPTION>
1992 1991
--------- --------
<S> <C> <C>
Computed "expected" tax
expense (benefit) $ 606,124 (436,395)
Tax-exempt interest (186,446) (235,334)
Other, net (33,147) 139,783
--------- --------
$ 386,531 (531,946)
========= ========
Effective income tax rate 21.7% 41.4%
==== ====
</TABLE>
The Company currently accounts for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 96, "Accounting for Income
Taxes." This statement has been superseded by Statement No. 109 which
will be effective for fiscal years beginning after December 15, 1992,
although earlier adoption is permitted. Statement No. 109, as was the
case under Statement No. 96, will continue to retain the liability method
of accounting for deferred income taxes. The Company anticipates
implementing Statement No. 109 in the first quarter of 1993 on a
prospective basis, but presently does not know and cannot reasonably
estimate the impact of this Statement on its consolidated financial
statements.
(10) Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially all
of its employees. Prior to 1989, the benefits were based on years of
service and the employee's highest consecutive 5-years compensation
during the last 10 years of service. The Plan was amended, effective
January 1, 1989, to provide a monthly retirement benefit of .75 percent
of a participant's career average compensation multiplied by the years of
service with a minimum monthly benefit of $5.00 multiplied by the years
of service up to 40 years. Vesting occurs on a graduating basis, with
full vesting achieved at the end of 7 years. The Company's funding policy
is to annually contribute amounts necessary to maintain substantially
full funding. The Company contributed $46,701 and $41,091 during the
years ending December 31, 1992 and 1991, respectively, to this plan.
At December 31, 1992, the fair value of the Plan's assets of $318,882
(consisting primarily of cash and cash equivalents, U.S. government
securities and mutual funds) exceeded the Plan's accumulated benefit
obligation of $185,356. The weighted average discount rate used in
projecting the accumulated benefit obligation was 8.0 percent and the
expected long-term rate of return on assets and rate of increase in
future compensation levels were 9.0 percent and 5.0 percent,
respectively. Net periodic pension costs incurred were $4,890 and $8,071
in 1992 and 1991, respectively.
(Continued)
F-56
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company also has a 401(k) savings plan under which the Company may
match a portion of the employee's contribution up to 100 percent based on
return on average assets, and a profit-sharing plan under which the
Company may make contributions of up to 15 percent of the employee's
compensation. Participation is available to substantially all employees.
Vesting occurs on a graduating basis, with full vesting achieved at the
end of 7 years. The Company may terminate either plan at any time. The
Company contributed $24,147 to this plan in 1992. No contributions were
made to this plan in 1991.
The Company also has an Employee Stock Ownership Plan (ESOP) for
substantially all of its employees. Total shares allocated to
participants is based upon the employer's annual contribution. Such
shares are allocated to individual participants based on the ratio of
each participant's compensation to total participants' compensation.
Vesting occurs on a graduating basis with full vesting achieved at the
end of 7 years. The ESOP obtained a loan from an unrelated bank (note 8)
that was used to purchase 13,513 outstanding shares of common stock from
a stockholder. Contributions made by the Company to the ESOP are intended
to pay principal and interest on the ESOP debt and, in turn, allocate a
proportionate amount of the ESOP common stock shares to the participating
employees. Any dividends on unallocated shares are also used to pay
principal, interest and plan expenses. The ESOP debt is guaranteed by
Bancshares and, therefore, is presented as long-term debt and a reduction
of stockholders' equity. The Company contributed $63,160 and $54,872 to
the ESOP of which $20,981 and $30,805 was attributable to interest on the
ESOP debt for the years ending December 31, 1992 and 1991, respectively.
The Company also has a supplemental benefit plan designed to provide
certain employees with supplemental retirement benefits. The plan is
being funded over a 5-year period with annual contributions of
approximately $460,000. Benefits accrue to the employees over their
employment and will provide the employees with salary continuation
benefits upon retirement or death. As part of the plan, the Company has
obtained insurance contracts on the plan participants in amounts
sufficient to discharge the Company's obligations under the plan. Other
assets include $1,065,798 and $1,172,892 at December 31, 1992 and 1991,
respectively, of cash surrender value for the insurance contracts
purchased; and accrued liabilities include $40,666 and $35,199 relating
to benefits for the years ending December 31, 1992 and 1991,
respectively. The Company recorded an expense of $3,241 and $25,217 in
1992 and 1991, respectively, for benefits accruing under this plan.
(Continued)
F-57
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Dividend Restrictions
Undivided profits of the Bank include $12,000,000 not available for
dividends to its stockholder because of regulatory requirements. See
note 15 for additional restrictions on dividend payments.
(12) Risk-based Capital and Leverage Ratios
In January 1989, the Federal Reserve Board and the Office of the
Comptroller of the Currency issued guidelines which establish a risk-
adjusted ratio relating capital to various categories of recorded assets
and off-balance sheet commitments adjusted for relative credit risk. The
guidelines require a minimum total risk-based capital ratio of 7.25
percent with an 8.0 percent requirement by year-end 1992. At December 31,
1992, Bancshares' total risk-based capital ratio was 15.42 percent.
In early 1990, the Federal Reserve Board proposed a new minimum leverage
ratio representing the minimum capital to total assets standard for
banking organizations. The minimum leverage ratio required for those
banks with the highest regulatory rating is 3.00 percent. At December 31,
1992, Bancshares' leverage ratio was 7.34 percent.
(13) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (FAS 107) requires that Bancshares
disclose estimated fair values for its financial instruments. Fair value
estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time Bancshares' entire holdings of a particular
financial instrument. Because no market exists for a significant portion
of Bancshares' financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and
other factors. 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.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial assets or liabilities
include premises and equipment and other real estate owned. 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 estimates.
(Continued)
F-58
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash, short-term investments and short-term borrowings:
The fair value of the short-term instruments approximates the carrying
amounts because they mature in 90 days or less.
Investment Securities:
The fair value of securities is based on quoted market prices or dealer
quotes, if available. If a quoted market price for a specific security is
not available, fair value is estimated using quoted market prices for
similar securities.
Loans:
The fair value of loans is estimated by discounting the anticipated cash
flows using appropriate current discount rates to determine their present
value. The yield on the U.S. Treasury security having a term which most
closely corresponds to the term of the loan is the risk free discount rate
used. The risk free rate is adjusted for the operating expense component
and the estimated credit quality component, which is the annualized yield
needed to cover the expected loan losses. The credit quality component is
based on an analysis of under performing loans and gross charge-off
experience.
Deposit Liabilities:
The fair value of deposits with no stated maturity, such as demand
deposits, savings accounts, NOW accounts and money market deposits is the
amount payable on demand at the reporting date. The fair value of fixed-
maturity certificates of deposit is based on the discounted anticipated
cash flows using the appropriate risk free discount rate adjusted for the
estimated credit quality relating to the "market view" of the
creditworthiness of the institution based on selected financial ratios and
the operating expense component.
Long-term Debt:
The fair value of long-term debt approximates the carrying amount as the
majority of the debt is tied to floating interest rates thereby repricing
the debt at current market values on a continual basis.
(Continued)
F-59
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The estimated fair values of Bancshares' financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1992
(thousands)
------------------
Carrying Fair
amount value
--------- -------
<S> <C> <C>
Financial assets:
Cash and short-term investments $ 11,287 11,287
Investment securities 93,043 96,278
Loans, net 90,601 92,669
-------- -------
Total financial assets $194,931 200,234
======== =======
Financial liabilities:
Deposits $188,103 188,496
Short-term borrowings 1,156 1,156
Long-term debt and subordinated
debentures 5,644 5,644
-------- -------
Total financial liabilities $194,903 195,296
======== =======
</TABLE>
(14) Condensed Financial Information of Parent Company
The assets of Bancshares consist primarily of an investment in its
subsidiary bank and the Bank's operating facilities. As discussed in notes
11 and 15, dividends paid by the Bank are limited by bank regulatory
agencies. The principal source of Bancshares' revenue is dividends from
the subsidiary bank, which are utilized for payments of debt service,
operating costs and dividends to Bancshare stockholders. Condensed
financial information of Bancshares at December 31, 1992 and 1991 follows:
<TABLE>
<CAPTION>
Condensed Statement
of Condition
------------
1992 1991
------- ------
Assets (thousands)
------ -----------
<S> <C> <C>
Cash $ 93 6
Investment in subsidiaries:
First National Bank of Belen 16,485 14,858
Scientific Management Systems, Inc. (note 1(a)) - 870
Premises and equipment 4,506 4,354
Excess of cost over net asset of subsidiaries, net of
accumulated amortization 782 851
Other assets 805 581
------- ------
Total assets $22,671 21,520
======= ======
</TABLE>
(Continued)
F-60
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1992 1991
------- ----------
Liabilities and Stockholders' Equity (thousands)
------------------------------------- ---------
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 1 1
Long-term debt and subordinated debentures 6,078 6,343
Subordinated debentures held by Scientific Management
Systems, Inc. (note 1(a)) - 214
Other liabilities 88 -
Stockholders' equity 16,504 14,962
------- ------
Total liabilities and
stockholders' equity $22,671 21,520
======= ======
Condensed Statement 1992 1991
of Operations ------- ------
------------- (thousands)
---------
Income from subsidiary:
Dividends $ 100 1,440
Rental income 481 442
Other 3 2
------- ------
Total income 584 1,884
Operating expenses 815 692
------- ------
Operating income (loss) before
undistributed income of subsidiaries (231) 1,192
Undistributed income (loss) of subsidiaries 1,627 (1,944)
------- ------
Net income (loss) $ 1,396 (752)
======= ======
(Continued)
</TABLE>
F-61
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Condensed Statement 1992 1991
of Cash Flows ------- -------
------------- (thousands)
-----------
<S> <C> <C>
Cash flows from operating activities:
Dividends from subsidiaries $ 100 1,440
Rent income received 481 442
Income taxes received 102 161
Interest paid (457) (597)
Other, net 11 (97)
------- -------
Net cash provided by operating activities 237 1,349
------- -------
Cash flows from investing activities - Purchases of
other assets (30) -
------- -------
Net cash used by investing activities (30) -
------- -------
Cash flows from financing activities:
Net decrease in short-term borrowings - (855)
Payments on long-term debt (229) (757)
Proceeds from issuance of long-term debt - 1,042
Proceeds from sale of common stock 147 145
Purchases of common stock (38) (352)
Dividends paid - (576)
------- -------
Net cash used for financing activities (120) (1,353)
------- -------
Net increase (decrease) in cash and cash equivalents 87 (4)
Cash and cash equivalents at beginning of year 6 10
------- -------
Cash and cash equivalents at end of year $ 93 6
======= =======
Reconciliation of net income (loss) to net cash provided
by operating activities:
Net income (loss) $ 1,396 (752)
------- -------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 242 224
Other assets 138 (10)
Other liabilities 88 (57)
Undistributed (income) loss of subsidiaries (1,627) 1,944
------- -------
Total adjustments (1,159) 2,101
------- -------
Net cash provided by operating activities $ 237 1,349
======= =======
(Continued)
</TABLE>
F-62
<PAGE>
AMERICAN REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Regulatory Matters
In June 1992, the Board of Directors of the Bank entered into a Memorandum
of Understanding (Memorandum) with the Office of the Comptroller of the
Currency (OCC) that required the Bank to take a number of actions to
strengthen the Bank's financial condition, including a review of the
allowance for loan loss and submission of a three-year capital plan. In
addition, the Memorandum required the formulation and enhancement of
certain departments along with the establishment and implementation of a
number of administrative policies and procedures relating to, among other
things, loan review, appraisals and the process of determining the
allowance for possible loan losses. The Memorandum also required the Bank
to maintain certain minimum capital levels and obtain the approval of the
OCC prior to the declaration or payment of any dividends.
Since the implementation of the Memorandum, the OCC conducted another on-
site examination as of November 30, 1992. The OCC has indicated in a draft
examination report that the Bank's overall compliance with the Memorandum
is not yet at a desirable level. As a result, the Memorandum will remain
in effect until terminated by the OCC. Failure to obtain compliance with
the Memorandum in a timely manner could result in additional administrative
action by the OCC.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION,
AND
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 6th day of June, 1994, by and between AMERICAN REPUBLIC BANCSHARES, INC.
("ARBI"), a New Mexico corporation, and NORWEST CORPORATION ("Norwest"), a
Delaware corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest will merge with and into ARBI (the "Merger")
pursuant to a plan of merger (the "Merger Agreement") in substantially the form
attached hereto as Exhibit A, which provides, among other things, for the
conversion and exchange of the shares of Common Stock of ARBI of the par value
of $1.00 per share ("ARBI Common Stock") outstanding immediately prior to the
time the Merger becomes effective in accordance with the provisions of the
Merger Agreement into shares of voting Common Stock of Norwest of the par value
of $1-2/3 per share ("Norwest Common Stock"),
NOW, THEREFORE, to effect such reorganization and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLAN OF REORGANIZATION
(a) Merger. Subject to the terms and conditions contained herein, a
wholly-owned subsidiary of Norwest ("Merger Co.") will be merged by statutory
merger with and into ARBI pursuant to the Merger Agreement, with ARBI as the
surviving corporation, in which merger each share of ARBI Common Stock
outstanding immediately prior to the Effective Time of the Merger (as defined in
subparagraph (d) below) (other than shares as to which statutory dissenters'
appraisal rights have been exercised) will be converted into and exchanged for
the number of shares of Norwest Common Stock determined by dividing the Adjusted
Norwest Shares (as defined below) by the number of shares of the ARBI Common
Stock then outstanding. The "Adjusted Norwest Shares" shall mean the following:
(i) If the average of the closing prices of a share of Norwest Common Stock
as reported on the consolidated tape of the New York Stock Exchange
during the period of 20 trading days ending on the day immediately
preceding the meeting of the shareholders of ARBI held to vote on this
Agreement and the Merger Agreement (the "Norwest Measurement Price") is
equal to or greater than $26.50, the Adjusted Norwest Shares shall be
the number determined by dividing (x) $27,950,000 plus the proceeds
(net of commissions and similar expenses) received from the sale of
certain securities pursuant to paragraph 4(s) by (y) $26.50;
(ii) If the Norwest Measurement Price is equal to or less than $24.50, the
Adjusted Norwest Shares shall be the number determined by dividing (x)
$27,950,000 plus the proceeds (net of commissions and similar expenses)
received from the sale of certain securities pursuant to paragraph 4(s)
by (y) $24.50;
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(iii) If the Norwest Measurement Price is less than $26.50, but more than
$24.50, the Adjusted Norwest Shares shall be the number determined by
dividing (x) $27,950,000 plus the proceeds (net of commissions and
similar expenses) received from the sale of certain securities
pursuant to paragraph 4(s) by (y) the Norwest Measurement Price.
(b) Norwest Common Stock Adjustments. If, between the date hereof and the
Effective Time of the Merger (as defined in subparagraph (d) below), shares of
Norwest 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 similar
transaction or if a stock dividend thereon shall be declared with a record date
within such period (a "Common Stock Adjustment"), then the number of shares of
Norwest Common Stock into which a share of ARBI Common Stock shall be converted
pursuant to subparagraph (a) above and/or the price of such shares for the
purposes of calculating the Norwest Measurement Price will be appropriately and
proportionately adjusted so that the number of such shares of Norwest Common
Stock into which a share of ARBI Common Stock shall be converted will equal the
number of shares of Norwest Common Stock which the holder of a share of ARBI
Common Stock would have received pursuant to such reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
similar transaction or stock dividend had the record date therefor been
immediately following the Effective Time of the Merger (as defined in
subparagraph (d) below).
(c) Fractional Shares. No fractional shares of Norwest Common Stock and no
certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest to
which such holder is entitled by the average of the closing prices of a share of
Norwest Common Stock as reported by the consolidated tape of the New York Stock
Exchange for each of the five (5) trading days immediately preceding the
Effective Date of the Merger (as defined in subparagraph (d) below).
(d) Mechanics of Closing Merger. Subject to the terms and conditions set
forth herein, the Merger Agreement shall be executed and it and the Articles of
Merger shall be filed with the Secretary of State of New Mexico five business
days following the satisfaction or waiver of all conditions precedent set forth
in Sections 6 and 7 of this Agreement or on such other date as may be agreed to
by the parties (the "Closing Date"). Each of the parties agrees to use its best
efforts to cause the Merger to be completed as soon as practicable after the
receipt of approval by the ARBI shareholders of this Agreement and the Merger
Agreement and receipt of final regulatory approval of the Merger and the
expiration of all required waiting periods. The time that the filing referred
to in the first sentence of this paragraph is made is herein referred to as the
"Time of Filing". The day on which such filing is made and accepted is herein
referred to as the "Effective Date of the Merger". The Effective Time of the
Merger shall be 11:59 p.m. Belen, New Mexico time on the Effective Date of the
Merger. At the Effective Time of the Merger on the Effective Date of the
Merger, the separate existence of Merger Co. shall cease and Merger Co. will be
merged with and into ARBI pursuant to the Merger Agreement.
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The closing of the transactions contemplated by this Agreement and the
Merger Agreement (the "Closing") shall take place on the Closing Date at the
offices of Norwest, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota.
2. REPRESENTATIONS AND WARRANTIES OF ARBI. ARBI represents and warrants to
Norwest as follows:
(a) Organization and Authority. ARBI is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Mexico,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on ARBI and the ARBI Subsidiaries (as defined in
paragraph 2(b) below) taken as a whole and has corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted. ARBI is registered as a bank holding company with the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). ARBI has furnished Norwest true and correct copies of its articles of
incorporation and bylaws, as amended.
(b) ARBI's Subsidiaries. Schedule 2(b) sets forth a complete and correct
list of all of ARBI's subsidiaries as of the date hereof (individually an "ARBI
Subsidiary" and collectively the "ARBI Subsidiaries"), all shares of the
outstanding capital stock of each of which, except as set forth on Schedule
2(b), are owned directly or indirectly by ARBI. No equity security of any ARBI
Subsidiary is or may be required to be issued by reason of any option, warrant,
scrip, right to subscribe to, call or commitment of any character whatsoever
relating to, or security or right convertible into, shares of any capital stock
of such subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any ARBI Subsidiary is bound to issue additional shares of
its capital stock, or any option, warrant or right to purchase or acquire any
additional shares of its capital stock. Subject to 12 U.S.C. (S) 55 (1982), all
of such shares so owned by ARBI are fully paid and nonassessable and, except as
set forth on Schedule 2(b), are owned by it free and clear of any lien, claim,
charge, option, encumbrance or agreement with respect thereto. Each ARBI
Subsidiary is a corporation or national banking association duly organized,
validly existing, duly qualified to do business and in good standing under the
laws of its jurisdiction of incorporation, and has corporate power and authority
to own or lease its properties and assets and to carry on its business as it is
now being conducted. Except as set forth on Schedule 2(b), ARBI does not own
beneficially, directly or indirectly, more than 5% of any class of equity
securities or similar interests of any corporation, bank, business trust,
association or similar organization, and is not, directly or indirectly, a
partner in any partnership or party to any joint venture.
(c) Capitalization. The authorized capital stock of ARBI consists of
1,000,000 shares of common stock, $1.00 par value, of which as of the close of
business on March 31, 1994, 410,095 shares were outstanding and no shares were
held in the treasury and 1,000,000 shares of Cumulative Preferred Stock, $1.00
par value, of which as of the close of business on March 31, 1994, no shares
were outstanding and no shares were held in the treasury. The maximum number of
shares of ARBI Common Stock (assuming for this purpose that phantom shares and
other share-equivalents, other than the performance shares provided pursuant to
the American Republic Bancshares Corporation Performance Share Incentive Bonus
Plan for James H. Foley dated December 21, 1993, constitute ARBI
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Common Stock) that would be outstanding as of the Effective Date of the Merger
if all options, warrants, conversion rights and other rights with respect
thereto were exercised is 410,095. All of the outstanding shares of capital
stock of ARBI have been duly and validly authorized and issued and are fully
paid and nonassessable. There are no outstanding subscriptions, contracts,
conversion privileges, options, warrants, calls or other rights obligating ARBI
or any ARBI Subsidiary to issue, sell or otherwise dispose of, or to purchase,
redeem or otherwise acquire, any shares of capital stock of ARBI or any ARBI
Subsidiary. Since March 31, 1994 no shares of ARBI capital stock have been
issued, purchased, redeemed or otherwise acquired, directly or indirectly, by
ARBI or any ARBI Subsidiary and, except as set forth in Schedule 2(c), no
dividends or other distributions have been declared, set aside, made or paid to
the shareholders of ARBI. The Stock Restriction Agreement among certain
stockholders of ARBI has been amended to provide that it does not apply to the
transactions contemplated herein or in the Merger Agreement and such amendment
is in full force and effect and a copy thereof has been provided to Norwest.
(d) Authorization. ARBI has the corporate power and authority to enter
into this Agreement and the Merger Agreement and, subject to any required
approvals of its shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
Merger Agreement by ARBI and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of ARBI.
Subject to such approvals of shareholders and of government agencies and other
governing boards having regulatory authority over ARBI as may be required by
statute or regulation, this Agreement and the Merger Agreement are valid and
binding obligations of ARBI enforceable against ARBI in accordance with their
respective terms.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by ARBI of this Agreement or the Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor compliance
by ARBI with any of the provisions hereof or thereof, will (i) violate, conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration of, or result in the
creation of, any lien, security interest, charge or encumbrance upon any of the
properties or assets of ARBI or any ARBI Subsidiary under any of the terms,
conditions or provisions of (x) its articles of incorporation or by-laws or (y)
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which ARBI or any ARBI Subsidiary
is a party or by which it may be bound, or to which ARBI or any ARBI Subsidiary
or any of the properties or assets of ARBI or any ARBI Subsidiary may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of ARBI, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to ARBI or any ARBI Subsidiary or any of their respective properties
or assets.
Other than in connection or in compliance with the provisions of the
Securities Act of 1933 and the rules and regulations thereunder (the "Securities
Act"), the Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act"), the securities or blue sky laws of the various
states or filings, consents, reviews,
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authorizations, approvals or exemptions required under the BHC Act , and filings
required to effect the Merger under New Mexico law, no notice to, filing with,
exemption or review by, or authorization, consent or approval of, any public
body or authority is necessary for the consummation by ARBI of the transactions
contemplated by this Agreement and the Merger Agreement.
(e) ARBI Financial Statements. The consolidated balance sheets of ARBI and
ARBI's Subsidiaries as of December 31, 1993 and 1992 and related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
two years ended December 31, 1993, together with the notes thereto, certified by
KPMG Peat Marwick, and the unaudited consolidated balance sheets of ARBI and
ARBI's Subsidiaries as of March 31, 1994 and the related unaudited consolidated
statements of operations, changes in stockholders' equity and cash flows for the
three months then ended (collectively, the "ARBI Financial Statements"), have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly (subject, in the case of
financial statements for interim periods, to normal recurring adjustments) the
consolidated financial position of ARBI and ARBI's Subsidiaries at the dates and
the consolidated results of operations and cash flows of ARBI and ARBI's
Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1988, ARBI and each ARBI Subsidiary has
filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the Securities and
Exchange Commission (the "SEC"), including, but not limited to, Forms 10-K,
Forms 10-Q and proxy statements, (ii) the Federal Reserve Board, (iii) the
Federal Deposit Insurance Corporation (the "FDIC"), (iv) the United States
Comptroller of the Currency (the "Comptroller") and (v) any applicable state
securities or banking authorities. All such reports and statements filed with
any such regulatory body or authority are collectively referred to herein as the
"ARBI Reports". As of their respective dates, the ARBI Reports complied in all
material respects with all the rules and regulations promulgated by the SEC, the
Federal Reserve Board, the FDIC, the Comptroller and applicable state securities
or banking authorities, as the case may be, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Copies of all the
ARBI Reports have been made available to Norwest by ARBI.
(g) Properties and Leases. Except (i) as may be reflected in the ARBI
Financial Statements, (ii) for any lien for current taxes not yet delinquent and
(iii) as provided in the last sentence of this subparagraph (g), ARBI and each
ARBI Subsidiary have good title free and clear of any material liens, claims,
charges, options, encumbrances or similar restrictions to all the real and
personal property reflected in the consolidated balance sheet as of March 31,
1994, and all real and personal property acquired since such date, except such
real and personal property as has been disposed of in the ordinary course of
business. All leases of real property and all other leases material to ARBI or
any ARBI Subsidiary pursuant to which ARBI or such ARBI Subsidiary, as lessee,
leases real or personal property, which leases are described on Schedule 2(g),
are valid and effective in accordance with their respective terms, and there is
not, under any such lease, any material existing default by ARBI or such ARBI
Subsidiary or any event which, with notice or lapse of time or both, would
constitute such a material default. Substantially all ARBI's and
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each ARBI Subsidiary's buildings and equipment in regular use have been well
maintained and are in good and serviceable condition, reasonable wear and tear
excepted. ARBI owns 67,757 shares of common stock of First Security Corporation
(all of which are subject to a lien in favor of First National Bank of
Farmington pursuant to the terms of the loan due June 30, 1999 described in
footnote 8 of the December 31, 1993 ARBI Financial Statements) and 1,000 shares
of common stock of Wachovia Corporation.
(h) Taxes. Each of ARBI and the ARBI Subsidiaries has filed all federal,
state, county, local and foreign tax returns, including information returns,
required to be filed by it (except for the tax returns due for the fiscal year
ended December 31, 1993, for which extensions have been properly filed). Except
as disclosed in Schedule 2(h), each of ARBI and the ARBI Subsidiaries have paid
all taxes owed by it, including those with respect to income, withholding,
social security, unemployment, workers compensation, franchise, ad valorem,
premium, excise and sales taxes, and no taxes shown on such returns to be owed
by it or assessments received by it are delinquent. The federal income tax
returns of ARBI and the ARBI Subsidiaries for the fiscal year ended December 31,
1990, and for all fiscal years prior thereto, are for the purposes of routine
audit by the Internal Revenue Service closed because of the statute of
limitations, and no claims for additional taxes for such fiscal years are
pending. Neither ARBI nor any ARBI Subsidiary is a party to any pending action
or proceeding, nor is any such action or proceeding threatened by any
governmental authority, for the assessment or collection of taxes, interest,
penalties, assessments or deficiencies and no issue has been raised by any
federal, state, local or foreign taxing authority in connection with an audit or
examination of the tax returns, business or properties of ARBI or any ARBI
Subsidiary which has not been settled, resolved and fully satisfied. Each of
ARBI and the ARBI Subsidiaries has paid all taxes owed or which it is required
to withhold from amounts owing to employees, creditors or other third parties.
The consolidated balance sheet as of March 31, 1994, referred to in paragraph
2(e) hereof, includes adequate provision for all accrued but unpaid federal,
state, county, local and foreign taxes, interest, penalties, assessments or
deficiencies of ARBI and the ARBI Subsidiaries with respect to all periods
through the date thereof.
(i) Absence of Certain Changes. Since March 31, 1994 there has been no
change in the business, financial condition or results of operations of ARBI or
any ARBI Subsidiary, which has had, or may reasonably be expected to have, a
material adverse effect on the business, financial condition or results of
operations of ARBI and the ARBI Subsidiaries taken as a whole (other than
changes in banking laws or regulations, or interpretations thereof, that affect
the banking industry generally or changes in the general level of interest
rates).
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
neither ARBI nor any ARBI Subsidiary is a party or subject to any of the
following (whether written or oral, express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer,
director, employee or consultant (other than those which are terminable at
will by ARBI or such ARBI Subsidiary);
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(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business
containing covenants which limit the ability of ARBI or any ARBI Subsidiary
to compete in any line of business or with any person or which involve any
restriction of the geographical area in which, or method by which, ARBI or
any ARBI Subsidiary may carry on its business (other than as may be
required by law or applicable regulatory authorities);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K;
(vi) any lease with annual rental payments aggregating $10,000 or
more; or
(vii) any other contract or agreement that has a term of one year or
more and annual payments of $50,000 or more.
(k) Litigation and Other Proceedings. ARBI has furnished Norwest copies of
(i) all attorney responses to the request of the independent auditors for ARBI
with respect to loss contingencies as of December 31, 1993 in connection with
the ARBI Financial Statements for 1993, and (ii) neither ARBI nor any ARBI
Subsidiary has been served in connection with any legal or regulatory
proceedings since said date nor, to the best of ARBI's knowledge, have any legal
or regulatory proceedings been filed against ARBI or any ARBI Subsidiary since
said date. Neither ARBI nor any ARBI Subsidiary is a party to any pending or,
to the best knowledge of ARBI, threatened, claim, action, suit, investigation or
proceeding, or is subject to any order, judgment or decree, except for matters
which, in the aggregate, will not have, or cannot reasonably be expected to
have, a material adverse effect on the business, financial condition or results
of operations of ARBI and the ARBI Subsidiaries taken as a whole.
(l) Insurance. ARBI and each ARBI Subsidiary is presently insured, and
during each of the past five calendar years (or during such lesser period of
time as ARBI has owned such ARBI Subsidiary) has been insured, for reasonable
amounts with insurance companies that, to the best knowledge of ARBI, are
financially sound and reputable against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable law and
regulation. For the three year period ending on the date hereof, ARBI has
provided Norwest with a true and complete list of, and, to the extent requested
by Norwest, copies of all documentation relating to, all (i) claims made and
denied, (ii) claims made and pending and (iii) circumstances forming the basis
for any future possible claims.
(m) Compliance with Laws. ARBI and each ARBI Subsidiary has all permits,
licenses, authorizations, orders and approvals of, and has made all filings,
applications and
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registrations with, federal, state, local or foreign governmental or regulatory
bodies that are required in order to permit it to own or lease its properties
and assets and to carry on its business as presently conducted and that are
material to the business of ARBI or such ARBI Subsidiary; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best knowledge of ARBI, no suspension or cancellation of any
of them is threatened; and all such filings, applications and registrations are
current. The conduct by ARBI and each ARBI Subsidiary of its business and the
condition and use of its properties does not violate or infringe, in any respect
material to any such business, any applicable domestic (federal, state or local)
or foreign law, statute, ordinance, license or regulation other than laws,
statutes, ordinances, licenses or regulations relating to environmental
liability as to which ARBI makes only the representations and warranties set
forth in paragraph 2(v). Neither ARBI nor any ARBI Subsidiary is in default
under any order, license, regulation or demand of any federal, state, municipal
or other governmental agency or with respect to any order, writ, injunction or
decree of any court. Except for statutory or regulatory restrictions of general
application and except as set forth on Schedule 2(m), no federal, state,
municipal or other governmental authority has placed any restriction on the
business or properties of ARBI or any ARBI Subsidiary which reasonably could be
expected to have a material adverse effect on the business or properties of ARBI
and the ARBI Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving ARBI or any ARBI Subsidiary is pending
or, to the best knowledge of ARBI, threatened. Neither ARBI nor any ARBI
Subsidiary is involved in, or threatened with or affected by, any labor dispute,
arbitration, lawsuit or administrative proceeding which could materially and
adversely affect the business of ARBI or such ARBI Subsidiary taken as a whole.
Employees of ARBI and the ARBI Subsidiaries are not represented by any labor
union nor are any collective bargaining agreements otherwise in effect with
respect to such employees. First National Bank of Belen (the "Bank") is in
compliance in all material respects with the terms of the Conciliation Agreement
between the U. S. Department of Labor, Office of Federal Contract Compliance
Programs, and the Bank dated December 28, 1992.
(o) Material Interests of Certain Persons. Except as set forth on Schedule
2(o), to the best knowledge of ARBI no officer or director of ARBI or any ARBI
Subsidiary, or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any interest in any material
contract or property (real or personal), tangible or intangible, used in or
pertaining to the business of ARBI or any ARBI Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from ARBI or
any ARBI Subsidiary to any present officer, director, employee or any associate
or related interest of any such person which was required under Regulation O of
the Federal Reserve Board to be approved by or reported to ARBI's or such ARBI
Subsidiary's Board of Directors.
(p) ARBI Benefit Plans.
(i) The only "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for which ARBI or any ARBI Subsidiary acts as the plan sponsor
as defined in
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ERISA Section 3(16)(B), and with respect to which any liability under ERISA
or otherwise exists or may be incurred by ARBI or any ARBI Subsidiary are
those set forth on Schedule 2(p) (the "Plans"). No Plan is a "multi-
employer plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Plan is and has been in all material respects operated and
administered in accordance with its provisions and applicable law. Except
as set forth on Schedule 2(p), ARBI or the ARBI subsidiaries have received
favorable determination letters from the Internal Revenue Service under the
provisions of the Tax Equity and Fiscal Responsibility Act ("TEFRA"), the
Deficit Reduction Act ("DEFRA") and the Retirement Equity Act ("REA") for
each of the Plans to which the qualification requirements of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), apply. ARBI
knows of no reason that any Plan which is subject to the qualification
provisions of Section 401(a) of the Code is not "qualified" within the
meaning of Section 401(a) of the Code and that each related trust is not
exempt from taxation under Section 501(a) of the Code, except that any such
Plan may not have been amended to comply with the Tax Reform Act of 1986
(the "TRA") and other recent legislation and regulations, although each
such Plan is within the remedial amendment period during which retroactive
amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year, exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) To the best knowledge of ARBI, no Plan or any trust created
thereunder, nor any trustee, fiduciary or administrator thereof, has
engaged in a "prohibited transaction", as such term is defined in Section
4975 of the Code or Section 406 of ERISA or violated any of the fiduciary
standards under Part 4 of Title I of ERISA which could subject, to the best
knowledge of ARBI, such Plan or trust, or any trustee, fiduciary or
administrator thereof, or any party dealing with any such Plan or trust, to
the tax or penalty on prohibited transactions imposed by said Section 4975
or would result in material liability to ARBI and the ARBI Subsidiaries
taken as a whole.
(v) No Plan which is subject to Title IV of ERISA or any trust
created thereunder has been terminated, nor have there been any "reportable
events" as that term is defined in Section 4043 of ERISA, with respect to
any Plan, other than those events which may result from the transactions
contemplated by this Agreement and the Merger Agreement.
(vi) No Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), since the effective date of ERISA.
(vii) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement nor the consummation of
the
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transactions contemplated hereby and thereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or employee or former employee of ARBI or any ARBI Subsidiary under any
Plan or otherwise, (ii) materially increase any benefits otherwise payable
under any Plan or (iii) result in the acceleration of the time of payment
or vesting of any such benefits to any material extent.
(q) Proxy Statement, etc. None of the information regarding ARBI and the
ARBI Subsidiaries supplied or to be supplied by ARBI for inclusion in (i) a
Registration Statement on Form S-4 to be filed with the SEC by Norwest for the
purpose of registering the shares of Norwest Common Stock to be exchanged for
shares of ARBI Common Stock pursuant to the provisions of the Merger Agreement
(the "Registration Statement"), (ii) the proxy statement to be mailed to ARBI's
shareholders in connection with the meeting to be called to consider the Merger
(the "Proxy Statement") and (iii) any other documents to be filed with the SEC
or any regulatory authority in connection with the transactions contemplated
hereby or by the Merger Agreement will, at the respective times such documents
are filed with the SEC or any regulatory authority and, in the case of the
Registration Statement, when it becomes effective and, with respect to the Proxy
Statement, when mailed, and, in the case of the Proxy Statement as amended or
supplemented at the time of the meeting of shareholders referred to in paragraph
4(c), contain an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. All documents which
ARBI and the ARBI Subsidiaries are responsible for filing with the SEC and any
other regulatory authority in connection with the Merger will comply as to form
in all material respects with the provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(r), neither
ARBI nor any ARBI Subsidiary is under any obligation, contingent or otherwise,
which will survive the Merger by reason of any agreement to register any of its
securities under the Securities Act.
(s) Brokers and Finders. Except as set forth on Schedule 2(s), neither ARBI
nor any ARBI Subsidiary nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
broker or finder has acted directly or indirectly for ARBI or any ARBI
Subsidiary in connection with this Agreement and the Merger Agreement or the
transactions contemplated hereby and thereby.
(t) Administration of Trust Accounts. ARBI and each ARBI Subsidiary has
properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of ARBI and the ARBI
Subsidiaries 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 terms of the governing documents and applicable state and
federal law and regulation and common law. Neither ARBI, any ARBI Subsidiary,
nor any director, officer or employee of ARBI or any ARBI Subsidiary has
committed any breach of trust with respect to any such fiduciary account which
is material
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to or could reasonably be expected to be material to the financial condition of
ARBI and the ARBI Subsidiaries 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.
(u) No Defaults. Neither ARBI nor any ARBI Subsidiary is in default, nor has
any event occurred which, with the passage of time or the giving of notice, or
both, would constitute a default, under any material agreement, indenture, loan
agreement or other instrument to which it is a party or by which it or any of
its assets is bound or to which any of its assets is subject, the result of
which has had or could reasonably be expected to have a material adverse effect
upon ARBI and the ARBI Subsidiaries, taken as a whole. To the best of ARBI's
knowledge, all parties with whom ARBI or any ARBI Subsidiary has material
leases, agreements or contracts or who owe to ARBI or any ARBI Subsidiary
material obligations other than with respect to those arising in the ordinary
course of the banking business of the ARBI Subsidiaries are in compliance
therewith in all material respects.
(v) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition of, on ARBI or any ARBI
Subsidiary, any liability related to the release of hazardous substances as
defined under any local, state or federal environmental statute, regulation or
ordinance including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, pending or to the
best of ARBI's knowledge, threatened against ARBI or any ARBI Subsidiary the
result of which has had or could reasonably be expected to have a material
adverse effect upon ARBI and ARBI's Subsidiaries taken as a whole; to the best
of ARBI's knowledge there is no reasonable basis for any such proceeding, claim
or action; and to the best of ARBI's knowledge neither ARBI nor any ARBI
Subsidiary is subject to any agreement, order, judgment, or decree by or with
any court, governmental authority or third party imposing any such environmental
liability. ARBI has provided Norwest with copies of all environmental
assessments, reports, studies and other related information in their possession
with respect to each bank facility, each non-residential OREO property and the
property owned by El Pueblo Properties.
(w) From March 31, 1994 through the date hereof, the "Provision for Loan
Losses" in the ARBI financial statements has not at any time been less than
zero.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to ARBI as follows:
(a) Organization and Authority. Norwest is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Norwest and its subsidiaries taken as a whole and has
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted. Norwest is registered as a bank
holding company with the Federal Reserve Board under the BHC Act.
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(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
list as of December 31, 1993, of Norwest's Significant Subsidiaries (as defined
in Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary"
and collectively the "Norwest Subsidiaries"), all shares of the outstanding
capital stock of each of which, except as set forth in Schedule 3(b), are owned
directly or indirectly by Norwest. No equity security of any Norwest Subsidiary
is or may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (S) 55 (1982), all of such shares so owned by Norwest are
fully paid and nonassessable and are owned by it free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto. Each
Norwest Subsidiary is a corporation or national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted.
(c) Norwest Capitalization. The authorized capital stock of Norwest consists
of (i) 5,000,000 shares of Preferred Stock, without par value, of which as of
the close of business on April 30, 1994,1,135,000 shares of 10.24% Cumulative
Preferred Stock at $100 stated value, 1,143,750 shares of Cumulative Convertible
Preferred Stock, Series B, at $200 stated value and 35,125 shares of ESOP
Cumulative Convertible Preferred Stock at $1,000 stated value were outstanding,
and (ii) 500,000,000 shares of Common Stock, $1-2/3 par value, of which as of
the close of business on April 30, 1994, 318,480,722 shares were outstanding and
4,296,052 shares were held in the treasury. On November 22, 1988, the Board of
Directors of Norwest declared a dividend of one preferred share purchase right
(collectively, the "Rights") for each outstanding share of Norwest Common Stock.
The dividend was paid on December 9, 1988, to stockholders of record on that
date. Holders of shares of Norwest Common Stock issued subsequent to that date,
including those to be issued in connection with the Merger, will receive the
Rights with their shares. The Rights trade automatically with shares of Norwest
Common Stock and become exercisable only under certain circumstances.
(d) Authorization. Norwest has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Norwest and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Norwest. No approval or consent by the stockholders of Norwest is
necessary for the execution and delivery of this Agreement and the Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory authority over Norwest as may be required by statute or
regulation, this Agreement is a valid and binding obligation of Norwest
enforceable against Norwest in accordance with its terms.
Neither the execution, delivery and performance by Norwest of this Agreement
or the Merger Agreement, nor the consummation of the transactions contemplated
hereby and thereby, nor compliance by Norwest with any of the provisions hereof
or thereof, will (i)
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violate, conflict with, or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of, any lien, security interest, charge or encumbrance
upon any of the properties or assets of Norwest or any Norwest Subsidiary under
any of the terms, conditions or provisions of (x) its certificate of
incorporation or by-laws or (y) any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Norwest or any Norwest Subsidiary is a party or by which it may be bound,
or to which Norwest or any Norwest Subsidiary or any of the properties or assets
of Norwest or any Norwest Subsidiary may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the next paragraph,
to the best knowledge of Norwest, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Norwest or any
Norwest Subsidiary or any of their respective properties or assets.
Other than in connection with or in compliance with the provisions of the
Securities Act, the Exchange Act, the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act, and filings required to effect the Merger under New
Mexico law, no notice to, filing with, exemption or review by, or authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Norwest of the transactions contemplated by this Agreement and
the Merger Agreement.
(e) Norwest Financial Statements. The consolidated balance sheets of Norwest
and Norwest's subsidiaries as of December 31, 1993 and 1992 and related
consolidated statements of income, stockholders' equity and cash flows for the
three years ended December 31, 1993, together with the notes thereto, certified
by KPMG Peat Marwick and included in Norwest's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 as amended by Form 10-K/A dated May 13,
1994 (the "Norwest 10-K") as filed with the SEC, and the unaudited consolidated
balance sheets of Norwest and its subsidiaries as of March 31, 1994 and the
related unaudited consolidated statements of income and cash flows for the three
months then ended included in Norwest's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1994, as filed with the SEC (collectively, the
"Norwest Financial Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and present fairly
(subject, in the case of financial statements for interim periods, to normal
recurring adjustments) the consolidated financial position of Norwest and its
subsidiaries at the dates and the consolidated results of operations, changes in
financial position and cash flows of Norwest and its subsidiaries for the
periods stated therein.
(f) Reports. Since December 31, 1988, Norwest and each Norwest Subsidiary
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q and proxy statements, (ii) the
Federal Reserve Board, (iii) the FDIC, (iv) the Comptroller and (v) any
applicable state securities or banking authorities. All such reports and
statements filed with any such regulatory body or authority are collectively
referred to herein as the "Norwest Reports". As of their respective dates, the
Norwest Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and any applicable state
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securities or banking authorities, as the case may be, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Norwest has
provided ARBI with copies of its Form 10-K for the year ended December 31, 1993
as amended by Amendment No. 1 on Form 10-K/A dated May 13, 1994, its Form 10-Q
for the quarter ended March 31, 1994, its Form 8-K dated February 15, 1994 and
its Proxy Statement dated March 23, 1994.
(g) Properties and Leases. Except as may be reflected in the Norwest
Financial Statements and except for any lien for current taxes not yet
delinquent, Norwest and each Norwest Subsidiary has good title free and clear of
any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Norwest's
consolidated balance sheet as of March 31, 1994 included in Norwest's Quarterly
Report on Form 10-Q for the period then ended, and all real and personal
property acquired since such date, except such real and personal property has
been disposed of in the ordinary course of business. All leases of real
property and all other leases material to Norwest or any Norwest Subsidiary
pursuant to which Norwest or such Norwest Subsidiary, as lessee, leases real or
personal property, are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Norwest or such Norwest Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Norwest's and each Norwest Subsidiary's buildings and equipment in regular use
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries has filed all
material federal, state, county, local and foreign tax returns, including
information returns, required to be filed by it, and paid or made adequate
provision for the payment of all taxes owed by it, including those with respect
to income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Norwest and the Norwest Subsidiaries for the
fiscal year ended December 31, 1979, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Except only as set forth on Schedule 3(h), (i)
neither Norwest nor any Norwest Subsidiary is a party to any pending action or
proceeding, nor to Norwest's knowledge is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies which could reasonably
be expected to have any material adverse effect on Norwest and its subsidiaries
taken as a whole, and (ii) no issue has been raised by any federal, state, local
or foreign taxing authority in connection with an audit or examination of the
tax returns, business or properties of Norwest or any Norwest Subsidiary which
has not been settled, resolved and fully satisfied, or adequately reserved for.
Each of Norwest and the Norwest Subsidiaries has paid all taxes owed or which it
is required to withhold from amounts owing to employees, creditors or other
third parties.
(i) Absence of Certain Changes. Since March 31, 1994, there has been no
change in the business, financial condition or results of operations of Norwest
or any Norwest Subsidiary which has had, or may reasonably be expected to have,
a material adverse effect
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on the business, financial condition or results of operations of Norwest and its
subsidiaries taken as a whole (other than changes in banking laws or
regulations, or interpretations thereof, that affect the banking industry
generally or changes in the general level of interest rates).
(j) Commitments and Contracts. Except as set forth on Schedule 3(j), as of
April 1, 1994, neither Norwest nor any Norwest Subsidiary is a party or subject
to any of the following (whether written or oral, express or implied):
(i) any labor contract or agreement with any labor union;
(ii) any contract not made in the ordinary course of business
containing covenants which materially limit the ability of Norwest or any
Norwest Subsidiary to compete in any line of business or with any person or
which involve any material restriction of the geographical area in which,
or method by which, Norwest or any Norwest Subsidiary may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
(iii) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K.
(k) Litigation and Other Proceedings. Neither Norwest nor any Norwest
Subsidiary is a party to any pending or, to the best knowledge of Norwest,
threatened, claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or cannot reasonably be expected to have, a material adverse effect on
the business, financial condition or results of operations of Norwest and its
subsidiaries taken as a whole.
(l) Insurance. Norwest and each Norwest Subsidiary is presently insured or
self-insured, and during each of the past five calendar years (or during such
lesser period of time as Norwest has owned such Norwest Subsidiary) has been
insured or self-insured, for reasonable amounts with insurance companies that,
to the best knowledge of Norwest, are financially sound and reputable against
such risks as companies engaged in a similar business would, in accordance with
good business practice, customarily be insured and has maintained all insurance
required by applicable law and regulation.
(m) Compliance with Laws. Norwest and each Norwest Subsidiary has all
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to own
or lease its properties or assets and to carry on its business as presently
conducted and that are material to the business of Norwest or such Subsidiary;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect, and to the best knowledge of Norwest, no suspension or
cancellation of any of them is threatened; and all such filings, applications
and registrations are current. The conduct by Norwest and each Norwest
Subsidiary of its business and the condition and use of its properties does not
violate or infringe, in any respect material to any such business, any
applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license or regulation other than laws, statutes, ordinances, licenses
or regulations relating to environmental liability as to which Norwest makes
only
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the representations and warranties set forth in paragraph 3(s). Neither Norwest
nor any Norwest Subsidiary is in default under any order, license, regulation or
demand of any federal, state, municipal or other governmental agency or with
respect to any order, writ, injunction or decree of any court. Except for
statutory or regulatory restrictions of general application, no federal, state,
municipal or other governmental authority has placed any restrictions on the
business or properties of Norwest or any Norwest Subsidiary which reasonably
could be expected to have a material adverse effect on the business or
properties of Norwest and its subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Norwest or any Norwest Subsidiary is
pending or, to the best knowledge of Norwest, threatened. Neither Norwest nor
any Norwest Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding which could
materially and adversely affect the business of Norwest or such Norwest
Subsidiary. Except as set forth on Schedule 3(j), employees of Norwest and the
Norwest Subsidiaries are not represented by any labor union nor are any
collective bargaining agreements otherwise in effect with respect to such
employees.
(o) Norwest Benefit Plans.
(i) As of April 1, 1994, the only "employee benefit plans" within the
meaning of Section 3(3) of ERISA for which Norwest or any Norwest
Subsidiary acts as plan sponsor as defined in ERISA Section 3(16)(B) with
respect to which any liability under ERISA or otherwise exists or may be
incurred by Norwest or any Norwest Subsidiary are those set forth on
Schedule 3(o) (the "Norwest Plans"). No Norwest Plan is a "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable
law. Except as set forth on Schedule 3(o), Norwest or the Norwest
Subsidiaries have received favorable determination letters from the
Internal Revenue Service under the provisions of the Tax Equity and Fiscal
Responsibility Act ("TEFRA"), the Deficit Reduction Act ("DEFRA") and the
Retirement Equity Act ("REA") for each of the Norwest Plans to which the
qualification requirements of Section 401(a) of the Code apply. Norwest
knows of no reason that any Norwest Plan which is subject to the
qualification provisions of Section 401(a) of the Code is not "qualified"
within the meaning of Section 401(a) of the Code and that each related
trust is not exempt from taxation under Section 501(a) of the Code, except
that any such Norwest Plan may not have been amended to comply with TRA and
other recent legislation and regulations, although each such Norwest Plan
is within the remedial amendment period during which retroactive amendment
may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Norwest Plan which is subject to Title IV of ERISA did
not, in each case, as determined for purposes of reporting on Schedule B to
the Annual Report on Form 5500 of each such Norwest Plan as of the end of
the most recent Plan year, exceed the value of the assets of the Norwest
Plans allocable to such vested or accrued benefits.
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(iv) Except as set forth on Schedule 3(o), and to the best knowledge
of Norwest, no Norwest Plan or any trust created thereunder, nor any
trustee, fiduciary or administrator thereof, has engaged in a "prohibited
transaction", as such term is defined in Section 4975 of the Code or
Section 406 of ERISA or violated fiduciary standards under Part 4 of Title
I of ERISA, which could subject, to the best knowledge of Norwest, such
Norwest Plan or trust, or any trustee, fiduciary or administrator thereof,
or any party dealing with any such Norwest Plan or trust, to the tax or
penalty on prohibited transactions imposed by said Section 4975 or would
result in material liability to Norwest and its subsidiaries taken as a
whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other
than those events which may result from the transactions contemplated by
this Agreement and the Merger Agreement.
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including,
without limitation, severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or employee or former employee
of Norwest under any Norwest Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Norwest Plan or (iii) result in
the acceleration of the time of payment or vesting of any such benefits to
any material extent.
(p) Registration Statement, etc. None of the information regarding Norwest
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Merger Agreement will, at
the respective times such documents are filed with the SEC or any regulatory
authority and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed, and, in the
case of the Proxy Statement as amended or supplemented at the time of the
meeting of shareholders referred to in paragraph 4(c), contain an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All documents which Norwest and the Norwest
Subsidiaries are responsible for filing with the SEC and any other regulatory
authority in connection with the Merger will comply as to form in all material
respects with the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor any
of their respective officers, directors or employees has employed any broker or
finder or
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incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted directly or
indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole. To the best
of Norwest's knowledge, all parties with whom Norwest or any Norwest Subsidiary
has material leases, agreements or contracts or who owe to Norwest or any
Norwest Subsidiary material obligations other than with respect to those arising
in the ordinary course of the banking business of the Norwest Subsidiaries are
in compliance therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition, on Norwest or any Norwest
Subsidiary of any liability related to the release of hazardous substances as
defined under any local, state or federal environmental statute, regulation or
ordinance including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, pending or to the
best of Norwest's knowledge, threatened against Norwest or any Norwest
Subsidiary, the result of which has had or could reasonably be expected to have
a material adverse effect upon Norwest and its subsidiaries taken as a whole; to
the best of Norwest's knowledge there is no reasonable basis for any such
proceeding, claim or action; and to the best of Norwest's knowledge neither
Norwest nor any Norwest Subsidiary is subject to any agreement, order, judgment,
or decree by or with any court, governmental authority or third party imposing
any such environmental liability.
(t) Merger Co. As of the Closing Date, Merger Co. will be a corporation duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of New Mexico, and will have corporate power and authority to own
or lease its properties and assets and to carry on its business.
4. COVENANTS OF ARBI. ARBI covenants and agrees with Norwest as follows:
(a) Except as permitted in writing by Norwest or as otherwise permitted or
required by this Agreement, from the date hereof until the Effective Time of the
Merger, ARBI, and each ARBI Subsidiary will: maintain its corporate existence
in good standing; maintain the general character of its business and conduct its
business in its ordinary and usual manner; extend credit in accordance with
existing lending policies, except that it shall not, without the prior written
consent of Norwest, make any new loan or modify, restructure or renew any
existing loan (except pursuant to commitments made prior to the date of this
Agreement) to any borrower if the amount of the resulting loan, when aggregated
with all other loans or extensions of credit to such person, would be in excess
of $200,000; maintain proper business and accounting records in accordance with
generally accepted principles; maintain its properties in good repair and
condition, ordinary wear and
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tear excepted; maintain in all material respects presently existing insurance
coverage; use its best efforts to preserve its business organization intact, to
keep the services of its present principal employees and to preserve its good
will and the good will of its suppliers, customers and others having business
relationships with it; use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect following the
Merger; comply in all material respects with all laws, regulations, ordinances,
codes, orders, licenses and permits applicable to the properties and operations
of ARBI and each ARBI Subsidiary the non-compliance with which reasonably could
be expected to have a material adverse effect on ARBI and the ARBI Subsidiaries
taken as a whole; and permit Norwest and its representatives (including KPMG
Peat Marwick) to examine its and its subsidiaries books, records and properties
and to interview officers, employees and agents at all reasonable times when it
is open for business. No such examination by Norwest or its representatives
either before or after the date of this Agreement shall in any way affect,
diminish or terminate any of the representations, warranties or covenants of
ARBI herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from the
date hereof until the Effective Time of the Merger, ARBI and each ARBI
subsidiary will not (without the prior written consent of Norwest): amend or
otherwise change its articles of incorporation or association or by-laws; issue
or sell or authorize for issuance or sale, or grant any options or make other
agreements with respect to the issuance or sale or conversion of, any shares of
its capital stock, phantom shares or other share-equivalents, or any other of
its securities; authorize or incur any long-term debt (other than deposit
liabilities); mortgage, pledge or subject to lien or other encumbrance any of
its properties, except in the ordinary course of business; enter into any
material agreement, contract or commitment in excess of $50,000 except banking
transactions in the ordinary course of business and in accordance with policies
and procedures in effect on the date hereof; make any investments except
investments made by bank subsidiaries in the ordinary course of business with
final maturities of up to one year and in amounts of $100,000 or less; amend or
terminate any Plan except as required by law; make any contributions to any Plan
except as required by the terms of such Plan in effect as of the date hereof;
declare, set aside, make or pay any dividend or other distribution with respect
to its capital stock except any dividend declared by a subsidiary's Board of
Directors in accordance with applicable law and regulation, except for a regular
quarterly cash dividend on the ARBI Common Stock for the third and fourth
quarters of 1994 only of not more than $.25/share and, in the event that the
Effective Time of the Merger has not occurred on or before March 31, 1995, a
regular quarterly cash dividend on the ARBI Common Stock for the first quarter
of 1995 only of not more than $.25/share; redeem, purchase or otherwise acquire,
directly or indirectly, any of the capital stock of ARBI; increase the
compensation of any officers, directors or executive employees, except pursuant
to existing compensation plans and practices and except that ARBI or the Bank
may pay an aggregate of $150,000 in bonuses to persons who, on the day before
the Effective Date of the Merger, are employees of ARBI or the Bank ; sell or
otherwise dispose of any shares of the capital stock of any ARBI Subsidiary; or
sell or otherwise dispose of any of its assets or properties other than in the
ordinary course of business.
(c) The Board of Directors of ARBI will duly call, and will cause to be held
not later than twenty-three (23) business days following the effective date of
the Registration Statement referred to in paragraph 5(c) hereof, a meeting of
its shareholders and will direct
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that this Agreement and the Merger Agreement be submitted to a vote at such
meeting. The Board of Directors of ARBI will (i) cause proper notice of such
meeting to be given to its shareholders in compliance with the New Mexico
Business Corporation Act and other applicable law and regulation, (ii) recommend
by the affirmative vote of the Board of Directors a vote in favor of approval of
this Agreement and the Merger Agreement, and (iii) use its best efforts to
solicit from its shareholders proxies in favor thereof.
(d) ARBI will furnish or cause to be furnished to Norwest all the information
concerning ARBI and its subsidiaries required for inclusion in the Registration
Statement referred to in paragraph 5(c) hereof, or any statement or application
made by Norwest to any governmental body in connection with the transactions
contemplated by this Agreement. Any financial statement for any fiscal year
provided under this paragraph must include the audit opinion and the consent of
KPMG Peat Marwick to use such opinion in such Registration Statement. Any
interim quarterly financial information provided under this paragraph must have
been reviewed by KPMG Peat Marwick in accordance with generally accepted
auditing standards and ARBI must provide Norwest with a copy of such review
report.
(e) ARBI will take all necessary corporate and other action and use its best
efforts to obtain all approvals of regulatory authorities, consents and other
approvals required of ARBI to carry out the transactions contemplated by this
Agreement and will cooperate with Norwest to obtain all such approvals and
consents required of Norwest.
(f) ARBI will use its best efforts to deliver at the Closing all opinions,
certificates and other documents required to be delivered by it at the Closing.
(g) ARBI will hold in confidence all documents and information concerning
Norwest and its subsidiaries furnished to ARBI and its representatives in
connection with the transactions contemplated by this Agreement and will not
release or disclose such information to any other person, except as required by
law and except to ARBI's outside professional advisers in connection with this
Agreement, with the same undertaking from such professional advisers. In the
event that ARBI or its representatives receive a request pursuant to judicial or
regulatory process to disclose such confidential information, ARBI will, unless
prohibited by law, promptly notify Norwest of such request and will cooperate
with Norwest, at the Norwest's expense, to obtain a protective order or other
reliable assurance that confidential treatment will be accorded to such
confidential information. If the transactions contemplated by this Agreement
shall not be consummated, such confidence shall be maintained and such
information shall not be used in competition with Norwest (except to the extent
that such information can be shown to be previously known to ARBI, in the public
domain, or later acquired by ARBI from other legitimate sources) and, upon
request, all such documents, any copies thereof and extracts therefrom shall
immediately thereafter be returned to Norwest.
(h) Neither ARBI, nor any ARBI Subsidiary, nor any director, officer,
representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of or enter into any discussions with any
corporation, partnership, person or other entity or group (other than Norwest)
concerning any offer or possible offer (i) to purchase any shares of common
stock, any option or warrant to purchase any shares of common stock, any
securities convertible into any shares of such common stock, or any other equity
security of ARBI or any ARBI Subsidiary, (ii) to make a tender or exchange offer
for any
A-20
<PAGE>
shares of such common stock or other equity security, (iii) to purchase, lease
or otherwise acquire the assets of ARBI or any ARBI Subsidiary except in the
ordinary course of business, or (iv) to merge, consolidate or otherwise combine
with ARBI or any ARBI Subsidiary. If any corporation, partnership, person or
other entity or group makes an offer or inquiry to ARBI or any ARBI Subsidiary
concerning any of the foregoing, ARBI or such ARBI Subsidiary will promptly
disclose such offer or inquiry, including the terms thereof, to Norwest.
(i) ARBI shall consult with Norwest as to the form and substance of any
proposed press release or other proposed public disclosure of matters related to
this Agreement or any of the transactions contemplated hereby.
(j) ARBI and each ARBI Subsidiary will take all action necessary or required
(i) to terminate or amend, if requested by Norwest, all qualified pension and
welfare benefit plans and all non-qualified benefit plans and compensation
arrangements as of the Effective Date of the Merger, (ii) to amend the Plans to
comply with the provisions of the TRA and regulations thereunder and other
applicable law, and (iii) to submit application to the Internal Revenue Service
for a favorable determination letter for each of the Plans which is subject to
the qualification requirements of Section 401(a) of the Code prior to the
Effective Date of the Merger, provided that ARBI and each ARBI Subsidiary will
not be required to submit such application to the Internal Revenue Service if
the Internal Revenue Service does not accept such applications prior to the
Effective Date of the Merger.
(k) ARBI shall use its best efforts to obtain and deliver at least 32 days
prior to the Effective Date of the Merger signed representations substantially
in the form attached hereto as Exhibit B to Norwest by each executive officer,
director or shareholder of ARBI who may reasonably be deemed an "affiliate" of
ARBI within the meaning of such term as used in Rule 145 under the Securities
Act.
(l) ARBI shall establish such additional accruals and reserves as may be
necessary to conform ARBI's accounting and credit loss reserve practices and
methods to those of Norwest and Norwest's plans with respect to the conduct of
ARBI's business following the Merger and to provide for the costs and expenses
relating to the consummation by ARBI of the Merger and the other transactions
contemplated by this Agreement.
(m) ARBI shall obtain from a company reasonably acceptable to Norwest, at
ARBI's sole expense, Phase I environmental assessments for each bank facility,
each non-residential OREO property and the property owned by El Pueblo
Properties. Oral reports of such environmental assessments shall be delivered
to Norwest no later than July 1, 1994 and written reports shall be delivered to
Norwest no later than July 31,1994. ARBI shall obtain, at its sole expense,
Phase II environmental assessments for properties identified by Norwest on the
basis of the results of such Phase I environmental assessments.
(n) ARBI shall obtain from a company reasonably acceptable to Norwest, at
ARBI's sole expense, commitments for title insurance and boundary surveys for
each bank facility which shall be delivered to Norwest no later than July 31,
1994.
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<PAGE>
(o) Immediately prior to the Effective Time of the Merger, ARBI shall apply
the funds to be loaned to it by Norwest pursuant to paragraph 5(n) hereof to pay
in full all indebtedness of ARBI secured by the stock of any ARBI Subsidiary.
(p) Prior to the Effective Date of the Merger, ARBI shall distribute or cause
to be distributed, at fair market value, to an irrevocable trust established for
the exclusive ratable benefit of all of the shareholders of record of ARBI as of
the date of distribution (i) all of the artwork owned by ARBI or any ARBI
Subsidiary listed on Schedule 4(p) and any indebtedness incurred in the purchase
of such artwork, including, but not limited to, the note payable to Brownell
McGrew for the purchase of two pieces of art, (ii) all equity securities of New
Mexico Financial Corporation owned by ARBI or any ARBI Subsidiary and (iii)
$50,000 in cash. Such distribution shall be accomplished pursuant to an
agreement that provides that neither ARBI nor any ARBI Subsidiary shall have any
further rights or obligations with respect to the trust, the trustee, the
beneficiaries of the trust or the assets of the trust. Such agreement shall
also provide that, except for liability for corporate taxes payable by ARBI or
any ARBI Subsidiary on the distribution at fair market value of the above-
described artwork and related debt and equity securities, ARBI and the ARBI
Subsidiaries shall have no liability with respect to the trust and no further
liability with respect to the assets or liabilities of the trust following such
distribution, including, but not limited to, liability for any property that
remains unclaimed by any shareholders. Norwest shall have the right to approve
the terms and conditions of the creation of such trust and of such distribution
which approval shall not be unreasonably withheld.
(q) From the date hereof through the Effective Date of the Merger, ARBI shall
not permit the "Provision for Loan Losses" in the ARBI financial statements to
be less than zero.
(r) As soon as practical, but in any event prior to the Effective Date of the
Merger, ARBI shall cause the Bank to sell its entire interest in El Pueblo
Properties.
(s) No later than five business days prior to the Effective Date of the
Merger, ARBI shall sell all of the equity securities it owns in First Security
Corporation and in Wachovia Corporation.
(t) At the request of Norwest, ARBI shall, prior to the Effective Time of the
Merger, prepay in full without penalty the indebtedness listed on Schedule 2(d),
terminate all related agreements and obtain the release of all collateral held
in connection therewith.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with ARBI as follows:
(a) From the date hereof until the Effective Time of the Merger, Norwest will
maintain its corporate existence in good standing; conduct, and cause the
Norwest Subsidiaries to conduct, their respective businesses in compliance with
all material obligations and duties imposed on them by all laws, governmental
regulations, rules and ordinances, and judicial orders, judgments and decrees
applicable to Norwest or the Norwest Subsidiaries, their businesses or their
properties; maintain all books and records of it and the Norwest Subsidiaries,
including all financial statements, in accordance with the accounting principles
and practices consistent with those used for the Norwest
A-22
<PAGE>
Financial Statements, except for changes in such principles and practices
required under generally accepted accounting principles.
(b) Norwest will furnish to ARBI all the information concerning Norwest
required for inclusion in a proxy statement or statements to be sent to the
shareholders of ARBI, or in any statement or application made by ARBI to any
governmental body in connection with the transactions contemplated by this
Agreement.
(c) As promptly as practicable after the execution of this Agreement, Norwest
will file with the SEC a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act and any other applicable documents,
relating to the shares of Norwest Common Stock to be delivered to the
shareholders of ARBI pursuant to the Merger Agreement, and will use its best
efforts to cause the Registration Statement to become effective. At the time
the Registration Statement becomes effective, the Registration Statement will
comply in all material respects with the provisions of the Securities Act and
the published rules and regulations thereunder, and will 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 not false or
misleading, and at the time of mailing thereof to the ARBI shareholders, at the
time of the ARBI shareholders' meeting referred to in paragraph 4(c) hereof and
at the Effective Time of the Merger the prospectus included as part of the
Registration Statement, as amended or supplemented by any amendment or
supplement filed by Norwest (hereinafter the "Prospectus"), will not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not false or misleading; provided, however, that
none of the provisions of this subparagraph shall apply to statements in or
omissions from the Registration Statement or the Prospectus made in reliance
upon and in conformity with information furnished by ARBI or any ARBI subsidiary
for use in the Registration Statement or the Prospectus.
(d) Norwest will file all documents required to be filed to list the Norwest
Common Stock to be issued pursuant to the Merger Agreement on the New York Stock
Exchange and the Chicago Stock Exchange and use its best efforts to effect said
listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of ARBI pursuant to this Agreement and the Merger Agreement will,
upon such issuance and delivery to said shareholders pursuant to the Merger
Agreement, be duly authorized, validly issued, fully paid and nonassessable.
The shares of Norwest Common Stock to be delivered to the shareholders of ARBI
pursuant to the Merger Agreement are and will be free of any preemptive rights
of the stockholders of Norwest.
(f) Norwest will file all documents required to obtain prior to the Effective
Time of the Merger all necessary Blue Sky permits and approvals, if any,
required to carry out the transactions contemplated by this Agreement, will pay
all expenses incident thereto and will use its best efforts to obtain such
permits and approvals.
(g) Norwest will take all necessary corporate and other action and file all
documents required to obtain and will use its best efforts to obtain all
approvals of regulatory authorities, consents and approvals required of it to
carry out the transactions
A-23
<PAGE>
contemplated by this Agreement and will cooperate with ARBI to obtain all such
approvals and consents required by ARBI.
(h) Norwest will hold in confidence all documents and information concerning
ARBI and ARBI's Subsidiaries furnished to it and its representatives in
connection with the transactions contemplated by this Agreement and will not
release or disclose such information to any other person, except as required by
law and except to its outside professional advisers in connection with this
Agreement, with the same undertaking from such professional advisers. In the
event that Norwest or its representatives receive a request pursuant to judicial
or regulatory process to disclose such confidential information, Norwest will,
unless prohibited by law, promptly notify ARBI of such request and will
cooperate with ARBI, at ARBI's expense, to obtain a protective order or other
reliable assurance that confidential treatment will be accorded to such
confidential information. If the transactions contemplated by this Agreement
shall not be consummated, such confidence shall be maintained and such
information shall not be used in competition with ARBI (except to the extent
that such information can be shown to be previously known to Norwest, in the
public domain, or later acquired by Norwest from other legitimate sources) and,
upon request, all such documents, copies thereof or extracts therefrom shall
immediately thereafter be returned to ARBI.
(i) Norwest will file any documents or agreements required to be filed in
connection with the Merger under the New Mexico Business Corporation Act.
(j) Norwest will use its best efforts to deliver at the Closing all opinions,
certificates and other documents required to be delivered by it at the Closing.
(k) Norwest shall consult with ARBI as to the form and substance of any
proposed press release or other proposed public disclosure of matters related to
this Agreement or any of the transactions contemplated hereby.
(l) Norwest shall give ARBI written notice of receipt of the regulatory
approvals referred to in paragraph 7(e).
(m) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit ARBI and its representatives to examine its books, records
and properties and interview officers, employees and agents of Norwest at all
reasonable times when it is open for business. No such examination by ARBI or
its representatives shall in any way affect, diminish or terminate any of the
representations, warranties or covenants of Norwest herein expressed.
(n) Immediately prior to the Effective Time of the Merger, Norwest shall loan
to ARBI funds sufficient to enable ARBI to pay in full all indebtedness of ARBI
secured by the stock of any ARBI Subsidiary.
(o) Norwest shall use all reasonable efforts to maintain, for three years
following the Effective Time of the Merger, directors' and officers' liability
insurance for future claims arising out of occurrences prior to the Effective
Time of the Merger. This insurance shall contain terms and conditions
substantially similar to those policies customarily maintained by similar
financial institutions. Norwest shall insure that all rights to
A-24
<PAGE>
indemnification in ARBI's Articles of Incorporation and Bylaws and in the
Articles of Association and Bylaws of the Bank, as in effect on the date hereof,
shall, with respect to claims arising out of occurrences prior to the Effective
Time of the Merger and with respect to those persons who are covered by the
provisions of such articles and bylaws prior to the Effective Time of the
Merger, survive the Merger and shall continue in full force and effect for three
years from the Effective Time of the Merger. Nothing contained in this paragraph
5(o) shall be deemed to preclude the liquidation, consolidation, merger or
amendment of the articles of incorporation or bylaws of ARBI or any ARBI
Subsidiary in which case all of such rights to indemnification shall be deemed
to survive and continue notwithstanding any such liquidation, consolidation,
merger or amendment. Notwithstanding anything to the contrary contained in this
paragraph 5(o), nothing contained herein shall require indemnification of any
person who was a director, officer or employee of a corporation, banking
institution or other entity acquired by ARBI or any ARBI Subsidiary with respect
to claims based on, or arising out of or pertaining to, a matter which occurred
prior to the consummation of any such acquisition to a greater extent than ARBI
or any ARBI Subsidiary is, as of the date of this Agreement, required to
indemnify any such person.
(p) At or prior to the Effective Time of the Merger, Norwest shall deposit,
or shall cause to be deposited, with Norwest Bank Minnesota, N.A. (the "Agent"),
for the benefit of the holders of certificates representing shares of ARBI
Common Stock (the "Certificates"), for exchange in accordance herewith and the
Merger Agreement, a certificate or certificates representing the shares of
Norwest Common Stock and the cash in lieu of fractional shares to be issued and
paid pursuant hereto and the Merger Agreement in exchange for outstanding shares
of ARBI Common Stock.
In the event any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by Norwest, the posting by such
person of a bond in such amount as Norwest may reasonably direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Agent will issue in exchange for such lost, stolen or destroyed Certificate
the shares of Norwest Common Stock and cash in lieu of fractional shares
deliverable in respect thereof pursuant hereto and the Merger Agreement.
As soon as practicable after the Effective Time of the Merger, the Agent shall
mail to each holder of record of a Certificate or Certificates a form letter of
transmittal and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Norwest Common
Stock and the cash in lieu of fractional shares into which the shares of Company
Common Stock represented by such certificates shall have been converted pursuant
hereto and the Merger Agreement.
(q) From the date hereof to the Effective Date of the Merger, Norwest shall
deliver to ARBI, when reasonably available, Norwest's Quarterly Reports on Form
10-Q and Norwest's Annual Reports on Form 10-K as filed with the SEC under the
Exchange Act.
(r) From and after the Effective Date of the Merger, Norwest shall file all
reports with the SEC necessary to permit the stockholders of ARBI who may be
deemed "underwriters" (within the meaning of Rule 145 under the Securities Act)
of ARBI
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<PAGE>
Common Stock to sell Norwest Common Stock received by them in connection with
the Merger pursuant to Rules 144 and 145(d) under the Securities Act if they
would otherwise be so entitled; provided, however, that Norwest is otherwise
obligated to file such reports with the SEC.
6. CONDITIONS PRECEDENT TO OBLIGATION OF ARBI. The obligation of ARBI to
effect the Merger shall be subject to the satisfaction at or before the Time of
Filing of the following further conditions, which may be waived in writing by
ARBI:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
after the date of this Agreement made in the ordinary course of business and not
expressly prohibited by this Agreement, the representations and warranties
contained in paragraph 3 hereof shall be true and correct in all respects
material to Norwest and its subsidiaries taken as a whole as if made at the Time
of Filing.
(b) Norwest shall have, or shall have caused to be, performed and observed in
all material respects all covenants, agreements and conditions hereof to be
performed or observed by it and Merger Co. at or before the Time of Filing.
(c) ARBI shall have received a favorable certificate, dated as of the
Effective Date of the Merger, signed by the Chairman, the President or any
Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs (a)
and (b) of this paragraph 6.
(d) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
ARBI required for approval of a plan of merger in accordance with the provisions
of ARBI's Articles of Incorporation and the New Mexico Business Corporation Act.
(e) Norwest shall have received approval by the Federal Reserve Board and by
such other governmental agencies as may be required by law of the transactions
contemplated by this Agreement and the Merger Agreement and all waiting and
appeal periods prescribed by applicable law or regulation shall have expired.
(f) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement.
(g) The shares of Norwest Common Stock to be delivered to the stockholders of
ARBI pursuant to this Agreement and the Merger Agreement shall have been
authorized for listing on the New York Stock Exchange and the Chicago Stock
Exchange.
(h) ARBI shall have received an opinion, dated the Closing Date, of counsel
to ARBI, substantially to the effect that, for federal income tax purposes: (i)
the Merger will constitute a reorganization within the meaning of Sections
368(a)(1(A) and 368(a)(2)(E) of the Code; (ii) no gain or loss will be
recognized by the holders of ARBI Common Stock upon receipt of Norwest Common
Stock except for cash received in lieu of fractional
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<PAGE>
shares and except for interests in the trust described in paragraph 4(p) herein;
(iii) the basis of the Norwest Common Stock received by the shareholders of ARBI
will be the same as the basis of ARBI Common Stock exchanged therefor; and (iv)
the holding period of the shares of Norwest Common Stock received by the
shareholders of ARBI will include the holding period of the ARBI Common Stock,
provided such shares of ARBI Common Stock were held as a capital asset as of the
Effective Time of the Merger.
(i) The Registration Statement (as amended or supplemented) shall have become
effective under the Securities Act and shall not be subject to any stop order,
and no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of Norwest
to effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following conditions, which may be waived in writing by
Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
or events occurring after the date of this Agreement made in the ordinary course
of business and not expressly prohibited by this Agreement, the representations
and warranties contained in paragraph 2 hereof shall be true and correct in all
respects material to ARBI and the ARBI Subsidiaries taken as a whole as if made
at the Time of Filing.
(b) ARBI shall have, or shall have caused to be, performed and observed in
all material respects all covenants, agreements and conditions hereof to be
performed or observed by it at or before the Time of Filing.
(c) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
ARBI required for approval of a plan of merger in accordance with the provisions
of ARBI's Articles of Incorporation and the New Mexico Business Corporation Act.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Merger signed by the Chairman or President and by the
Secretary or Assistant Secretary of ARBI, as to the matters set forth in
subparagraphs (a) through (c) of this paragraph 7.
(e) Norwest shall have received approval by all governmental agencies as may
be required by law of the transactions contemplated by this Agreement and the
Merger Agreement and all waiting and appeal periods prescribed by applicable law
or regulation shall have expired. No approvals, licenses or consents granted by
any regulatory authority shall contain any condition or requirement relating to
ARBI or any ARBI Subsidiary that, in the good faith judgment of Norwest, is
unreasonably burdensome to Norwest.
(f) ARBI and each ARBI Subsidiary shall have obtained any and all material
consents or waivers from other parties to loan agreements, leases or other
contracts
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<PAGE>
material to ARBI's or such subsidiary's business required for the consummation
of the Merger, and ARBI and each ARBI Subsidiary shall have obtained any and all
material permits, authorizations, consents, waivers and approvals required for
the lawful consummation by it of the Merger.
(g) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement.
(h) At any time since the date hereof the total number of shares of ARBI
Common Stock outstanding and subject to issuance upon exercise (assuming for
this purpose that phantom shares and other share-equivalents, other than the
performance shares provided pursuant to the American Republic Bancshares
Corporation Performance Share Incentive Bonus Plan for James H. Foley dated
December 21, 1993, constitute ARBI Common Stock) of all warrants, options,
conversion rights, phantom shares or other share-equivalents, other than any
option held by Norwest, shall not have exceeded 410,095.
(i) The Registration Statement (as amended or supplemented) shall have become
effective under the Securities Act and shall not be subject to any stop order,
and no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened or be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) Norwest shall have received from the Chief Executive Officer and Chief
Financial Officer of ARBI a letter, dated as of the effective date of the
Registration Statement and updated through the date of Closing, in form and
substance satisfactory to Norwest, to the effect that:
(i) the interim quarterly financial statements of ARBI included or
incorporated by reference in the Registration Statement are prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the audited financial statements of ARBI;
(ii) the amounts reported in the interim quarterly financial
statements of ARBI agree with the general ledger of ARBI;
(iii) the annual and quarterly financial statements of ARBI and the
ARBI Subsidiaries included in, or incorporated by reference in, the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published
rules and regulations thereunder;
(iv) from the date of the most recent unaudited consolidated
financial statements of ARBI and the ARBI Subsidiaries as may be included
in the Registration Statement to a date 5 days prior to the effective date
of the Registration Statement or 5 days prior to the Closing, there are no
increases in long-term debt, changes in the capital stock or decreases in
stockholders' equity of ARBI and the ARBI Subsidiaries, except in each case
for changes, increases or
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<PAGE>
decreases which the Registration Statement discloses have occurred or may
occur or which are described in such letters. For the same period, there
have been no decreases in consolidated net interest income, consolidated
net interest income after provision for credit losses, consolidated income
before income taxes, consolidated net income and net income per share
amounts of ARBI and the ARBI Subsidiaries, or in income before equity in
undistributed income of subsidiaries, in each case as compared with the
comparable period, if any, of the preceding year, except in each case for
changes, increases or decreases which the Registration Statement discloses
have occurred or may occur or which are described in such letters;
(v) they have reviewed certain amounts, percentages, numbers of
shares and financial information which are derived from the general
accounting records of ARBI and the ARBI Subsidiaries, which appear in the
Registration Statement under the certain captions to be specified by
Norwest, and have compared certain of such amounts, percentages, numbers
and financial information with the accounting records of ARBI and the ARBI
Subsidiaries and have found them to be in agreement with financial records
and analyses prepared by ARBI included in the annual and quarterly
financial statements, except as disclosed in such letters.
(k) ARBI and the ARBI Subsidiaries considered as a whole shall not have
sustained since March 31, 1994 any material loss or interference with their
business from any civil disturbance or any fire, explosion, flood or other
calamity, whether or not covered by insurance.
(l) There shall be no reasonable basis for any proceeding, claim or action
of any nature seeking to impose, or that could reasonably be expected to result
in the imposition on ARBI or any ARBI Subsidiary of, any liability related to
the release of hazardous substances as defined under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended, which has had or could reasonably be expected to have a material
adverse effect upon ARBI and its subsidiaries taken as a whole.
(m) No change shall have occurred, since March 31, 1994, and no
circumstances shall exist which has had or might reasonably be expected to have
a material adverse effect on the financial condition, results of operations,
business or prospects of ARBI and the ARBI Subsidiaries taken as a whole (other
than changes in banking laws or regulations, or interpretations thereof, that
affect the banking industry generally or changes in the general level of
interest rates).
(n) The Stock Restriction Agreement among certain stockholders of ARBI
shall have been terminated and shall be of no further force and effect.
(o) ARBI shall own directly, and shall deliver to Norwest at the Closing,
stock certificates evidencing all of the outstanding capital stock of the ARBI
Subsidiaries free and clear of any lien, claim, charge, option, encumbrance or
agreement with respect thereto.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of ARBI or any
ARBI Subsidiary as of the Effective Date of the Merger ("ARBI Employees") shall
be
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eligible for participation in the employee welfare and pension plans of Norwest,
as in effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each ARBI Employee shall be eligible
for participation in the employee welfare benefit plans of Norwest listed below
subject to any eligibility requirements applicable to such plans (but not
subject to any pre-existing condition exclusions, except in the case of the Long
Term Care plan) and shall enter each plan not later than the first day of the
calendar quarter which begins at least 32 days after the Effective Date of the
Merger (the "Entry Date"):
Medical Plan
Dental Plan
Long Term Disability Plan
Flexible Benefits Plan
Group Basic Life Insurance Plan
Group Optional and Dependent Life Insurance Plan
Business Travel Accident Insurance Plan
Short-Term Disability Program
Severance Program
Vacation Program
Accidental Death and Dismemberment Plan
Vision Plan
Long Term Care Plan
Until the Entry Date for a given Norwest welfare benefit plan, Norwest agrees to
continue for the benefit of the ARBI Employees the comparable ARBI welfare
benefit plans numbered 1 through 6 under the caption "ERISA Section 3(1) Plans"
in Schedule 2(p).
For the purpose of determining each ARBI Employee's benefit for the year in
which the Merger occurs under the Norwest vacation program, vacation taken by an
ARBI Employee in the year in which the Merger occurs will be deducted from the
total Norwest benefit. Each ARBI Employee shall receive full credit for years
of past service to ARBI and the ARBI Subsidiaries for the purpose of determining
what benefits are due to such employee under the Short-Term Disability,
Severance and Vacation Programs.
(b) Employee Pension Benefit Plans.
Each ARBI Employee shall be eligible for participation in the Norwest Savings-
Investment Plan (the "SIP"), subject to any eligibility requirements applicable
to the SIP (with full credit for years of past service to ARBI and the ARBI
Subsidiaries for the purpose of satisfying any eligibility and vesting periods
applicable to the SIP), and shall enter the SIP not later than the first day of
the calendar quarter which begins at least 32 days after the Effective Date of
the Merger.
Until the Entry Date for the SIP, Norwest agrees to continue for the benefit of
the ARBI Employees the ARBI Profit Sharing/401k Plan and related Trust.
Each ARBI Employee shall be eligible for participation in the Norwest Pension
Plan (with full credit for years of past service to ARBI and the ARBI
Subsidiaries for the purpose of
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satisfying any eligibility and vesting periods applicable to the Norwest Pension
Plan) under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of
Filing:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Merger shall not have been consummated by May 15, 1995 unless
such failure of consummation shall be due to the failure of the party
seeking to terminate to perform or observe in all material respects the
covenants and agreements hereof to be performed or observed by such party;
(iii) by ARBI or Norwest upon written notice to the other party if
any court or governmental authority of competent jurisdiction shall have
issued a final order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement; or
(iv) by ARBI, within five business days after the end of the Index
Measurement Period (as defined in subparagraph (c)(ii) below), if both of
the following conditions are satisfied:
(A) the Norwest Measurement Price is less than $20; and
(B) the number obtained by dividing the Norwest Measurement Price
by the closing price of Norwest Common Stock on the trading day
immediately preceding the date of this Agreement is less than the
number obtained by dividing the Final Index Price (as defined in
subparagraph (c) below) by the Initial Index Price (as defined in
subparagraph (c) below) and subtracting .15 from such quotient.
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any liability
or damage to the other party hereto arising out of the breaching party's willful
and material breach of the warranties and representations made by it, or willful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
(c) For purposes of this paragraph 9:
(i) The "Company Market Capitalization" shall mean (a) the price of
one share of the common stock of a given company at the close of the
trading day immediately preceding the date of this Agreement multiplied by
(b) the number of shares of common stock of such company outstanding as of
March 31, 1994 (adjusted for any stock dividend, reclassification,
recapitalization, exchange of shares or similar transaction between March
31, 1994 and the close of the trading day immediately preceding the date of
this Agreement).
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(ii) The "Index Group" shall mean all of those companies listed on
Exhibit C the common stock of which is publicly traded and as to which
there is, during the period of 20 trading days ending on the day
immediately preceding the meeting of the shareholders of ARBI held to vote
on this Agreement and the Merger Agreement (the "Index Measurement
Period"), no pending publicly announced proposal for such company to be
acquired, nor has there been any proposal by such company publicly
announced subsequent to the day before the date of this Agreement to
acquire another company in exchange for stock where, if the company to be
acquired were to become a subsidiary of the acquiring company, the company
to be acquired would be a "significant subsidiary" as defined in Rule 1-02
of Regulation S-X promulgated by the SEC nor has there been any program
publicly announced subsequent to the day before the date of this Agreement
to repurchase 5% or more of the outstanding shares of such company's common
stock.
(iii) The "Initial Index Price" shall mean the sum of the following,
calculated for each of the companies in the Index Group: (a) the closing
price per share of common stock of each such company on the trading day
immediately preceding the date of this Agreement multiplied by (b) the
Weighting Factor (as defined below) for each such company.
(iv) The "Final Index Price" shall mean the sum of the following,
calculated for each of the companies in the Index Group: (a) the Final
Price for each such company multiplied by (b) the Weighting Factor (as
defined below) for each such company.
(v) The "Final Price" of any company in the Index Group shall mean the
average of the daily closing prices of a share of common stock of such
company, as reported on the consolidated transaction reporting system for
the market or exchange on which such common stock is principally traded,
during the Index Measurement Period.
(vi) The "Total Market Capitalization" shall mean the sum of the
Company Market Capitalization for each of the companies in the Index Group.
(vii) The "Weighting Factor" for any given company shall mean the
Company Market Capitalization for such company divided by the Total Market
Capitalization.
If a Common Stock Adjustment occurs with respect to the shares of Norwest
or any company in the Index Group between the date of this Agreement and the
ARBI shareholder meeting date, the closing prices for the common stock of such
company shall be appropriately and proportionately adjusted for the purposes of
the definitions above so as to be comparable to what the price would have been
if the record date of the Common Stock Adjustment had been immediately following
the Effective Time of the Merger.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees,
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incurred by ARBI and ARBI Subsidiaries shall be borne by ARBI, and all such
expenses incurred by Norwest shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Except as provided in paragraphs 5(o) and
5(r), each party hereto intends that this Agreement shall not benefit or create
any right or cause of action in or on behalf of any person other than the
parties hereto.
13. NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be delivered in
person or shall be mailed by first class registered or certified mail, postage
prepaid, addressed as follows:
If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to ARBI:
American Republic Bancshares, Inc.
101 South Main
Belen, New Mexico 87002
Attention: President
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Merger Agreement contain
the complete agreement between the parties hereto with respect to the Merger and
other transactions contemplated hereby and supersede all prior agreements and
understandings between the parties hereto with respect thereto.
15. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by a signed
writing, give any consent, take any action pursuant to paragraph 9 hereof or
otherwise, or waive any inaccuracies in the representations and warranties by
the other party and compliance by the other party with any of the covenants and
conditions herein.
17. AMENDMENT. At any time before the Time of Filing, the parties hereto,
by action taken by their respective Boards of Directors or pursuant to authority
delegated by their respective Boards of Directors, may amend this Agreement;
provided, however, that
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no amendment after approval by the shareholders of ARBI shall be made which
changes in a manner adverse to such shareholders the consideration to be
provided to said shareholders pursuant to this Agreement and the Merger
Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreement shall survive the
Merger of Merger Co. with and into ARBI or, except as set forth in paragraph
9(b), the termination of this Agreement. Paragraphs 5(o), 5(r) and 10 shall
survive the Merger.
20. 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 instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION AMERICAN REPUBLIC BANCSHARES, INC.
By: /s/ Kenneth R. Murray By: /s/ James H. Foley
--------------------- ------------------
Its: Executive Vice President Its: President and Chief Executive Officer
------------------------ -------------------------------------
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<PAGE>
EXHIBIT A
---------
AGREEMENT AND PLAN OF MERGER
BETWEEN
AMERICAN REPUBLIC BANCSHARES, INC.
a New Mexico corporation
(the surviving corporation)
AND
[NORWEST MERGER CO.]
a New Mexico corporation
(the merged corporation)
This Agreement and Plan of Merger dated as of __________, 1994 (the
"Agreement"), between American Republic Bancshares, Inc., a New Mexico
corporation (hereinafter sometimes called "Company" and sometimes called the
"surviving corporation") and [Norwest Merger Co.], a New Mexico corporation
("Merger Co.")(said corporations being hereinafter sometimes referred to as the
"constituent corporations"),
WHEREAS, Merger Co., a wholly-owned subsidiary of Norwest
Corporation, was incorporated by Articles of Incorporation filed in the office
of the Secretary of State of the State of __________ on _______, 1994, and said
corporation is now a corporation subject to and governed by the provisions of
the New Mexico Business Corporation Act. Merger Co. has authorized capital
stock of 1,000 shares of common stock having a par value of $1.00 per share
("Merger Co. Common Stock"), of which 1,000 shares were outstanding as of the
date hereof; and
WHEREAS, Company was incorporated by Articles of Incorporation filed
in the office of the Secretary of State of the State of New Mexico on September
16, 1983 and said corporation is now a corporation subject to and governed by
the provisions of the New Mexico Business Corporation Act. Company has
authorized capital stock of 1,000,000 shares of Common Stock, par value $1.00
per share ("Company Common Stock") of which 410,095 shares were outstanding and
zero shares were held in the treasury as of March 31, 1994 and 1,000,000 shares
of Cumulative Preferred Stock, par value $1.00 per share of which zero shares
were outstanding and zero shares were held in the treasury as of March 31, 1994;
and
WHEREAS, Norwest Corporation and Company are parties to an Agreement
and Plan of Reorganization dated as of June 6, 1994 (the "Reorganization
Agreement"), setting forth certain representations, warranties and covenants in
connection with the merger provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the
constituent corporations respectively deem it advisable for the welfare and
advantage of said corporations and for the best interests of the respective
shareholders of said corporations that said corporations merge and that Merger
Co. be merged with and into Company, with Company continuing as the surviving
corporation, on the terms and conditions hereinafter set forth in accordance
with the provisions of the New Mexico Business Corporation Act, which statute
permits such merger;
WHEREAS, it is the intent of the parties to effect a merger which
qualifies as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code; and
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<PAGE>
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of Company and of Merger Co., in consideration of the premises and
of the mutual covenants and agreements contained herein and of the benefits to
accrue to the parties hereto, have agreed and do hereby agree that Merger Co.
shall be merged with and into Company pursuant to the laws of the State of New
Mexico, and do hereby agree upon, prescribe and set forth the terms and
conditions of the merger of Merger Co. with and into Company, the mode of
carrying said merger into effect, the manner and basis of converting the shares
of Company Common Stock into shares of common stock of Norwest Corporation of
the par value of $1-2/3 per share ("Norwest Common Stock"), and such other
provisions with respect to said merger as are deemed necessary or desirable, as
follows:
FIRST: At the time of merger, Merger Co. shall be merged with and
into Company, one of the constituent corporations, which shall be the surviving
corporation, and the separate existence of Merger Co. shall cease and the name
of the surviving corporation shall continue to be American Republic Bancshares,
Inc.
SECOND: The Articles of Incorporation of Company at the time of
merger shall be and remain the Articles of Incorporation of the surviving
corporation until further amended according to law.
THIRD: The Bylaws of Company at the time of merger shall be and
remain the Bylaws of the surviving corporation until amended according to the
provisions of the Articles of Incorporation of the surviving corporation or of
said Bylaws.
FOURTH: The directors of Merger Co. at the time of merger shall be
and remain the directors of the surviving corporation and shall hold office from
the time of merger until their respective successors are elected and qualify.
FIFTH: The officers of Merger Co. at the time of merger shall be and
remain the officers of the surviving corporation and shall hold office from the
time of merger until their respective successors are elected or appointed and
qualify.
SIXTH: The manner and basis of converting the shares of Company
Common Stock into cash or shares of shares of Norwest Common Stock shall be as
follows:
1. Each share of Company Common Stock outstanding immediately prior to the
time of the merger (other than shares as to which statutory dissenters'
appraisal rights have been exercised) will be converted into and exchanged
for the number of shares of Norwest Common Stock determined by dividing the
Adjusted Norwest Shares (as defined below) by the number of shares of
Company Common Stock then outstanding. The "Adjusted Norwest Shares" shall
mean the following:
(a) If the average of the closing prices of a share of Norwest Common
Stock as reported on the consolidated tape of the New York Stock
Exchange during the period of 20 trading days ending on the day
immediately preceding the meeting of the shareholders of Company held
to vote on this Agreement and the Reorganization Agreement (the
"Norwest Measurement Price") is equal to or greater than $26.50, the
Adjusted Norwest Shares shall be the number determined by dividing (x)
$27,950,000 plus the proceeds (net of commissions and similar
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expenses) received from the sale of the equity securities Company owns
in First Security Corporation and in Wachovia Corporation by (y)
$26.50;
(b) If the Norwest Measurement Price is equal to or less than $24.50,
the Adjusted Norwest Shares shall be the number determined by dividing
(x) $27,950,000 plus the proceeds (net of commissions and similar
expenses) received from the sale of the equity securities Company owns
in First Security Corporation and in Wachovia Corporation by (y)
$24.50;
(c) If the Norwest Measurement Price is less than $26.50, but more
than $24.50, the Adjusted Norwest Shares shall be the number
determined by dividing (x) $27,950,000 plus the proceeds (net of
commissions and similar expenses) received from the sale of the equity
securities Company owns in First Security Corporation and in Wachovia
Corporation by (y) the Norwest Measurement Price.
2. As soon as practicable after the merger becomes effective, each holder
of a certificate for shares of Company Common Stock outstanding immediately
prior to the time of merger shall be entitled, upon surrender of such
certificate for cancellation to the surviving corporation or to Norwest
Bank Minnesota, National Association, as the designated agent of the
surviving corporation (the "Agent"), to receive a new certificate for the
number of whole shares of Norwest Common Stock to which such holder shall
be entitled on the basis set forth in paragraph 1 above. Until so
surrendered each certificate which, immediately prior to the time of
merger, represented shares of Company Common Stock shall not be
transferable on the books of the surviving corporation but shall be deemed
to evidence the right to receive (except for the payment of dividends as
provided below) ownership of the number of whole shares of Norwest Common
Stock into which such shares of Company Common Stock have been converted on
the basis above set forth; provided, however, until the holder of such
certificate for Company Common Stock shall have surrendered the same for
exchange as above set forth, no dividend payable to holders of record of
Norwest Common Stock as of any date subsequent to the effective date of
merger shall be paid to such holder with respect to the Norwest Common
Stock, if any, represented by such certificate, but, upon surrender and
exchange thereof as herein provided, there shall be paid by the surviving
corporation or the Agent to the record holder of such certificate for
Norwest Common Stock issued in exchange therefor an amount with respect to
such shares of Norwest Common Stock equal to all dividends that shall have
been paid or become payable to holders of record of Norwest Common Stock
between the effective date of merger and the date of such exchange.
3. If between the date of the Reorganization Agreement and the time of
merger, shares of Norwest 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 similar transaction, or if a stock dividend
thereon shall be declared with a record date within such period, then the
number of shares of Norwest Common Stock into which a share of Company
Common Stock shall be converted on the basis above set forth, and/or the
price of such shares for the purposes of calculating the Norwest
Measurement Price, will be appropriately and proportionately adjusted so
that the number of such shares of Norwest Common Stock into which a share
of Company Common Stock shall be converted will equal the number of shares
of Norwest Common Stock which the holder of a share of Company Common Stock
would have
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<PAGE>
received pursuant to such reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or similar transaction, or
stock dividend had the record date therefor been immediately following the
time of merger.
4. No fractional shares of Norwest Common Stock and no certificates or
scrip certificates therefor shall be issued to represent any such
fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest
to which such holder is entitled by the average of the closing prices of a
share of Norwest Common Stock as reported by the consolidated tape of the
New York Stock Exchange for each of the five (5) trading days immediately
preceding the effective date of merger.
5. Each share of Merger Co. Common Stock issued and outstanding at the
time of merger shall be converted into and exchanged for one share of the
surviving corporation after the time of merger.
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
1. The effective date of merger shall be the date on which Articles of
Merger (as described in subparagraph 1(b) of this Article Seventh) shall be
delivered to and filed by the Secretary of State of the State of New
Mexico; provided, however, that all of the following actions shall have
been taken in the following order:
a. This Agreement shall be approved and adopted on behalf of Merger
Co. and Company in accordance with the New Mexico Business Corporation
Act; and
b. Articles of merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by
the New Mexico Business Corporation Act, shall be executed by the
Chairman of the Board, the President or a Vice President of Merger Co.
and by the Secretary or an Assistant Secretary of Merger Co., and by
the Chairman of the Board, the President or a Vice President of
Company and by the Secretary or an Assistant Secretary of Company, and
shall be filed in the office of the Secretary of State of the State of
New Mexico in accordance with the New Mexico Business Corporation Act.
2. The merger shall become effective as of 11:59 p.m. (the "time of
merger") on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Merger Co. shall cease, and the corporate
existence and identity of Company shall continue as the surviving
corporation.
2. The merger shall have the other effects prescribed by Section 53-14-6
of the New Mexico Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
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1. If at any time the surviving corporation shall consider or be advised
that any further assignment or assurance in law or other action is
necessary or desirable to vest, perfect or confirm in the surviving
corporation the title to any property or rights of Merger Co. acquired or
to be acquired as a result of the merger provided for herein, the proper
officers and directors of Company and Merger Co. may execute and deliver
such deeds, assignments and assurances in law and take such other action as
may be necessary or proper to vest, perfect or confirm title to such
property or right in the surviving corporation and otherwise carry out the
purposes of this Agreement.
2. For the convenience of the parties and to facilitate the filing of this
Agreement, any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument.
3. This Agreement and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of
New Mexico.
4. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
5. At any time prior to the filing of Articles of Merger with the
Secretary of State of the State of New Mexico, subject to the provisions of
the Reorganization Agreement, this Agreement may be terminated upon
approval by the Boards of Directors of either of the constituent
corporations notwithstanding the approval of the shareholders of either
constituent corporation.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan
of Merger to be signed in their respective corporate names by the undersigned
officers, pursuant to authority duly given by their respective Boards of
Directors, all as of the day and year first above written.
AMERICAN REPUBLIC BANCSHARES, INC.
By: _________________________________
Its: _________________________________
Attest:
__________________________
Secretary
[NORWEST MERGER CO.]
By: ________________________________
Its: ________________________________
Attest:
___________________________
Secretary
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<PAGE>
EXHIBIT B
---------
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attn: Secretary
Gentlemen:
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 American
Republic Bancshares, Inc., a New Mexico corporation (the "Company").
Pursuant to an Agreement and Plan of Reorganization, dated as of June 6,
1994, (the "Reorganization Agreement"), between the Company and Norwest
Corporation, a Delaware corporation ("Norwest") it is contemplated that a
wholly-owned subsidiary of Norwest will merge with and into the Company (the
"Merger") and as a result, I will receive in exchange for each share of Common
Stock, par value $_____ per share, of the Company (the "Company Common Stock")
owned by me immediately prior to the Effective Time of the Merger (as defined in
the Reorganization Agreement), a number of shares of Common Stock, par value $1
2/3 per share, of Norwest ("Norwest Common Stock"), as more specifically set
forth in the Reorganization Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Norwest Common Stock issued to me pursuant to the Merger (the "Stock")
except (a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or (c) in an offering registered under the Securities Act.
I consent to the endorsement of the Stock issued to me pursuant to the
Merger with a restrictive legend that 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 Norwest Corporation 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."
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Norwest'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.
It is understood and agreed that this letter agreement shall terminate and
be of no further force and effect and the restrictive legend set forth 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 Norwest and have been the beneficial owner of the Stock for at
least two years (or such other period as may be prescribed thereunder) and
Norwest 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
twelve months, or (iv) I am not and have not been for at least three months an
affiliate of Norwest 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) Norwest shall
have received an opinion of counsel acceptable to Norwest to the effect that the
stock transfer restrictions and the legend are not required.
I have carefully read this letter agreement and the Reorganization
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 the
Company.
Sincerely,
_________________________
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EXHIBIT C
BancOne Corporation
Bank of Boston Corporation
Bank of New York
BankAmerica Corporation
Barnett Banks, Inc.
Boatmen's Bancshares
Comerica, Inc.
CoreStates Financial Corporation
First Bank System, Inc.
First Interstate
First Union Corporation
Fleet Financial
KeyCorp
Mellon Bank Corporation
National City Corporation
NBD Bancorp, Inc.
Nations Bank
PNC Financial Corporation
Signet Banking Corporation
Suntrust Banks, Inc.
U.S. Bancorp
Wachovia Corporation
Wells Fargo
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<PAGE>
APPENDIX B
OPINION OF MONTGOMERY SECURITIES
<PAGE>
November 8, 1994
Members of the Board of Directors
American Republic Bancshares, Inc.
101 South Main Street
Belen, NM 87002
Gentlemen:
We understand that American Republic Bancshares, Inc., a New Mexico corporation
("ARB"), and Norwest Corporation, a Delaware corporation ("Norwest"), have
entered into an Agreement and Plan of Reorganization dated June 6, 1994 (the
"Merger Agreement"), pursuant to which (i) a wholly-owned subsidiary of Norwest
will be merged with and into ARB, with ARB as the surviving corporation (the
"Merger"), and (ii) ARB will make a distribution to a trust (the "Trust")
established for the benefit of its shareholders (collectively, the
"Transaction"). Pursuant to the Merger, as more fully described in the Merger
Agreement, we understand that each outstanding share of the common stock, $1.00
par value per share, of ARB (the "ARB Common Stock") will be converted into and
exchangeable for the number of shares of the common stock, $1-2/3 par value per
share, of Norwest (the "Norwest Common Stock") determined by dividing the
Adjusted Norwest Shares (as defined in the Merger Agreement) by the number of
shares of the ARB Common Stock outstanding immediately prior to the Effective
Time (as defined in the Merger Agreement) of the Merger. In addition, as more
fully described in the Merger Agreement, we understand that prior to the
Effective Date (as defined in the Merger Agreement) of the Merger, ARB will
distribute specified assets and related indebtedness to the Trust. The Norwest
Common Stock and the beneficial interests in the Trust to be received by the
shareholders of ARB are together referred to as the "Consideration."
We previously delivered an opinion to you dated June 6, 1994 (the "Prior
Letter") which stated, subject to the limitations and conditions contained
therein, our opinion that as of the date of the Merger Agreement the
Consideration to be received by the shareholders of ARB pursuant to the
Transaction is fair to the shareholders of ARB from a financial point of view.
You have further asked for our opinion as to whether the Consideration to be
received by the shareholders of ARB pursuant to the Transaction is fair to the
shareholders of ARB from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to ARB and
Norwest, including the consolidated financial statements for recent years and
the interim period to September 30, 1994, and certain other relevant financial
and operating data relating to ARB and Norwest
B-1
<PAGE>
Members of the Board of Directors
November 8, 1994
Page 2
made available to us from published sources and from the internal records of
ARB; (ii) reviewed the Merger Agreement and the Proxy Statement/Prospectus;
(iii) reviewed certain historical market prices and trading volumes of Norwest
Common Stock as reported by the New York Stock Exchange; (iv) compared ARB and
Norwest from a financial point of view with certain other companies in the
banking industry which we deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies in the banking industry which we deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of ARB and Norwest certain information of a
business and financial nature regarding ARB and Norwest, furnished to us by
them, including financial forecasts and related assumptions of ARB; (vii)
reviewed and discussed with representatives of the management of ARB the
September 26, 1991 appraisal obtained by ARB of certain assets being
distributed to the Trust by ARB; (viii) made inquiries regarding and discussed
the Transaction and the Merger Agreement and other matters related thereto with
ARB's counsel; and (ix) performed such other analyses and examinations as we
have deemed appropriate.
In connection with our review, we have assumed and relied upon the accuracy and
completeness of the foregoing information with respect to ARB and Norwest and we
have not assumed responsibility for independent verification of such
information. With respect to the financial forecasts for ARB provided to us by
its management, we have assumed for purposes of our opinion that the forecasts
have been reasonably prepared on bases reflecting the best available estimates
and judgments of ARB's management at the time of preparation as to the future
financial performance of ARB and that they provide a reasonable basis upon which
we can form our opinion. With respect to the appraisal obtained by ARB of
certain assets being distributed to the Trust by ARB, we have assumed for
purposes of our opinion that the appraisal reflects a reasonable estimate as to
the amount realizable by the Trust upon liquidation of such assets. We have
also assumed that there have been no material changes in ARB's or Norwest's
assets, financial condition, results of operations, business or prospects since
the respective dates of their last financial statements made available to us.
We have relied on advice of counsel to ARB as to all legal matters with respect
to ARB, the Transaction and the Merger Agreement. We are not experts in the
evaluation of loan portfolios for purposes of assessing the adequacy of the
allowances for losses with respect thereto and have assumed that such allowances
for each of ARB and Norwest are in the aggregate adequate to cover such losses.
In addition, we have not assumed responsibility for reviewing any individual
credit files or making an independent evaluation, appraisal or physical
inspection of the assets or individual properties of ARB or Norwest. Finally,
our opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
We have further assumed that the Transaction will be consummated in accordance
with the terms described in the Merger Agreement, without any further amendments
thereto, and without waiver by ARB of any of the conditions to its obligations
thereunder.
B-2
<PAGE>
Members of the Board of Directors
November 8, 1994
Page 3
In the ordinary course of our business, we actively trade the equity securities
of Norwest for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, certain partners of Montgomery Securities also may own shares of
Norwest Common Stock.
Based upon the foregoing and in reliance thereon, it is our opinion that the
Consideration to be received by the shareholders of ARB pursuant to the
Transaction is fair to such shareholders from a financial point of view, as of
the date hereof.
This opinion is furnished pursuant to our engagement letter, dated August 17,
1993, and is solely for the benefit of the Board of Directors of ARB. This
opinion does not constitute a report or valuation within the meaning of Section
11 of the Securities Act of 1933 and should not be accorded the degree of
reliance placed on such reports and valuations. Montgomery Securities has not
assumed responsibility for performing the level of diligence or independent
verification that would be required for it to render a report or valuation for
purposes of such Act. Except as provided in such engagement letter, this opinion
may not be used or referred to by ARB, or quoted or disclosed to any person in
any manner without our prior written consent. This opinion is not intended to be
and shall not be deemed to be a recommendation to any shareholder of ARB as to
how such shareholder should vote with respect to the Transaction.
Very truly yours,
/s/ Montgomery Securities
MONTGOMERY SECURITIES
B-3
<PAGE>
APPENDIX C
NEW MEXICO STATUTES ANNOTATED
SECTIONS 53-15-3 AND 53-15-4
<PAGE>
53-15-3 RIGHT OF SHAREHOLDERS TO DISSENT AND OBTAIN PAYMENT FOR SHARES.--A.
Any shareholder of a corporation may dissent from, and obtain payment for the
shareholder's shares in the event of, any of the following corporate actions:
(1) any plan of merger or consolidation to which the corporation is a
party, except as provided in Subsection C of this section;
(2) any sale or exchange of all or substantially all of the property and
assets of the corporation not made in the usual and regular course of its
business, including a sale in dissolution, but not including a sale pursuant to
an order of a court having jurisdiction in the premises or a sale for cash on
terms requiring that all or substantially all of the net proceeds of sale be
distributed to the shareholders in accordance with their respective interests
within one year after the date of sale;
(3) any plan of exchange to which the corporation is a party as the
corporation the shares of which are to be acquired;
(4) any amendment of the articles of incorporation which materially and
adversely affects the rights appurtenant to the shares of the dissenting
shareholder in that it:
(a) alters or abolishes a preferential right of such shares;
(b) creates, alters or abolishes a right in respect of the redemption
of such shares, including a provision respecting a sinking fund for the
redemption or repurchase of such shares;
(c) alters or abolishes an existing preemptive right of the holder of
such shares to acquire shares or other securities; or
(d) excludes or limits the right of the holder of such shares to vote
on any matter, or to cumulate his votes, except as such right may be limited by
dilution through the issuance of shares or other securities with similar voting
rights; or
(5) any other corporate action taken pursuant to a shareholder vote with
respect to which the articles of incorporation, the bylaws or a resolution of
the board of directors directs that dissenting shareholders shall have a right
to obtain payment for their shares.
B. (1) A record holder of shares may assert dissenters' rights as to less
than all of the shares registered in his name only if the holder dissents with
respect to all the shares beneficially owned by any one person and disclose the
name and address of the person or persons on whose behalf the holder dissents.
In that event, his rights shall be determined as if the shares as to which he
has dissented and his other shares were registered in the names of different
shareholders.
(2) A beneficial owner of shares who is not the record holder may assert
dissenters' rights with respect to shares held on his behalf, and shall be
treated as a dissenting shareholder under the terms of this section and Section
53-15-4 NMSA 1978 if he submits to the corporation at the time of or before the
assertion of these rights a written consent of the record holder.
C. The right to obtain payment under this section shall not apply to the
shareholders of the surviving corporation in a merger if a vote of the
shareholders of such corporation is not necessary to authorize such merger.
D. A shareholder of a corporation who has a right under this section to obtain
payment for his shares shall have no right at law or in equity to attack the
validity of the corporate action that gives rise to his right to obtain payment,
nor to have the action set aside or rescinded, except when the corporate action
is unlawful or fraudulent with regard to the complaining shareholder or to the
corporation.
53-15-4 RIGHTS OF DISSENTING SHAREHOLDERS.--A. Any shareholder electing to
exercise his right of dissent shall file with the corporation, prior to or at
the meeting of shareholders at which the proposed corporation action is
submitted to a vote, a written objection to the proposed corporate action. If
the proposed corporate action is approved by the required vote and the
shareholder has not voted in favor thereof, the shareholder may, within
C-1
<PAGE>
ten days after the date on which the vote was taken or if a corporation is to be
merged without a vote of its shareholders into another corporation, any of its
shareholders may, within twenty-five days after the plan of the merger has been
mailed to the shareholders, make written demand on the corporation, or, in the
case of a merger or consolidation, on the surviving or new corporation, domestic
or foreign, for payment of the fair value of the shareholder's shares, and, if
the proposed corporate action is effected, the corporation shall pay to the
shareholder, upon the determination of the fair value, by agreement or judgment
as provided herein, and, in the case of shares represented by certificates, the
surrender of such certificates the fair value thereof as of the day prior to the
date on which the vote was taken approving the proposed corporate action,
excluding any appreciation or depreciation in anticipation of the corporate
action. Any shareholder failing to make demand within the prescribed ten-day or
twenty-five day period shall be bound by the terms of the proposed corporate
action. Any shareholder making such demand shall thereafter be entitled only to
payment as in this section provided and shall not be entitled to vote or to
exercise any other rights of a shareholder.
B. No such demand may be withdrawn unless the corporation consents
thereto. If, however, the demand is withdrawn upon consent, or if the proposed
corporate action is abandoned or rescinded or the shareholders revoke the
authority to effect the action, or if, in the case of a merger, on the date of
the filing of the articles of merger the surviving corporation is the owner of
all the outstanding shares of the other corporations, domestic and foreign, that
are parties to the merger, or if no demand or petition for the determination of
fair value by a court has been made or filed within the time provided in this
section, or if a court of competent jurisdiction determines that the shareholder
is not entitled to the relief provided by this section, then the right of the
shareholder to be paid the fair value of his shares ceases and his status as a
shareholder shall be restored, without prejudice, to any corporate proceedings
which may have been taken during the interim.
C. Within ten days after such corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic of foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as provided in this section and shall
make a written offer to each such shareholder to pay for such shares at a
specified price deemed by the corporation to be the fair value thereof. The
notice and offer shall be accompanied by a balance sheet of the corporation, the
shares of which the dissenting shareholder holds as of the latest available date
and not more than twelve months prior to the making of the offer, and a profit
and loss statement of the corporation for the twelve months period ended on the
date of the balance sheet.
D. If within thirty days after the date on which such corporate action was
effected the fair value of such shares is agreed upon between any such
dissenting shareholder and the corporation, payment therefor shall be made
within ninety days after the date on which the corporate action was effected,
and in the case of shares represented by certificates, upon surrender of the
certificates. Upon payment of the agreed value, the dissenting shareholder
shall cease to have any interest in the shares.
E. If, within the period of thirty days, a dissenting shareholder and the
corporation do not so agree, then the corporation, within thirty days after
receipt of written demand from any dissenting shareholder, given within sixty
days after the date on which such corporate action was effected, shall, or at
its election at any time within the period of sixty days may, file a petition in
any court of competent jurisdiction in the county in this state where the
registered office of the corporation is located praying that the fair value of
such shares be found and determined. If, in the case of a merger or
consolidation, the surviving or new corporation is a foreign corporation without
a registered office in this state, the petition shall be filed in the county
where the registered office of the domestic corporation was last located. If
the corporation fails to institute the proceeding as provided in this section,
any dissenting shareholder may do so in the name of the corporation. All
dissenting shareholders, wherever residing, shall be made parties to the
proceeding as an action against their shares quasi in rem.
C-2
<PAGE>
A copy of the petition shall be served on each dissenting shareholder who is a
resident of this state and shall be served by registered or certified mail on
each dissenting shareholder who is a nonresident. Service on nonresidents shall
also be made by publication as provided by law. The jurisdiction of the court
shall be plenary and exclusive. All shareholders who are parties to the
proceeding shall be entitled to judgment against the corporation for the amount
of the fair value of their shares. The court may, if it so elects, appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers shall have such power and authority
as specified in the order of their appointment or on amendment thereof. The
judgment shall be payable to the holders of uncertified shares immediately, but
to the holders of shares represented by certificates only upon and concurrently
with the surrender to the corporation of certificates. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares.
F. The judgment shall include an allowance for interest at such rate as
the court may find to be fair and equitable, in all the circumstances, from the
date on which the vote was taken on the proposed corporate action to the date of
payment.
G. The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
the costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding to whom the corporation made an offer to pay for the shares if
the court finds that the action of such shareholders in failing to accept such
offer was arbitrary or vexatious or not in good faith. Such expenses include
reasonable compensation for and reasonable expenses of the appraisers, but
exclude the fees and expenses of counsel for and experts employed by any party;
but if the fair value of the shares as determined materially exceeds the amount
which the corporation offered to pay therefor, or if no offer was made, the
court in its discretion may award to any shareholder who is a party to the
proceeding such sum as the court determines to be reasonable compensation to any
expert employed by the shareholder in the proceeding, together with reasonable
fees of legal counsel.
H. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty days after demanding payment for his shares, each holder
of shares represented by certificates demanding payment shall submit the
certificates to the corporation for notation thereon that such demand has been
made. His failure to do so shall, at the option of the corporation, terminate
his rights under this section unless a court of competent jurisdiction for good
and sufficient cause shown, otherwise directs. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made is [are] transferred, any new certificate issued
therefore shall bear similar notation, together with the name of the original
dissenting holder of the shares, and a transferee of the shares acquires by such
transfer no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair value
thereof.
I. Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by the corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 7th day of November, 1994.
NORWEST CORPORATION
By: /s/ Richard M. Kovacevich
--------------------------
Richard M. Kovacevich
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed on the 7th day of November, 1994, by
the following persons in the capacities indicated:
/s/ Richard M. Kovacevich President and Chief Executive Officer
- ------------------------- (Principal Executive Officer)
Richard M. Kovacevich
/s/ John T. Thornton Executive Vice President and Chief
- -------------------- Financial Officer
John T. Thornton (Principal Financial Officer)
/s/ Michael A. Graf Senior Vice President and Controller
- ------------------- (Principal Accounting Officer)
Michael A. Graf
DAVID A. CHRISTENSEN )
GERALD J. FORD )
PIERSON M. GRIEVE )
CHARLES M. HARPER )
N. BERNE HART )
WILLIAM A. HODDER )
GEORGE C. HOWE )
LLOYD P. JOHNSON ) A majority of the
REATHA CLARK KING ) Board of Directors*
RICHARD M. KOVACEVICH )
RICHARD S. LEVITT )
RICHARD D. McCORMICK )
CYNTHIA H. MILLIGAN )
JOHN E. PEARSON )
IAN M. ROLLAND )
STEPHEN E. WATSON )
MICHAEL W. WRIGHT )
- ------------
*Richard M. Kovacevich, by signing his name hereto, does hereby sign this
document on behalf of each of the directors named above pursuant to powers of
attorney duly executed by such persons.
/s/ Richard M. Kovacevich
----------------------------
Richard M. Kovacevich
Attorney-in-Fact
II-1
