<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
NORWEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6711 41-0449260
(State or other jurisdiction (Primary Standard
of Industrial (I.R.S. Employer
incorporation or Identification
organization) Classification Code Number) No.)
</TABLE>
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)
----------------------
<TABLE>
<S> <C>
Stanley S. Stroup
Executive Vice President and General Counsel Copy to:
Norwest Corporation H. Bernt von Ohlen
Norwest Center Norwest Corporation
Sixth and Marquette Norwest Center
Minneapolis, Minnesota 55479-1026 Sixth and Marquette
612-667-8858 Minneapolis, Minnesota 55479-1026
(Name, address, including zip code, and
telephone number including area code,
of agent for service)
</TABLE>
----------------------
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -----------------------------------------------------------------------------------------------------------
TITLE OF SECURITIES
TO BE REGISTERED
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
(par value $1 2/3 per
share)(1).................... 1,465,000 Shares(2) N/A $15,705,527(3) $5,760.53
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each share of the registrant's common stock includes one preferred stock
purchase right.
(2) Based upon the maximum number of shares that may be issued in the
transaction described herein.
(3) Estimated solely for purpose of computing the registration fee, in
accordance with Rule 457(f), based upon the book value, as of June 30, 1994,
of all shares of common stock to be acquired by the registrant in the
transaction described herein.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
NORWEST CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
FORM S-4 ITEM PROSPECTUS HEADING
------------------------------------------------ -------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information.................. Summary Information
4. Terms of the Transaction........................ The Consolidation
5. Pro Forma Financial Information................. *
6. Material Contracts with the Company Being
Acquired........................................ The Consolidation
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... *
8. Interests of Named Experts and Counsel.......... Legal Opinion
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... *
10. Information with Respect to S-3 Registrants..... Summary; Certain Regulatory
Considerations
11. Incorporation of Certain Information by
Reference....................................... Incorporation of Certain Documents by
Reference; Management and Additional
Information
12. Information with Respect to S-2 or S-3
Registrants..................................... *
13. Incorporation of Certain Information by
Reference....................................... *
14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants..................... *
15. Information with Respect to S-3 Companies....... *
16. Information with Respect to S-2 or S-3
Companies....................................... *
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................ Summary Information -- Selected
Financial Data; Summary Information
-- Comparative Unaudited Per Share
Data; Information About the Bank
18. Information If Proxies, Consents, or
Authorizations Are to Be Solicited.............. Meeting Information; The
Consolidation -- Rights of Dissenting
Bank Shareholders
19. Information If Proxies, Consents, or
Authorizations Are Not to Be Solicited in an
Exchange Offer.................................. *
</TABLE>
- -------------------------
* Item is omitted because answer is negative or item is inapplicable.
<PAGE> 3
[LETTERHEAD OF FIRST NATIONAL BANK OF KERRVILLE]
November , 1994
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
First National Bank of Kerrville (the "Bank") to be held at the main office of
the Bank, 301 Junction Highway, Kerrville, Texas, on , November ,
1994, at : .m., local time. At the Special Meeting you will be asked to
consider and vote on the approval of a proposed reorganization whereby a
national banking association which is a wholly owned subsidiary of Norwest
Corporation ("Norwest") will be consolidated with the Bank (the "Consolidation")
pursuant to the Amended and Restated Agreement and Plan of Reorganization, dated
as of July 8, 1994, between the Bank and Norwest (together with the Agreement
and Plan of Consolidation attached thereto, the "Consolidation Agreement").
Under the terms of the Consolidation Agreement, the Consolidation will
result in the conversion of each share of the Bank's Common Stock outstanding
immediately prior to the time the Consolidation becomes effective into a number
of shares of Norwest Common Stock determined in accordance with the provisions
of the Consolidation Agreement, as 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 Consolidation. You are urged to read the Proxy
Statement-Prospectus carefully.
The Board of Directors has approved the Consolidation Agreement as being in
the best interest of the Bank's shareholders and recommends that you vote in
favor of the Consolidation. In making this recommendation, the Board of
Directors has considered numerous factors including the consideration offered by
Norwest and the structure of the proposed Consolidation, which is designed to
enhance the value of the investment of the Bank's shareholders and to be
tax-free for federal income tax purposes to the Bank's shareholders receiving
Norwest Common Stock. Vinson & Elkins, special tax counsel, is providing its
opinion to the Board of Directors that the Consolidation will be treated as a
tax-free reorganization for federal income tax purposes. However, you should
consult your own tax advisor concerning the federal, and any applicable foreign,
state, and local, income tax consequences to you of the Consolidation.
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.
William R. Goertz
President and Chief Executive Officer
<PAGE> 4
FIRST NATIONAL BANK OF KERRVILLE
P.O. BOX 1308
KERRVILLE, TEXAS 78029-1308
------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON NOVEMBER , 1994
------------------------------------
A Special Meeting of Shareholders of First National Bank of Kerrville (the
"Bank"), a national banking association, will be held at the main office of the
Bank, 301 Junction Highway, Kerrville, Texas, on , November ,
1994, at : .m., local time, for the following purposes:
1. To consider and vote upon the Amended and Restated Agreement and
Plan of Reorganization, dated as of July 8, 1994, (together with the
Agreement and Plan of Consolidation attached thereto, the "Consolidation
Agreement") between the Bank 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
banking subsidiary of Norwest would be consolidated with the Bank (the
"Consolidation"), under the charter of the Bank, and each outstanding share
of common stock, par value $100.00 per share, of the Bank ("Bank Common
Stock") 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 Consolidation Agreement; and to authorize such further
action by the Board of Directors and proper officers of the Bank as may be
necessary or appropriate to carry out the intent and purposes of the
Consolidation.
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 the Bank at the close of
business on October , 1994, will be entitled to notice of and to vote at the
Special Meeting or any adjournment 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
Brenda Beaty
Senior Vice President -- Finance and
Administration
October , 1994
HOLDERS OF BANK 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> 5
PROXY STATEMENT
OF
FIRST NATIONAL BANK OF KERRVILLE
-------------------------
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER , 1994
-------------------------
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
This Prospectus of Norwest Corporation ("Norwest") relates to up to
1,465,000 shares of the common stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock") issuable to the shareholders of First National Bank of
Kerrville (the "Bank") upon consummation of the consolidation (the
"Consolidation") of a wholly owned banking subsidiary of Norwest with the Bank,
pursuant to the terms of the Amended and Restated Agreement and Plan of
Reorganization between the Bank and Norwest, dated as of July 8, 1994 (together
with the Agreement and Plan of Consolidation attached thereto, the
"Consolidation Agreement"). The Consolidation Agreement is set forth in Appendix
A to this Proxy Statement-Prospectus and is incorporated by reference herein.
This Prospectus also serves as the Proxy Statement of the Bank for a
special meeting of shareholders to be held on November , 1994 (the "Special
Meeting").
Upon consummation of the Consolidation, except as described herein, each
outstanding share of common stock, par value $100.00 per share, of the Bank
("Bank Common Stock"), except shares with respect 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 terms of the
Consolidation Agreement. For a more complete description of the Consolidation
Agreement and the terms of the Consolidation, see "THE CONSOLIDATION."
This Proxy Statement-Prospectus and the form of proxy are first being
mailed to shareholders of the Bank on or about October , 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 October , 1994.
<PAGE> 6
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 with the New York Stock Exchange and the Chicago Stock Exchange
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 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 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 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 November , 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 Reports
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, and July 21, 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> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................... 2
SUMMARY................................... 4
The Companies........................... 4
Terms of the Consolidation.............. 5
The Special Meeting and Vote Required... 5
Reasons for the Consolidation........... 5
Recommendation of the Board of Directors
of the Bank........................... 5
Effective Date and Time of the
Consolidation......................... 6
Conditions and Termination.............. 6
Accounting Treatment.................... 6
Regulatory Approvals.................... 6
Management and Operations After the
Consolidation......................... 6
Interests of Certain Persons in the
Consolidation......................... 6
Dissenters' Rights...................... 6
Certain Federal Income Tax
Consequences.......................... 7
Markets and Market Prices............... 7
Certain Differences in Rights of
Shareholders.......................... 7
Comparative Unaudited Per Share Data.... 7
Selected Financial Data................. 9
MEETING INFORMATION....................... 12
General................................. 12
Date, Place, and Time................... 12
Record Date; Vote Required.............. 12
Principal Shareholders and Security
Ownership of Management............... 12
Voting and Revocation of Proxies........ 13
Solicitation of Proxies................. 14
THE CONSOLIDATION......................... 14
Background of and Reasons for the
Consolidation......................... 14
Terms of the Consolidation.............. 15
Effective Date and Time of the
Consolidation......................... 16
Surrender of Certificates............... 16
Conditions to the Consolidation......... 17
Regulatory Approvals.................... 18
Business Pending the Consolidation...... 18
Waiver, Amendment, and Termination...... 19
Management and Operations After the
Consolidation......................... 19
Interests of Certain Persons in the
Consolidation......................... 19
Certain Differences in Rights of
Shareholders.......................... 20
Rights of Dissenting Bank
Shareholders.......................... 23
Certain Federal Income Tax
Consequences.......................... 24
Resale of Norwest Common Stock.......... 25
Dividend Reinvestment and Optional Cash
Payment Plan.......................... 26
Accounting Treatment.................... 26
Expenses................................ 26
INFORMATION ABOUT THE BANK................ 27
Business and Property of the Bank....... 27
Environmental Protection
Considerations........................ 27
Market Prices and Dividends............. 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 28
CERTAIN REGULATORY CONSIDERATIONS......... 44
General................................. 44
Dividend Restrictions................... 44
Holding Company Structure............... 44
Capital Requirements.................... 45
Federal Deposit Insurance Corporation
Improvement Act of 1991............... 45
FDIC Insurance.......................... 47
EXPERTS................................... 47
LEGAL OPINION............................. 47
MANAGEMENT AND ADDITIONAL INFORMATION..... 47
FINANCIAL STATEMENTS OF THE BANK.......... F-1
APPENDIX A AMENDED AND RESTATED AGREEMENT
AND PLAN OF REORGANIZATION, AND
AGREEMENT AND PLAN OF CONSOLIDATION
APPENDIX B UNITED STATES CODE, TITLE 12,
SECTION 215
APPENDIX C BANKING CIRCULAR 259
</TABLE>
-------------------------
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 THE BANK SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS.
3
<PAGE> 8
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 the "Bank" 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, and all information concerning the Bank included in
this Proxy Statement-Prospectus has been furnished by the Bank to Norwest for
incorporation 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, Indiana, 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. In connection with many of its completed
acquisitions, Norwest has issued its Common Stock to the shareholders of the
acquired entity and can be expected to continue to do so in the future.
Generally, management of Norwest does not make any public announcement about a
potential acquisition until a definitive agreement has been signed. Norwest has
entered into definitive agreements for the acquisition of various financial
institutions, including the Bank, having aggregate total assets at June 30,
1994, of approximately $3 billion. Certain of these acquisitions were completed
subsequent to June 30, 1994, and the others remain subject to regulatory
approval and are expected to be completed before the end of the first quarter of
1995. None of these acquisitions is significant to the financial statements of
Norwest, either individually or in the aggregate.
Norwest's principal executive offices are located at Norwest Center, Sixth
and Marquette, in Minneapolis, Minnesota, 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."
First National Bank of Kerrville
The Bank provides retail and commercial banking services to its customers
through three community banking offices, two offices being located in Kerrville,
Texas, and the third located in the adjacent town of Ingram. The Bank's deposits
are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (the "FDIC"). At June 30, 1994, the Bank had total assets of $204.2
million, deposits of $187.0 million, and stockholders' equity of $16.7 million.
The Bank was chartered as a state bank in 1907 and converted to a national bank
in 1959.
The Bank provides a wide range of banking services for its retail and
commercial customers, including real estate loans, revolving credit
arrangements, inventory and accounts receivable financing, equipment
4
<PAGE> 9
financing, home improvement and other personal loans, NOW checking, savings and
time accounts, and trust services. The Bank provides 24-hour access to routine
banking services through its automated teller machines.
The Bank's headquarters are located at 301 Junction Highway in Kerrville,
Texas, and the Bank's phone number is 210-896-2424. See "INFORMATION ABOUT THE
BANK."
TERMS OF THE CONSOLIDATION
The Consolidation Agreement provides for the consolidation of a wholly
owned banking subsidiary of Norwest with the Bank, under the charter of the
Bank. Upon consummation of the Consolidation, the outstanding shares of Bank
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
Consolidation Agreement. As provided in the Consolidation Agreement, the exact
number of shares of Norwest Common Stock into which each share of Bank Common
Stock will be converted will be determined using a conversion factor calculated
by dividing 1,225,000 (subject to adjustment under certain specified
circumstances) by the number of shares of Bank Common Stock outstanding
immediately prior to the Consolidation. See "THE CONSOLIDATION -- Terms of the
Consolidation."
THE SPECIAL MEETING AND VOTE REQUIRED
The Special Meeting
The Special Meeting of Shareholders of the Bank to consider and vote on the
Consolidation will be held on , November , 1994, at : p.m.,
local time, at the main office of the Bank, 301 Junction Highway, Kerrville,
Texas. Only holders of record of Bank Common Stock at the close of business on
October , 1994, will be entitled to notice of and to vote at the Special
Meeting. At such date, there were 25,000 shares of Bank Common Stock
outstanding. Each share of Bank Common Stock is entitled to one vote. For
additional information relating to the Special Meeting, see "MEETING
INFORMATION."
Vote Required
Approval of the Consolidation Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Bank Common Stock. See
"MEETING INFORMATION -- Record Date; Vote Required."
As of the record date for the Special Meeting, directors and officers of
the Bank owned beneficially or controlled the voting of 100% of the shares of
Bank Common Stock outstanding on that date. The Bank's directors and officers
have informed the Bank that they intend to vote all of their shares in favor of
the Consolidation. At the record date, directors and executive officers of
Norwest did not own beneficially any shares of Bank Common Stock. See "MEETING
INFORMATION -- Record Date; Vote Required" and "MEETING INFORMATION -- Principal
Shareholders and Security Ownership of Management."
REASONS FOR THE CONSOLIDATION
The Board of Directors of the Bank has concluded that the Consolidation is
in the best interest of the holders of Bank Common Stock, who will receive, in a
tax-free exchange, stock of a much larger and more diversified enterprise that
is actively traded on national stock exchanges. In addition to the greater
liquidity provided to the Bank's shareholders, the Consolidation will provide
customers of the Bank with access to a broader range of services and will
provide the Bank with increased financial strength. See "THE CONSOLIDATION --
Background of and Reasons for the Consolidation."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE BANK
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT THE BANK
SHAREHOLDERS VOTE FOR THE CONSOLIDATION. For information concerning the
5
<PAGE> 10
interests of certain members of the Bank's Board of Directors and management in
the Consolidation, see "THE CONSOLIDATION -- Interests of Certain Persons in the
Consolidation."
EFFECTIVE DATE AND TIME OF THE CONSOLIDATION
Subject to the terms and conditions of the Consolidation Agreement, the
Consolidation will be effective at 11:59 p.m., Minneapolis, Minnesota time, (the
"Effective Time of the Consolidation") on the date specified in the certificate
of approval to be issued by the Office of the Comptroller of the Currency. See
"THE CONSOLIDATION -- Effective Date and Time of the Consolidation" and "THE
CONSOLIDATION -- Conditions to the Consolidation."
CONDITIONS AND TERMINATION
The respective obligations of Norwest and the Bank to consummate the
Consolidation are subject to certain conditions, including the receipt of
regulatory approvals without unduly burdensome conditions, approval of the
Consolidation Agreement by the shareholders of the Bank, receipt by the Bank of
certain tax opinions, and certain other conditions customary in transactions of
this nature. See "THE CONSOLIDATION -- Conditions to the Consolidation" and "THE
CONSOLIDATION -- Regulatory Approvals."
The Consolidation Agreement may be terminated at any time prior to the
Effective Date of the Consolidation, whether prior to or after approval by the
Bank's shareholders, by either party under specified conditions, including if
the Consolidation shall not have been consummated by December 31, 1994, unless
such failure of consummation shall be due to the failure of the party seeking
termination to perform its respective covenants and agreements under the
Consolidation Agreement. See "THE CONSOLIDATION -- Waiver, Amendment, and
Termination."
ACCOUNTING TREATMENT
Management of Norwest anticipates that the Consolidation will be accounted
for as a purchase under generally accepted accounting principles. See "THE
CONSOLIDATION -- Accounting Treatment."
REGULATORY APPROVALS
The Consolidation is subject to the approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") and also the approval
of the Office of the Comptroller of the Currency (the "OCC"). Both such
approvals have been received. See "THE CONSOLIDATION -- Regulatory Approvals."
MANAGEMENT AND OPERATIONS AFTER THE CONSOLIDATION
Following the Consolidation, Norwest intends to operate at the Bank's
present locations and to offer products and services offered by Norwest
affiliates. See "THE CONSOLIDATION -- Management and Operations After the
Consolidation."
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION
Certain officers and directors of the Bank have direct and indirect
interests in the consummation of the Consolidation separate from their interests
as holders of Bank Common Stock. See "THE CONSOLIDATION -- Interests of Certain
Persons in the Consolidation."
DISSENTERS' RIGHTS
Under federal law dissenting shareholders who comply with the requisite
statutory procedures will be entitled to receive an appraised value of their
shares. The value so determined could be more than, the same as, or less than
the value of the consideration to be received by Bank shareholders, pursuant to
the Consolidation Agreement, who do not dissent. See "THE CONSOLIDATION --
Rights of Dissenting Bank Shareholders."
6
<PAGE> 11
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Consolidation is designed so that no gain or loss (other than with
respect to cash received in lieu of fractional shares or in satisfaction of
dissenters' rights) will be recognized to Bank shareholders upon the exchange of
their Bank Common Stock for Norwest Common Stock. The opinion of Vinson &
Elkins, counsel for the Bank, with respect to the Consolidation qualifying as a
"tax-free" reorganization for federal income tax purposes will be provided to
the Bank. See "THE CONSOLIDATION -- Certain Federal Income Tax Considerations."
HOWEVER, THE FEDERAL INCOME TAX CONSIDERATIONS RELATED TO THE CONSOLIDATION MAY
BE DIFFERENT TO PARTICULAR TYPES OF BANK SHAREHOLDERS, OR IN LIGHT OF THE BANK
SHAREHOLDERS' PERSONAL INVESTMENT CIRCUMSTANCES. ACCORDINGLY, SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE TAX CONSIDERATIONS
THAT MAY BE RELEVANT TO THEM IN CONNECTION WITH THE CONSOLIDATION UNDER FEDERAL,
STATE, LOCAL, AND ANY OTHER APPLICABLE TAX LAWS.
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the Chicago Stock Exchange (the "CHX"). On May 19, 1994, the last trading
day preceding public announcement of the proposed Consolidation, the closing
price per share of Norwest Common Stock was $26.125 and on October , 1994, the
price was $ . There is no public market for Bank Common Stock. Shareholders
of the Bank 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 Consolidation,
which may be a period of several weeks. As a result, the market value of the
Norwest Common Stock that shareholders of the Bank ultimately receive in the
Consolidation 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
Consolidation.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Consolidation, shareholders of the Bank will
become stockholders of Norwest. As a result, such shareholders' rights will
change significantly. See "THE CONSOLIDATION -- 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 pro forma combined basis and for
Bank Common Stock on a historical and a pro forma equivalent basis giving effect
to the Consolidation using the purchase method of accounting. See "THE
CONSOLIDATION -- 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 the Bank, 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 "FINANCIAL STATEMENTS OF THE BANK."
This 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 Consolidation been consummated prior to the periods indicated.
7
<PAGE> 12
COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
NORWEST COMMON
STOCK BANK COMMON STOCK
----------------------- -----------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL EQUIVALENT
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
BOOK VALUE(1):
June 30, 1994....................................... $11.07 11.08 668.22 542.83
December 31, 1993................................... 11.00 11.01 625.32 539.45
DIVIDENDS DECLARED(2):
Six Months Ended June 30, 1994...................... 0.370 0.370 -- 18.13
Year Ended December 31, 1993........................ 0.640 0.640 20.00 31.36
NET INCOME(3):
Six Months Ended June 30, 1994...................... 1.17 1.18 64.16 57.60
Year Ended December 31, 1993........................ 1.86 1.86 155.66 91.17
</TABLE>
- -------------------------
(1) The pro forma combined book values per share of Norwest Common Stock are
based upon the historical total common equity for Norwest and the Bank
divided by total pro forma common shares of the combined entities assuming
conversion of the outstanding Bank Common Stock at a conversion factor of
49.0. The difference between the historical total common equity of the Bank
and the total market value of Norwest Common Stock to be issued in the
Consolidation is not material. The pro forma equivalent book values per
share of Bank 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 Consolidation of 1,225,000 upon
conversion of all outstanding shares of Bank Common Stock and does not
reflect possible adjustments for the Phoenix Matter described under "THE
CONSOLIDATION -- Terms of the Consolidation."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Bank Common Stock represent cash dividends declared
per share of Norwest Common Stock multiplied by 49.0.
(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 the Bank divided by the average pro
forma common shares of the combined entities, assuming a conversion factor
of 49.0. The pro forma equivalent net income per share of Bank Common Stock
represents the pro forma combined net income per share multiplied by 49.0.
8
<PAGE> 13
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for Norwest and the Bank. 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 the Bank 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 the Bank. All financial
information derived from unaudited financial statements reflects, in the
respective opinions of management of Norwest and the Bank, 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 the Bank,
including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"FINANCIAL STATEMENTS OF THE BANK."
SELECTED FINANCIAL DATA
<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>
NORWEST:
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
========= ========= ========= ========= ========= ========= =========
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
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>
9
<PAGE> 14
- -------------------------
(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 Cheboygan, 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.
10
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
------------------ -------------------------------------------------------
1994 1993 1993(1) 1992 1991(2) 1990(3) 1989
------- ------- ------- ------- ------- ------- -----------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
THE BANK:
Interest income......... $ 6.4 5.6 12.1 11.9 14.4 14.3 14.0
Interest expense........ 2.0 1.8 3.9 4.7 8.0 9.2 9.3
------ ------ ------ ------ ------ ------ ----------
Net interest
income.......... 4.4 3.8 8.2 7.2 6.4 5.1 4.7
Provision for credit
losses............... -- -- (1.5) 0.1 1.2 1.4 3.8
Non-interest income..... 1.6 1.6 2.9 1.9 2.0 1.1 1.6
Non-interest expense.... 3.6 3.0 7.0 5.7 5.5 4.6 5.3
------ ------ ------ ------ ------ ------ ----------
Income before
income taxes.... 2.4 2.4 5.6 3.3 1.7 0.2 (2.8 )
Income tax expense...... 0.8 0.8 1.7 1.1 0.6 -- --
------ ------ ------ ------ ------ ------ ----------
Income before
extraordinary item... 1.6 1.6 3.9 2.2 1.1 0.2 (2.8 )
Extraordinary item, net
operating loss
carryforward......... -- -- -- 0.2 0.6 -- 0.2
------ ------ ------ ------ ------ ------ ----------
Net income......... $ 1.6 1.6 3.9 2.4 1.7 0.2 (2.6 )
======= ====== ======= ====== ====== ====== ==========
Net income per share:
Primary................. $ 64.16 65.28 155.68 97.28 68.60 12.19 (11,863.84)
Fully diluted........... 64.16 65.28 155.68 97.28 68.60 12.19 (11,863.84)
Dividends declared per
common share............ $ -- -- 20.00 6.00 -- -- --
At period end:
Total assets............ $ 204.2 166.0 214.4 170.9 166.5 176.0 147.2
Total shareholders'
equity............... 16.7 13.9 15.6 12.2 10.0 8.2 8.1
Number of shares
outstanding.......... 25,000 25,000 25,000 25,000 25,000 12,500 223
</TABLE>
- -------------------------
(1) On July 19, 1993, the Bank of Kerrville, a bank in Kerrville, Texas, with
approximately $52 million in assets, was acquired in a transaction
accounted for as a purchase. This was not a government assisted
transaction.
(2) On July 1, 1991, the Board of Directors of the Bank approved a common stock
split effected in the form of a dividend, whereby an additional 12,500
shares of $100 par value common stock was issued.
(3) The Bank was acquired by WNB Resources, Inc. (the "Holding Company") in
November 1984. In 1990, the Holding Company was dissolved, resulting in a
stock dividend of 12,277 shares being issued.
11
<PAGE> 16
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Bank
Common Stock in connection with the solicitation of proxies by the Board of
Directors of the Bank for use at the Special Meeting to be held on ,
November , 1994, and any adjournments thereof, to consider and take action
upon the approval of the Consolidation 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 Bank Common Stock is
accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also furnished by Norwest to
shareholders of the Bank as a prospectus in connection with the issuance by
Norwest of shares of Norwest Common Stock upon consummation of the
Consolidation. This Proxy Statement-Prospectus, the attached Notice of Special
Meeting, and the form of proxy enclosed herewith are first being mailed to
shareholders of the Bank on or about October , 1994.
DATE, PLACE, AND TIME
The Special Meeting will be held at the main office of the Bank, 301
Junction Highway, Kerrville, Texas, on , November , 1994, at :
p.m., local time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of the Bank has fixed the close of business on
October , 1994, as the record date for the determination of shareholders of
the Bank entitled to receive notice of, and to vote at, the Special Meeting. On
the record date there were 25,000 shares of Bank Common Stock outstanding. Each
share of Bank Common Stock outstanding on the record date is entitled to one
vote. Approval of the Consolidation Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Bank Common Stock. The
Consolidation cannot be consummated without shareholder approval of the
Consolidation Agreement.
As of the record date for the Special Meeting, directors and executive
officers of the Bank owned beneficially or controlled the voting of an aggregate
of 25,000 shares, or 100%, of the shares of Bank Common Stock outstanding on
that date. The Bank's directors and executive officers have informed the Bank
that they intend to vote all of their shares in favor of the Consolidation
Agreement. Information regarding the shares of Bank Common Stock beneficially
owned by each director and executive officer of the Bank, and by all directors
and executive officers as a group is set forth in the tables under the heading
"Principal Shareholders and Security Ownership of Management" below.
At the record date, directors and executive officers of Norwest did not own
beneficially any shares of Bank Common Stock.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
Set forth below are the names, and, where appropriate, the addresses, of
and the number of shares held as of the record date for the Special Meeting by
those persons who may be deemed to own beneficially, whether directly or
indirectly, 5% or more of the outstanding shares of Bank Common Stock, by each
director and executive officer of the Bank, and by all directors and executive
officers as a group. Each shareholder named below has sole voting and investment
power over the shares shown in the table, unless otherwise indicated.
12
<PAGE> 17
The shares shown in the table include all shares the named parties may be deemed
to own beneficially, including shares held by spouses.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS
----------------------------------------------------- ---------------- ----------
<S> <C> <C>
F. O'Neil Griffin(1)................................. 24,840 99.36%
P.O. Box 1961
Kerrville, Texas 78029-1961
Earl E. Cordes(2).................................... 20 (3)
William H. Cowden(4)................................. 20 (3)
William R. Goertz(5)................................. 20(6) (3)
Richard D. Griffin(7)................................ 30 (3)
Don C. Kendrick, Jr.(8).............................. 20(9) (3)
Robert L. Parker, Sr.(10)............................ 20 (3)
John D. Rogers(11)................................... 10 (3)
Michael E. Sears(12)................................. 20 (3)
Directors and executive officers as a group (9 25,000(13) 100%
persons)...........................................
</TABLE>
- -------------------------
(1) Mr. Griffin is Chairman of the Board and a director of the Bank.
(2) Mr. Cordes is a director of the Bank.
(3) Less than 1%.
(4) Mr. Cowden is a director of the Bank.
(5) Mr. Goertz is President and Chief Executive Officer, and a director of the
Bank.
(6) Does not include 2,800 shares issuable upon the exercise of currently
exercisable options. Assuming exercise of all such options, Mr. Goertz
would own beneficially 10.14% of the outstanding shares of Bank Common
Stock.
(7) Mr. Griffin is a director of the Bank.
(8) Mr. Kendrick is Executive Vice President and a director of the Bank.
(9) Does not include 900 shares issuable upon exercise of currently exercisable
options. Assuming exercise of all such options, Mr. Kendrick would own
beneficially 3.55% of the outstanding shares of Bank Common Stock.
(10) Mr. Parker is a director of the Bank.
(11) Mr. Rogers is Executive Vice President and a director of the Bank.
(12) Mr. Sears is a director of the Bank.
(13) Does not include 3,700 shares issuable upon exercise of currently
exercisable options held by two of the Bank's shareholders.
VOTING AND REVOCATION OF PROXIES
Shares of Bank 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 Bank Common Stock represented by such proxy will be voted FOR approval
of the Consolidation 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 the Bank 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.
13
<PAGE> 18
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 Consolidation
Agreement must be approved by the holders of two-thirds of the outstanding Bank
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 the Bank 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 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
the Bank may solicit proxies from the shareholders of the Bank, 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. The Bank will bear its own expenses in connection with the solicitation
of proxies for the Special Meeting. See "THE CONSOLIDATION -- Expenses."
HOLDERS OF BANK COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO THE BANK IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
THE CONSOLIDATION
This section of the Proxy Statement-Prospectus describes certain aspects of
the Consolidation. The following description does not purport to be complete and
is qualified in its entirety by reference to the Consolidation Agreement, which
is attached as Appendix A to this Proxy Statement-Prospectus and is incorporated
by reference herein. ALL SHAREHOLDERS OF THE BANK ARE URGED TO READ THE
CONSOLIDATION AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF AND REASONS FOR THE CONSOLIDATION
During the early part of 1994, the management of the Bank, Messrs. Griffin
and Goertz, received a number of inquiries from both state and national banking
organizations regarding a possible acquisition of the Bank. After preliminary
discussions and the exchange of financial and other information, these
discussions were terminated.
During the first week of March, management of the Bank was contacted by
representatives of Norwest expressing an interest in having discussions.
Representatives of Norwest and management of the Bank met at the Bank's offices
on March 18, 1994, at which time Norwest discussed its plans to continue to
expand in the Texas banking market. During the next several weeks, the parties
exchanged and reviewed information and then met again at Norwest's offices in
Minneapolis on April 11 and April 12, 1994. At the conclusion of these meetings,
the parties agreed to proceed toward a letter of intent, which was approved by
the Board of Directors of the Bank on April 22, 1994. During the next several
weeks, Norwest completed its due diligence of the Bank, and the parties
negotiated a definitive agreement which was approved by the Board of Directors
of the Bank and executed by Norwest and the Bank on May 20, 1994. Effective as
of July 8, 1994, the definitive agreement was amended and restated.
14
<PAGE> 19
The management shareholders of the Bank were interested in achieving
liquidity in their investment and also enhancing the Bank's ability to become a
part of a larger and more diverse banking organization thereby enabling the Bank
to offer a broader range of services to its customers. Management of the Bank
believes that Norwest's continued expansion in the Texas banking market through
its acquisition of the Bank will result in the Bank becoming another example of
a sound and attractive banking operation for Norwest and enable Norwest to
acquire other banking operations in the state. Accordingly, the shareholders of
the Bank will be able to exchange their shares of the Bank for the stock of
Norwest which is actively traded on the New York and Chicago Stock Exchanges,
and its customers will benefit from the added financial strength and services
that Norwest can bring to the Bank.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
OF THE BANK VOTE FOR APPROVAL OF THE CONSOLIDATION AGREEMENT.
TERMS OF THE CONSOLIDATION
At the Effective Time of the Consolidation, a wholly owned banking
subsidiary of Norwest, to be known as Norwest Interim Bank Kerrville, National
Association ("Norwest Interim Bank"), will consolidate with the Bank, under the
charter of the Bank. The Articles of Association and the By-Laws of the Bank in
effect at the Effective Time of the Consolidation will govern the surviving bank
until amended or repealed in accordance with applicable law. At the Effective
Time of the Consolidation, each outstanding share of Bank Common Stock (other
than shares as to which statutory dissenters' appraisal rights have been
exercised and not forfeited) will be converted into a number of shares of
Norwest Common Stock determined by dividing the Norwest Shares by the number of
shares of Bank Common Stock then outstanding. The "Norwest Shares" is 1,225,000,
reduced by the amount determined by dividing (i) the Adjustment Amount by (ii)
the Norwest Measurement Price. The "Adjustment Amount" is an amount to be
determined by (i) adding together all amounts which immediately prior to the
Effective Time of the Consolidation the Bank has paid and is obligated to pay on
account of a judgment entered against the Bank (the "Phoenix Matter"), including
the amount of the judgment or settlement, accrued interest thereon, costs
assessed, and attorneys fees of either party to the Phoenix Matter, and then
(ii) multiplying the result by 63.375%. In the lawsuit underlying the Phoenix
Matter, the plaintiffs obtained a judgment against a former director of the Bank
and certain other defendants. The Bank became involved in the Phoenix Matter
when it failed to respond to a writ of garnishment served on it by the
plaintiffs, who then obtained a default judgment against the Bank. The Bank has
filed a motion to vacate the default judgment, which as of the date of this
Proxy Statement-Prospectus is approximately $ million. The "Norwest
Measurement Price" is 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 five (5) trading days ending at the end of the third
trading day immediately preceding the Closing Date (as defined below). If the
Phoenix matter has not been finally resolved by the Closing Date, then a number
of shares equal to 1,225,000 less the Norwest Shares shall be deposited into
escrow in accordance with the terms of an escrow agreement to be entered into by
the parties after the date hereof (the "Escrow Agreement"). The Escrow Agreement
shall provide that shares held in escrow shall be distributed proportionately to
Norwest and the shareholders of the Bank based on amounts paid by the Bank to
resolve the Phoenix Matter and shall provide further that if the Phoenix Matter
is not finally resolved within 42 months after the Closing Date, such shares
shall be distributed to Norwest.
The market price for Norwest Common Stock, and accordingly, the Norwest
Measurement Price, will fluctuate between the date of this Proxy
Statement-Prospectus and the Effective Date of the Consolidation, which may be a
period of several weeks. As a result, the market value of the Norwest Common
Stock that shareholders of the Bank ultimately receive in the Consolidation
could be more or less than its market value on the date of this Proxy
Statement-Prospectus.
The Consolidation Agreement provides that if, between the date of the
Consolidation Agreement and the Effective Time of the Consolidation, 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, or
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readjustment, or if a stock dividend thereon is declared with a record date
within the same period, the conversion ratios provided for in the Consolidation
Agreement will be adjusted accordingly.
No fractional shares of Norwest Common Stock will be issued in the
Consolidation. Instead, Norwest will pay to each holder of Bank 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 Bank shareholder would
otherwise be entitled multiplied by the average of the closing prices of a share
of Norwest Common Stock on the New York Stock Exchange for each of the five
trading days immediately preceding the Effective Time of the Consolidation.
Shares of Norwest Common Stock issued and outstanding immediately prior to
the effective date of the Consolidation will remain issued and outstanding.
Based upon the number of shares of Norwest Common Stock outstanding at June
30, 1994, approximately 316,682,227 shares of Norwest Common Stock would be
outstanding immediately following the Effective Time of the Consolidation, of
which less than 1% would be held by the former stockholders of the Bank.
EFFECTIVE DATE AND TIME OF THE CONSOLIDATION
The Effective Time of the Consolidation will be 11:59 p.m., Minneapolis,
Minnesota time, on the Effective Date of the Consolidation, the date specified
in the certificate of approval to be issued by the OCC approving the
Consolidation. Subject to the terms and conditions set forth in the
Consolidation Agreement, the closing of the Consolidation will occur on a date
(the "Closing Date") agreed to by the parties to the Consolidation, but no later
than ten business days following the satisfaction or waiver of all conditions
set forth in the Consolidation Agreement, or on such other date upon which the
parties agree. The parties have agreed to hold the closing as soon as
practicable after approval of the Consolidation by the shareholders of the Bank.
Norwest and the Bank anticipate that the Consolidation will close in the fourth
quarter of 1994, although there can be no assurance as to whether or when the
Consolidation will occur. See "Terms of the Consolidation," "Conditions to the
Consolidation," and "Regulatory Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Consolidation,
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 Bank Common Stock a form of letter of transmittal, together
with instructions for the exchange of such holder's Bank Common Stock
certificates for a certificate representing Norwest Common Stock.
SHAREHOLDERS OF THE BANK 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 Bank
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 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 Consolidation will be
deemed issued as of the Effective Time of the Consolidation. No dividends on
Norwest Common Stock with a record date after the Effective Time of the
Consolidation will be paid to Bank shareholders entitled to receive certificates
for shares of Norwest Common Stock until such shareholders surrender their
certificates representing shares of Bank
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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 Consolidation 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
Consolidation 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 CONSOLIDATION
The Consolidation will occur only if the Consolidation Agreement is
approved by the requisite vote of shareholders of the Bank. Consummation of the
Consolidation is subject to the satisfaction of certain other conditions, which
may be waived by the parties to the Consolidation Agreement, to the extent that
waiver is permitted by applicable law. Such conditions to the obligations of
both parties to consummate the Consolidation include (i) the continued accuracy
of representations and warranties by the other party, (ii) the performance by
the other party of its obligations under the Consolidation 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
Consolidation by the Federal Reserve Board, and the expiration of all applicable
waiting and approval periods, (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 Consolidation Agreement,
(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 Consolidation, and
(vii) the receipt of a certificate signed by the other party's Chief Executive
Officer and Chief Financial Officer concerning the accuracy and completeness of
certain of party'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.
The Bank's obligation to consummate the Consolidation is also subject to
(i) authorization for listing on the NYSE and CHX upon official notice of
issuance of the shares of Norwest Common Stock issuable pursuant to the
Consolidation and (ii) the receipt of an opinion of counsel for the Bank to the
effect that for federal income tax purposes the Consolidation will be a tax-free
reorganization.
Norwest's obligation to consummate the Consolidation is also subject to (i)
the receipt by the Bank and 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 Consolidation, and the receipt by
the Bank of any and all material permits, authorizations, consents, waivers, and
approvals required for the consummation of the Consolidation; (ii) the
qualification of the Consolidation as a pooling of interests for accounting
purposes and the receipt by Norwest from KPMG Peat Marwick LLP and Arthur
Andersen LLP of letters to that effect, (iii) the total number of shares of Bank
Common Stock (including phantom shares and other share equivalents) outstanding
and subject to issuance upon exercise of all warrants, options, conversion
rights, phantom shares, or other share equivalents not having exceeded 28,700;
(iv) the requirement that the Bank and its subsidiaries considered as a whole
shall not have sustained since December 31, 1993, 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 seeking
to impose, or that could reasonably be expected to result in the imposition, on
the Bank or any of its subsidiaries or their respective properties, of any
liability arising from the release of hazardous substances 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 the Bank
and its subsidiaries taken as a whole; and (vi) the absence of any change or
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 the Bank and its subsidiaries taken as a whole (other than changes
in banking laws or regulations that affect the banking industry generally or
changes in the general level of interest rates).
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REGULATORY APPROVALS
Transactions such as the Consolidation are subject to prior approval by the
Federal Reserve Board under 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. Transactions such as the Consolidation are also
subject to prior approval by the OCC under the National Bank Act. By letter
dated September 6, 1994, the Federal Reserve Board informed Norwest that it had
approved the Consolidation, and, by letter dated September 2, 1994, the OCC
informed Norwest that it had approved the Consolidation. In addition, as
required by Texas law, by letter dated September 7, 1994, Norwest notified the
Texas Department of Banking of its intent to make an interstate acquisition and
in connection therewith provided certain information and made certain
undertakings to the Texas Department of Banking.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the transaction 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 transactions.
Norwest and the Bank are not aware of any additional governmental approvals
or compliance with banking laws and regulations that would be required for
consummation of the Consolidation other than those described above. Should any
other approval or action be required, it is currently 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 regarding the timing thereof.
BUSINESS PENDING THE CONSOLIDATION
Under the Consolidation Agreement, each of the Bank and its subsidiaries is
generally obligated to maintain its corporate existence in good standing; to
maintain the general character of its business and to conduct its business in
the ordinary and usual manner; to extend credit in accordance with existing
lending policies, except that it shall not, without the prior written consent of
Norwest, and each such consent shall be deemed to have been given if Norwest has
not responded to a request for such consent within three (3) business days of
receiving such request, (i) make any new loan to a nonborrower of the Bank in
excess of $500,000, or (ii) make any new loan or modify, restructure, or renew
any existing loan in excess of $200,000 (except pursuant to commitments made
prior to the date of this Agreement) to a present customer of the Bank if the
amount of the resulting loan, when aggregated with all other loans or extensions
of credit to such person, would exceed $500,000; to maintain proper business and
accounting records in accordance with generally accepted accounting principles;
to maintain its properties in good repair and condition, ordinary wear and tear
excepted; to maintain in all material respects presently existing insurance
coverage; to 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; to use its best efforts to obtain any approvals
or consents required to maintain existing leases and other contracts in effect
following the Consolidation; to comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses, and permits applicable to its
properties and operations the noncompliance with which reasonably could be
expected to have a material adverse effect on the Bank and its subsidiaries
taken as a whole; and to permit Norwest and its representatives to examine its
books, records, and properties, and to interview officers, employees, and agents
at all reasonable times when it is open for business. The Consolidation
Agreement also provides that, prior to the Effective Time of the Consolidation,
the Bank may not, without the prior written consent of Norwest, among other
things: (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 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 $10,000 except banking transactions in the ordinary
course of
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business and in accordance with policies and procedures in effect on the date of
the Consolidation Agreement; (vi) make any investments except individual
investments made in the ordinary course of business for terms of up to one year
and in amounts of $100,000 or less; (vii) make any contributions to any
"employee benefit plans" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended, except as required by the terms of such plan
in effect as of the date of the Consolidation Agreement; (viii) declare, set
aside, make, or pay any dividend or other distribution with respect to its
capital stock except any dividend declared by a subsidiary in accordance with
applicable law; (ix) redeem, purchase, or otherwise acquire, directly or
indirectly, any of the capital stock of the Bank; (x) increase the compensation
of any officers, directors, or executive employees, except pursuant to existing
compensation plans and practices; (xi) sell or otherwise dispose of any shares
of the capital stock of any subsidiary; or (xii) sell or otherwise dispose of
any of its assets or properties other than in the ordinary course of business.
Neither the Bank nor any director, officer, representative, or agent 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 common
stock, or any other equity security of the Bank; (ii) to make a tender or
exchange offer for any shares of such common stock or other equity security;
(iii) to purchase, lease, or otherwise acquire the assets of the Bank except in
the ordinary course of business; or (iv) to merge, consolidate, or otherwise
combine with the Bank.
WAIVER, AMENDMENT, AND TERMINATION
Either Norwest or the Bank may, in writing, give any consent, take any
action, 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 Consolidation Agreement.
At any time before the Time of Filing the parties may amend the
Consolidation 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
Consolidation by the Bank shareholders may adversely affect the consideration to
be received by the Bank shareholders.
The Consolidation Agreement 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 Consolidation shall not have been consummated
by December 31, 1994, 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
Consolidation Agreement; or (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 Consolidation Agreement.
MANAGEMENT AND OPERATIONS AFTER THE CONSOLIDATION
After the Consolidation, the Bank will become a wholly owned subsidiary of
Norwest and will continue to operate at its present locations. Products and
services offered by Norwest affiliates will be offered through the offices of
the Bank.
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION
In considering the recommendation of the Bank's Board of Directors with
respect to the Consolidation, shareholders of the Bank should be aware that
certain officers and directors of the Bank have certain direct or indirect
interests separate from their interests as holders of the Bank Common Stock,
including those referred to below.
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After the Effective Time of the Consolidation, the officers and directors
of the Bank will continue to be officers and directors of the Bank until such
time as their successors are elected and will be entitled to participate in the
Norwest benefit plans.
Mr. William R. Goertz, President of the Bank, and Mr. Don C. Kendrick,
Executive Vice President of the Bank, presently hold options to acquire 2,800
shares and 900 shares, respectively, of Bank Common Stock, which options will be
assumed by Norwest and become options to purchase shares of Norwest Common Stock
on the same basis as though such options had been exercised prior to the
Effective Time of the Consolidation.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
The Bank is organized as a national banking association under the laws of
the United States, and Norwest is incorporated as a corporation in the State of
Delaware. Shareholders of the Bank, whose rights are governed by the Bank's
Articles of Association and By-Laws and by federal banking law, will, upon
consummation of the Consolidation, become stockholders of Norwest. Their rights
as Norwest stockholders will then be governed by Norwest's Certificate of
Incorporation and By-Laws and by the Delaware General Corporation Law. The
following is a summary of certain significant differences between the rights of
shareholders of the Bank and the rights of stockholders of Norwest.
Capital Stock
THE BANK. The Bank's Articles of Association authorize the issuance of
50,000 shares of common stock, par value $100.00 per share, in such series and
with such rights and preferences as the Board of Directors shall determine. All
shares of Bank Common Stock currently outstanding have equal rights and
preferences with respect to voting, dividends, and distributions upon
liquidation.
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 with the SEC pursuant
to a universal shelf registration statement, an indeterminate number of
securities (the "Shelf Securities") with an aggregate initial offering price not
to exceed $1,000,000,000. 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 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 management 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, including the Shares offered hereby, are 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.
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 Consolidation, 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.
Until a Right is exercised, the holder of a Right, as such, will have no
rights as a stockholder of Norwest including, without limitation, the right to
vote or receive dividends. 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. 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:
(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.
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(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 transaction 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.
Required Vote for Authorization of Certain Actions
THE BANK. Under federal law the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Bank Common Stock is required to approve
a merger or consolidation.
NORWEST. Under Delaware law the vote of a simple majority of the
outstanding shares of Norwest Common Stock entitled to vote thereon is required
to approve a merger or consolidation, or the sale, lease, or exchange of
substantially all of Norwest's corporate assets. With respect to a merger, no
vote of the stockholders of Norwest is required if Norwest is the surviving
corporation and (1) the related agreement of merger does not amend Norwest's
Certificate of Incorporation, (2) each share of stock of Norwest outstanding
immediately before the merger is an identical outstanding or treasury share of
Norwest after the merger, and (3) the number of shares of Norwest stock to be
issued in the merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) does not exceed 20% of the shares of
Norwest Common Stock outstanding immediately before the merger.
In addition to being subject to the laws of Delaware, Norwest, as a bank
holding company, is subject to various provisions of federal law with respect to
mergers, consolidations and certain other corporate transactions.
Dissenters' Rights
THE BANK. Under federal law any shareholder of the Bank is entitled to
receive payment of the value of such shareholder's shares of the Bank capital
stock if such shareholder dissents from any merger or consolidation for which a
vote of the Bank's shareholders is required. See the more detailed discussion
below under "Rights of Dissenting Bank Shareholders."
NORWEST. Under Delaware law 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
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required by the terms of the consolidation 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 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
THE BANK. Under federal law and the Bank's By-Laws, a special meeting of
the Bank's shareholders may be called by the Bank's Board of Directors, or by
three or more shareholders owning, in the aggregate, not less than ten percent
of all of the outstanding shares of the Bank.
NORWEST. Under Delaware law 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.
Antitakeover Statutes
THE BANK. National banking associations are not covered by any specific
antitakeover statute. However, the acquisition of more than 5% of the capital
stock of a national bank requires the approval of federal regulatory agencies.
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.
RIGHTS OF DISSENTING BANK SHAREHOLDERS
Title 12, Section 215, of the United States Code provides that any
shareholder of either of the parties to a consolidation involving a national
bank who objects to the proposed consolidation has the right to receive payment
in cash of the value of such shareholder's shares as of the effective date of
the consolidation, if and when the consolidation is consummated, subject to
certain conditions. These conditions, in the case of a shareholder of the Bank,
are that: (i) the shareholder must have voted against approval of the
Consolidation at the Special Meeting or given notice in writing at, or prior to,
the Special Meeting to the presiding officer that such shareholder dissents from
the proposed Consolidation; (ii) the shareholder must, within 30 days after the
effective date of the Consolidation, make a written request for payment to the
surviving bank; and (iii) the written request must be accompanied by surrender
of the shareholder's stock certificate(s). Any shareholder of the Bank who votes
against the Consolidation at the Special Meeting, or who gives notice in writing
at, or prior to, the Special Meeting to the presiding officer that such
shareholder dissents, will be notified in writing of the effective date of the
Consolidation. Failure to comply with each of the foregoing conditions will
result in the loss of the appraisal rights described herein.
23
<PAGE> 28
The value of the shares of any dissenting shareholder shall be determined
by an appraisal made by a committee of three persons, one to be selected by the
majority vote of the dissenting shareholders, one by the Board of Directors of
the surviving bank, and the third by the two so chosen. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed is
not satisfactory to any dissenting shareholder, that shareholder may, within
five days after being notified of the appraised value of such shareholder's
shares, appeal to the Comptroller of the Currency, who shall cause a reappraisal
to be made which shall be final and binding as to the value of such shares. If a
shareholder dissents and, within 90 days from the date of consummation of the
Consolidation, one or more of the appraisers is not selected as above provided
for any reason, or the appraisers fail to determine the value of such shares,
the Comptroller shall, upon written request of any interested party, cause an
appraisal to be made which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal or the appraisal, as the
case may be, shall be paid by the surviving bank. The value of the shares
ascertained shall be promptly paid to the dissenting shareholder by the
surviving bank.
The foregoing summary does not purport to be a complete statement of the
provisions of Section 215 and is qualified in its entirety by reference to the
relevant provisions of Section 215, the text of which is attached hereto as
Exhibit B. Any shareholder of the Bank who desires to exercise dissenters'
appraisal rights should carefully review and comply with the relevant provisions
of Section 215. DISSENTERS' RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS
OF SECTION 215 ARE NOT FULLY AND PRECISELY SATISFIED.
Attached hereto as Appendix C is a copy of Banking Circular 259 regarding
the valuation methods used by the Comptroller to estimate the value of a bank's
shares when the Comptroller is involved in the appraisal of shares held by
dissenting shareholders. The results of appraisals performed by the Comptroller
between January 1, 1985, and September 30, 1991, are also summarized in Appendix
C. EACH SHAREHOLDER OF THE BANK SHOULD FULLY CONSIDER APPENDIX C BEFORE DECIDING
WHETHER TO EXERCISE DISSENTERS' RIGHTS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. Federal income tax
consequences of the Consolidation to holders of Bank Common Stock under the
Internal Revenue Code of 1986, as amended (the "Code").
This summary should not be regarded as a substitute for an individual
analysis of the tax consequences of the Consolidation to a Bank shareholder.
Each Bank shareholder should consult a tax advisor regarding the particular tax
consequences of the Consolidation to such shareholder's own situation.
None of Norwest, Norwest Interim Bank, and the Bank has requested a ruling
from the Internal Revenue Service (the "Service") in connection with the
Consolidation. The Bank will receive from its counsel, Vinson & Elkins, an
opinion to the effect that the Consolidation will be treated for U.S. Federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, that Norwest, Norwest Interim Bank, and the Bank will each be a party
to the reorganization within the meaning of Section 368(b) of the Code, and that
shareholders of the Bank (other than holders of the Bank Common Stock who
exercise dissenters' rights) will not recognize any gain or loss as a result of
the Consolidation, except to the extent they receive cash in lieu of a
fractional share of the Bank Common Stock. Such opinion will be subject to
certain assumptions and based on certain representations of Norwest, Norwest
Interim Bank, and the Bank and affiliates of the Bank. The Bank shareholders
should be aware that such opinion will neither be binding upon the Service nor
will the Service be precluded from adopting a contrary position.
Assuming the Consolidation qualifies as a reorganization under Section
368(a) of the Code, the following U.S. Federal income tax consequences will
occur:
(a) No gain or loss will be recognized by Norwest, Norwest Interim
Bank, and the Bank in connection with the Consolidation;
(b) No gain or loss will be recognized by a holder of Bank Common
Stock who exchanges all of his shares of Bank Common Stock solely for
shares of Norwest Common Stock in the Consolidation;
24
<PAGE> 29
(c) The aggregate basis of the shares of Norwest Common Stock to be
received by a Bank shareholder in the Consolidation (including any
fractional share not actually received) will be the same as the aggregate
basis of the shares of Bank Common Stock surrendered in exchange therefor;
(d) The holding period of the shares of Norwest Common Stock to be
received by a Bank shareholder in the Consolidation will include the
holding period of the shares of Bank Common Stock surrendered in exchange
therefor, provided that such shares of Bank Common Stock are held as
capital assets at the Effective Time of the Consolidation;
(e) Cash payments in lieu of a fractional share will be treated as if
a fractional share of Norwest Common Stock has been received in the
Consolidation and then redeemed by Norwest. Such a redemption should
qualify as a distribution in full payment in exchange for the fractional
share rather than as a distribution of a dividend. Accordingly, a Bank
shareholder receiving cash in lieu of a fractional share will recognize
gain or loss upon such payment equal to the difference, if any, between
such shareholder's basis in the fractional share (as described in paragraph
(c) above) and the amount of cash received. Such gain or loss will be a
capital gain or loss if the Bank Common Stock is held as a capital asset at
the Effective Time of the Consolidation; and
(f) With respect to a Bank shareholder who perfects his dissenters'
rights under the National Bank Act with regard to the Consolidation and
receives cash for the value of his Bank Common Stock, the Service should
treat such cash as having been received as a distribution from the Bank in
redemption of such Bank Common Stock. Such redemption would be treated as a
distribution in full payment in exchange for such Bank Common Stock, and
thus the dissenting shareholder would recognize gain or loss measured by
the difference between the cash received and the basis for such Bank Common
Stock, if the redemption does not have the effect of the distribution of a
dividend under Section 302 of the Code (after applying the constructive
ownership rules of Section 318 of the Code).
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of the Bank
upon consummation of the Consolidation have been registered under the Securities
Act of 1933 (the "Securities Act"). Such shares may be traded freely and without
restriction by those shareholders not deemed to be "affiliates" of the Bank or
Norwest as that term is defined in the rules under the Securities Act. Norwest
Common Stock received by those shareholders of the Bank who are deemed to be
"affiliates" of the Bank may be resold without registration as provided for by
Rule 145, or as otherwise permitted under the Securities Act. In the
Consolidation Agreement, the Bank has agreed to use its best efforts to cause
each Bank shareholder who is an executive officer or director of the Bank or who
may otherwise reasonably be deemed to be an affiliate of the Bank 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 Consolidation 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 the Bank.
Pursuant to the Agreement, Norwest and the Bank have agreed to use their
best efforts to cause their affiliates to execute written agreements not to take
any action that would cause the Consolidation not to be treated as a pooling of
interests for accounting purposes. Under generally accepted accounting
principles, the sale of Norwest Common Stock or Bank Common Stock by an
affiliate of either Norwest or the Bank within 30 days prior to the Effective
Time of the Consolidation or thereafter prior to the publication of financial
statements that include at least 30 days of combined operations of Norwest and
the Bank after the Effective Time of the Consolidation could preclude pooling of
interests accounting treatment of the Consolidation.
The Consolidation 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 Consolidation. It is a condition to the
consummation of the Consolidation that such shares of Norwest Common Stock shall
have been authorized for listing on the NYSE and the CHX effective upon official
notice of issuance.
25
<PAGE> 30
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
For those stockholders who elect to participate in Norwest's Dividend
Reinvestment and Optional Cash Payment Plan, dividends on Norwest Common Stock
will be reinvested in shares of Norwest Common Stock at market price (as
defined). 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) of such stock at the time of
purchase. It is anticipated that after the Effective Time of the Consolidation,
Norwest will continue to offer its Dividend Reinvestment and Optional Cash
Payment Plan and that shareholders of the Bank who receive Norwest Common Stock
in the Consolidation will have the right to participate therein.
ACCOUNTING TREATMENT
Notwithstanding any provision of the Consolidation Agreement to the
contrary, management of Norwest has decided that the Consolidation will be
accounted for as a purchase in accordance with generally accepted accounting
principles.
EXPENSES
Norwest and the Bank will each pay their own expenses in connection with
the Consolidation and the transactions contemplated thereby, including fees and
expenses of their respective accountants and counsel.
26
<PAGE> 31
INFORMATION ABOUT THE BANK
BUSINESS AND PROPERTY OF THE BANK
GENERAL. The Bank is a national bank headquartered in Kerrville, Texas,
that provides retail and commercial banking services to its customers through
three community banking offices, two offices being located in Kerrville and the
third located in the adjacent town of Ingram. The Bank's deposits are insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation (the
"FDIC"). At June 30, 1994, the Bank had total assets of $204.2 million, deposits
of $187.0 million, and stockholders' equity of $16.7 million. The Bank was
chartered as a state bank in 1907 and converted to a national bank in 1959.
The Bank provides a wide range of banking services for its retail and
commercial customers, including real estate loans, revolving credit
arrangements, inventory and accounts receivable financing, equipment financing,
home improvement and other personal loans, NOW checking, savings and time
accounts, and trust services. The Bank provides 24-hour access to routine
banking services through its automated teller machines.
The Bank's business strategy has been to develop long-term customer
relationships, maintain high quality service and respond quickly to the needs of
its customers. The Bank supports active participation of its personnel in local
charitable, civic, school, and church activities. The Bank has installed data
processing and telecommunications systems and facilities to adequately service
its customers and its growth in the area. The Bank's customers are located
primarily in Kerr County, Texas.
COMPETITION. The Bank is subject to competition in all aspects of its
business from other banks and financial institutions in its immediate market
area as well as those located in San Antonio. The Bank has been able to compete
effectively by emphasizing customer service, establishing long-term customer
relationships, and building customer loyalty through providing the products and
personal services designed to meet the specific needs of its customers.
EMPLOYEES. At June 30, 1994, the Bank had 98 full-time employees (which
includes 31 officers) and 25 part-time employees.
BANKING LOCATIONS. The main facility of the Bank is located at 301 Junction
Highway in Kerrville, Texas. The main facility is a three-story building and
consists of a walk-in lobby, a commercial lobby, executive offices,
administrative offices and eight drive-in lanes. The Bank's second facility is
located at 222 Sidney Baker South in a six-story condominium building. The Bank
owns the first and second floors of this building, and its facilities include a
walk-in lobby, offices and five drive-in teller lanes. The Bank's third facility
is in a two-story building located at 110 Highway 27 East in Ingram, Texas,
which was purchased by the Bank from the FDIC in September 1990. The Ingram
facility also consists of a bank lobby, offices, and four drive-in teller lanes.
ENVIRONMENTAL PROTECTION CONSIDERATIONS
It is a condition to Norwest's obligation to consummate the Consolidation
that there be no reasonable basis for an environmental proceeding, claim, or
action that could result in liability which could reasonably be expected to have
a material adverse effect on the Bank. The Bank is aware of no such potential
proceeding, claim, or action.
MARKET PRICES AND DIVIDENDS
Other than director qualifying shares, the outstanding shares of the Bank
are owned by one individual. Therefore, there is not an established trading
market for Bank Common Stock. As of the record date for the Special Meeting,
there were nine holders of record of shares of Bank Common Stock and 25,000
shares outstanding.
The Bank paid dividends on its Common Stock of $20.00 and $6.00 per share
in fiscal years 1993 and 1992, respectively, and no dividends were paid in
fiscal year 1991 or to date in 1994.
27
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
---------------- -----------------------------
1994 1993 1993 1992 1991
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Condensed income statement:
Interest income................................ $6,415 $5,584 $12,139 $11,927 $14,426
Interest expense............................... 1,983 1,772 3,892 4,716 7,978
------ ------ ------- ------- -------
Net interest income......................... 4,432 3,812 8,247 7,211 6,448
Provision for loan losses...................... -- -- (1,500) 135 1,166
------ ------ ------- ------- -------
Net interest income after provision for loan
losses.................................... 4,432 3,812 9,747 7,076 5,282
Noninterest income............................. 1,590 1,644 2,939 1,905 2,025
Noninterest expense............................ 3,650 2,999 7,008 5,721 5,592
------ ------ ------- ------- -------
Income before income taxes.................. 2,372 2,457 5,678 3,260 1,715
Income tax expense............................. 768 825 1,786 1,116 572
------ ------ ------- ------- -------
Income before extraordinary item............... 1,604 1,632 3,892 2,144 1,143
Extraordinary item............................. -- -- -- 288 572
------ ------ ------- ------- -------
Net income.................................. $1,604 $1,632 $ 3,892 $ 2,432 $ 1,715
====== ====== ======= ======= =======
Net income per share:.......................... $64.16 $65.28 $155.68 $ 97.28 $ 68.60
====== ====== ======= ======= =======
Number of Shares Outstanding................... 25,000 25,000 25,000 25,000 25,000
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS DECEMBER 31
ENDED JUNE 30 --------------------
1994 1993 1992
------------- -------- --------
<S> <C> <C> <C>
Financial ratios:
Return on average assets................................. 1.56% 2.10% 1.47%
Return on average equity................................. 19.76% 28.10% 21.55%
Net interest margin...................................... 4.77% 4.94% 4.87%
Average balance sheet data:
Loans, net............................................... $ 92,366 $ 79,554 $ 70,204
Total assets............................................. 206,859 185,580 165,389
Deposits................................................. 189,199 170,311 152,717
Stockholders' equity..................................... 16,375 13,852 11,285
Period-end balance sheet data:
Loans, net............................................... 91,538 93,954 72,174
Total assets............................................. 204,170 214,356 170,930
Deposits................................................. 187,002 193,622 158,143
Stockholders' equity..................................... 16,706 15,633 12,241
</TABLE>
GENERAL
The following is management's discussion and analysis of the significant
factors affecting the Bank's results of operations and financial condition. This
should be read in conjunction with the audited financial statements and
accompanying footnotes and other selected financial data presented elsewhere
herein.
FINANCIAL CONDITION
Total assets decreased by $10,186,000 during the first six months of 1994
to $204,170,000 at June 30, 1994 following an increase of $43,426,000 during
1993 to $214,356,000 at December 31, 1993. The 1994
28
<PAGE> 33
decrease was primarily due to decreases in investments and net loans. The 1993
increase was due to the purchase of the Bank of Kerrville (BOK) in July 1993.
BOK was a state-chartered community bank located in Kerrville, Texas, with
approximately $52 million in total assets.
Loans decreased $2,416,000 during the first six months of 1994 to
$91,538,000 at June 30, 1994. Investments decreased $4,315,000 during the first
six months of 1994 to $87,325,000 at June 30, 1994. These decreases during the
first six months of 1994 were offset by reductions in deposits of $6,620,000,
primarily due to low interest rates and the outflow of interest-bearing deposits
to alternative deposit products (annuities and mutual funds), as well as the
loss of some deposits after the acquisition of BOK for customers exceeding the
FDIC insurance coverage amounts.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1994, AND 1993
General
The Bank's net income decreased 1.72 percent to $1,604,000 for the six
months ended June 30, 1994 from $1,632,000 for the six months ended June 30,
1993. During this period, the Bank's net interest income increased to $4,432,000
from $3,812,000. Noninterest income, excluding gains on sales of securities and
other real estate owned, increased $184,000 to $1,127,000 in 1994 from $943,000
in 1993, which includes an 11.90 percent increase in trust fees to $349,000 in
1994 from $312,000 in 1993. Net gains on sales of securities decreased $203,000
to $247,000 in 1994 from $450,000 in 1993. Operating expenses increased $651,000
to $3,650,000 in 1994 from $2,999,000 in 1993. The increase was primarily due to
increased costs (occupancy, salaries, data processing, etc.) associated with the
BOK acquisition. Return on average assets and return on average equity on an
annualized basis were 1.56 percent and 19.76 percent, respectively, for the six
month period ended June 30, 1994, compared with 1.97 percent and 24.66 percent,
respectively, for the same period in 1993. Total assets decreased 4.75 percent
to $204,170,000 at June 30, 1994, from $214,356,000 at December 31, 1993. During
the same period, gross loans decreased $2,319,000 and investment securities
decreased $4,315,000. The decrease in loans is primarily due to accelerated
prepayments while the decrease in securities is primarily due to the loss of
interest bearing deposits to higher yielding alternative deposit products such
as mutual funds and annuities.
Net Interest Margin
The Bank's taxable-equivalent net interest margin decreased on an
annualized basis to 4.77 percent for the six months ended June 30, 1994, from
5.09 percent for the six months ended June 30, 1993. Taxable-equivalent interest
income increased 15.45 percent to $6,485,000 from $5,617,000, and interest
expense increased 11.90 percent to $1,983,000 from $1,772,000. The increase in
interest income and expense resulted primarily from increased volumes (BOK).
Noninterest Income and Expense
The $184,000 increase in noninterest income, excluding gains on sales of
securities and other real estate, during the first six months of 1994 mainly
resulted from service charges on an increased deposit base (BOK) and trust fees.
Noninterest expense increased $651,000 during the first six months of 1994
compared to the same period in 1993. This increase resulted primarily from
increases in salaries and benefits, occupancy, and data processing costs
resulting from the BOK acquisition.
29
<PAGE> 34
The following table presents a summary of operating expenses and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 PERCENTAGE
----------------- INCREASE/
1994 1993 (DECREASE)
------ ------ ----------
<S> <C> <C> <C>
Salaries and employee benefits................................ $1,604 $1,232 30.19%
Net occupancy................................................. 208 116 79.31%
Data processing............................................... 282 203 38.92%
FDIC assessment............................................... 213 195 9.23%
Other expense (Plus Tax Equiv Adj)............................ 1,343 1,253 7.18%
------ ------
$3,650 $2,999 21.71%
====== ======
</TABLE>
Total operating expenses increased to $3,650,000 for the first six months
of 1994 compared to $2,999,000 for the first six months of 1993; however, there
are no associated costs of BOK included in 1993.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
General
The Bank's net income increased to $3,892,000 for the year ended December
31, 1993, compared to $2,432,000 for the year ended December 31, 1992 and
$1,715,000 for the year ended December 31, 1991. Return on average assets and
return on average equity were 2.10 percent and 28.10 percent, respectively, for
1993 as compared to 1.47 percent and 21.55 percent, respectively, for 1992.
Total assets increased $43,426,000 to $214,356,000 at December 31, 1993 from
$170,930,000 at December 31, 1992. Gross loans increased $21,032,000 and
investment securities increased $23,043,000 in 1993. Deposits increased
$35,479,000 in 1993 as the result of an increase of $10,387,000 in
noninterest-bearing deposits and an increase of $25,092,000 in interest-bearing
deposits. These increases in loans, securities, and deposits primarily resulted
from the acquisition of BOK.
Net Interest Income
The Bank's taxable-equivalent net interest income to average earnings
assets increased to 4.94 percent in 1993 from 4.87 percent in 1992 and 4.11
percent in 1991. Taxable-equivalent interest income was $12,220,000 for the year
ended December 31, 1993, compared to $11,963,000 for December 31, 1992, and
$14,452,000 for December 31, 1991. Interest expense decreased 17.45 percent to
$3,893,000 for the year ended December 31, 1993, compared to $4,716,000 for
December 31, 1992 and $7,978,000 for December 31, 1991. Taxable-equivalent yield
on interest-bearing assets was 7.20 percent in fiscal 1993 compared to 8.02
percent and 9.17 percent for fiscal 1992 and 1991, respectively. The average
cost of interest-bearing liabilities was 2.68 percent in fiscal 1993 compared to
3.51 percent and 5.57 percent for fiscal 1992 and 1991, respectively.
Allowance for Loan Losses
The allowance for loan losses is established by a charge to income as a
provision for loan losses. Actual loan losses or recoveries are charged or
credited directly to this allowance. The provision for loan losses is based on
management's estimate of the amounts required to maintain an allowance adequate
to reflect losses inherent in the loan portfolio at the balance sheet date;
however, ultimate losses may vary from the current estimates. In estimating
losses, consideration is given to the financial condition of the borrower,
guarantor, current and anticipated economic conditions and collateral values.
These estimates are reviewed periodically, and adjustments to either increase or
decrease the allowance are reported in earnings in the period in which they
become known.
Management believes that the Bank's allowance for loan losses is adequate
to cover known or anticipated losses. There can be no assurance, however, that
management will not decide to increase the allowance for loan losses or that
regulators, when reviewing the Bank's loan portfolios in the future, will not
request the Bank
30
<PAGE> 35
to increase such allowance, either of which could adversely affect the Bank's
earnings. Further, there can be no assurance that the Bank's actual loan losses
will not exceed it's allowance for loan losses.
The Bank's provision (reversion) for loan losses was ($1,500,000),
$135,000, and $1,166,000 for the years ended December 31, 1993, 1992 and 1991,
respectively. The reversion in 1993 was made after extensive analysis of the
Bank's loan loss reserve and was primarily attributable to decreases in actual
losses, recoveries on previously charged off loans and the overall economic
recovery in Texas.
Noninterest Income and Expense
Noninterest income, excluding gains on sales of securities and other real
estate increased $280,000 to $2,142,000 for the year ended December 31, 1993,
compared to $1,862,000 and $1,526,000 for the years ended 1992 and 1991,
respectively. Gains on sales of securities were $460,000, $14,000 and $499,000
for the years ended December 31, 1993, 1992 and 1991, respectively.
Gains on the sales of other real estate owned were $337,000 and $29,000 for
the years ended December 31, 1993 and 1992, respectively.
Noninterest expense increased $1,287,000 to $7,008,000 for the year ended
December 31, 1993, compared to $5,721,000 and $5,592,000 for the years ended
1992 and 1991, respectively. The following table presents a summary of operating
expenses and percentage changes (dollars in thousands):
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
(DECREASE)
-------------------
1993 1992 1991 1992/93 1991/92
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits.................. $2,899 $2,307 $2,049 25.66% 12.59 %
Net occupancy................................... 331 231 213 43.29% 8.45 %
Data processing................................. 445 382 275 16.49% 38.91 %
FDIC assessment................................. 445 341 332 30.50% 2.71 %
Other expense................................... 2,888 2,460 2,723 17.40% (9.66)%
------ ------ ------
$7,008 $5,721 $5,592 22.50% 2.31 %
====== ====== ======
</TABLE>
The increase in 1993 is largely attributable to the acquisition of the BOK
in July 1993.
CAPITAL RESOURCES
At December 31, 1993, shareholders' equity was $15.6 million and
represented a $3.4 million or 27.87 percent increase from the December 31, 1992
balance of $12.2 million. The increase was due to the retention of earnings less
dividends paid. At June 30, 1994, shareholders' equity was $16.7 million and
represented a $1.1 million or 7.05 percent increase from December 31, 1993. The
increase was due to further retention of earnings.
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, 1993, all financial
institutions are required to maintain a level of core capital (known as Tier 1
capital) which must be at least 4.00 percent of risk-weighted assets, and a
minimum level of total capital of at least 8.00 percent 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,
31
<PAGE> 36
risk-based capital requirements and excess risk-based capital at June 30, 1994,
December 31, 1993 and December 31, 1992 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 capital.......................... $16,321 17.06% $14,735 15.10% $12,241 15.89%
Allowable portion of allowance for
losses................................ 1,196 1.25% 1,220 1.25% 1,012 1.25%
------- ------- ------- ------- ------- -------
Total risk-based capital.............. 17,517 18.31% 15,955 16.35% 13,253 17.14%
Risk-based capital requirement.......... 7,654 8.00% 7,807 8.00% 6,476 8.00%
------- ------- ------- ------- ------- -------
Excess risk-based capital............... $ 9,863 10.31% $ 8,148 8.35% $ 6,777 9.14%
======= ====== ======= ====== ======= ======
</TABLE>
As a supplement to the risk-based capital guidelines, banks must also
maintain a minimum ratio of Tier 1 capital to total 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 3.00 percent. At June 30, 1994, the Bank's leverage ratio was
7.48 percent, compared to 8.00 percent at December 31, 1993. This decrease from
December 31, 1993 to June 30, 1994, is primarily attributable to the reduction
in capital of $531,663 resultant from unrealized holding losses in the Bank's
available-for-sale investment portfolio. The decrease in the leverage ratio from
December 1992 to December 1993 is attributable to the BOK acquisition.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
The Bank is restricted in paying dividends due to the general regulatory
capital requirements that apply to all banks. 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 regulatory agencies, 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.
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 sources of
asset liquidity consist of federal funds, maturing loans and investment
securities. The Bank's basic strategy is to minimize interest rate risk through
matching the repricing periods of earning assets and interest-bearing
liabilities.
ACCOUNTING PRINCIPLES
In December 1991, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments." SFAS No. 107 requires all entities to
disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized in the balance sheet, for which it is practicable
to estimate fair value. The standard defines a financial instrument as cash,
evidence of an ownership in any entity, or a contract that conveys or imposes on
an entity the contractual right or obligation to either receive or deliver cash
or another financial instrument. Fair value is defined as the amount at which a
financial instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation, and is best evidenced by a
quoted market price if one exists.
In May 1993, FASB issued SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS No. 115 is effective for financial
statements issued for fiscal years beginning after December 15, 1993. The new
standard will require the classification of securities into three categories:
held-to-maturity, available-for-sale, or trading. Investments classified as
held-to-maturity are measured at amortized cost only if the reporting enterprise
has the positive intent and ability to hold those securities to maturity.
Securities that are bought and held principally for the purpose of selling them
in the near term shall be classified as trading securities. Unrealized holding
gains and losses shall be included in earnings. Investments
32
<PAGE> 37
not classified as trading securities or held-to-maturity securities shall be
classified as available-for-sale. Securities that would be sold in response to
changes in market interest rates and securities' prepayment risk, needs for
liquidity or changes in the availability and yield on alternative investments
are classified as available-for-sale. Unrealized holding gains and losses shall
be excluded from earnings and reported as a net amount in a separate component
of stockholders' equity (net of deferred taxes) until realized. SFAS No. 115 was
adopted as of the beginning of the Bank's fiscal year, January 1, 1994, and, in
accordance with SFAS 115, was not applied retroactively.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is effective for financial statements issued
for fiscal years beginning after December 15, 1994, although earlier adoption is
permitted. The new standard addresses the accounting by creditors for impairment
of certain loans, as well as the accounting for troubled debt restructurings. A
loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The standard requires that impaired
loans be measured based on the present value of expected future cash flows for
each loan discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Bank will adopt this
standard in 1995. Based on the loan portfolio as of June 30, 1994 (unaudited),
management believes the implementation of this standard will not have a material
effect on the Bank's financial position or results of operations.
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
SUPPLEMENTAL FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Return on average assets.......................................... 2.10% 1.47% 1.01%
Return on average stockholders' equity............................ 28.10% 21.55% 18.90%
Average stockholders' equity to average assets.................... 7.46% 6.82% 5.34%
</TABLE>
SELECTED STATISTICAL DISCLOSURE
Net Interest Income
The following tables set forth for the periods indicated information with
regard to average balances of assets and liabilities, as well as the dollar
amounts of interest income from interest-earning assets and interest expense on
interest-bearing liabilities, resultant yields or costs, net interest income,
net interest spread (the difference between the average yield on
interest-earnings assets and the average cost of interest-bearing liabilities).
Net interest income is computed on a fully taxable-equivalent basis to reflect
the effect of tax-exempt income earned.
33
<PAGE> 38
FIRST NATIONAL BANK OF KERRVILLE
DAILY AVERAGE BALANCE SHEET AND RELATED YIELDS AND RATES THREE-YEAR SUMMARY OF
OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
--------------------------------------------------------------- -------------------
1994 1993 1993
------------------------------ ------------------------------ -------------------
INTEREST INTEREST
YIELDS YIELDS
AND AND
BALANCE INTEREST RATES(1) BALANCE INTEREST RATES(1) BALANCE INTEREST
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
FEDERAL FUNDS SOLD.......................... $ 6,122 $ 117 3.82% $ 12,957 $ 197 3.04% $ 10,239 $ 317
PURCHASED C.D.'s............................ 0 0 0 0 0
INVESTMENTS:
Taxable investment securities.............. 84,249 2,206 5.24% 65,221 2,087 6.40% 76,107 4,479
Nontaxable investment securities........... 5,836 194 6.65% 1,996 91 9.12% 2,661 224
-------- -------- -------- -------- -------- --------
Total securities....................... 90,085 2,400 5.33% 67,217 2,178 6.48% 78,768 4,703
LOANS:
Commercial, financial and agricultural..... 8,991 370 8.23% 7,035 295 8.39% 7,929 678
Consumer................................... 7,284 354 9.72% 5,082 246 9.68% 5,935 583
Real estate................................ 78,356 3,244 8.28% 61,791 2,701 8.74% 68,930 5,939
-------- -------- -------- -------- -------- --------
Total loans............................ 94,631 3,968 8.39% 73,908 3,242 8.77% 82,794 7,200
Allowance for loan losses.................. (2,265) (2,980) (3,240)
-------- -------- --------
Net Loans.............................. 92,366 70,928 79,554
-------- -------- --------
Total earning assets................... 188,573 6,485 6.88% 151,102 5,617 7.43% 168,561 12,220
CASH AND DUE FROM BANKS..................... 7,833 5,335 6,400
OTHER ASSETS................................ 10,453 9,510 10,619
-------- -------- --------
Total assets........................... $206,859 $165,947 $185,580
======== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing........................ $ 31,318 $ 21,090 $ 25,366
Interest bearing --
Savings and NOW accounts................. 111,022 1,217 2.19% 82,349 967 2.35% 95,736 2,262
Time accounts under $100,000............. 38,919 637 3.27% 40,374 671 3.32% 40,916 1,350
Time accounts over $100,000.............. 7,940 122 3.07% 7,819 128 3.27% 8,293 268
-------- -------- -------- -------- -------- --------
Total interest bearing deposits........ 157,881 1,976 2.50% 130,542 1,766 2.71% 144,945 3,880
FEDERAL FUNDS PURCHASED/OTHER BORROWINGS.... 498 7 2.81% 455 6 2.64% 696 12
REPURCHASE AGREEMENTS....................... 0 0 0.00% 0 0 0.00% 0 0
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities..... 158,379 1,983 2.50% 130,997 1,772 2.71% 145,641 3,892
OTHER LIABILITIES........................... 787 626 722
STOCKHOLDERS' EQUITY........................ 16,375 13,234 13,852
-------- -------- --------
Total liabilities and stockholders'
equity............................... $206,859 $165,947 $185,580
======== ========== ==========
-------- --------
Net interest income........................ $4,502 $3,845 $ 8,327
======== ======== =========
Net interest spread........................ 4.38% 4.72%
========= =========
Net interest spread without
taxable-equivalent increments............ 4.30% 4.68%
========= =========
Net interest income to earning assets...... 4.77% 5.09%
========= =========
<CAPTION>
1992 1991
------------------------------ ------------------------------
INTEREST INTEREST INTEREST
YIELDS YIELDS YIELDS
AND AND AND
RATES BALANCE INTEREST RATES BALANCE INTEREST RATES
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
FEDERAL FUNDS SOLD.......................... 3.10% $ 8,807 $ 314 3.57% $ 13,887 $ 785 5.65%
PURCHASED C.D.'s............................ 2,145 93 4.34% 3,154 228 7.23%
INVESTMENTS:
Taxable investment securities.............. 5.89% 66,206 4,868 7.35% 60,976 5,181 8.50%
Nontaxable investment securities........... 8.42% 1,304 105 8.05% 644 89 13.82%
-------- -------- -------- --------
Total securities....................... 11.94% 67,510 4,973 14.73% 61,620 5,270 17.10%
LOANS:
Commercial, financial and agricultural..... 8.55% 9,102 724 7.95% 12,954 1,254 9.68%
Consumer................................... 9.82% 5,087 537 10.56% 4,964 590 11.89%
Real estate................................ 8.62% 58,953 5,321 9.03% 60,261 6,325 10.50%
-------- -------- -------- --------
Total loans............................ 8.70% 73,142 6,582 9.00% 78,179 8,169 10.45%
Allowance for loan losses.................. (2,937) (2,655)
-------- --------
Net Loans.............................. 70,204 75,524
-------- --------
Total earning assets................... 7.25% 148,666 11,962 8.05% 154,185 14,452 9.37%
CASH AND DUE FROM BANKS..................... 5,706 4,352
OTHER ASSETS................................ 11,017 11,334
-------- --------
Total assets........................... $165,379 $169,871
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
DEPOSITS
Noninterest-bearing........................ $ 18,926 $ 16,409
Interest bearing --
Savings and NOW accounts................. 2.36% 75,460 2,255 2.99% 69,726 3,330 4.78%
Time accounts under $100,000............. 3.30% 47,641 1,995 4.19% 56,889 3,573 6.28%
Time accounts over $100,000.............. 3.23% 10,690 450 4.21% 16,265 1,050 6.46%
-------- -------- -------- --------
Total interest bearing deposits........ 2.68% 133,791 4,700 3.51% 142,880 7,953 5.57%
FEDERAL FUNDS PURCHASED/OTHER BORROWINGS.... 1.72% 467 16 3.43% 474 26 5.49%
REPURCHASE AGREEMENTS....................... 0.00% 0 0 0.00% 0 0 0.00%
-------- -------- -------- --------
Total interest-bearing liabilities..... 2.68% 134,258 4,716 3.51% 143,354 7,979 5.57%
OTHER LIABILITIES........................... 920 1,039
STOCKHOLDERS' EQUITY........................ 11,285 9,069
-------- --------
Total liabilities and stockholders'
equity............................... $165,389 $169,871
========== ==========
-------- --------
Net interest income........................ $ 7,246 $ 6,473
========= =========
Net interest spread........................ 4.57% 4.54% 3.80%
======== ======== ========
Net interest spread without
taxable-equivalent increments............ 4.52% 4.51% 3.79%
======== ======== ========
Net interest income to earning assets...... 4.94% 4.87% 4.20%
======== ======== ========
</TABLE>
- -------------------------
(1) Annualized.
Interest and rates are presented on a fully taxable-equivalent basis under a
tax rate of 34% for the periods indicated. Nonaccrual loans are included in
average loan balances.
34
<PAGE> 39
FIRST NATIONAL BANK OF KERRVILLE
CHANGES IN RATE AND VOLUME ON A TAX-EQUIVALENT BASIS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
------------------------- -----------------------------------------------------------
1994 COMPARED WITH 1993 1993 COMPARED WITH 1992 1992 COMPARED WITH 1991
------------------------- --------------------------- ----------------------------
YIELD/ YIELD/ YIELD/
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ----- ------ ------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN:
Interest income --
Loans............................ $ 874 $ (148) $ 726 $ 845 $ (227) $ 618 $(494 ) $(1,093) $(1,587)
Taxable investment securities.... 316 (197) 119 1,163 (1,552) (389) 549 (862) (313)
Nontaxable investment
securities..................... 120 (17) 103 114 5 119 27 (11) 16
Federal funds sold............... (156) 76 (80) 14 (11) 3 (235 ) (236) (471)
Purchased C.D.'s................. 0 0 0 (93) 0 (93) (60 ) (75) (135)
------ ------ ----- ------ ------- ------ ------ ------- -------
Total.......................... 1,154 (286) 868 2,043 (1,785) 258 (213 ) (2,277) (2,490)
------ ------ ----- ------ ------- ------ ------ ------- -------
Interest expense --
Savings, NOW and time accounts
less than $100,000............. 286 (70) 216 (224) (414) (638) (214 ) (2,438) (2,652)
Time accounts greater than
$100,000....................... 2 (8) (6) (89) (93) (182) (298 ) (302) (600)
Federal funds purchased.......... 1 0 1 85 (89) (4) 0 (10) (10)
Repurchase agreements............ 0 0 0 0 0 0 0 0 0
------ ------ ----- ------ ------- ------ ------ ------- -------
Total.......................... 289 (78) 211 (228) (596) (824) (512 ) (2,750) (3,262)
------ ------ ----- ------ ------- ------ ------ ------- -------
INCREASE IN NET INTEREST INCOME..... $ 865 $ (208) $ 657 $2,271 $(1,189) $1,082 $ 299 $ 473 $ 772
====== ===== ==== ====== ======= ====== ====== ======= =======
</TABLE>
This table shows the components of the change in net interest income by
volume and rate on a taxable-equivalent basis. The effect of changes in rates on
volume changes is allocated based on the percentage relationship of changes in
volume and changes in rate. This table does not take into account the level of
noninterest-bearing funding nor does it fully reflect changes in the mix of
assets and liabilities.
35
<PAGE> 40
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE LOANS
(AMOUNTS IN THOUSANDS)
This table below sets forth the composition of the Bank's loan portfolio at
the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, -----------------------------------------------------------
1994 1993 1992 1991
----------------- ----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural.................. $ 8,951 9.78% $ 9,133 9.72% $ 7,785 10.79% $10,540 14.70%
Consumer........................ 7,186 7.85 7,361 7.83 4,816 6.67 4,711 6.57
Real estate..................... 77,115 84.24 78,966 84.05 61,878 85.73 58,160 81.10
Other........................... 589 0.64 700 0.75 649 0.90 961 1.34
------- ------ ------- ------ ------- ------ ------- ------
Total Gross Loans............. 93,841 102.52 96,160 102.35 75,128 104.09 74,372 103.71
Less -- Allowance for
loan loss....................... (2,303) -2.52 (2,206) -2.35 (2,954) -4.09 (2,658) -3.71
------- ------ ------- ------ ------- ------ ------- ------
Loans, net...................... $91,538 100.00% $93,954 100.00% $72,174 100.00% $71,714 100.00%
======= ====== ======= ====== ======= ====== ======= ======
DECEMBER 31
--------------------------------------
1990 1989
----------------- -----------------
AMOUNT % AMOUNT %
------- ------ ------- ------
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural...................... $16,222 20.87% $19,033 22.58%
Consumer............................ 4,566 5.87 4,873 5.78
Real estate......................... 58,443 75.18 62,996 74.72
Other............................... 809 1.04 289 0.34
------- ------ ------- ------
Total Gross Loans................. 80,040 102.96 87,191 103.42
Less -- Allowance for
loan loss........................... (2,298) -2.96 (2,881) -3.42
------- ------ ------- ------
Loans, net.......................... $77,742 100.00% $84,310 100.00%
======= ====== ======= ======
</TABLE>
36
<PAGE> 41
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
NONPERFORMING ASSETS
(AMOUNTS IN THOUSANDS)
The following table sets forth information concerning the Bank's
nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, ---------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans.................... $ 1,778 $ 2,022 $ 2,530 $ 3,796 $ 6,860 $10,536
Restructured loans.................. 0 929 442 2,285 798 809
-------- ------- ------- ------- ------- -------
Total nonperforming loans............. 1,778 2,951 2,972 6,081 7,658 11,345
Other real estate owned, net.......... 2,258 2,606 5,052 6,926 5,145 5,613
Total nonperforming assets............ 4,036 5,557 8,024 13,007 12,803 16,958
Loans past due 90 days or more........ 513 252 324 309 3,220 1,779
Allowance for loan losses............. (2,303) (2,206) (2,954) (2,658) (2,871) (2,900)
Ratio of total nonperforming assets to
total assets........................ 1.98% 2.59% 4.69% 7.81% 7.28% 11.53%
Ratio of total nonperforming loans to
total gross loans................... 1.89% 3.07% 3.96% 8.18% 9.57% 13.01%
Ratio of allowance for loan losses to
total nonperforming loans........... 129.53% 74.75% 99.39% 43.71% 37.49% 25.56%
</TABLE>
37
<PAGE> 42
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
ALLOWANCE FOR LOAN LOSSES
(AMOUNTS IN THOUSANDS)
The following table sets forth information regarding changes in the Bank's
allowance for loan losses (ALL) for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31
ENDED JUNE ---------------------------------------------------
30, 1994 1993 1992 1991 1990 1989
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for loan losses
at beginning of period............. $ 2,206 $ 2,954 $ 2,658 $ 2,298 $ 2,881 $ 1,872
Reserve on loans purchased from
BOK................................ -- 876 -- -- -- --
---------- ------- ------- ------- ------- -------
2,206 3,830 2,658 2,298 2,881 1,872
Charge-offs:
Commercial......................... 0 15 33 104 428 374
Consumer........................... 56 92 66 87 70 137
Real Estate........................ 67 634 391 1,104 2,247 2,676
Other.............................. 0 0 0 0 0 0
---------- ------- ------- ------- ------- -------
Total charge-offs............... 123 741 490 1,295 2,745 3,187
---------- ------- ------- ------- ------- -------
Recoveries:
Commercial......................... 24 107 124 183 208 77
Consumer........................... 151 98 50 43 62 85
Real Estate........................ 45 412 477 263 530 248
Other.............................. 0 0 0 0 0 0
---------- ------- ------- ------- ------- -------
Total recoveries................ 220 617 651 489 800 410
---------- ------- ------- ------- ------- -------
Net recoveries (charge-offs)......... 97 (124) 161 (806) (1,945) (2,777)
Provisions for loan losses charged to
operations......................... 0 (1,500) 135 1,166 1,362 3,786
---------- ------- ------- ------- ------- -------
Balance of allowance for loan losses
at end of period................... $ 2,303 $ 2,206 $ 2,954 $ 2,658 $ 2,298 $ 2,881
======== ======= ======= ======= ======= =======
Average gross loans outstanding
during period...................... $ 94,632 $82,794 $73,566 $78,179 $85,412 $95,967
======== ======= ======= ======= ======= =======
</TABLE>
38
<PAGE> 43
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
ALLOWANCE FOR LOAN LOSSES
(AMOUNTS IN THOUSANDS)
The following table sets forth the allowance for loan losses by loan
category, based upon management's assessment of the risk associated with such
categories, at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------
JUNE 30, 1994 1993 1992 1991
----------------------- ----------------------- ----------------------- -----------------------
AMOUNT GROSS AMOUNT GROSS AMOUNT GROSS AMOUNT GROSS
OF LOANS OF LOANS OF LOANS OF LOANS
ALLOWANCE OUTSTANDING ALLOWANCE OUTSTANDING ALLOWANCE OUTSTANDING ALLOWANCE OUTSTANDING
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural.... $ 309 $ 8,951 $ 288 $ 9,133 $ 229 $ 7,785 $ 350 $10,540
Consumer.............. 269 7,186 265 7,361 149 4,816 129 4,711
Real estate........... 1,713 77,115 1,641 78,966 2,564 61,878 2,162 58,160
Other................. 12 589 12 700 12 649 17 961
------- -------- ------- --------- ------- --------- ------- ---------
Total............... $ 2,303 $93,841 $ 2,206 $96,160 $ 2,954 $75,128 $ 2,658 $74,372
======= ======== ======= ========= ======= ========= ======= =========
<CAPTION>
1990 1989
----------------------- -----------------------
AMOUNT GROSS AMOUNT GROSS
OF LOANS OF LOANS
ALLOWANCE OUTSTANDING ALLOWANCE OUTSTANDING
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural.... $ 382 $16,222 $ 430 $19,033
Consumer.............. 109 4,566 133 4,873
Real estate........... 1,792 58,443 2,293 62,996
Other................. 15 809 25 289
------- --------- ------- ---------
Total............... $ 2,298 $80,040 $ 2,881 $87,191
======= ========= ======= =========
</TABLE>
39
<PAGE> 44
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 1994 31, 1993
------------------------------------------------ --------
MATURING
MATURING AFTER ONE MATURING
IN ONE YEAR MATURING IN ONE
YEAR OR THROUGH AFTER FIVE YEAR OR
LESS FIVE YEARS YEARS TOTAL LESS
-------- ---------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
Commercial............................................... $ 5,462 $ 3,457 $ 32 $ 8,951 $ 5,062
Consumer................................................. 3,726 3,280 180 7,186 3,891
Real Estate.............................................. 12,957 49,909 14,249 77,115 13,750
Other.................................................... -- 589 -- 589 --
------- --------- --------- ------- -------
$22,145 $ 57,235 $14,461 $93,841 $22,703
======= ========= ========= ======= =======
<CAPTION>
MATURING
AFTER ONE
YEAR MATURING
THROUGH AFTER FIVE
FIVE YEARS YEARS TOTAL
---------- ----------- -------
<S> <C> <C> <C>
Commercial............................................... $ 3,274 $ 797 $ 9,133
Consumer................................................. 2,856 614 7,361
Real Estate.............................................. 33,459 31,757 78,966
Other.................................................... 700 -- 700
--------- --------- -------
$ 40,289 $33,168 $96,160
========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
DUE IN DUE AFTER DUE IN DUE AFTER
ONE YEAR ONE YEAR TOTAL ONE YEAR ONE YEAR TOTAL
--------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans at fixed interest rates........................ $ 7,200 $17,749 $24,949 $ 7,130 $17,961 $25,091
Loans at variable interest rates..................... 14,945 53,947 68,892 15,573 55,496 71,069
--------- --------- ------- --------- --------- -------
$22,145 $71,696 $93,841 $22,703 $73,457 $96,160
======== ======== ======= ======== ======== =======
</TABLE>
40
<PAGE> 45
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
INVESTMENTS
(AMOUNTS IN THOUSANDS)
The following table sets forth the book value of the securities in the
Bank's portfolio by type at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 -----------------------------
1994 1993 1992 1991
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Treasury........................................... $12,545 $12,703 $12,233 $12,280
U.S. Government agencies................................ 68,137 73,300 48,980 50,535
State and political subdivisions........................ 5,360 4,659 1,529 110
Other................................................... 1,283 978 154 154
Held for Sale securities................................ 0 0 5,702 0
------- ------- ------- -------
Total securities................................... $87,325 $91,640 $68,598 $63,079
======= ======= ======= =======
</TABLE>
41
<PAGE> 46
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
INVESTMENTS
(AMOUNTS IN THOUSANDS)
The following table set forth the book value, maturity and approximate
yields of the securities in the Bank's portfolio by type based on contractual
maturity at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30, 1994 DECEMBER 31, 1993
--------------------- ---------------------
TYPE AND MATURITY YIELD(1) AMOUNT YIELD(1) AMOUNT
- ---------------------------------------------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
U.S. Treasury:
One year or less.................................. 5.43% $ 513 0.00% $ 0
Over one through five years....................... 6.05 12,032 7.02 5,722
Over five through ten years....................... 0.00 0 7.94 6,981
Over ten years.................................... 0.00 0 0.00 0
------ ------- ------ -------
Total........................................ 6.03% $12,545 7.52% $12,703
====== ======= ====== =======
U.S. Government agencies:
One year or less.................................. 0.00% $ 0 0.00% $ 0
Over one through five years....................... 5.16 8,274 4.94 5,182
Over five through ten years....................... 7.21 2,159 6.14 4,145
Over ten years.................................... 5.38 57,704 5.19 63,973
------ ------- ------ -------
Total........................................ 5.41% $68,137 5.23% $73,300
====== ======= ====== =======
States and political subdivisions:
One year or less.................................. 5.26% $ 280 4.24% $ 86
Over one through five years....................... 6.20 1,727 5.93 910
Over five through ten years....................... 6.76 3,353 6.83 3,663
Over ten years.................................... 0.00 0 0.00 0
------ ------- ------ -------
Total........................................ 6.50% $ 5,360 6.74% $ 4,659
====== ======= ====== =======
Total investment securities:
One year or less.................................. 5.37% $ 792 4.92% $ 86
Over one through five years....................... 5.73 22,033 6.03 11,814
Over five through ten years....................... 6.94 5,513 7.16 14,789
Over ten years.................................... 5.38 57,704 5.19 63,973
------ ------- ----- - -------
Total........................................ 5.57% $86,042 5.62% $90,662
====== ======= ====== =======
No contractual maturity........................... 4.72% $ 1,283 4.75% $ 978
------ ------- ----- - -------
Total Investment Securities......................... 5.56% $87,325 5.61% $91,640
====== ======= ====== =======
</TABLE>
- -------------------------
(1) Yields were determined by dividing aggregate annual interest income by
aggregate book value. The yields for tax-exempt securities have been
computed on a fully tax equivalent basis using a tax rate of 34%.
The Bank does not hold securities by any single issuer (other than the U.S.
Government) totaling more than 10% of stockholders' equity.
42
<PAGE> 47
FIRST NATIONAL BANK OF KERRVILLE
SELECTED STATISTICAL DISCLOSURE
TIME CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS IN DENOMINATIONS
OF $100,000 OR MORE AT INDICATED DATES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
UNDER THREE THREE TO SIX TO TWELVE OVER TWELVE
MONTHS SIX MONTHS MONTHS MONTHS TOTAL(1)
------------ ---------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
June 30, 1994..................... $ 461 $1,300 $ 4,076 $ 2,716 $ 8,553
December 31, 1993................. 5,217 2,300 1,515 0 9,032
December 31, 1992................. 5,405 2,400 1,200 0 9,005
December 31, 1991................. 7,980 4,605 2,302 250 15,137
</TABLE>
- -------------------------
Note (1) Total includes $376, $300 and $1,757 in public fund certificates of
deposit greater than $100,000 in 1993, 1992 and 1991 respectively.
43
<PAGE> 48
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 respective banks
below 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 the
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 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
44
<PAGE> 49
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 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. sec.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 will
be 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 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
45
<PAGE> 50
defined to be adequately capitalized if it 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.
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 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.
46
<PAGE> 51
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.
EXPERTS
The consolidated financial statements of Norwest Corporation 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 financial statements of First National Bank of Kerrville as of December
31, 1993 and 1992, and for each of the years in the three-year period ended
December 31, 1993, included herein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein 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 Consolidation 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. At June 30,
1994, Mr. Stroup was the beneficial owner of approximately 108,083 shares and
held options to acquire 215,931 additional shares of Norwest Common Stock.
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, as amended by Form 10-K/A dated May 13, 1994, which are
incorporated in this Proxy Statement-Prospectus by reference. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of the Bank desiring copies of
such documents may contact Norwest at its address or phone number indicated
under "AVAILABLE INFORMATION" above.
47
<PAGE> 52
FIRST NATIONAL BANK OF KERRVILLE
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of June 30, 1994 (unaudited) and December 31, 1993 and
1992................................................................................ F-4
Consolidated Statements of Income for the Six Months Ended June 30, 1994 and 1993
(unaudited) and the Years Ended December 31, 1993, 1992 and 1991.................... F-5
Consolidated Statements of Shareholders' Investment for the Six Months Ended June 30,
1994 (unaudited) and the Years Ended December 31, 1993, 1992 and 1991............... F-6
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1994 and 1993
(unaudited) and the Years Ended December 31, 1993, 1992 and 1991.................... F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
First National Bank of Kerrville:
We have audited the accompanying consolidated balance sheets of First
National Bank of Kerrville and subsidiary (collectively, the Bank) as of
December 31, 1993 and 1992, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Bank'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 financial statements referred to above present fairly,
in all material respects, the financial position of First National Bank of
Kerrville and subsidiary as of 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/ Arthur Andersen LLP
Houston, Texas
January 28, 1994
F-2
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
First National Bank of Kerrville:
We have audited the accompanying statements of condition of First National
Bank of Kerrville (the Bank) as of December 31, 1992 and 1991, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly,
in all material respects, the financial position of First National Bank of
Kerrville as of December 31, 1992 and 1991, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Houston, Texas
January 28, 1993 (except with respect
to the matter discussed in Note 11, as
to which the date is April 30, 1993)
F-3
<PAGE> 55
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30, 1994 ----------------------------
------------- 1993 1992
(UNAUDITED) ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................ $ 6,735,064 $ 6,836,748 $ 5,347,155
Federal funds sold................................. 8,225,000 11,550,000 15,400,000
------------- ------------ ------------
Cash and cash equivalents.......................... 14,960,064 18,386,748 20,747,155
Investment securities available for sale........... 84,663,364 -- --
Investment securities held to maturity............. 2,661,598 91,640,421 62,896,315
Investment securities held for sale................ -- -- 5,701,519
------------- ------------ ------------
Total investment securities, net (Note 3).......... 87,324,962 91,640,421 68,597,834
Loans, net (Notes 4 and 8)......................... 91,537,757 93,953,920 72,173,823
Premises and equipment, net (Note 5)............... 4,976,862 5,031,643 2,152,152
Accrued interest receivable........................ 1,413,814 1,278,705 1,224,889
Other real estate owned, net (Note 4).............. 2,258,195 2,606,322 5,052,470
Core deposit intangible (Note 11).................. 915,956 898,717 --
Deferred federal income taxes (Note 7)............. 590,832 459,504 870,050
Other assets....................................... 191,425 100,091 111,855
------------- ------------ ------------
$ 204,169,867 $214,356,071 $170,930,228
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 6).................................. $ 187,001,631 $193,621,907 $158,143,130
Accounts payable and accrued liabilities........... 462,710 512,360 545,615
Accounts payable to broker (Note 3)................ -- 4,588,821 --
------------- ------------ ------------
Total liabilities............................. 187,464,341 198,723,088 158,688,745
------------- ------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity (Note 10):
Common Stock ($100 par value; authorized 50,000
shares in 1994, 1993 and 1992; issued and
outstanding $25,000 shares in 1994, 1993 and
1992)......................................... 2,500,000 2,500,000 2,500,000
Capital Surplus................................. 2,640,000 2,640,000 2,640,000
Unrealized Holding Losses, net of taxes......... (531,663)
Retained Earnings............................... 12,097,189 10,492,983 7,101,483
------------- ------------ ------------
Total stockholders' equity.................... 16,705,526 15,632,983 12,241,483
------------- ------------ ------------
$ 204,169,867 $214,356,071 $170,930,228
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 YEAR ENDED DECEMBER 31
------------------------ -----------------------------------------
1994 1993 1993 1992 1991
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees................. $3,968,342 $3,241,723 $ 7,200,287 $ 6,582,264 $ 8,169,307
Investment securities --
Taxable............................. 2,206,607 2,086,803 4,479,456 4,867,708 5,181,248
Tax-exempt.......................... 123,059 58,710 142,749 69,779 63,142
Time deposits with banks.............. -- -- -- 93,006 227,638
Federal funds sold.................... 116,836 196,674 316,558 314,178 784,982
---------- ---------- ----------- ----------- -----------
Total interest income.......... 6,414,844 5,583,910 12,139,050 11,926,935 14,426,317
---------- ---------- ----------- ----------- -----------
INTEREST EXPENSE:
Time Deposits......................... 791,845 819,360 1,661,843 2,555,336 5,118,204
Savings and money market deposits..... 589,601 549,754 1,154,511 1,153,176 1,583,160
NOW accounts.......................... 594,656 396,602 1,064,649 992,070 1,251,346
Other................................. 7,055 5,856 11,539 15,657 25,554
---------- ---------- ----------- ----------- -----------
Total interest expense......... 1,983,157 1,771,572 3,892,542 4,716,239 7,978,264
---------- ---------- ----------- ----------- -----------
Net interest income............ 4,431,687 3,812,338 8,246,508 7,210,696 6,448,053
PROVISION FOR LOAN LOSSES (Note 4)...... -- -- (1,500,000) 135,000 1,166,000
---------- ---------- ----------- ----------- -----------
Net interest income after
provision for loan losses.... 4,431,687 3,812,338 9,746,508 7,075,696 5,282,053
---------- ---------- ----------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts... 555,794 422,660 1,017,460 851,418 787,870
Trust service fees.................... 349,166 312,498 668,202 620,162 444,227
Gain on sale of investment
securities.......................... 247,302 450,517 459,517 13,606 499,242
Gain on sale of other real estate
owned............................... 216,476 250,964 337,299 29,144 --
Other................................. 221,628 207,397 456,154 390,538 293,553
---------- ---------- ----------- ----------- -----------
Total noninterest income....... 1,590,366 1,644,036 2,938,632 1,904,868 2,024,892
---------- ---------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits........ 1,604,143 1,231,861 2,899,092 2,306,678 2,048,797
Equipment............................. 200,048 114,196 303,442 221,874 178,206
Data processing....................... 281,503 202,530 445,065 382,317 274,563
Communication and supplies............ 169,039 151,420 349,880 309,296 321,251
FDIC assessment....................... 213,419 194,847 444,680 341,017 332,427
Net occupancy......................... 207,683 115,622 331,162 231,081 213,242
Operation of other real estate owned,
net................................. 66,397 116,020 172,679 348,226 289,593
Write-downs of other real estate
owned............................... 18,500 55,137 327,460 211,228 305,054
Legal and professional................ 360,008 359,130 666,137 482,404 562,820
Travel and entertainment.............. 164,889 122,728 283,739 163,983 81,787
Other................................. 363,871 335,466 784,371 722,796 984,339
---------- ---------- ----------- ----------- -----------
Total noninterest expense...... 3,649,500 2,998,957 7,007,707 5,720,900 5,592,079
---------- ---------- ----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME TAX EXPENSE
AND EXTRAORDINARY ITEM................ 2,372,553 2,457,417 5,677,433 3,259,664 1,714,866
FEDERAL INCOME TAX EXPENSE (Note 7)..... 768,347 825,204 1,785,933 1,116,120 571,967
---------- ---------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM........ 1,604,206 1,632,213 3,891,500 2,143,544 1,142,899
EXTRAORDINARY ITEM, net operating loss
carryforward (Note 7)................. -- -- -- 288,233 571,967
---------- ---------- ----------- ----------- -----------
NET INCOME.............................. $1,604,206 $1,632,213 $ 3,891,500 $ 2,431,777 $ 1,714,866
========== ========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 57
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992,
AND THE SIX MONTH PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
(NOTE 1)
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED TOTAL
-------------------- CAPITAL HOLDING RETAINED STOCKHOLDERS'
BALANCE SHARES AMOUNT SURPLUS LOSSES, NET EARNINGS EQUITY
- ------------------------- ------ ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1991........ 25,000 $2,500,000 $2,640,000 $ -- $ 4,819,706 $ 9,959,706
Cash Dividend.......... -- -- -- -- (150,000) (150,000)
Net Income............. -- -- -- -- 2,431,777 2,431,777
------ ---------- ---------- ----------- ----------- -------------
December 31, 1992........ 25,000 $2,500,000 $2,640,000 $ -- 7,101,483 12,241,483
Cash Dividend.......... -- -- -- -- (500,000) (500,000)
Net Income............. -- -- -- -- 3,891,500 3,891,500
------ ---------- ---------- ----------- ----------- -------------
December 31, 1993........ 25,000 $2,500,000 $2,640,000 -- $10,492,983 $ 15,632,983
Unrealized Holding
Losses, net of
taxes............... -- -- -- (531,663) -- (531,663)
Net Income............. 1,604,206 1,604,206
------ ---------- ---------- ----------- ----------- -------------
June 30, 1994
(Unaudited)............ 25,000 $2,500,000 $2,640,000 $ (531,663) $12,097,189 $ 16,705,526
====== ========= ========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 58
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(NOTE 2)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30 YEAR ENDED DECEMBER 31
--------------------------- ------------------------------------------
1994 1993 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item........ $ 1,604,206 $ 1,632,213 $ 3,891,500 $ 2,143,544 $ 1,142,899
Adjustments to reconcile net income to
net cash provided by operating
activities --
Gain on sale of investment
securities....................... (247,302) (450,517) (459,517) (13,606) (499,242)
Provision for loan losses........... -- -- (1,500,000) 135,000 1,166,000
Write-downs of other real estate
owned............................ 18,500 55,137 327,460 211,228 305,054
Depreciation and amortization....... 448,951 198,329 736,027 375,357 168,837
Gain on sale of other real estate
owned............................ (216,476) (250,964) (337,299) (29,144) --
Deferred tax provision, net of
extraordinary item............... (131,328) (270,791) 410,546 56,395 177,758
Changes in assets and liabilities --
Accrued interest receivable...... (135,109) 187,014 267,547 64,850 315,844
Other assets........................ (168,488) (315,579) 106,992 259,648 (102,672)
Accounts payable and accrued
liabilities...................... (49,650) 60,707 (195,512) (470,366) (250,730)
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities..................... 1,123,304 845,549 3,247,744 2,732,906 2,423,748
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in time deposits with
banks................................. -- -- -- 3,653,000 (577,000)
Proceeds from sales of investment
securities............................ 7,229,687 5,876,030 5,884,758 860,089 11,744,903
Proceeds from maturities of investment
securities............................ 13,137,333 7,138,663 23,129,319 17,990,137 17,521,109
Purchases of investment securities...... (21,113,532) (12,220,174) (29,662,488) (27,488,816) (28,201,400)
Net decrease in loans to customers...... 2,600,441 1,286,250 2,688,759 289,612 6,128,014
Additions to premises and equipment..... (145,466) (379,281) (927,035) (269,144) (566,097)
Cash proceeds from the sale of other
real estate owned..................... 361,825 316,920 458,971 806,097 155,593
Capitalized expenditures -- other real
estate................................ -- (129,654) (241,183) -- --
Acquisition of a bank, net of cash paid
(Note 11)............................. -- -- 8,228,701 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities................ 2,070,288 1,888,754 9,559,802 (4,159,025) 6,205,122
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits..... (6,620,276) (6,600,088) (14,667,953) 5,521,771 (10,907,080)
Dividends paid on common stock.......... -- -- (500,000) (150,000) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities................ (6,620,276) (6,600,088) (15,167,953) 5,371,771 (10,907,080)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. (3,426,684) (3,865,785) (2,360,407) 3,945,652 (2,278,210)
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 18,386,748 20,747,155 20,747,155 16,801,503 19,079,713
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
end of period........................... $ 14,960,064 $ 16,881,370 $ 18,386,748 $ 20,747,155 $ 16,801,503
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 59
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the First National Bank of
Kerrville (the Bank) conform to generally accepted accounting principles and to
general practices within the banking industry. A description of the more
significant of these policies follows.
Interim Consolidated Financial Statements (Unaudited)
The consolidated balance sheet as of June 30, 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for the
six months ended June 30, 1994 and 1993, are unaudited and are not covered by
the report of independent public accountants. However, in the opinion of
management, these interim consolidated financial statements include all
adjustments (consisting of only normal recurring adjustments) which are
necessary for the fair presentation of the results for the interim periods
presented. The results of operations for the unaudited six-month period ended
June 30, 1994 are not necessarily indicative of the results which may be
expected for the entire 1994 fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank and
its wholly owned subsidiary, WNB Asset Management, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investment Securities
Investment securities are stated at cost, adjusted for the amortization of
premiums and the accretion of discounts, which are recognized on the effective
yield method as adjustments to interest income. Gains or losses on disposition
are based on the net proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method.
Temporary changes in the market value of investment securities are not
recognized since it is generally management's intention to hold such securities
to maturity. Investment securities held-for-sale represent those securities
specifically identified by management for disposition and are stated at the
lower of cost or market value. The estimated market value of investment
securities held-for-sale was $6,158,721 at December 31, 1992. The Bank had no
investment securities held-for-sale at December 31, 1993.
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." SFAS No. 115 is effective
for financial statements issued for fiscal years beginning after December 15,
1993. The new standard requires the classification of securities into three
categories: held-to-maturity, available-for-sale or trading. Investments
classified as held-to-maturity are measured at amortized cost only if the
reporting enterprise has the positive intent and ability to hold those
securities to maturity. Securities that are bought and held principally for the
purpose of selling them in the near term shall be classified as trading
securities. Unrealized holding gains and losses shall be included in earnings.
Investments not classified as trading securities or held-to-maturity securities
shall be classified as available-for-sale. Securities that would be sold in
response to changes in market interest rates and the securities' prepayment
risk, needs for liquidity or changes in the availability and yield on
alternative investments are classified as available-for-sale. Unrealized holding
gains and losses shall be excluded from earnings and reported as a net amount in
a separate component of stockholders' equity (net of deferred taxes) until
realized. SFAS No. 115 was initially applied as of the beginning of the Bank's
fiscal year, January 1, 1994, and, in accordance with SFAS 115, was not applied
retroactively. The Bank had $90,291,332 of securities which were reflected as
available-for-sale as
F-8
<PAGE> 60
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
of January 1, 1994. These securities will be reported at fair value and any net
unrealized gains and losses recorded as a separate component of stockholder's
equity (net of deferred taxes). As of January 1, 1994, this classification
resulted in unrealized appreciation of $2,056,521. This was reflected as an
increase to available-for-sale securities of $2,056,521 and a corresponding
increase to stockholders' equity and deferred tax liabilities of $1,357,304 and
$699,217, respectively. As of June 30, 1994 (unaudited), the Bank had unrealized
holding losses of $805,546 reflected in the available-for-sale portfolio, a
corresponding decrease to stockholders' equity of $531,663, and a deferred tax
asset of $273,883.
Loans
Interest earned on commercial and real estate loans is accrued daily based
upon the principal amounts outstanding. Interest on installment loans is
recorded on the level-yield method. The recognition of income on a loan is
discontinued, and previously accrued interest is reversed, when interest or
principal payments become 90 days past due unless, in the opinion of management,
the outstanding principal and interest are both well secured and in process of
collection. Loans to customers whose financial conditions have deteriorated and
for which management has serious doubt as to the ability of the borrowers to
comply with their loan repayment terms are considered for nonaccrual status
whether or not the loans are 90 days or more past due. Subsequent cash payments
received are applied to the principal balance or recorded as interest income,
depending upon management's assessment of the ultimate collectibility of the
loan. If cash payments received relate to a loan previously charged off, in
whole or in part, payments not applied to the remaining principal balance are
recorded as recoveries.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is effective for financial statements issued
for fiscal years beginning after December 15, 1994, although earlier adoption is
permitted. The new standard addresses the accounting by creditors for impairment
of certain loans, as well as the accounting for troubled debt restructurings. A
loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The standard requires that impaired
loans be measured based on the present value of expected future cash flows for
each loan discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The Bank will adopt this
standard in 1995. Based on the loan portfolio as of June 30, 1994 (unaudited),
management believes the implementation of this standard will not have a material
effect on the Bank's financial position or results of operations.
Allowance for Loan Losses
The allowance for loan losses is established by a charge to income as a
provision for loan losses. Actual loan losses or recoveries are charged or
credited directly to this allowance. The provision for loan losses is based on
management's estimate of the amounts required to maintain an allowance adequate
to reflect losses inherent in the loan portfolio at the balance sheet date;
however, ultimate losses may vary from the current estimates. In estimating
losses, consideration is given to the financial condition of the borrower,
guarantor, current and anticipated economic conditions and collateral values.
These estimates are reviewed periodically, and adjustments to either increase or
decrease the allowance are reported in earnings in the period in which they
become known.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method over estimated useful
lives ranging from 5 to 40 years for building and improvements
F-9
<PAGE> 61
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
and from 3 to 20 years for furniture and equipment. Repairs and maintenance are
charged to expense as incurred, and expenditures for renewals and betterments
which materially increase the value of the premises and equipment and have a
benefit over more than one accounting period are capitalized.
Other Real Estate Owned
Assets acquired, either formally (in full or partial settlement of loan
obligations) or through substantive foreclosure, are recorded at the lower of
the loan balance or estimated fair value. Additional writedowns for estimated
losses are subsequently provided when the carrying value of the real estate
exceeds its fair value less estimated selling costs. Subsequent write-downs are
reported in earnings in the period in which they become known. Other real estate
owned incudes loans of $815,034 at December 31, 1992, classified as in-substance
foreclosures." The Bank had no "in-substance foreclosures" at December 31, 1993.
Federal Income Taxes
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income
Taxes," effective for fiscal years beginning after December 15, 1992. The new
standard allows the recognition of deferred tax assets and liabilities based on
the expected future tax consequences of existing differences between financial
reporting and tax reporting base of assets and liabilities and operating loss
and tax credit carry forwards for tax purposes. As of January 1, 1993, the new
standard was adopted by the Bank, and this change did not have a significant
impact on the Bank's financial position or results of operations.
Recognition of Loan Origination Fees and Costs
Loan origination and commitment fees paid by borrowers, net of loan
origination costs, are deferred and amortized as an adjustment to interest
income over the contractual life of the related loans using a method which
approximates the interest method. If a commitment expires unexercised, the
commitment fee is recognized as income.
Fair Value of Financial Instruments
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." SFAS No. 107 requires all entities to disclose
the fair value of financial instruments, both assets and liabilities recognized
and not recognized in the balance sheet, for which it is practicable to estimate
fair value. The standard defines a financial instrument as cash, evidence of an
ownership in any entity, or a contract that conveys or imposes on an entity the
contractual right or obligation to either receive or deliver cash or another
financial instrument. Fair value is defined as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation, and is best evidenced by a quoted
market price if one exists.
The following represents the methodology and assumptions used to estimate
the fair value of the Bank's financial instruments presented below. The Bank
operates as a going concern and, except for its investment securities portfolio,
no active market exists for its financial instruments. Much of the information
used to determine fair value is highly subjective and judgmental in nature and,
therefore, the results may not be precise. The subjective factors include, among
other things, estimates of cash flows, risk characteristics, credit quality and
interest rates, all of which are subject to change. Since the fair value is
estimated as of the balance sheet date, the amounts which will actually be
realized or paid upon sale, settlement or maturity of the various instruments
could be significantly different. Fair value estimates, methods and assumptions
for investment securities, loans, deposits and off balance sheet financial
instruments are set forth in the notes to the consolidated financial statements.
Cash and due from banks, federal funds sold, accrued interest receivable
F-10
<PAGE> 62
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
and payable and certain other assets and liabilities have been valued at their
respective carrying amounts due to their short-term nature.
Reclassifications
Certain reclassifications have been made to previously reported amounts to
make them consistent with current reporting.
2. STATEMENTS OF CASH FLOWS:
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods.
Cash paid for interest was approximately $3,873,300, $4,889,000 and
$8,202,000 and cash paid for federal income taxes was approximately $1,364,000,
$1,372,000 and $212,000 during 1993, 1992 and 1991, respectively.
Noncash transactions representing the transfer of other real estate owned
to performing loans totaled $2,110,324, $1,874,347 and $1,265,000 during 1993,
1992 and 1991, respectively. Noncash transactions representing the transfer of
nonperforming loans to other real estate owned were approximately $245,093,
$989,000 and $2,693,000 during 1993, 1992 and 1991, respectively.
3. INVESTMENT SECURITIES:
The book value, amortized cost and market value of investment securities
available-for-sale and held-to-maturity, by type, together with unrealized
holding gains and losses as of June 30, 1994 (unaudited), are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1994 (UNAUDITED)
-----------------------------------------------------------
MARKET UNREALIZED
BOOK VALUE AMORTIZED COST VALUE GAIN/(LOSS)
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury........................... $12,544,921 $ 12,682,790 $12,544,921 $(137,869)
U.S. Government agencies................ 68,136,988 68,719,359 68,136,988 (582,371)
State and political subdivisions........ 3,981,455 4,066,761 3,981,455 (85,306)
Other................................... -- -- -- --
----------- -------------- ----------- -----------
$84,663,364 $ 85,468,910 $84,663,364 $(805,546)
========== =========== ========== =========
HELD-TO-MATURITY
U.S. Treasury........................... $ -- $ -- $ -- $ --
U.S. Government agencies................ -- -- -- --
State and political subdivisions........ 1,378,297 1,378,297 1,314,569 (63,728)
Other................................... 1,283,301 1,283,301 1,283,301 --
----------- -------------- ----------- -----------
$ 2,661,598 $ 2,661,598 $ 2,597,870 $ (63,728)
========== =========== ========== =========
</TABLE>
F-11
<PAGE> 63
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
A comparison of investment securities, excluding those held-for-sale, at
book and estimated market values, as determined by an independent broker, as of
December 31, 1993 and 1992, respectively, is shown below:
<TABLE>
<CAPTION>
1993 1992
-------------------------- --------------------------
MARKET MARKET
BOOK VALUE VALUE BOOK VALUE VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury............................. $12,703,253 $13,986,018 $12,233,546 $12,998,281
U.S. Government agencies.................. 73,299,648 74,036,207 48,979,832 49,217,661
State and political subdivisions.......... 4,658,930 4,675,664 1,528,737 1,498,011
Other..................................... 978,590 978,590 154,200 154,200
----------- ----------- ----------- -----------
$91,640,421 $93,676,479 $62,896,315 $63,868,153
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993 1992
-------------------------- --------------------------
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury............................. $1,282,765 $ -- $ 764,735 $ --
U.S. Government agencies.................. 830,663 (94,104) 423,838 (186,009)
State and political subdivisions.......... 53,170 (36,436) 1,240 (31,966)
Other..................................... -- -- -- --
----------- ----------- ----------- -----------
$2,166,598 $(130,540) $1,189,813 $(217,975)
========== ========== ========== ==========
</TABLE>
The book and market values and amortized cost and market values for
held-to-maturity securities and available-for-sale securities, respectively, at
June 30, 1994 (unaudited), by expected maturity are shown below:
<TABLE>
<CAPTION>
JUNE 30, 1994 (UNAUDITED)
------------------------------------------------------------
HELD-TO- HELD-TO- AVAILABLE- AVAILABLE-
MATURITY MATURITY FOR-SALE FOR-SALE
BOOK VALUE MARKET VALUE AMORTIZED COST MARKET VALUE
---------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Due within one year........................ $ -- $ -- $ 860,207 $ 859,271
Due after one but within five years........ 350,000 344,224 46,513,172 46,042,654
Due after five but within ten years........ 1,028,297 970,345 21,944,537 21,779,627
Due after 10 years......................... -- -- 16,150,994 15,981,812
No contractual maturity.................... 1,283,301 1,283,301 -- --
---------- ------------ -------------- ------------
Total.................................... $2,661,598 $2,597,870 $ 85,468,910 $ 84,663,364
========= ========== =========== ==========
</TABLE>
F-12
<PAGE> 64
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
The book and estimated market values of investment securities, excluding
those held-for-sale, as of December 31, 1993 and 1992, by expected maturity are
shown below:
<TABLE>
<CAPTION>
1993 1992
-------------------------- --------------------------
MARKET MARKET
BOOK VALUE VALUE BOOK VALUE VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due within one year....................... $ 5,088,314 $ 5,127,328 $ 3,128,953 $ 3,175,924
Due after one but within five years....... 32,389,849 33,197,288 17,861,964 18,033,622
Due after five but within ten years....... 24,663,128 25,737,752 28,161,079 28,919,446
Due after 10 years........................ 28,520,540 28,635,521 13,590,119 13,584,961
No contractual maturity................... 978,590 978,590 154,200 154,200
----------- ----------- ----------- -----------
Total................................ $91,640,421 $93,676,479 $62,896,315 $63,868,153
========== ========== ========== ==========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties.
Certain U.S. Government agency securities having book and estimated market
values of $5,701,519 and $6,158,721, respectively, were designated as
held-for-sale by the Bank as of December 31, 1992. During 1993, these
held-for-sale securities were sold for $5,884,758, resulting in a gain totaling
$459,517. The Bank had no other sales of investment securities in 1993. In June
1992, the Bank sold three U.S. Government agency securities for $860,089 at a
gain of $13,606. The sales of the fixed-rate U.S. Government agencies during
1993 and 1992 were made to restructure the investment portfolio into
variable-rate instruments in order to reduce the Bank's overall exposure to
interest rate risk. In all cases, the sales proceeds were immediately reinvested
in adjustable-rate instruments with extended maturities.
In May 1994, the Bank sold U.S. Treasury Notes for $7,218,865, resulting in
a $247,302 gain. Sales proceeds were used to purchase fixed rate U.S. Government
agency securities which are maintained in the Bank's available-for-sale
portfolio.
Investment securities having a par value of approximately $3,900,000 and
$7,593,000 at December 31, 1993 and 1992, respectively, were pledged to secure
public fund deposits and for other purposes required or permitted by law.
Prior to December 31, 1993, the Bank purchased $4,588,821 of investment
securities and recorded such acquisition on the trade date. The settlement date
was subsequent to year-end when payment was made.
4. LOANS AND ALLOWANCE FOR LOAN LOSSES AND OTHER REAL ESTATE OWNED:
The Bank grants commercial, real estate and installment loans to customers
primarily in Kerrville, Texas, and the surrounding area. Although the Bank has a
diversified loan portfolio, a substantial portion of its
F-13
<PAGE> 65
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
debtors' ability to honor their contracts is dependent upon the real estate
economic sector. Loans as of June 30, 1994 (unaudited), December 31, 1993 and
1992, are classified in the following categories.
<TABLE>
<CAPTION>
JUNE 30, 1994
------------- 1993 1992
(UNAUDITED) ----------- -----------
<S> <C> <C> <C>
Commercial.............................. $ 8,951,295 $ 9,132,796 $ 7,785,093
Real Estate............................. 77,203,544 79,040,508 61,933,861
Installment............................. 7,184,182 7,389,767 4,843,776
Other................................... 588,956 700,472 648,948
------------- ----------- -----------
$ 93,927,977 $96,263,543 $75,211,678
Less --
Unearned Income....................... $ (87,261) $ (103,744) $ (83,945)
Allowance for loan losses............. (2,302,959) (2,205,879) (2,953,910)
------------- ----------- -----------
$ 91,537,757 $93,953,920 $72,173,823
========== ========== ==========
</TABLE>
As of December 31, 1993 and 1992, the estimated fair value of the Bank's
net loan portfolio was approximately $97,238,000 and $75,793,000, respectively.
For purposes of determining the fair value of loans at December 31, 1993 and
1992, the loan portfolio was stratified into various homogeneous groupings
having like characteristics and maturities. Expected future cash flows were
discounted using a risk-free rate adjusted for certain factors which include
credit risk, prepayment risk and an expense and overhead component at year-end
for each grouping. The assigned discount rate may or may not be the contractual
rate in effect with the obligor. This discount rate is based on the U.S.
Treasury yield curve adjusted for credit risk, prepayment risk and expense and
overhead factors, which were determined using historical information.
An analysis of the allowance for loan losses for the six months ended June
30, 1994 (unaudited), and the years ended December 31, 1993, 1992 and 1991,
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1994 1993 1992 1991
---------------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of period.......... $2,205,879 $ 2,953,910 $2,658,424 $ 2,298,168
Reserve on purchased loans (Note
11)................................ -- 875,614 -- --
Provision for loan losses............. -- (1,500,000) 135,000 1,166,000
Loans charged off..................... (122,566) (741,402) (490,780) (1,294,744)
Recoveries of loans charged off....... 219,646 617,757 651,266 489,000
---------------- ----------- ---------- -----------
Balance at end of period................ $2,302,959 $ 2,205,879 $2,953,910 $ 2,658,424
============= ========== ========= ==========
</TABLE>
The allowance is maintained at a level which management considers to be
adequate to cover estimated losses inherent in the loan portfolio. The Bank's
methodology takes into consideration several factors in determining the level of
the allowance for loan losses. The components that comprise the allowance
include basically two areas: (a) specific allowances on loans and (b) a general
allowance based upon a historical moving average and amounts for factors which
are considered areas of additional risk.
Management of the Bank assesses the adequacy of the allowance for loan
losses quarterly using a multistep procedure. First, loans are reviewed and
categorized as to potential risk based upon an internal grading system. Specific
allowances are then established for any loans with identified loss potential
after consideration of third-party appraisals of collateral value and management
assessments of current economic conditions, guarantor support, cash flows and
other circumstances, as appropriate. A general allowance is then determined
based upon the historical loss experience of the portfolio as a whole. These
estimates are based
F-14
<PAGE> 66
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
upon historical data related to type of loan, risk assessment, historical loss
experience and other factors. Finally, the historical loss experience is
adjusted based on estimates of losses in the portfolio as a whole that cannot be
identified with specific loans, taking into consideration local and national
economic trends, volume of past due and seriously delinquent loans,
nonperforming loans, loan concentrations and other similar factors. These
considerations are not limited to previous collection experience and include
estimates of the effect of changing business trends and other environmental
conditions. As conditions are continually changing, it is necessary for
management to review the loan portfolio and market conditions quarterly and make
appropriate adjustments to the allowance. Management believes that the allowance
for loan losses at June 30, 1994 (unaudited), December 31, 1993 and 1992, was
adequate to cover expected losses based on economic circumstances known or
anticipated at that time.
As of December 31, 1993, 1992 and 1991, interest income was not being
accrued on loans totaling approximately $2,022,000, $2,530,000 and $3,796,000,
respectively. If interest had been recognized at the stated or original rates,
interest income would have been increased by approximately $166,000 in 1993,
$209,000 in 1992, and $199,000 in 1991.
As of December 31, 1993 and 1992, restructured loans totaled $928,689 and
$442,049, respectively. The effect on net interest income resulting from the
difference between the interest recognized on such loans and the interest that
would have been recognized at the original rate was $16,883 and $11,682,
respectively. Interest income recorded on such loans was approximately $71,000
and $36,000 for the years ended December 31, 1993 and 1992, respectively.
Assets acquired, either formally (in full or partial settlement of loan
obligations) or through substantive foreclosure, are recorded in other real
estate owned upon foreclosure at the lower of the loan balance or estimated fair
value and totaled $2,606,322 and $5,052,470 at December 31, 1993 and 1992,
respectively. Subsequently, the assets are recorded at the lower of the new cost
basis established at foreclosure or fair market values less estimated selling
costs. Subsequent valuation adjustments are represented by an allowance against
the original basis in the foreclosed asset.
An analysis of the allowance for foreclosed assets for the years ended
December 31, 1993, 1992 and 1991, follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year.............. $ 1,708,907 $1,580,187 $1,318,189
Provision for losses.................... 327,460 211,228 305,000
Reductions upon sale of related
assets............................... (1,058,439) (82,508) (43,000)
----------- ---------- ----------
Balance at end of year.................... $ 977,928 $1,708,907 $1,580,189
========== ========= =========
</TABLE>
F-15
<PAGE> 67
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
5. PREMISES AND EQUIPMENT:
The following is a summary of premises and equipment as of June 30, 1994
(unaudited), December 31, 1993 and 1992:
<TABLE>
<CAPTION>
JUNE 30,
1994 1993 1992
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land.................................... $ 675,602 $ 675,602 $ 454,497
Buildings and improvements.............. 5,057,700 5,006,299 2,598,505
Furniture and Equipment................. 2,537,157 2,525,526 1,482,205
----------- ----------- -----------
8,270,459 8,207,427 4,535,207
Less -- Accumulated depreciation........ (3,293,597) (3,175,784) (2,383,055)
----------- ----------- -----------
$ 4,976,862 $ 5,031,643 $ 2,152,152
========== ========== ==========
</TABLE>
6. DEPOSITS:
The following is a summary of deposits as of June 30, 1994 (unaudited),
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
JUNE 30,
1994 1993 1992
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Demand deposits...................... $ 31,670,347 $ 32,571,771 $ 22,184,904
NOW accounts......................... 58,482,617 62,441,368 39,702,459
Savings and money market deposits.... 50,163,333 48,805,755 44,160,018
Time deposits........................ 46,685,334 49,803,013 52,095,749
------------ ------------ ------------
$187,001,631 $193,621,907 $158,143,130
=========== =========== ===========
</TABLE>
Time certificates of deposit of $100,000 and over aggregated approximately
$8,656,000 and $8,705,000 at December 31, 1993 and 1992, respectively. Interest
expense on time certificates of deposits was approximately $306,000 in 1993,
$451,000 in 1992, and $1,058,000 in 1991.
Included in time deposits were time certificates of deposit with estimated
fair values of approximately $49,321,000 and $41,703,000 at December 31, 1993
and 1992, respectively. Expected future cash flows of time certificates of
deposit were discounted using current market rates at December 31, 1993 and
1992, for each grouping. The estimated fair value of demand deposits, NOW
accounts, savings and money market deposits and the remaining time deposits was
considered to approximate book value at December 31, 1993 and 1992, reflecting
the amount payable on demand at such date.
7. FEDERAL INCOME TAXES:
As discussed in Note 1, the Bank adopted SFAS No. 109 as of the beginning
of 1993. Previously the Bank was using accounting Principles Bulletin No. 11,
"Accounting for Income Taxes," which deferred the tax effects of timing
differences between financial reporting and taxable income. Under SFAS No. 109,
deferred tax assets or liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted tax rates.
F-16
<PAGE> 68
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
The following represents a reconciliation between tax computed by applying
the 34 percent statutory income tax rate to income before income taxes and
reported income tax expense as of December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- --------
<S> <C> <C> <C>
Calculated tax expense....................... $1,926,927 $1,108,286 $583,054
Increase (decrease) in taxes
Tax Exempt Interest........................ (44,951) (21,932) (19,428)
Other...................................... (96,043) 29,766 8,341
---------- ---------- --------
$1,785,933 $1,116,120 $571,967
========= ========= ========
</TABLE>
The net deferred tax asset at December 31, 1993, is comprised of the
following:
<TABLE>
<S> <C>
Loan loss reserve.................................................. $101,068
ORE reserve........................................................ 332,495
Other.............................................................. 25,941
--------
Net deferred tax asset........................................... $459,504
========
</TABLE>
The following table sets forth the components of the provision for income
taxes for the years ended December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Current..................................... $1,375,387 $1,206,325 $ 773,384
Deferred.................................... 410,546 (90,205) (201,417)
---------- ---------- ---------
$1,785,933 $1,116,120 $ 571,967
========= ========= =========
</TABLE>
During 1992, the Bank wrote off $69,646 of deferred tax assets that could
not be recovered through carrybacks.
In 1992, the Bank utilized approximately $848,000 in net operating loss
carryforwards for federal income tax purposes and reflected the related tax
benefit of $288,233 as an extraordinary item in the accompanying consolidated
financial statements.
Deferred tax assets have increased at June 30, 1994, primarily due to the
accounting treatment for unrealized losses on the Bank's available-for-sale
investments, as required by SFAS No. 115.
8. RELATED-PARTY TRANSACTIONS:
In the ordinary course of business, the Bank extends credit to certain
directors and executive officers of the Bank, and entities related to those
individuals, on substantially the same terms and conditions as for loans to
unrelated parties (see Note 4). Such loans amounted to approximately $1,555,000
and $1,570,000 at December 31, 1993 and 1992, respectively.
The majority stockholder was paid approximately $159,000 and $151,000 in
consulting fees during 1993 and 1992, respectively.
9. COMMITMENTS AND CONTINGENCIES:
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as commitments to extend credit, which are not
reflected in the accompanying financial statements. These instruments involve
elements of credit and interest rate risk in excess of the amounts recognized in
the
F-17
<PAGE> 69
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
balance sheets but are limited to their notional amounts. The Bank had
outstanding standby letters of credit of approximately $793,000 and $157,000 and
commitments to extend credit of approximately $10,537,000 and $5,634,000 as of
December 31, 1993 and 1992, respectively. The credit risks involved in these
instruments are essentially the same as those involved in extending loan
facilities to customers. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for normal balance sheet
instruments. The Bank has provided for possible credit risk in these
transactions in its allowance for loan losses, as appropriate, and does not
anticipate losses in excess of such allowance as a result of these transactions.
The difference between the carrying values and the estimated fair values of
standby letters of credit and commitments to extend credit is not deemed to be
significant.
The Bank is involved in legal actions that are in various stages of
litigation and investigation by the Bank and its legal counsel. Management
believes that the ultimate resolution of these matters will not have a material
adverse affect on the Bank's financial position or results of operations.
10. STOCKHOLDERS' EQUITY:
During 1992, the board of directors of the Bank authorized the granting of
noncompensatory options to purchase 3,700 shares of common stock of the Bank
(the Options) to certain Bank officers. At December 31, 1993, 3,700 options were
outstanding having option prices of approximately $220 to $472 per share, all of
which are fully exercisable. The Options expire at defined periods following the
officers' terminations, but no later than October 30, 2002.
The Office of the Comptroller of the Currency (OCC) and the Federal Deposit
Insurance Corporation (FDIC) have issued comprehensive guidelines implementing
risk-based capital requirements. The guidelines make regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, take off balance sheet exposure into account in assessing capital
adequacy and encourage the holding of liquid, low-risk assets. Under these
guidelines, at December 31, 1993 and 1992, the Bank was required to maintain a
minimum ratio of total capital-to-risk-weighted assets of 8.0 percent of which
at least 4.0 percent must be in the form of Tier I capital. At June 30, 1994
(unaudited), December 31, 1993 and 1992, the percent of total
capital-to-risk-weighted assets was 18.3 percent, 16.4 percent and 17.2 percent,
respectively. The Bank's Tier I capital ratio as of June 30, 1994 (unaudited),
December 31, 1993 and 1992, was 17.1 percent, 15.1 percent and 15.9 percent,
respectively. Tier I leverage ratio is defined as a bank's Tier I capital
divided by its adjusted average total assets (net of allowance for losses). The
minimum leverage ratio is 3.0 percent for banking organizations carrying the
highest regulatory rating. Other institutions are expected to maintain a
leverage ratio of at least 4.0 percent to 5.0 percent depending upon their
particular condition. At June 30, 1994 (unaudited), December 31, 1993 and 1992,
the Bank's Tier I leverage ratio was 7.5 percent, 8.0 percent and 7.3 percent,
respectively.
11. ACQUISITION:
On July 19, 1993, the Bank acquired all of the outstanding stock of the
Bank of Kerrville for approximately $4,774,000. The purchase price includes cash
paid to the previous owners of the Bank of Kerrville and other direct costs of
the acquisition. The acquisition has been accounted for under the purchase
method and, accordingly, the purchase price was allocated to the assets and
liabilities based on their fair market values at July 19, 1993. The operating
results of the Bank of Kerrville have been included in the consolidated
operating results since the date of acquisition. The Bank of Kerrville is a
state-chartered community bank located in Kerrville, Texas, with approximately
$52 million in total assets.
The acquisition resulted in a core deposit intangible being recorded on the
books of the Bank. This intangible is being amortized over eight years.
F-18
<PAGE> 70
FIRST NATIONAL BANK OF KERRVILLE AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1993 AND 1992, AND
INTERIM PERIOD ENDED JUNE 30, 1994 (UNAUDITED)
The following summary, presented on a pro forma basis, combines the
consolidated results of operations as if the Bank of Kerrville had been acquired
as of the beginning of the periods presented, after including the effects of the
amortization of the core deposit intangible.
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net interest income................................... $9,451,247 $9,361,384
Income before extraordinary item...................... 4,281,239 2,735,034
Net income............................................ 4,281,239 3,300,974
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred had the acquisition been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
F-19
<PAGE> 71
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION,
AND
AGREEMENT AND PLAN OF CONSOLIDATION
<PAGE> 72
AMENDED AND RESTATED
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 20th day of May, 1994, as amended and restated on July 8, 1994, by and
between First National Bank of Kerrville ("Kerrville"), a national banking
association, and NORWEST CORPORATION ("Norwest"), a Delaware corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest ("Norwest Bank") will consolidate with
Kerrville (the "Consolidation") pursuant to an agreement of consolidation (the
"Consolidation 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 Kerrville of the par value of $100 per share
("Kerrville Common Stock") outstanding immediately prior to the time the
Consolidation becomes effective in accordance with the provisions of the
Consolidation Agreement (the "Effective Time of the Consolidation") 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) Consolidation. Subject to the terms and conditions contained herein, a
wholly-owned subsidiary of Norwest will be consolidated with Kerrville pursuant
to the Consolidation Agreement, with Kerrville as the surviving corporation, in
which consolidation each share of Kerrville Common Stock outstanding immediately
prior to the Effective Time of the Consolidation (other than shares as to which
statutory dissenters' appraisal rights have been exercised) will be converted
into and exchanged for a number of shares of Norwest Common Stock determined by
dividing the Norwest Shares (as defined below) by the number of shares of
Kerrville Common Stock outstanding immediately prior to the Effective Time of
the Consolidation. The "Norwest Shares" shall be equal to 1,225,000 reduced by
the amount determined by dividing (i) the Adjustment Amount, by (ii) Norwest
Measurement Price. The "Adjustment Amount" shall be an amount determined by (i)
adding together all amounts which immediately prior to the Effective Time of the
Consolidation Kerrville has paid and is obligated to pay in connection with a
judgment entered in the matter of Phoenix Founders, Inc. vs. First National Bank
of Kerrville, 3-92-CV-2309-J, in the U.S. District Court in Dallas, Texas (the
"Phoenix Matter"), including the amount of the judgment or settlement, accrued
interest thereon, costs assessed and attorneys fees of either party to the
Phoenix Matter, and then (ii) multiplying the result by 63.375%. The "Norwest
Measurement Price" is defined as 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 five (5) trading days ending at the end of the
third trading day immediately preceding the Closing Date (as defined below). If
the Phoenix Matter has not been finally resolved by the Closing Date, then a
number of shares equal to 1,225,000 less the Norwest Shares shall be deposited
into escrow in accordance with the terms of an escrow agreement to be entered
into by the parties after the date hereof (the "Escrow Agreement"). The Escrow
Agreement shall provide that shares held in escrow shall be distributed
proportionately to Norwest and the Kerrville shareholders based on amounts paid
by Kerrville to resolve the Phoenix Matter and shall provide further that if the
Phoenix Matter is not finally resolved within 42 months after the Closing Date,
such shares shall be distributed to Norwest.
(b) Norwest Common Stock Adjustments. If between the date hereof and the
Effective Time of the Consolidation 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 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 Kerrville Common Stock shall be
converted pursuant to subparagraph (a), above, will be appropriately and
proportionately adjusted so that the
A-1
<PAGE> 73
number of such shares of Norwest Common Stock into which a share of Kerrville
Common Stock shall be converted will equal the number of shares of Norwest
Common Stock which holders of shares of Kerrville Common Stock would have
received pursuant to such reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or stock dividend had the
record date therefor been immediately following the Effective Time of the
Consolidation.
(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 Time of the Consolidation.
(d) Mechanics of Closing Consolidation. Subject to the terms and conditions
set forth herein, the closing of the Consolidation will occur on a mutually
agreeable date, which date shall be not later than ten (10) 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 Consolidation to be completed as soon as practicable after
the receipt of final regulatory approval of the Consolidation and the expiration
of all required waiting periods. The Consolidation shall be effective at 11:59
p.m., Minneapolis, Minnesota time (the "Effective Time of the Consolidation") on
the date specified in the certificate of approval to be issued by the
Comptroller of the Currency of the United States, under the seal of his office,
approving the Consolidation (the "Effective Date of the Consolidation").
The closing of the transactions contemplated by this Agreement and the
Consolidation 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 KERRVILLE. Kerrville represents and
warrants to Norwest as follows:
(a) Organization and Authority. Kerrville is a national banking association
duly organized, validly existing and in good standing under the laws of the
United States, 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 Kerrville and the Kerrville 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. Kerrville has
furnished Norwest true and correct copies of its articles of association and
by-laws, as amended.
(b) Kerrville's Subsidiaries. Schedule 2(b) sets forth a complete and
correct list of all of Kerrville's subsidiaries as of the date hereof
(individually a "Kerrville Subsidiary" and collectively the "Kerrville
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
Kerrville. No equity security of any Kerrville 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 Kerrville
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. sec. 55 (1982), all of such shares so owned
by Kerrville 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 Kerrville 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), Kerrville 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.
A-2
<PAGE> 74
(c) Capitalization. The authorized capital stock of Kerrville consists of
50,000 shares of common stock, $100 par value, of which as of the close of
business on March 31, 1994, 25,000 shares were outstanding and no shares were
held in the treasury. The maximum number of shares of Kerrville Common Stock
(assuming for this purpose that phantom shares and other share-equivalents
constitute Kerrville Common Stock) that would be outstanding as of the Effective
Date of the Consolidation if all options, warrants, conversion rights and other
rights with respect thereto were exercised is 28,700. All of the outstanding
shares of capital stock of Kerrville have been duly and validly authorized and
issued and are fully paid and nonassessable. Except as set forth in Schedule
2(c), there are no outstanding subscriptions, contracts, conversion privileges,
options, warrants, calls or other rights obligating Kerrville or any Kerrville
Subsidiary to issue, sell or otherwise dispose of, or to purchase, redeem or
otherwise acquire, any shares of capital stock of Kerrville or any Kerrville
Subsidiary. Since March 31, 1994 no shares of Kerrville capital stock have been
purchased, redeemed or otherwise acquired, directly or indirectly, by Kerrville
or any Kerrville Subsidiary and no dividends or other distributions have been
declared, set aside, made or paid to the shareholders of Kerrville.
(d) Authorization. Kerrville has the corporate power and authority to enter
into this Agreement and the Consolidation 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
Consolidation Agreement by Kerrville and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Kerrville. Subject to such approvals of shareholders and of
government agencies and other governing boards having regulatory authority over
Kerrville as may be required by statute or regulation, this Agreement and the
Consolidation Agreement are valid and binding obligations of Kerrville
enforceable against Kerrville in accordance with their respective terms.
Neither the execution, delivery and performance by Kerrville of this
Agreement or the Consolidation Agreement, nor the consummation of the
transactions contemplated hereby and thereby, nor compliance by Kerrville 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 Kerrville or any Kerrville 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 Kerrville or any
Kerrville Subsidiary is a party or by which it may be bound, or to which
Kerrville or any Kerrville Subsidiary or any of the properties or assets of
Kerrville or any Kerrville 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 Kerrville, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Kerrville or any
Kerrville 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, authorizations, approvals or exemptions
required under the BHC Act or the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 ("HSR Act"), and filings required to effect the Consolidation under the
National Bank Act, 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 Kerrville of the transactions contemplated by this
Agreement and the Consolidation Agreement.
(e) Kerrville Financial Statements. The consolidated statements of
financial condition of Kerrville and Kerrville's Subsidiaries as of December 31,
1993 and 1992 and related consolidated statements of income, shareholders'
equity and cash flows for the three years ended December 31, 1993, together with
the notes thereto, certified by Arthur Andersen & Co., and the unaudited
consolidated statements of financial condition of Kerrville and Kerrville's
Subsidiaries as of March 31, 1994 and the related unaudited consolidated
statements of income, shareholders' equity and cash flows for the three months
then ended (collectively, the "Kerrville 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
A-3
<PAGE> 75
interim periods, to normal recurring adjustments) the consolidated financial
position of Kerrville and Kerrville's Subsidiaries at the dates and the
consolidated results of operations and cash flows of Kerrville and Kerrville's
Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1988, Kerrville and each Kerrville
Subsidiary has filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with (i) the
Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation (the
"FDIC"), (iii) the United States Comptroller of the Currency (the "Comptroller")
and (iv) 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 "Kerrville Reports". As of their
respective dates, the Kerrville Reports complied in all material respects with
all the rules and regulations promulgated by 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 Kerrville Reports have been
made available to Norwest by Kerrville. Kerrville is not required to file any
reports, registrations or statements with the Securities and Exchange Commission
(the "SEC").
(g) Properties and Leases. Except as may be reflected in the Kerrville
Financial Statements and except for any lien for current taxes not yet
delinquent, Kerrville and each Kerrville 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 Kerrville's
consolidated balance sheet as of March 31, 1994 for the period then ended, 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 Kerrville or any
Kerrville Subsidiary pursuant to which Kerrville or such Kerrville 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
Kerrville or such Kerrville Subsidiary or any event which, with notice or lapse
of time or both, would constitute such a material default. Substantially all
Kerrville's and each Kerrville 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 Kerrville and the Kerrville Subsidiaries has filed all
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 Kerrville and the Kerrville Subsidiaries for the fiscal year
ended December 31, 1989, 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 Kerrville nor any Kerrville Subsidiary is a party to any
pending action or proceeding, nor to Kerrville'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 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 Kerrville or any Kerrville Subsidiary which has not been settled,
resolved and fully satisfied. Each of Kerrville and the Kerrville 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 December 31, 1993, 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 Kerrville and the
Kerrville Subsidiaries with respect to all periods through the date thereof.
The Ownership Change, as defined in Section 382(g) of the Internal Revenue
Code of 1986, as amended (the "Code"), occurring as the result of the
acquisition of Bank of Kerrville by Corpus Christi National Bank, does not
subject that transaction to Section 382(l)(5) of the Code. None of Kerrville,
Corpus Christi National
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Bank and Premier Bankshares of Texas, Inc. is a party to an election under
Regulation 1.1502-20(g)(5), promulgated under the Code, regarding the
acquisition of Bank of Kerrville by Kerrville.
(i) Absence of Certain Changes. Since December 31, 1993, there has been no
change in the business, financial condition or results of operations of
Kerrville or any Kerrville 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 Kerrville and the Kerrville Subsidiaries taken as a
whole.
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
neither Kerrville nor any Kerrville 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 Kerrville or such Kerrville Subsidiary);
(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 Kerrville or any Kerrville
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, Kerrville or any Kerrville 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; or
(vi) any lease with annual rental payments aggregating $10,000 or
more.
(k) Litigation and Other Proceedings. Kerrville has furnished Norwest
copies of (i) all attorney responses to the request of the independent auditors
for Kerrville with respect to loss contingencies as of December 31, 1993 in
connection with the Kerrville financial statements, and (ii) a written list of
legal and regulatory proceedings filed against Kerrville or any Kerrville
Subsidiary since said date. Neither Kerrville nor any Kerrville Subsidiary is a
party to any pending or, to the best knowledge of Kerrville, 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 Kerrville and the Kerrville
Subsidiaries taken as a whole.
(l) Insurance. Kerrville and each Kerrville Subsidiary is presently
insured, and during each of the past five calendar years (or during such lesser
period of time as Kerrville has owned such Kerrville Subsidiary) has been
insured, for reasonable amounts with financially sound and reputable insurance
companies 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. Kerrville and each Kerrville 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 and assets and to carry on its business as presently
conducted and that are material to the business of Kerrville or such Kerrville
Subsidiary; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best knowledge of Kerrville,
no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current. The conduct by Kerrville
and each Kerrville 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
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local) or foreign law, statute, ordinance, license or regulation. Neither
Kerrville nor any Kerrville 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
restriction on the business or properties of Kerrville or any Kerrville
Subsidiary which reasonably could be expected to have a material adverse effect
on the business or properties of Kerrville and the Kerrville Subsidiaries taken
as a whole.
(n) Labor. No work stoppage involving Kerrville or any Kerrville Subsidiary
is pending or, to the best knowledge of Kerrville, threatened. Neither Kerrville
nor any Kerrville 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 Kerrville or such Kerrville
Subsidiary. Employees of Kerrville and the Kerrville Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements
otherwise in effect with respect to such employees.
(o) Material Interests of Certain Persons. To the best knowledge of
Kerrville no officer or director of Kerrville or any Kerrville 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 Kerrville or any Kerrville Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from
Kerrville or any Kerrville 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
Kerrville's or such Kerrville Subsidiary's Board of Directors.
(p) Kerrville 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 Kerrville or any Kerrville Subsidiary currently acts
as the plan sponsor as defined in ERISA Section 3(16)(B), and with respect
to which any liability under ERISA or otherwise exists or may be incurred
by Kerrville or any Kerrville 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), Kerrville or the Kerrville 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 Code, apply. Kerrville 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) No Plan is subject to Title IV of ERISA nor is any Plan subject
to the requirements of Section 412 of the Code.
(iv) Except as disclosed in Schedule 2(p), and to the best knowledge
of Kerrville, 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
Kerrville, such Plan or trust to the tax or penalty on prohibited
transactions imposed by said Section 4975 or would result in material
liability to Kerrville and the Kerrville Subsidiaries taken as a whole.
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(v) Except as set forth in Schedule 2(p), no Plan which is or was
subject to Title IV of ERISA or any trust created thereunder has been
terminated within the past six years, 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 Consolidation Agreement.
(vi) Except as set forth in Schedule 2(p), no Plan (including any Plan
which was terminated within the past six years) 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 Consolidation 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 Kerrville or any Kerrville
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 Kerrville and
the Kerrville Subsidiaries supplied or to be supplied by Kerrville 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 Kerrville Common Stock pursuant to the provisions of the
Consolidation Agreement (the "Registration Statement"), (ii) the proxy statement
to be mailed to Kerrville's shareholders in connection with the meeting to be
called to consider the Consolidation (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 Consolidation 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, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of shareholders referred to in paragraph
4(c), be false or misleading with respect to any material fact, or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for such meeting.
All documents which Kerrville and the Kerrville Subsidiaries are responsible for
filing with the SEC and any other regulatory authority in connection with the
Consolidation will comply as to form in all material respects with the
provisions of applicable law.
(r) Registration Obligations. Neither Kerrville nor any Kerrville
Subsidiary is under any obligation, contingent or otherwise, which will survive
the Consolidation by reason of any agreement to register any of its securities
under the Securities Act.
(s) Brokers and Finders. Neither Kerrville nor any Kerrville 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 Kerrville or any Kerrville Subsidiary in connection with this
Agreement and the Consolidation Agreement or the transactions contemplated
hereby and thereby.
(t) Administration of Trust Accounts. Kerrville and each Kerrville
Subsidiary has properly administered in all respects material and which could
reasonably be expected to be material to the financial condition of Kerrville
and the Kerrville 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
Kerrville, any Kerrville Subsidiary, nor any director, officer or employee of
Kerrville or any Kerrville Subsidiary has committed any breach of trust with
respect to any such fiduciary account which is material to or could reasonably
be expected to be material to
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the financial condition of Kerrville and the Kerrville 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 Kerrville nor any Kerrville 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 Kerrville and the Kerrville Subsidiaries, taken as
a whole. To the best of Kerrville's knowledge, all parties with whom Kerrville
or any Kerrville Subsidiary has material leases, agreements or contracts or who
owe to Kerrville or any Kerrville Subsidiary material obligations other than
with respect to those arising in the ordinary course of the banking business of
the Kerrville 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 Kerrville or any
Kerrville Subsidiary, any liability arising from the release of hazardous
substances 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 Kerrville's knowledge, threatened against Kerrville or any Kerrville
Subsidiary the result of which has had or could reasonably be expected to have a
material adverse effect upon Kerrville and Kerrville's Subsidiaries taken as a
whole; to the best of Kerrville's knowledge there is no reasonable basis for any
such proceeding, claim or action; and to the best of Kerrville's knowledge
neither Kerrville nor any Kerrville 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.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Kerrville 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.
(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. Section 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 December 31, 1993, 1,131,250 shares of 10.24%
Cumulative Preferred Stock at $100 stated value and 1,143,750 shares of
Cumulative Convertible Preferred Stock, Series B, at $200 stated value were
outstanding, and (ii) 500,000,000 shares of
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Common Stock, $1 2/3 par value, of which as of the close of business on December
31, 1993, 294,131,670 shares were outstanding and 1,956,803 shares were held in
the treasury.
(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 Consolidation
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 Consolidation 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) 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 or the HSR Act, and filings required to effect the
Consolidation under the National Bank Act, 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 Consolidation Agreement.
(e) Norwest Financial Statements. The consolidated statements of financial
condition 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 filed 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, 1993, 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
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material respects with all the rules and regulations promulgated by the SEC, the
Federal Reserve Board, the FDIC, the Comptroller and any 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.
(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 December 31, 1993, 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 on the business, financial condition or results of
operations of Norwest and its subsidiaries taken as a whole.
(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);
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(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,
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 financially sound and reputable
insurance companies 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. 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 the date hereof, 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 TEFRA, DEFRA and 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.
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(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 for the plan year
ending December 31, 1992, exceed the value of the assets of the Norwest
Plans allocable to such vested or accrued benefits.
(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 any of the fiduciary standards under Part
4 of Title I of ERISA, which could subject, to the best knowledge of
Norwest, 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 Consolidation 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), since the effective date of ERISA which
would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Consolidation 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 Consolidation 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, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of shareholders referred to in paragraph
4(c), be false or misleading with respect to any material fact, or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for such meeting.
All documents which Norwest and the Norwest Subsidiaries are responsible for
filing with the SEC and any other regulatory authority in connection with the
Consolidation 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 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 Consolidation 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
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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 arising from the release of hazardous substances
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.
4. COVENANTS OF KERRVILLE. Kerrville covenants and agrees with Norwest as
follows:
(a) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Consolidation, Kerrville, and each
Kerrville 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, and each such consent shall be deemed to have been given if Norwest has
not responded to a request for such consent within three (3) business days of
receiving such request, (i) make any new loan to a non-borrower of Kerrville in
excess of $500,000, or (ii) make any new loan or modify, restructure or renew
any existing loan in excess of $200,000 (except pursuant to commitments made
prior to the date of this Agreement) to a present customer of Kerrville 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 $500,000; 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 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 Consolidation; comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable to the
properties and operations of Kerrville and each Kerrville Subsidiary the non-
compliance with which reasonably could be expected to have a material adverse
effect on Kerrville and the Kerrville 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 Kerrville herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from
the date hereof until the Effective Time of the Consolidation, Kerrville and
each Kerrville 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 $10,000 except banking transactions in the ordinary course of business and in
accordance with policies and procedures in effect on the date hereof;
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make any investments except investments made by bank subsidiaries in the
ordinary course of business for terms of up to one (1) 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; redeem, purchase or otherwise acquire, directly or indirectly,
any of the capital stock of Kerrville; increase the compensation of any
officers, directors or executive employees, except pursuant to existing
compensation plans and practices; sell or otherwise dispose of any shares of the
capital stock of any Kerrville 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 Kerrville will duly call, and will cause to
be held not later than twenty-five (25) 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 that this Agreement and the
Consolidation Agreement be submitted to a vote at such meeting. The Board of
Directors of Kerrville will (i) cause proper notice of such meeting to be given
to its shareholders in compliance with all 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 Consolidation Agreement, and (iii) use its
best efforts to solicit from its shareholders proxies in favor thereof.
(d) Kerrville will furnish or cause to be furnished to Norwest no later
than sixty (60) days following the date of this Agreement all the information
concerning Kerrville 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 Arthur Andersen & Co. to use such opinion in such Registration
Statement.
(e) Kerrville 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 Kerrville 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) Kerrville will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(g) Kerrville will hold in confidence all documents and information
concerning Norwest and its subsidiaries furnished to Kerrville 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 Kerrville's outside professional
advisers in connection with this Agreement, with the same undertaking from such
professional advisers. 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 Kerrville, in the public
domain, or later acquired by Kerrville 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 Kerrville, nor any Kerrville 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 Kerrville or any Kerrville Subsidiary, (ii) to make a tender or
exchange offer for any shares of such common stock or other equity security,
(iii) to purchase, lease or otherwise acquire the assets of Kerrville or any
Kerrville Subsidiary except in the ordinary course of business, or (iv) to
merge, consolidate or otherwise combine with Kerrville or any Kerrville
Subsidiary. If any corporation, partnership, person or other entity or group
makes an offer or inquiry to Kerrville or any Kerrville Subsidiary concerning
any of the foregoing,
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Kerrville or such Kerrville Subsidiary will promptly disclose such offer or
inquiry, including the terms thereof, to Norwest.
(i) Kerrville 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) Kerrville and each Kerrville Subsidiary will take all action necessary
or required (i) to terminate or amend, if requested by Norwest in order to
minimize any interruption in coverage in the transition to Norwest plans
described in paragraph 8 hereof, all qualified pension and welfare benefit plans
and all non-qualified benefit plans and compensation arrangements effective as
of the Effective Date of the Consolidation, (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 Consolidation, provided that Kerrville and each Kerrville 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 Consolidation.
(k) Neither Kerrville nor any Kerrville Subsidiary shall take any action
which with respect to Kerrville would disqualify the Consolidation as a "pooling
of interests" for accounting purposes.
(l) Kerrville shall use its best efforts to obtain and deliver at least 32
days prior to the Effective Date of the Consolidation signed representations
substantially in the form attached hereto as Exhibit B to Norwest by each
executive officer, director or shareholder of Kerrville who may reasonably be
deemed an "affiliate" of Kerrville within the meaning of such term as used in
Rule 145 under the Securities Act.
(m) Kerrville shall establish such additional accruals and reserves as may
be necessary to conform Kerrville's accounting and credit loss reserve practices
and methods to those of Norwest and Norwest's plans with respect to the conduct
of Kerrville's business following the Consolidation and to provide for the costs
and expenses relating to the consummation by Kerrville of the Consolidation and
the other transactions contemplated by this Agreement.
(n) Kerrville shall, within sixty (60) days of the date of this Agreement,
obtain and deliver to Norwest a written appraisal, by an appraiser acceptable to
Norwest, of the market value of a Merlin III N 23 AE airplane, Serial Number
T-241 (the "Airplane") owned directly or indirectly by Kerrville. Kerrville
shall use its best efforts to enter into an agreement, on terms acceptable to
Norwest, to sell the Airplane (or the stock of Kerrville's wholly-owned
subsidiary, WNB Management Company, if WNB Management Company holds title to the
Airplane and has no other assets at the Effective Date of the Consolidation)
effective as of the Effective Date of the Consolidation, at a cash purchase
price of not less than the appraised market value of the Airplane determined in
accordance with this subparagraph.
(p) Kerrville shall take such actions as may be necessary to amend each
outstanding option to purchase Kerrville Common Stock ("Kerrville Option") which
remains unexercised in whole or in part at the Effective Time of the
Consolidation so that after the Effective Time of the Consolidation such
Kerrville Option shall become a fully-vested option to purchase the number of
shares of Norwest Common Stock determined by multiplying the aggregate number of
shares of Kerrville Common Stock subject to such option by 49. The option
exercise price for such converted option shall be determined by dividing the per
share Kerrville exercise price by 49.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Kerrville as
follows:
(a) From the date hereof until the Effective Time of the Consolidation,
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
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consistent with those used for the Norwest Financial Statements, except for
changes in such principles and practices required under generally accepted
accounting principles.
(b) Norwest will furnish to Kerrville all the information concerning
Norwest required for inclusion in a proxy statement or statements to be sent to
the shareholders of Kerrville, or in any statement or application made by
Kerrville 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 Kerrville pursuant to the Consolidation 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 Kerrville shareholders, at
the time of the Kerrville shareholders' meeting referred to in paragraph 4(c)
hereof and at the Effective Time of the Consolidation 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 Kerrville
or any Kerrville 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 Consolidation 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 Kerrville pursuant to this Agreement and the Consolidation
Agreement will, upon such issuance and delivery to said shareholders pursuant to
the Consolidation Agreement, be duly authorized, validly issued, fully paid and
nonassessable. The shares of Norwest Common Stock to be delivered to the
shareholders of Kerrville pursuant to the Consolidation 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 Consolidation 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 contemplated by this Agreement and will cooperate
with Kerrville to obtain all such approvals and consents required by Kerrville.
(h) Norwest will hold in confidence all documents and information
concerning Kerrville and Kerrville'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. 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 Kerrville (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 Kerrville.
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(i) Norwest will file any documents or agreements required to be filed in
connection with the Consolidation under the National Bank Act.
(j) Norwest will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(k) Norwest shall consult with Kerrville 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 Kerrville written notice of receipt of the
regulatory approvals referred to in paragraph 7(e).
(m) Neither Norwest nor any Norwest Subsidiary shall take any action which
with respect to Norwest would disqualify the Consolidation as a "pooling of
interests" for accounting purposes. Norwest shall use its best efforts to obtain
and deliver to Kerrville, prior to the Effective Date of the Consolidation,
signed representations from the directors and executive officers of Norwest to
the effect that, except for de minimus dispositions which will not disqualify
the Consolidation as a pooling of interests, they will not dispose of shares of
Norwest or Kerrville during the period commencing 30 days prior to the Effective
Date and ending upon publication by Norwest of financial results including at
least 30 days of combined operations of Kerrville and Norwest.
(n) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit Kerrville 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
Kerrville or its representatives shall in any way affect, diminish or terminate
any of the representations, warranties or covenants of Norwest herein expressed.
(o) Norwest agrees to assume each Kerrville Option as modified in the
manner contemplated by paragraph 4(p) hereof ("Assumed Option"), to provide each
holder of an Assumed Option with an agreement evidencing the assumption of such
option and to file on or immediately following the Effective Date of the
Consolidation a registration statement on Form S-8 with respect to the shares of
Norwest Common Stock issuable by Norwest pursuant to the Assumed Options and
shall use its reasonable best efforts to cause such registration statement to
become effective promptly after the Effective Date of the Consolidation and to
maintain its effectiveness.
6. CONDITIONS PRECEDENT TO OBLIGATION OF KERRVILLE. The obligation of
Kerrville to effect the Consolidation shall be subject to the satisfaction at or
before the Effective Date of the Consolidation of the following further
conditions, which may be waived in writing by Kerrville:
(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
Effective Time of the Consolidation.
(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 at or before the Effective Time of the
Consolidation.
(c) Kerrville shall have received a favorable certificate, dated as of the
Effective Date of the Consolidation, 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.
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(d) This Agreement and the Consolidation Agreement shall have been approved
by the affirmative vote of the holders of the percentage of the outstanding
shares of Kerrville required for approval of a plan of merger in accordance with
the provisions of Kerrville's Articles of Association and the National Bank 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 Consolidation 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 Kerrville pursuant to this Agreement and the Consolidation Agreement shall
have been authorized for listing on the New York Stock Exchange and the Chicago
Stock Exchange upon official notice of issuance.
(h) Kerrville shall have received an opinion, dated the Closing Date, of
counsel to Kerrville, substantially to the effect that, for federal income tax
purposes: (i) the Consolidation will constitute a reorganization within the
meaning of Section 368(a) of the Code; (ii) no gain or loss will be recognized
by the holders of Kerrville Common Stock upon receipt of Norwest Common Stock
except for cash received in lieu of fractional shares; (iii) the basis of the
Norwest Common Stock received by the shareholders of Kerrville will be the same
as the basis of the Kerrville Common Stock exchanged therefor; and (iv) the
holding period of the shares of Norwest Common Stock received by the
shareholders of Kerrville will include the holding period of the Kerrville
Common Stock, provided such shares of Kerrville Common Stock were held as a
capital asset as of the Effective Time of the Consolidation. Such opinion shall
be supported by separate certificates executed by Norwest and Kerrville. Each
such certificate shall contain representations and warranties as to certain
matters within the control of Norwest or Kerrville, as the case may be,
necessary to the qualification of the Consolidation as a reorganization within
the meaning of Section 368(a) of the Code.
(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.
(j) Kerrville shall have received from the Chief Financial Officer or
Controller of Norwest 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 Kerrville, to the effect that:
(i) the interim quarterly financial statements of Norwest 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 Norwest;
(ii) the amounts reported in the interim quarterly financial
statements of Norwest agree with the general ledger of Norwest;
(iii) the annual and quarterly financial statements of Norwest
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 March 31, 1994 (or, if later, since the date of the most
recent unaudited consolidated financial statements of Norwest 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 Norwest, 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. 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 Norwest, or in income before
equity in undistributed income of subsidiaries, in each case as compared
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with the comparable period 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 Norwest, which appear in the Registration Statement under the
certain captions to be specified by Kerrville, and have compared certain of
such amounts, percentages, numbers and financial information with the
accounting records of Norwest and have found them to be in agreement with
financial records and analyses prepared by Norwest included in the annual
and quarterly financial statements, except as disclosed in such letters.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of Norwest
to effect the Consolidation shall be subject to the satisfaction at or before
the Effective Date of the Consolidation 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 Kerrville and the Kerrville Subsidiaries taken as a whole
as if made at the Effective Time of the Consolidation.
(b) Kerrville 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 Effective Time of the
Consolidation.
(c) This Agreement and the Consolidation Agreement shall have been approved
by the affirmative vote of the holders of the percentage of the outstanding
shares of Kerrville required for approval of a plan of merger in accordance with
the provisions of Kerrville's Articles of Incorporation and the National Bank
Act.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Consolidation signed by the Chairman or President and by
the Secretary or Assistant Secretary of Kerrville, 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 Consolidation 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 Kerrville or any Kerrville Subsidiary that, in the good
faith judgment of Norwest, is unreasonably burdensome to Norwest.
(f) Kerrville and each Kerrville Subsidiary shall have obtained any and all
material consents or waivers from other parties to loan agreements, leases or
other contracts material to Kerrville's or such subsidiary's business required
for the consummation of the Consolidation, and Kerrville and each Kerrville
Subsidiary shall have obtained any and all material permits, authorizations,
consents, waivers and approvals required for the lawful consummation by it of
the Consolidation.
(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) The Consolidation shall qualify as a "pooling of interests" for
accounting purposes and Norwest shall have received from KPMG Peat Marwick and
Arthur Andersen & Co. opinions to that effect.
(i) At any time since the date hereof the total number of shares of
Kerrville Common Stock outstanding and subject to issuance upon exercise
(assuming for this purpose that phantom shares and other share-equivalents
constitute Kerrville Common Stock) of all warrants, options, conversion rights,
phantom shares or other share-equivalents shall not have exceeded 28,700.
(j) 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
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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.
(k) Norwest shall have received from the Chief Executive Officer and Chief
Financial Officer of Kerrville 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 Kerrville 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 Kerrville;
(ii) the amounts reported in the interim quarterly financial
statements of Kerrville agree with the general ledger of Kerrville;
(iii) the annual and quarterly financial statements of Kerrville and
the Kerrville 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 March 31, 1994 (or, if later, since the date of the most
recent unaudited consolidated financial statements of Kerrville and the
Kerrville 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
Kerrville and the Kerrville Subsidiaries, 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. 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 Kerrville and the Kerrville Subsidiaries, or in
income before equity in undistributed income of subsidiaries, in each case
as compared with the comparable period 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 Kerrville and the Kerrville 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 Kerrville and the
Kerrville Subsidiaries and have found them to be in agreement with
financial records and analyses prepared by Kerrville included in the annual
and quarterly financial statements, except as disclosed in such letters.
(l) Kerrville and the Kerrville Subsidiaries considered as a whole shall
not have sustained since December 31, 1993 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.
(m) 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 Kerrville or any Kerrville Subsidiary of, any liability
arising from the release of hazardous substances 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 Kerrville and its subsidiaries taken as a whole.
(n) No change shall have occurred 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 Kerrville
and the Kerrville Subsidiaries taken as a whole (other than changes in banking
laws or
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regulations, or interpretations thereof, that affect the banking industry
generally or changes in the general level of interest rates).
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Kerrville or
any Kerrville Subsidiary as of the Effective Date of the Consolidation
("Kerrville Employees") shall be 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 Kerrville Employee (and, to the
extent any employee welfare benefit plans cover eligible dependents, the
eligible dependents of such Kerrville 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 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 Consolidation:
Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
For the purpose of determining each Kerrville Employee's benefit for the
year in which the Consolidation occurs under the Norwest vacation program,
vacation taken by an employee of Kerrville in the year in which the
Consolidation occurs will be deducted from the total Norwest benefit. Each
Kerrville Employee shall be credited under the Norwest Medical Plan for
deductibles satisfied in the year in which the Consolidation occurs. Norwest
will waive the pre-existing condition limitations under the Norwest Medical Plan
and the Long Term Disability Plan but will not waive the pre-existing condition
limitations under the Long Term Care Plan. Until such time as the eligible
Kerrville Employees have entered the Norwest plans and programs listed above,
they shall continue to be covered by the comparable plans and programs, if any,
maintained by Kerrville, as such plans and programs are in effect as of the
Effective Date of the Consolidation, so that there shall be as little
interruption in time as possible in the transition from the Kerrville plans and
programs to the Norwest plans and programs.
(b) Employee Pension Benefit Plans.
Each Kerrville 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 Kerrville
and the Kerrville 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 Consolidation. Until such time as the eligible Kerrville
Employees have entered the SIP, they shall continue to be covered by the First
National Bank of Kerrville 401(k) Plan, as such plan is in effect as of the
Effective Date of the Consolidation (the "401(k) Plan") so that there shall be
as little interruption in time as possible in the transition from coverage under
the 401(k) Plan to the SIP.
Each Kerrville Employee shall be eligible for participation, as a new
employee, in the Norwest Pension Plan under the terms thereof.
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9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Effective
Date of the Consolidation:
(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 Consolidation shall not have been consummated by December 31,
1994 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; or
(iii) by Kerrville 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.
(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 wilful and
material breach of the warranties and representations made by it, or wilful 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.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by Kerrville and Kerrville subsidiaries shall be borne
by Kerrville, 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. 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 Kerrville:
First National Bank of Kerrville
301 Junction Highway
Box 1308
Kerrville, TX 78029-1308
Attention: F. O'Neil Griffin, Chairman
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 Consolidation Agreement
contain the complete agreement between the parties hereto with respect to the
Consolidation 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.
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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 Effective Date of the Consolidation,
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 no amendment after approval by the
shareholders of Kerrville 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 Consolidation 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 this Agreement or the Consolidation Agreement shall
survive the Consolidation or except as set forth in paragraph 9(b), the
termination of this Agreement. Paragraph 10 shall survive the Consolidation.
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 FIRST NATIONAL BANK OF KERRVILLE
By: /s/ Kenneth R. Murray By: /s/ William R. Goertz
- --------------------------------- --------------------------------------
Its: Executive Vice President Its: President
- --------------------------------- --------------------------------------
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EXHIBIT A
AGREEMENT AND PLAN OF CONSOLIDATION
This Agreement and Plan of Consolidation (the "Consolidation Agreement") is
dated as of , 1994, between NORWEST INTERIM BANK KERRVILLE,
NATIONAL ASSOCIATION ("Interim Bank") and FIRST NATIONAL BANK OF KERRVILLE, a
national banking association ("Kerrville"). Interim Bank and Kerrville are
sometimes referred to herein as the "Consolidating Banks".
PREAMBLE
Interim Bank and Kerrville acknowledge and confirm the following:
(a) Interim Bank is a national banking association having its principal
office and place of business at , Kerrville, Texas. As
of , 19 , Interim Bank had capital of $ , divided
into shares of common stock, par value $100 per share ("Interim Bank
Common Stock"), and surplus of $ .
(b) Kerrville is a national banking association having its principal office
and place of business at 301 Junction Highway, Kerrville, Texas. As of
, 19 , Kerrville had capital of $ , divided
into shares of common stock, par value $100 per share ("Kerrville
Common Stock"), surplus of $ , and retained earnings of $ .
(c) Kerrville and Norwest Corporation ("Norwest") have entered into an
Agreement dated as of May, 1994, as amended (the "Reorganization Agreement"), a
copy of which is attached hereto as Appendix A, which Reorganization Agreement
contemplates the transactions to be effected by this Consolidation Agreement.
(d) A majority of the Boards of Directors of Interim Bank and of Kerrville
have duly approved this Consolidation Agreement and authorized its execution.
(e) It is the intent of the parties hereto to effect a corporate
reorganization which qualifies as a tax-free reorganization pursuant to Section
368(a)(2)(E) of the Internal Revenue Code.
AGREEMENTS
IN CONSIDERATION OF THE PREMISES, Interim Bank and Kerrville make this
Consolidation Agreement and fix the terms and conditions of the Consolidation of
Interim Bank and Kerrville (the "Consolidation") as follows:
SECTION 1
1.1 Pursuant to the authority of and in accordance with the provisions of
12 U.S.C. 215, Interim Bank shall be consolidated with Kerrville, under the
charter of Kerrville (the "Consolidated Bank").
1.2 The name of the Consolidated Bank shall be "First National Bank of
Kerrville."
1.3 The Consolidation shall be effective as of .m. on the date
specified in the certificate of approval to be issued by the Comptroller of the
Currency of the United States, under the seal of his office, approving the
Consolidation (the "Effective Date").
1.4 The business of the Consolidated Bank shall be that of a national
banking association and shall be conducted at the main office of the
Consolidated Bank, which shall be located at 301 Junction Highway, Kerrville,
Texas, and at its legally established branches.
1.5 As of the Effective Date, the Articles of Association of the
Consolidated Bank shall be the Articles of Association of Kerrville shall read
in their entirety as set forth in Appendix B attached hereto, and the
Consolidated Bank shall be authorized under such Articles of Association to
issue shares of common stock, par value $100 per share.
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SECTION 2
AS OF THE EFFECTIVE DATE:
2.1 The corporate existences of the Consolidating Banks shall be
consolidated into the Consolidated Bank.
2.2 All rights, franchises, and interests of the Consolidating Banks in and
to every type of property (real, personal and mixed) and choses in action shall
be transferred to and vested in the Consolidated Bank by virtue of the
Consolidation without any deed or other transfer. The Consolidated Bank, upon
the Consolidation and without any order or other action on the part of any court
or otherwise, shall hold and enjoy all rights of property, franchises, and
interests, including appointments, designations, and nominations, and all other
rights and interests as trustee, executor, administrator, registrar of stocks
and bonds, guardian of estates, assignee, receiver, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by either of the Consolidating Banks at the
time of Consolidation.
2.3 The Consolidated Bank shall be liable for all liabilities of every kind
and description, including liabilities arising out of the operation of a trust
department, of each of the Consolidating Banks existing as of the Effective
Date.
2.4 The amount of capital stock of the Consolidated Bank shall be
$ , divided into shares of common stock, each of $100 par
value, and at the time the Consolidation shall become effective, the
Consolidated Bank shall have a surplus of $ and retained earnings
which, when combined with the capital and surplus, will be equal to the combined
capital structures of the Consolidating Banks as stated in the preamble of this
Consolidation Agreement, adjusted, however, for the results of operations, and
the payment of dividends, if any, between , 19 , and the
Effective Date.
SECTION 3
AS OF THE EFFECTIVE DATE:
3.1 Each share of Kerrville Common Stock outstanding immediately prior to
the Effective Time of the Consolidation (other than shares as to which statutory
dissenters' appraisal rights have been exercised) will be converted into and
exchanged for a number of shares of Norwest Common Stock determined by dividing
the Norwest Shares (as defined below) by the number of shares of Kerrville
Common Stock outstanding immediately prior to the Effective Time of the
Consolidation. The "Norwest Shares" shall be equal to 1,225,000 reduced by the
amount determined by dividing (i) the Adjustment Amount, by (ii) Norwest
Measurement Price. The "Adjustment Amount" shall be an amount determined by (i)
adding together all amounts which immediately prior to the Effective Time of the
Consolidation Kerrville has paid and is obligated to pay in connection with a
judgment entered in the matter of Phoenix Founders, Inc. vs. First National Bank
of Kerrville, 3-92-CV-2309-J, in the U.S. District Court in Dallas, Texas (the
"Phoenix Matter"), including the amount of the judgment or settlement, accrued
interest thereon, costs assessed and attorneys fees of either party to the
Phoenix Matter, and then (ii) multiplying the result by 63.375%. The "Norwest
Measurement Price" is defined as 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 five (5) trading days ending at the end of the
third trading day immediately preceding the Closing Date (as defined below). If
the Phoenix Matter has not been finally resolved by the Closing Date, then a
number of shares equal to 1,225,000 less the Norwest Shares shall be deposited
into escrow in accordance with the terms of an escrow agreement to be entered
into by the parties (the "Escrow Agreement"). The Escrow Agreement shall provide
that shares held in escrow shall be distributed proportionately to Norwest and
the Kerrville shareholders based on amounts paid by Kerrville to resolve the
Phoenix Matter and shall provide further that if the Phoenix Matter is not
finally resolved within 42 months after the Closing Date, such shares shall be
distributed to Norwest.
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(a) As soon as practicable after the merger becomes effective, each
holder of a certificate for shares of Kerrville Common Stock outstanding
immediately prior to the time of merger shall be entitled, upon surrender
of such certificate for cancellation to Norwest Bank Minnesota, National
Association, as the designated agent of the Consolidated Bank (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
above set forth. Until so surrendered each certificate which, immediately
prior to the time of merger, represented shares of Kerrville Common Stock
shall not be transferable on the books of the Consolidated Bank but shall
be deemed (except for the payment of dividends as provided below) to
evidence ownership of the number of whole shares of Norwest Common Stock
into which such shares of Kerrville Common Stock have been converted on the
basis above set forth; provided, however, that, until the holder of such
certificate 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 represented by such
certificate, but, upon surrender and exchange thereof as herein provided,
there shall be paid by the Consolidated Bank 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.
(b) If between the date of the Reorganization Agreement and the
Effective Time of the Consolidation (as defined in the Reorganization
Agreement), 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 if a stock dividend thereon shall be declared
with a record date within such period, then (i) the number of shares of
Norwest Common Stock into which a share of Kerrville Common Stock shall be
converted on the basis above set forth, will be appropriately and
proportionately adjusted so that the number of such shares of Norwest
Common Stock into which a share of Kerrville Common Stock shall be
converted will equal the number of shares of Norwest Common Stock which the
holders of shares of Kerrville Common Stock would have received pursuant to
such reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or stock dividend had the record date therefor been
immediately following the Effective Time of the Consolidation and (ii) if a
Norwest Common Stock Adjustment occurs between the date hereof and any date
that the closing price of a share of Norwest Common Stock is used for
purposes of this Agreement, the closing price of a share of Norwest Common
Stock for such purposes shall be the sum of the closing prices on the date
of each such determination of the number of shares of Norwest Common Stock
and other securities, if any, (in each case as reported on the consolidated
tape of the New York Stock Exchange on such date) issued with respect to
one share of Norwest Common Stock as a result of the Norwest Common Stock
Adjustment.
(c) 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 of a fractional interest 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 Consolidation
(as defined in the Reorganization Agreement).
3.2 The shares of Interim Bank outstanding immediately prior to the time of
Consolidation shall be converted into and exchanged for shares of the
Consolidated Bank, plus cash in the amount of $ .
3.3 From and after the Effective Date, there shall be no transfers on the
stock transfer books of Consolidated Banks of the shares of Kerrville Common
Stock or Interim Bank Common Stock which were issued and outstanding immediately
prior to the Effective Date.
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SECTION 4
4.1 The by-laws of Kerrville as they exist at the Effective Date shall
continue in full force as the by-laws of the Consolidated Bank until altered,
amended, or repealed as provided therein or as provided by law.
4.2 As of the Effective Date, the following named persons shall serve as
the Board of Directors of the Consolidated Bank until the next annual meeting of
the shareholders or until such time as their successors have been elected and
have qualified:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
4.3 The officers of Interim Bank holding office at the Effective Date shall
continue as the officers of the Consolidated Bank for the term prescribed in the
by-laws or until the Board of Directors otherwise shall determine.
SECTION 5
5.1 This Consolidation Agreement shall be submitted to the shareholders of
Kerrville and Interim Bank, respectively, for approval at meetings to be called
and held in accordance with the articles of association of Kerrville and the
articles of association of Interim Bank and in accordance with applicable
provisions of law. Such approval by the shareholders shall require the
affirmative vote of the shareholders of each of the Consolidating Banks owning
at least two-thirds of its capital stock outstanding.
SECTION 6
6.1 The Consolidation shall be subject to and conditioned upon the
following:
(a) approval of this Consolidation Agreement by the shareholders of
Kerrville and Interim Bank as required by law;
(b) approval of the Consolidation by all appropriate banking and
regulatory authorities and the satisfaction of all other requirements
prescribed by law necessary for consummation of the Consolidation; and
(c) satisfaction of the conditions precedent set forth in paragraphs 6
and 7 of the Reorganization Agreement.
6.2 At any time before the Effective Date, if any of the following
circumstances obtain, this Consolidation Agreement may be terminated, at the
election of Kerrville or Interim Bank, by written notice from the party so
electing to the other, or the consummation of the Consolidation may be postponed
for such period, and subject to such further rights of Kerrville and Interim
Bank, or either of them, to terminate this Consolidation Agreement as Kerrville
and Interim Bank may agree in writing:
(a) by mutual consent of the Boards of Directors of the Consolidating
Banks if consummation of the Consolidation would be inadvisable in the
opinion of said Boards; or
(b) by action of the Board of Directors of any party hereto if the
Reorganization Agreement is terminated.
SECTION 7
7.1 Kerrville and Interim Bank, by mutual consent of their respective
Boards of Directors, may amend this Consolidation Agreement before the Effective
Date; provided, however, that after this Consolidation Agreement has been
approved by the shareholders of Kerrville, no such amendment shall affect the
rights of such shareholders of Kerrville in a manner which is materially adverse
to such shareholders.
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7.2 This Consolidation Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Kerrville and Interim Bank have caused this
Consolidation Agreement to be executed by their respective duly authorized
officers and their corporate seals to be hereunto affixed as of the date first
above written, pursuant to a resolution of each Consolidating Bank's Board of
Directors, acting by a majority thereof, and witness the signatures hereto of a
majority of each of said Consolidating Bank's Board of Directors.
(SEAL)
NORWEST INTERIM BANK KERRVILLE,
NATIONAL ASSOCIATION
ATTEST:
By:__________________________________
_______________________________
Secretary Its:_________________________________
A-28
<PAGE> 100
STATE OF TEXAS
ss:
COUNTY OF
On this day of , 1993, before me, a Notary Public for the
State and County aforesaid, personally came , as
, and , as
, of NORWEST INTERIM BANK KERRVILLE, NATIONAL
ASSOCIATION, and each in his or her said capacity acknowledged the foregoing
instrument to be the act and deed of said bank and the seal affixed thereto to
be its seal.
WITNESS my official seal and signature this day and year aforesaid.
<TABLE>
<S> <C>
______________________________________________
(Seal of Notary) Notary Public, County
My Commission Expires
(SEAL) FIRST NATIONAL BANK OF KERRVILLE
ATTEST:
By:___________________________________________
Its:__________________________________________
___________________________________________
Secretary
</TABLE>
STATE OF TEXAS
ss:
COUNTY OF
On this day of , 1993, before me, a Notary Public for the
State and County aforesaid, personally came , as
, and , as
, of FIRST NATIONAL BANK OF KERRVILLE, and each in his
or her said capacity acknowledged the foregoing instrument to be the act and
deed of said bank and the seal affixed thereto to be its seal.
WITNESS my official seal and signature this day and year aforesaid.
<TABLE>
<S> <C>
____________________________________________
(Seal of Notary) Notary Public, County
My Commission Expires
</TABLE>
A-29
<PAGE> 101
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 First
National Bank of Kerrville, a national banking association ("Kerrville").
Pursuant to an Agreement and Plan of Reorganization, dated as of
, 1994, (the "Reorganization Agreement"), between Kerrville and
Norwest Corporation, a Delaware corporation ("Norwest") it is contemplated that
a wholly-owned subsidiary of Norwest will consolidate with Kerrville (the
"Consolidation") and as a result, I will receive in exchange for each share of
Common Stock, par value $100 per share, of Kerrville ("Kerrville Common Stock")
owned by me immediately prior to the Effective Time of the Consolidation (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 Kerrville Common Stock or Norwest Common Stock held by me during the
30 days prior to the Effective Time of the Consolidation.
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 Consolidation (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 will not sell, transfer or otherwise dispose of the Stock or in any way
reduce my risk relative to any shares of the Stock issued to me pursuant to the
Consolidation until such time as financial results covering at least 30 days of
post-Consolidation combined operations of Kerrville and Norwest have been
published.
I consent to the endorsement of the Stock issued to me pursuant to the
Consolidation with a restrictive legend which will read substantially as
follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933,
as amended (the "Act"), applies, and may be sold or otherwise transferred
only in compliance with the limitations of such Rule 145, or upon receipt
by 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."
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 (a) (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
A-30
<PAGE> 102
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, and (b) financial results covering
at least 30 days of post-Consolidation combined operations have been published.
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 Kerrville.
Sincerely,
--------------------------------------
A-31
<PAGE> 103
APPENDIX B
UNITED STATES CODE
TITLE 12, SECTION 215
<PAGE> 104
* * * * *
(B) LIABILITY OF CONSOLIDATED ASSOCIATION; CAPITAL STOCK; DISSENTING
SHAREHOLDERS
The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located:
Provided, That if such consolidation shall be voted for at such meetings by the
necessary majorities of the shareholders of each association and State bank
proposing to consolidate, and thereafter the consolidation shall be approved by
the Comptroller, any shareholder of any of the associations or State banks so
consolidated who has voted against such consolidation at the meeting of the
association or bank of which he is a stockholder or who has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of consolidation, shall be entitled to receive the value of the
shares so held by him when such consolidation is approved by the Comptroller
upon written request made to the consolidated association at any time before
thirty days after the date of consummation of the consolidation, accompanied by
the surrender of his stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the consolidation, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the consolidated banking
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(D) APPRAISAL BY COMPTROLLER; EXPENSES OF CONSOLIDATED ASSOCIATION; SALE AND
RESALE OF SHARES; STATE APPRAISAL AND CONSOLIDATION LAW
If, within ninety days from the date of consummation of the consolidation,
for any reason one or more of the appraisers is not selected as herein provided,
or the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the Comptroller
in making the reappraisal or the appraisal, as the case may be, shall be paid by
the consolidated banking association. The value of the shares ascertained shall
be promptly paid to the dissenting shareholders by the consolidated banking
association. Within thirty days after payment has been made to all dissenting
shareholders as provided for in this section the shares of stock of the
consolidated banking association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
consolidated banking association at an advertised public auction, unless some
other method of sale is approved by the Comptroller, and the consolidated
banking association shall have the rights to purchase any of such shares at such
public auction, if it is the highest bidder therefor, for the purpose of
reselling such shares within thirty days thereafter to such person or persons
and at such price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a price greater than the
amount paid to the dissenting shareholder the excess in such sale price shall be
determined in the manner prescribed by the law of the State in such cases,
rather than as provided in this section, if such provision is made in the State
law; and no such consolidation shall be in contravention of the law of the State
under which such bank is incorporated.
B-1
<PAGE> 105
APPENDIX C
BANKING CIRCULAR 259
<PAGE> 106
BC-259
BANKING ISSUANCE
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Type: Banking Circular Subject: Stock Appraisals
- --------------------------------------------------------------------------------
To: Chief Executive Officers of National Banks, Deputy
Comptrollers (District), Department and Division Heads,
and Examining Personnel
PURPOSE
This banking circular informs all national banks of the valuation methods
used by the Office of the Comptroller of the Currency (OCC) to estimate the
value of a bank's shares when requested to do so by a shareholder dissenting to
the conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985 and September 30, 1991 are also
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Sections 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the Office of the
Comptroller of the Currency (OCC). 12 U.S.C. Section 215 provides these
appraisal rights to any shareholder dissenting to a consolidation. Any
dissenting shareholder of a target bank in a merger is also entitled to these
appraisal rights pursuant to 12 U.S.C. Section 215a.
- --------------------------------------------------------------------------------
Date: March 5, 1992
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair
estimate of the value of a bank's shares. After reviewing the particular facts
in each case and the available information on a bank's shares, the OCC selects
an appropriate valuation method, or combination of methods, to determine a
reasonable estimate of the shares' value.
Market Value
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily
C-1
<PAGE> 107
available, or if the market value is not well established, other methods of
estimating market value can be used, such as the investment value and adjusted
book value methods.
Investment Value
Investment value requires an assessment of the value to investors of a
share in the future earnings of the target bank. Investment value is estimated
by applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns.
If the state in which the subject bank is located provides a sufficient number
of comparable banks using location, size and earnings patterns as the criteria
for selection, the price/earnings ratios assigned to the banks are applied to
the earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
Adjusted Book Value
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since the value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving
the value of shares of stock. If more than one method is used, varying weights
may be applied in reaching an overall valuation. The weight given to the value
by a particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight to
a market value representing infrequent trading by shareholders than to the value
derived from the investment value method when the subject bank's earnings trend
is so irregular that it is considered to be a poor predictor of future earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums
do exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payment are not regular
or predictable elements of market value. Consequently, the OCC's valuation
methods do not include consideration of purchase premiums in arriving at the
value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
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<PAGE> 108
In connection with disclosures given to shareholders under 12 CFR 11.590
(Item 2), banks may provide shareholders a copy of this banking circular or
disclose the information contained herein, including the past results of OCC
appraisals. If the bank discloses the past results of the OCC appraisals, it
should advise shareholders that: (1) the OCC did not rely on all the information
set forth in the chart in performing each appraisal; and (2) the OCC's past
appraisals are not necessarily determinative of its future appraisals of a
particular bank's shares.
APPRAISAL RESULTS
<TABLE>
<CAPTION>
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE* VALUE OFFERED VALUE OF PEER GROUP
-------------------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
1/1/85.................... 107.25 110.00 178.29 5.3
1/2/85.................... 73.16 NA 66.35 6.8
1/15/85................... 53.41 60.00 83.95 4.8
1/31/85................... 22.72 20.00 38.49 5.4
2/1/85.................... 30.63 24.00 34.08 5.7
2/25/85................... 27.74 27.55 41.62 5.9
4/30/85................... 25.98 35.00 42.21 4.5
7/30/85................... 3,153.10 2,640.00 6,063.66 NC
9/1/85.................... 17.23 21.00 21.84 4.7
11/22/85.................. 316.74 338.75 519.89 5.0
11/22/85.................. 30.28 NA 34.42 5.9
12/16/85.................. 66.29 77.00 89.64 5.6
12/27/85.................. 60.85 57.00 119.36 5.3
12/31/85.................. 61.77 NA 73.56 5.9
12/31/85.................. 75.79 40.00 58.74 12.1
1/12/86................... 19.93 NA 26.37 7.0
3/14/86................... 59.02 200.00 132.20 3.1
4/21/86................... 40.44 35.00 43.54 6.4
5/2/86.................... 15.50 16.50 23.69 5.0
7/3/86.................... 405.74 NA 612.82 3.9
7/31/86................... 297.34 600.00 650.63 4.4
8/22/86................... 103.53 106.67 136.23 NC
12/26/86.................. 16.66 NA 43.57 4.0
12/31/86.................. 53.39 95.58 69.66 7.1
5/1/87.................... 186.42 NA 360.05 5.1
6/11/87................... 50.46 70.00 92.35 4.5
6/11/87................... 38.53 55.00 77.75 4.5
7/31/87................... 13.10 NA 20.04 6.7
8/26/87................... 55.92 57.52 70.88 NC
8/31/87................... 19.55 23.75 30.64 5.0
8/31/87................... 10.98 NA 17.01 4.2
10/6/87................... 56.48 60.00 73.11 5.6
3/15/88................... 297.63 NA 414.95 6.1
6/2/88.................... 27.26 NA 28.45 5.4
6/30/88................... 137.78 NA 215.36 6.0
8/30/88................... 768.62 677.00 1,090.55 10.7
3/31/89................... 773.62 NA 557.30 7.9
5/26/89................... 136.47 180.00 250.42 4.5
5/29/90................... 9.87 NA 11.04 9.9
</TABLE>
- -------------------------
* The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA -- Not Available
NC -- Not Computed
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<PAGE> 109
For more information regarding the OCC's stock appraisal process, contact
the Office of the Comptroller of the Currency, 490 L'Enfant Plaza East, S.W.,
Washington, D.C. 20219, Director for Corporate Activity, Bank Organization and
Structure.
/s/ Frank McGuire
--------------------------------------
Frank McGuire
Acting Corporate Policy and
Economic Analysis
C-4
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors and officers of a Delaware corporation under
certain circumstances against expenses, judgments, and the like in connection
with an action, suit, or proceeding. Article Fourteenth of the Certificate of
Incorporation of the registrant provides for broad indemnification of directors
and officers of the registrant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
2(a) -- Amended and Restated Agreement and Plan of Reorganization, dated as of July 8,
1994, between First National Bank of Kerrville and Norwest Corporation
(included in Proxy Statement-Prospectus as part of Appendix A).
2(b) -- Form of Agreement and Plan of Consolidation between First National Bank of
Kerrville and Norwest Interim Bank Kerrville, National Association (included
in Proxy Statement-Prospectus as part of Appendix A).
4(a) -- Restated Certificate of Incorporation, as amended (incorporated by reference
to Exhibit 3(b) to the Registrant's Current Report on Form 8-K dated June 28,
1993 (File No. 1-2979)).
4(b) -- Certificate of Designations of Powers, Preferences, and Rights relating to the
Registrant's 10.24% Cumulative Preferred Stock (incorporated by reference to
Exhibit 4(a) to the Registrant's Registration Statement No. 33-38806).
4(c) -- Certificate of Designations of Powers, Preferences, and Rights relating to the
Registrant's Cumulative Convertible Preferred Stock, Series B (incorporated by
reference to Exhibit 2 to the Registrant's Form 8-A dated August 8, 1991 (File
No. 1-2979)).
4(d) -- Certificate of Designations of Powers, Preferences, and Rights relating to the
Registrant's ESOP Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 (File No. 1-2979)).
4(e) -- By-Laws, as amended (incorporated herein by reference to Exhibit 4(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31,
1991 (File No. 1-2979)).
4(f) -- Rights Agreement, dated as of November 22, 1988, between Norwest Corporation
and Citibank, N.A., including as Exhibit A the form of Certificate of
Designation of Powers, Preferences and Rights setting forth the terms of the
Series A Junior Participating Preferred Stock, without par value (incorporated
herein by reference to Exhibit 1 to the Registrant's Form 8-A dated December
6, 1988 (File No. 1-2979)) and Certificates of Adjustment pursuant to Section
12 of the Rights Agreement (incorporated herein by reference to Exhibit 3 to
the Registrant's Form 8 dated July 21, 1989, and to Exhibit 4 to the
Registrant's Form 8-A/A dated June 28, 1993 (File No. 1-2979)).
5 -- Opinion of General Counsel of the Registrant.
8 -- Opinion of Vinson & Elkins.
23(a) -- Consent of General Counsel of the Registrant (included as part of Exhibit 5
filed herewith).
23(b) -- Consent of Vinson & Elkins (included as part of Exhibit 8 filed herewith).
23(c) -- Consent of KPMG Peat Marwick LLP.
23(d) -- Consent of Arthur Andersen LLP.
24 -- Powers of Attorney.
99 -- Form of proxy for Special Meeting of Shareholders of First National Bank of
Kerrville.
</TABLE>
II-1
<PAGE> 111
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being
made, a post-effective amendment to this registration statement (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 112
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on the 19th day of September, 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
Registration Statement has been signed on the 19th day of September, 1994, by
the following persons in the capacities indicated:
<TABLE>
<S> <C>
/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
</TABLE>
DAVID A. CHRISTENSEN
GERALD J. FORD
PIERSON M. GRIEVE
N. BERNE HART
WILLIAM A. HODDER
GEORGE C. HOWE
LLOYD P. JOHNSON
REATHA CLARK KING A majority of the
RICHARD M. KOVACEVICH Board of Directors*
RICHARD S. LEVITT
RICHARD D. MCCORMICK
CYNTHIA H. MILLIGAN
JOHN E. PEARSON
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-4
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT FORM OF
NUMBER DESCRIPTION FILING
- ------- ---------------------------------------------------------------------- ------------
<S> <C> <C>
2(a) Amended and Restated Agreement and Plan of Reorganization, dated as of
July 8, 1994, between First National Bank of Kerrville and Norwest
Corporation (included in Proxy Statement-Prospectus as Appendix A).
2(b) Form of Agreement and Agreement and Plan of Consolidation between
First National Bank of Kerrville and Norwest Interim Bank Kerrville,
National Association (included in Proxy Statement-Prospectus as part
of Appendix A).
4(a) Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(b) to the Registrant's Current Report on Form
8-K dated June 28, 1993 (File No. 1-2979)).
4(b) Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's 10.24% Cumulative Preferred Stock
(incorporated by reference to Exhibit 4(a) to the Registrant's
Registration Statement No. 33-38806).
4(c) Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's Cumulative Convertible Preferred Stock,
Series B (incorporated by reference to Exhibit 2 to the Registrant's
Form 8-A dated August 8, 1991 (File No. 1-2979)).
4(d) Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's ESOP Cumulative Convertible Preferred
Stock (incorporated by reference to Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994
(File No. 1-2979)).
4(e) By-Laws, as amended (incorporated by reference to Exhibit 4(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1991 (File No. 1-2979)).
4(f) Rights Agreement, dated as of November 22, 1988, between Norwest
Corporation and Citibank, N.A., including as Exhibit A the form of
Certificate of Designation of Powers, Preferences and Rights setting
forth the terms of the Series A Junior Participating Preferred Stock,
without par value (incorporated by reference to Exhibit 1 to the
Registrant's Form 8-A dated December 6, 1988, (File No. 1-2979)) and
Certificates of Adjustment pursuant to Section 12 of the Rights
Agreement (incorporated by reference to Exhibit 3 to the Registrant's
Form 8 dated July 21, 1989, and to Exhibit 4 to the Registrant's Form
8-A/A dated June 28, 1993 (File No. 1-2979)).
5 Opinion of General Counsel of the Registrant. Electronic
Transmission
8 Opinion of Vinson & Elkins. Electronic
Transmission
23(a) Consent of General Counsel of the Registrant (included as part of
Exhibit 5 filed herewith).
23(b) Consent of Vinson & Elkins (included as part of Exhibit 8 filed
herewith).
23(c) Consent of KPMG Peat Marwick LLP. Electronic
Transmission
23(d) Consent of Arthur Andersen LLP. Electronic
Transmission
24 Powers of Attorney. Electronic
Transmission
99 Form of proxy for Special Meeting of Shareholders of First National Electronic
Bank of Kerrville. Transmission
</TABLE>
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF STANLEY S. STROUP]
September 16, 1994
Board of Directors
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act
of 1933, as amended, of 1,465,000 shares of the common stock (the "Shares"),
par value $1 2/3 per share, of Norwest Corporation (the "Corporation"), a
Delaware corporation, which are proposed to be issued by the Corporation in
connection with the consolidation (the "Consolidation") of a wholly owned
subsidiary of the Corporation with First National Bank of Kerrville, a national
banking association, I have examined such corporate records and other
documents, including the Registration Statement on Form S-4 relating to the
Shares and have reviewed such matters of law as I have deemed necessary for
this opinion, and I advise you that in my opinion:
1. The Corporation is a corporation duly organized and existing under
the laws of the State of Delaware.
2. All necessary corporate action on the part of the Corporation has
been taken to authorize the issuance of the Shares in connection with the
Consolidation, and, when issued as described in the Registration Statement, the
Shares will be legally and validly issued, fully paid, and nonassessable.
I consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Stanley S. Stroup
<PAGE> 1
EXHIBIT 8
____________, 1994
First National Bank of Kerrville
301 Junction Highway
Kerrville, Texas 78028
Gentlemen:
You have requested our opinion with respect to certain federal income tax
consequences of the consolidation of a wholly-owned subsidiary of Norwest
Corporation ("Norwest") with First National Bank of Kerrville ("Kerrville") as
hereinafter described (the "Consolidation"). Our opinion is based upon (i) the
Amended and Restated Agreement and Plan of Reorganization entered into as of
May 20, 1994, as amended and restated on July 8, 1994, by and between Kerrville
and Norwest (the "Reorganization Agreement")1 and (ii) the facts and
representations set forth below.
FACTS
KERRVILLE
Kerrville is a national banking association organized under the laws of the
United States with its principal office at 301 Junction Highway, Kerrville,
Texas 78028. Kerrville maintains its books on an accrual method of accounting
and uses the calendar year as its taxable year.
Kerrville is authorized to issue 50,000 shares of Common Stock, $100 par
value, of which 25,000 shares are issued and outstanding and held by nine
shareholders.
__________________
1 Capitalized terms used but not defined herein have the meanings ascribed
to them in the Reorganization Agreement.
<PAGE> 2
First National Bank of Kerrville
_________, 1994
Page 2
NORWEST
Norwest is a Delaware corporation with its principal office at Sixth and
Marquette, Minneapolis, Minnesota 55479. Norwest maintains its books on an
accrual method of accounting and uses the calendar year as its taxable year.
Norwest is registered as a bank holding company with the Federal Reserve Board.
Norwest is authorized to issue (i) 5,000,000 shares of Preferred Stock,
without par value, of which as of the close of business on December 31, 1993,
1,131,250 shares of 10.24% Cumulative Preferred Stock at $100 stated value and
1,143,750 shares of Cumulative Convertible Preferred Stock, Series B, at $200
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 December 31, 1993,
294,131,670 shares were outstanding. The Norwest Common Stock is widely-held
and publicly traded on the New York Stock Exchange and the Chicago Stock
Exchange.
INTERIM BANK
Norwest Interim Bank Kerrville, National Association ("Interim Bank") is a
national banking association and a wholly-owned subsidiary of Norwest
incorporated for the sole purpose of the Consolidation.
THE CONSOLIDATION
The Reorganization Agreement and the Agreement and Plan of Consolidation
between Interim Bank and Kerrville (the "Consolidation Agreement") attached as
Exhibit A to the Reorganization Agreement provide for the consolidation of
Interim Bank with Kerrville under the charter of Kerrville, pursuant to the
authority of and in accordance with the provisions of section 215 of the
National Bank Act, 12 U.S.C. Section 215. As of the Effective Date of the
Consolidation, the corporate existences of Kerrville and Interim Bank shall be
consolidated into Kerrville as the "Consolidated Bank", and all rights,
franchises, and interests of Kerrville and Interim Bank shall be vested in the
Consolidated Bank by virtue of the Consolidation.
As of the Effective Date, each share of Kerrville Common Stock outstanding
immediately prior to the Effective Time of the Consolidation (other than shares
as to which statutory dissenters' appraisal rights have been exercised) will be
converted into and exchanged for a number of shares of Norwest Common Stock
determined by dividing the Norwest Shares by the number of shares of Kerrville
Common Stock outstanding immediately prior to the Effective Time of the
Consolidation. The "Norwest Shares" shall be equal to 1,225,000 reduced by the
amount determined by dividing the Adjustment Amount by the Norwest Measurement
Price.
<PAGE> 3
First National Bank of Kerrville
_________, 1994
Page 3
The "Adjustment Amount" is an amount equal to 63.375 percent of the amounts
which Kerrville has paid and is obligated to pay in connection with a judgment
entered in certain litigation referred to as the Phoenix Matter, and the
"Norwest Measurement Price" is the average of the closing prices of a share of
Norwest Common Stock on the New York Stock Exchange during the period of five
trading days ending at the end of the third trading day immediately preceding
the Closing Date. If the Phoenix Matter has not been finally resolved by the
Closing Date, then a number of shares equal to 1,225,000 less the Norwest
Shares shall be deposited into escrow in accordance of the terms of an escrow
agreement to be entered into by the parties (the "Escrow Agreement"). The
Escrow Agreement shall provide that shares held in escrow shall be distributed
proportionately to Norwest and the Kerrville shareholders based on amounts paid
by Kerrville to resolve the Phoenix Matter and shall provide further that if
the Phoenix Matter is not finally resolved within 42 months after the Closing
Date, such shares shall be distributed to Norwest.
The shares of Interim Bank outstanding immediately prior to the Effective
Time of the Consolidation shall be converted into and exchanged for shares of
the Consolidated Bank, plus cash.
No fractional shares of Norwest Common Stock shall be issued; in lieu
thereof, any holder of a fractional interest 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 on the New York Stock Exchange for each of the five
trading days immediately preceding the Effective Date of the Consolidation.
Section 10 of the Reorganization Agreement provides that all expenses in
connection with that Agreement and the transactions contemplated thereby,
including without limitation legal and accounting fees, incurred by Kerrville
and Kerrville subsidiaries shall be borne by Kerrville, and all such expenses
incurred by Norwest shall be borne by Norwest.
In Section 5(c) of the Reorganization Agreement, Norwest agrees to file with
the Securities and Exchange Commission a registration statement relating to the
shares of Norwest Common Stock to be delivered to the shareholders of Kerrville
pursuant to the Consolidation Agreement, and to use its best efforts to cause
the registration statement to become effective. In Section 5(d) of the
Reorganization Agreement, Norwest agrees to file all documents required to be
filed to list the Norwest Common Stock to be issued pursuant to the
Consolidation Agreement on the New York Stock Exchange and the Chicago Stock
Exchange and to use its best efforts to effect such listings.
In Section 4(n) of the Reorganization Agreement, Kerrville agrees that it
will use its best efforts to sell an airplane owned by Kerrville at a cash
purchase price of not less than its appraised market value.
<PAGE> 4
First National Bank of Kerrville
_________, 1994
Page 4
BUSINESS PURPOSE
The terms of the Reorganization Agreement were the result of arm's-length
negotiations between representatives of Kerrville and Norwest.
The Consolidation will enable Kerrville to become part of a larger and more
diverse banking organization thereby enabling Kerrville to offer a broader
range of services to its customers. Norwest's continued expansion in the Texas
banking market through its acquisition of Kerrville will result in Kerrville's
becoming another example of a sound and attractive banking operation for
Norwest and enable Norwest to acquire other banking operations in the state.
REPRESENTATIONS
In connection with your request that we furnish this opinion, certain
representations have been made with respect to the existence of certain facts.
These constitute material representations relied upon by us as a basis for our
opinion, and our opinion is conditioned upon the initial and continuing
accuracy of these representations. Specifically, it has been represented that:
1. There is no plan or intention by any shareholder of Kerrville who owns one
percent or more of the Kerrville Common Stock, and to the best of the knowledge
of the management of Kerrville there is no plan or intention on the part of the
remaining shareholders of Kerrville, to sell, exchange or otherwise dispose of
a number of shares of Norwest Common Stock to be received by them in the
Consolidation that would reduce the Kerrville shareholders' ownership of
Norwest Common Stock to a number of shares having a value, as of the date of
the Consolidation, of less than 50 percent of the value of all of the formerly
outstanding Kerrville Common Stock as of the date of the Consolidation. For
purposes of this representation, shares of Kerrville Common Stock exchanged for
cash or other property, surrendered by dissenters or exchanged for cash in lieu
of fractional shares of Norwest Common Stock will be treated as outstanding
Kerrville Common Stock on the date of the Consolidation.
2. Following the Consolidation, Kerrville will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of Interim Bank's net assets and at least 70 percent of the fair market
value of Interim Bank's gross assets held immediately prior to the
Consolidation. For purposes of this representation, amounts paid by Kerrville
or Interim Bank to dissenters, amounts paid by Kerrville or Interim Bank to
shareholders who receive cash or other property, amounts used by Kerrville or
Interim Bank to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Kerrville will
<PAGE> 5
First National Bank of Kerrville
_________, 1994
Page 5
be included as assets of Kerrville or Interim Bank, respectively, immediately
prior to the Consolidation.
3. Kerrville has no plan or intention to issue additional shares of its stock
that would result in Norwest's losing control of Kerrville within the meaning
of section 368(c) of the Internal Revenue Code of 1986 (the "Code").
4. Norwest has no plan or intention to reacquire any of the Norwest Common
Stock issued in the Consolidation.
5. Norwest has no plan or intention to liquidate Kerrville, to merge
Kerrville with or into another corporation, to sell or otherwise dispose of the
stock of Kerrville, or to cause Kerrville to sell or otherwise dispose of any
of its assets or of any of the assets acquired from Interim Bank except for
dispositions made in the ordinary course of business.
6. Interim Bank will have no liabilities assumed by Kerrville and will not
transfer to Kerrville any assets subject to liabilities in the Consolidation.
7. Following the Consolidation, Kerrville will continue its historic business.
8. Norwest, Interim Bank, Kerrville and the Kerrville shareholders will pay
their respective expenses, if any, incurred in connection with the
Consolidation.
9. There is no intercorporate indebtedness existing between Norwest and
Kerrville or between Interim Bank and Kerrville that was issued, acquired, or
will be settled at a discount.
10. Norwest does not own, nor has it owned during the past five years, any
shares of the stock of Kerrville.
11. Neither Kerrville nor Norwest is an investment company as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
12. Kerrville is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
13. The total amount of cash to be received by shareholders of Kerrville
Common Stock in lieu of fractional shares of Norwest Common Stock will not
exceed one percent of the total fair market value of the Norwest Common Stock
(as of the date of the Consolidation) that will be issued in the Consolidation.
14. None of the compensation to be received by any shareholder-employees of
Kerrville will be separate consideration for, or allocable to, any of their
shares of Kerrville
<PAGE> 6
First National Bank of Kerrville
_________, 1994
Page 6
Common Stock; none of the shares of Norwest Common Stock to be received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement; and the compensation to be paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with the amounts paid to third parties bargaining at arm's-length
for similar services.
15. The shares of Norwest Common Stock to be placed in escrow pursuant to
the Escrow Agreement (the "Escrowed Shares") will appear as issued and
outstanding on the balance sheet of Norwest and will be legally outstanding
under applicable corporate law.
16. All dividends paid on the Escrowed Shares will be distributed currently
to the Kerrville shareholders.
17. All voting rights of the Escrowed Shares will be exercisable by or on
behalf of the Kerrville shareholders or their authorized agent.
18. At least 50 percent of the number of shares of Norwest Common Stock to
be issued in the Consolidation will not be subject to the Escrow Agreement.
Our opinion is further conditioned upon our understanding that the
transactions contemplated by the Reorganization Agreement will be carried out
strictly in accordance with the terms of the Reorganization Agreement and that
there are no other agreements, arrangements, or understandings among any of
Kerrville, Norwest, Interim Bank or the Kerrville shareholders other than those
described or referenced in the Reorganization Agreement.
STATEMENT OF AUTHORITIES
Section 368(a)(1)(A) of the Code defines a "reorganization" to include a
statutory merger or consolidation. Section 368(a)(2)(E) provides that a
transaction otherwise qualifying under section 368(a)(1)(A) shall not be
disqualified by reason of the fact that stock of a corporation (referred to as
the "controlling corporation") which before the merger was in control of the
merged corporation is used in the transaction, if (i) after the transaction,
the corporation surviving the merger holds substantially all of its properties
and of the properties of the merged corporation (other than stock of the
controlling corporation distributed in the transaction), and (ii) in the
transaction, former shareholders of the Surviving Corporation exchanged, for an
amount of voting stock of the controlling corporation, an amount of stock in
the Surviving Corporation which constitutes control of such corporation.
Treas. Reg. Section 1.368-2(j) provides that section 368(a)(2)(E) of the
Code does not apply to a consolidation. However, in Revenue Ruling 84-104,
1984-2 Cum. Bull. 94, the Internal Revenue Service held that a "consolidation"
pursuant to section 215 of the National Bank Act
<PAGE> 7
First National Bank of Kerrville
_________, 1994
Page 7
of a wholly-owned bank subsidiary of a bank holding company with an existing
national banking association is considered a merger, rather than a
consolidation, for federal income tax purposes because under section 215 of
the National Bank Act one of the combining corporations survives the
transaction and no new corporation is formed. Accordingly, a consolidation
pursuant to section 215 of the National Bank Act can qualify as a reverse
triangular merger for purposes of section 368(a)(1)(A) and (a)(2)(E) of the
Code.
Section 368(b) of the Code provides that the term "a party to a
reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another, and that in the case of a reorganization qualifying under section
368(a)(1)(A) by reason of section 368(a)(2)(E), also includes the controlling
corporation referred to in section 368(a)(2)(E). Section 368(c) provides that
the term "control" means the ownership of stock possessing at least 80 percent
of the total combined voting power of all classes of stock entitled to vote and
at least 80 percent of the total number of shares of all other classes of stock
of the corporation.
Section 368(a)(2)(F) of the Code provides generally that if two or more
parties to a transaction described in section 368(a)(1) were investment
companies (as defined in section 368(a)(2)(F)(iii) and (iv)) immediately before
the transaction, then the transaction shall not be considered to be a
reorganization with respect to any such investment company (and its
shareholders). Section 368(a)(3) provides additional rules with respect to the
reorganization of a corporation in a title 11 or similar case.
Section 354(a)(1) of the Code provides that no gain or loss shall be
recognized if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation a party to the
reorganization.
Section 358(a)(1) of the Code provides that in the case of an exchange to
which section 354 applies, the basis of the property permitted to be received
under such section without the recognition of gain or loss shall be the same as
that of the property exchanged.
Section 1223(1) of the Code provides in part that in determining the period
for which the taxpayer has held property received in an exchange, there shall
be included the period for which he held the property exchanged if the property
has, for the purpose of determining gain or loss from a sale or exchange, the
same basis in whole or in part in his hands as the property exchanged and the
property exchanged at the time of such exchange was a capital asset as defined
in section 1221 of the Code.
Treas. Reg. Section 1.368-1(b) provides that requisite to a reorganization
under the Code are a continuity of the business enterprise under the modified
corporate form and a continuity of interest therein on the part of those
persons who, directly or indirectly, were the owners of the enterprise prior to
the reorganization.
<PAGE> 8
First National Bank of Kerrville
_________, 1994
Page 8
Treas. Reg. Section 1.368-1(d) provides that continuity of business
enterprise requires that the acquiring corporation either (i) continue the
historic business of the acquired corporation or (ii) use a significant portion
of the acquired corporation's historic business assets in a business, and that
the continuity of business enterprise requirement is satisfied if the acquiring
corporation continues the acquired corporation's historic business.
In Revenue Ruling 67-275, 1967-2 Cum. Bull. 142, pursuant to a plan of
reorganization, an acquiring corporation paid the costs necessary to register
with the Securities and Exchange Commission the stock issued to the
shareholders of the acquired corporation, in order to promote the orderly
marketing of the acquiring corporation's stock by enabling the shareholders of
the acquired corporation to deal with such stock in the same manner as other
shareholders of the acquiring corporation. It was ruled that the costs of
registering its own stock are properly attributable to the acquiring
corporation and are not other property received in the reorganization by the
shareholders of the acquired corporation.
In Revenue Procedure 77-37, 1977-2 Cum. Bull. 568, the Internal Revenue
Service published operating rules used in considering requests for rulings
involving reorganizations. Section 3.02 of Revenue Procedure 77-37 provides
that the "continuity of interest" requirement of Treas. Reg. Section
1.368-1(b) is satisfied if there is continuing interest through stock ownership
in the acquiring corporation (or a corporation in control thereof) on the part
of the former shareholders of the acquired corporation which is equal in value,
as of the effective date of the reorganization, to at least 50% of the value of
all of the formerly outstanding stock of the acquired corporation as of the
same date. Sales, redemptions, and other dispositions of stock occurring prior
or subsequent to the plan of reorganization will be considered in determining
whether there is a 50% continuing interest through stock ownership as of the
effective date of the reorganization. Revenue Procedure 77-37, by its terms,
does not define, as a matter of law, the lower limits of continuity of
interest. See, e.g., John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935);
Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); Miller v. Commissioner, 84
F.2d 415 (6th Cir. 1936); and United States v. Adkins-Phelps, Inc., 400 F.2d
737 (8th Cir. 1968).
In Revenue Procedure 77-41, 1977-2 Cum. Bull. 574, the Internal Revenue
Service stated that rulings would usually be issued under section 302(a) of the
Code that cash to be distributed to shareholders in lieu of fractional share
interests in corporate reorganizations will be treated as having been received
in part or full payment in exchange for the stock redeemed if the cash
distribution is undertaken solely for the purpose of saving the corporation the
expense and inconvenience of issuing and transferring fractional shares, and is
not separately bargained-for consideration.
In Revenue Procedure 86-42, 1986-2 Cum. Bull. 722, the Internal Revenue
Service set forth standard representations to be submitted as a prerequisite to
the issuance of rulings on the tax consequences of a reorganization described
in section 368(a)(1)(A) and section 368(a)(2)(E)
<PAGE> 9
First National Bank of Kerrville
_________, 1994
Page 9
of the Code, which to the extent relevant are substantially the same as the
representations set forth in the Reorganization Agreement as described above.
In Revenue Procedure 90-56, 1990-2 Cum. Bull. 639, the Internal Revenue Service
stated that it will no longer issue advance rulings on whether a transaction
constitutes a corporate reorganization within the meaning of section
368(a)(1)(A) of the Code, but did not revoke Revenue Procedure 86-42 or Revenue
Procedure 77-41.
In Revenue Procedure 84-42, 1984-1 Cum. Bull. 521, the Internal Revenue
Service stated that in reorganization transactions a portion of the stock
issued in exchange for the requisite stock or property may be placed in escrow
by the exchanging shareholders for possible return to the issuing corporation
under specified conditions provided: (i) there is a valid business reason for
establishing the arrangement; (ii) the stock subject to such arrangement
appears as issued and outstanding on the balance sheet of the issuing
corporation and such stock is legally outstanding under applicable state law;
(iii) all dividends paid on such stock will be distributed currently to the
exchanging shareholders; (iv) all voting rights of such stock are exercisable
by or on behalf of the shareholders or their authorized agent; (v) no shares of
such stock are subject to restrictions requiring their return to the issuing
corporation because of death, failure to continue employment, or similar
restrictions; (vi) all such stock is released from the arrangement within five
years from the date of consummation of the transaction (except where there is a
bona fide dispute as to whom the stock should be released); (vii) at least 50
percent of the number of shares of each class of stock issued initially to the
shareholders is not subject to the arrangement; (viii) the return of stock will
not be triggered by an event the occurrence or nonoccurrence of which is within
the control of shareholders; (ix) the return of stock will not be triggered by
the payment of additional tax or reduction in tax paid as a result of an audit
by the Internal Revenue Service of the shareholders or the corporation; and (x)
the mechanism for calculation of the number of shares of stock to be returned
is objective and readily ascertainable.
CONCLUSIONS
It is our opinion that the Consolidation constitutes a statutory
consolidation under section 215 of the National Bank Act.
Accordingly, based upon the facts and representations set forth above, the
authorities and ruling policies of the Internal Revenue Service discussed above
as applied to those facts and representations, and conditioned upon the initial
and continuing accuracy of the representations set forth above, it is our
opinion that:
(i) The Consolidation will constitute a reorganization within the meaning
of section 368(a) of the Code, and Kerrville, Norwest and Interim Bank will
each be a party to the reorganization within the meaning of section 368(b) of
the Code.
<PAGE> 10
First National Bank of Kerrville
_________, 1994
Page 10
(ii) No gain or loss will be recognized by the holders of Kerrville Common
Stock upon the receipt of shares of Norwest Common Stock in exchange for
shares of Kerrville Common Stock, except that a holder of Kerrville Common
Stock who receives cash in lieu of a fractional share interest in Norwest
Common Stock will recognize gain or loss equal to the difference between such
cash and the basis allocated to the fractional share interest.
(iii) The basis of the shares of Norwest Common Stock (including fractional
share interests treated as received and shares placed in escrow) received by
a holder of Kerrville Common Stock will be the same as the basis of the
shares of Kerrville Common Stock exchanged therefor.
(iv) The holding period of the shares of Norwest Common Stock received by a
holder of Kerrville Common Stock will include the holding period of the
shares of Kerrville Common Stock exchanged therefor, provided the Kerrville
Common Stock is held as a capital asset at the Effective Time of the
Consolidation.
We express no opinion as to the tax treatment of the Consolidation under the
provisions of any other sections of the Code which also may be applicable
thereto or to the tax treatment of any conditions existing at the time of, or
effects resulting from, the transactions which are not specifically addressed
in the foregoing opinion.
This opinion is given to you by us solely for your use and is not to be
quoted or otherwise referred to or furnished to any governmental agency (other
than to the Securities and Exchange Commission as an exhibit to the
registration statement relating to the shares of Norwest Common Stock to be
issued pursuant to the Consolidation or to the Internal Revenue Service in
connection with an examination of the transactions contemplated by the
Reorganization Agreement) or to other persons without our prior written
consent.
We hereby consent to the use of our name under "Certain Federal Income Tax
Consequences" in the Proxy Statement-Prospectus of Norwest and the filing of a
copy of this opinion as an exhibit to the Norwest Registration Statement.
Very truly yours,
VINSON & ELKINS L.L.P
<PAGE> 1
EXHIBIT 23(C)
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Consent
The Board of Directors
Norwest Corporation:
We consent to the use of our report dated January 19, 1994 incorporated herein
by reference and to the reference to our firm under the heading "EXPERTS" in
the prospectus. Our report refers to the Corporation's adoption of Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
/s/ KPMG Peat Marwick LLP
September 16, 1994
<PAGE> 1
EXHIBIT 23(D)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Houston, Texas
September 16, 1994
<PAGE> 1
EXHIBIT 24
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of April, 1994.
/s/ David A. Christensen
----------------------------------
David A. Christensen
<PAGE> 2
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Gerald J. Ford
----------------------------------
Gerald J. Ford
<PAGE> 3
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Pierson M. Grieve
----------------------------------
Pierson M. Grieve
<PAGE> 4
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ N. Berne Hart
----------------------------------
N. Berne Hart
<PAGE> 5
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ William A. Hodder
----------------------------------
William A. Hodder
<PAGE> 6
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ George C. Howe
----------------------------------
George C. Howe
<PAGE> 7
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Lloyd P. Johnson
----------------------------------
Lloyd P. Johnson
<PAGE> 8
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Reatha Clark King
----------------------------------
Reatha Clark King
<PAGE> 9
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Richard M. Kovacevich
----------------------------------
Richard M. Kovacevich
<PAGE> 10
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Richard S. Levitt
----------------------------------
Richard S. Levitt
<PAGE> 11
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Richard D. McCormick
----------------------------------
Richard D. McCormick
<PAGE> 12
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Cynthia H. Milligan
----------------------------------
Cynthia H. Milligan
<PAGE> 13
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ John E. Pearson
----------------------------------
John E. Pearson
<PAGE> 14
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Stephen E. Watson
----------------------------------
Stephen E. Watson
<PAGE> 15
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to a Registration Statement on Form S-4 or other applicable
form, and all amendments, including post-effective amendments, thereto, to be
filed by said Corporation with the Securities and Exchange Commission,
Washington, D.C., in connection with the registration under the Securities Act
of 1933, as amended, of up to 1,465,000 shares of Common Stock of the
Corporation which may be issued in connection with the acquisition by the
Corporation of First National Bank of Kerrville, and to file the same, with all
exhibits thereto and other supporting documents, with said Commission, granting
unto said attorneys-in-fact, and each of them, full power and authority to do
and perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 27th day of April, 1993.
/s/ Michael W. Wright
----------------------------------
Michael W. Wright
<PAGE> 1
EXHIBIT 99
FIRST NATIONAL BANK OF KERRVILLE
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints F. O'Neil Griffin and William R. Goertz,
and each of them, proxies, with full power of substitution, to vote all shares
of Common Stock the undersigned is entitled to vote at the Special Meeting of
Shareholders of First National Bank of Kerrville (the "Bank") to be held at the
main office of the Bank, 301 Junction Highway, Kerrville, Texas, at __:__ _.m.
on ______, November __, 1994, or at any adjournment thereof, as follows, hereby
revoking any proxy previously given:
(1) The adoption of the Amended and Restated Agreement and Plan of
Reorganization between the Bank and Norwest Corporation ("Norwest"), dated as
of July 8, 1994, pursuant to which a wholly owned banking subsidiary of Norwest
will be consolidated with the Bank, under the charter of the Bank, and each
outstanding share of the common stock of the Bank will be exchanged for shares
of the common stock, par value $1 2/3 per share, of Norwest, as more fully
described in the Proxy Statement-Prospectus accompanying this Proxy.
FOR / / AGAINST / / ABSTAIN / /
(2) In their discretion on such matters as may properly come before the
meeting or any adjournment thereof; all as set out in the Notice and Proxy
Statement-Prospectus relating to the meeting, receipt of which are hereby
acknowledged.
Shares represented by this proxy will be voted as directed by the
shareholder. The Board of Directors recommends a vote "FOR" proposal 1. If no
direction is supplied, the proxy will be voted "FOR" proposal 1.
Dated: __________________________, 1994.
______________________________________________
(Please sign exactly as name appears at left.)
______________________________________________
(If stock is owned by more than one person,
all owners should sign. Persons signing as
executors, administrators, trustees, or in
similar capacities should so indicate.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
