<PAGE>
As filed with the Securities and Exchange Commission on February 10, 1994
Registration No.
033-52005
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0449260
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
Stanley S. Stroup Copy to:
Senior Vice President and General Counsel J. Andrew Herring
Norwest Corporation Dorsey & Whitney
Norwest Center 2200 Pillsbury Center South
Sixth and Marquette 220 South Sixth Street
Minneapolis, Minnesota 55479-1026 Minneapolis, Minnesota 55402
612-667-8858 612-340-5683
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
__________________
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
================================================================================
<PAGE>
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 Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Available Information;
Pages of Prospectus Incorporation of Certain
Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary
Charges, and Other Information
4. Terms of the Transaction The Merger
5. Pro Forma Financial Information *
6. Material Contacts with the Company The Merger; Information
Being Acquired About BMS
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 Recent Operating Results
Registrants of Norwest
11. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference;
Management and
Additional Information
</TABLE>
<PAGE>
NORWEST CORPORATION
-------------------
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Heading
------------- ------------------
<S> <C> <C>
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 Summary--Selected
Other Than S-2 or S-3 Companies Financial Data; Summary
--Comparative Unaudited
Per Share Data; Information
About BMS; Management's
Discussion and Analysis
of Financial Condition;
Financial Statements
18. Information If Proxies, Consents, Incorporation of Certain
or Authorizations Are to Be Solicited Documents by Reference;
Meeting Information; The
Merger--Dissenters' Rights;
The Merger--Interests of
Certain Persons in the Merger;
Certain Transactions;
Management and Additional
Information
19. Information If Proxies, Consents, or *
Authorizations Are Not to Be Solicited
or in an Exchange Offer
</TABLE>
- ---------------------------
*Item is omitted because answer is negative or item is inapplicable.
<PAGE>
BANK OF MONTANA SYSTEM
5500 WAYZATA BOULEVARD, SUITE 145
GOLDEN VALLEY, MINNESOTA 55416
February 10, 1994
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of Bank of Montana System ("BMS") to be held at 5500
Wayzata Boulevard, Suite 145, Golden Valley, Minnesota, on Monday,
March 14, 1994, at 9:00 a.m., local time. At the Special Meeting you will
be asked to consider and vote upon the Agreement and Plan of Reorganization
dated as of September 13, 1993, between BMS and Norwest Corporation
("Norwest"), and the related Agreement and Plan of Merger (together, the
"Merger Agreement") providing for the merger of a wholly owned subsidiary of
Norwest into BMS (the "Merger").
Under the terms of the Merger Agreement, the Merger will result in the
conversion of each share of BMS capital stock outstanding immediately prior to
the time the Merger becomes effective into shares of Norwest common stock
according to a conversion formula described in the accompanying Proxy
Statement of BMS and Prospectus of Norwest (the "Proxy Statement-Prospectus").
The enclosed Proxy Statement-Prospectus contains a more complete
description of the terms of the Merger. You are urged to read the Proxy
Statement-Prospectus carefully.
The Board of Directors has carefully reviewed and considered the terms
and conditions of the proposed Merger. In addition, the Board of Directors
has received the opinion of its financial advisor, D.A. Davidson & Co., as to
the fairness, from a financial point of view, of the consideration to be
received by BMS's shareholders in the Merger.
THE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AS BEING IN THE
BEST INTEREST OF BMS'S SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE MERGER AGREEMENT.
You should consult your own tax advisor concerning the federal income tax
consequences, and any applicable foreign, state, local or other tax
consequences, of the Merger.
Whether or not you plan to attend the Special Meeting, 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.
Michael J. Pint
President
<PAGE>
BANK OF MONTANA SYSTEM
5500 WAYZATA BOULEVARD, SUITE 145
GOLDEN VALLEY, MINNESOTA 55416
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON MARCH 14, 1994
A special meeting (the "Special Meeting") of shareholders of Bank of
Montana System ("BMS), a Montana corporation, will be held at 5500 Wayzata
Boulevard, Suite 145, Golden Valley, Minnesota, on Monday, March 14,
1994, at 9:00 a.m., local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization
dated as of September 13, 1993 (together with the Agreement and Plan of Merger
attached thereto, the "Merger Agreement") between BMS and Norwest Corporation
("Norwest"), a Delaware corporation, a copy of which is included in the
accompanying Proxy Statement of BMS and Prospectus of Norwest (the "Proxy
Statement-Prospectus") as Appendix A, under the terms of which a wholly owned
subsidiary of Norwest would be merged into BMS with BMS as the surviving
corporation, and each outstanding share of capital stock, par value $2.50 per
share, of BMS ("BMS Common Stock") would be converted into shares of common
stock, par value $1 2/3 per share, of Norwest according to a conversion formula
described in the accompanying Proxy Statement-Prospectus; and to authorize such
further action by the Board of Directors and proper officers of BMS as may be
necessary or appropriate to carry out the intent and purposes of the Merger
Agreement.
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 BMS at the close of business on
February 3, 1994, will be entitled to vote at the Special Meeting or any
adjournment thereof.
The affirmative vote of two-thirds of the outstanding shares of BMS Common
Stock is required to approve the Merger Agreement.
Holders of BMS Common Stock are entitled to assert dissenters' rights under
Section 35-1-826 through 35-1-839 of the Montana Business Corporation Act, a
copy of which is attached as Appendix B to the accompanying Proxy Statement-
Prospectus. See "THE MERGER -- Dissenters' Rights" in the accompanying Proxy
Statement-Prospectus for more information.
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
Roger Amundson
Secretary
February 10, 1994
HOLDERS OF BMS COMMON STOCK ARE URGED TO COMPLETE, SIGN, DATE, AND MAIL THE
ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY, IF YOU
WISH, REVOKE YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE REVOKED AT ANY
TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROXY STATEMENT-
PROSPECTUS.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR BMS COMMON STOCK AT THIS TIME.
<PAGE>
PROXY STATEMENT
OF
BANK OF MONTANA SYSTEM
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 14, 1994
---------------------
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
---------------------
This Prospectus of Norwest Corporation ("Norwest") relates to up to
4,200,000 shares of the common stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock") issuable to the shareholders of Bank of Montana
System ("BMS") upon consummation of the merger (the "Merger") of a wholly
owned subsidiary of Norwest with BMS, with BMS as the surviving corporation,
pursuant to the terms of an Agreement and Plan of Reorganization between BMS
and Norwest, dated as of September 13, 1993 (together with the Agreement and
Plan of Merger attached thereto, the "Merger Agreement"). The Merger
Agreement is set forth in Appendix A to this Proxy Statement of BMS and
Prospectus of Norwest (the "Proxy Statement-Prospectus") and incorporated by
reference herein.
This Prospectus also serves as the Proxy Statement of BMS for a special
meeting of shareholders to be held on March 14, 1994 (the "Special Meeting")
to approve the Merger Agreement.
Upon consummation of the Merger, each outstanding share of capital stock,
par value $2.50 per share, of BMS ("BMS Common Stock") will be converted into
shares of Norwest Common Stock according to a conversion formula described in
this Proxy Statement-Prospectus, plus cash in lieu of fractional shares.
For a more complete description of the Merger Agreement and the terms of
the Merger, see "THE MERGER."
The outstanding shares of Norwest Common Stock are, and the shares
offered hereby will be, listed on the New York Stock Exchange ("NYSE") and the
Chicago Stock Exchange ("CHX"). The last reported sale price of Norwest
Common Stock on the NYSE composite tape on February 8, 1994 was $25.00 per
share.
This Proxy Statement-Prospectus and the form of proxy are first being
mailed to shareholders of BMS on or about February 10, 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 February 10, 1994.
<PAGE>
AVAILABLE INFORMATION
Norwest is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, Norwest files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission").
Reports, proxy statements, and other information concerning Norwest can
be inspected and copied at the public reference facilities of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. Reports, proxy statements, and other
information filed by Norwest 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, BMS, and the securities offered hereby.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT
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 MARCH 7, 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,
1992, as amended by Amendment No. 1 on Form 8 dated March 3, 1993; (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30,
1993, and September 30, 1993; (iii) Current Reports on Form 8-K dated February
8, 1993, March 12, 1993, June 28, 1993, August 10, 1993, August 31, 1993,
September 15, 1993, September 27, 1993, October 25, 1993, and December 29,
1993; and (iv) the description of Norwest Common Stock, 10.24% Cumulative
Preferred Stock, Cumulative Convertible Preferred Stock, Series B, and Series
A Junior Participating Preferred Stock Purchase Rights contained in the
Registration Statements filed pursuant to Section 12 of the Exchange Act and
any amendment or report filed for the purpose of updating any such
description.
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.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 3
SUMMARY.................................................................... 7
The Companies.......................................................... 7
The Merger............................................................. 8
The Special Meeting and Vote Required.................................. 8
Reasons for the Merger................................................. 9
Recommendation of the Board of Directors of BMS........................ 9
Opinion of BMS Financial Advisor....................................... 10
Effective Date and Time of the Merger.................................. 10
Conditions and Termination............................................. 10
Accounting Treatment................................................... 11
Regulatory Approvals................................................... 11
Management and Operations After the Merger............................. 11
Interests of Certain Persons in the Merger; Certain Transactions....... 12
Certain Differences in Rights of Shareholders.......................... 12
Dissenters' Rights..................................................... 12
Certain Federal Income Tax Consequences................................ 12
Resale of Norwest Common Stock......................................... 13
Markets and Market Prices.............................................. 13
Comparative Unaudited Per Share Data................................... 13
Selected Financial Data................................................ 16
MEETING INFORMATION........................................................ 20
General................................................................ 20
Date, Place, and Time.................................................. 20
Record Date; Vote Required............................................. 20
Principal Shareholders and Security Ownership of Management............ 21
Voting and Revocation of Proxies....................................... 23
Solicitation of Proxies................................................ 23
THE MERGER................................................................. 23
Background of and Reasons for the Merger............................... 24
Opinion of BMS Financial Advisor....................................... 26
Terms of the Merger.................................................... 31
Effective Date and Time of the Merger.................................. 34
Surrender of Certificates.............................................. 34
Conditions to the Merger............................................... 35
Regulatory Approvals................................................... 37
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Business Pending the Merger........................................... 40
Waiver, Amendment, and Termination.................................... 43
Management and Operations After the Merger............................ 44
Interests of Certain Persons in the Merger; Certain Transactions...... 44
Certain Differences in Rights of Shareholders......................... 47
Dissenters' Rights.................................................... 55
Certain Federal Income Tax Consequences............................... 58
Resale of Norwest Common Stock........................................ 60
Effect on BMS Employee Benefit Plans.................................. 61
Dividend Reinvestment and Optional Cash Payment Plan.................. 61
Accounting Treatment.................................................. 61
Expenses.............................................................. 62
INFORMATION ABOUT BMS..................................................... 62
Business.............................................................. 62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION............... 67
RECENT OPERATING RESULTS OF NORWEST....................................... 88
CERTAIN REGULATORY CONSIDERATIONS......................................... 90
General............................................................... 90
Dividend Restrictions................................................. 90
Holding Company Structure............................................. 90
Capital Requirements.................................................. 91
Federal Deposit Insurance Corporation Improvement Act of 1991......... 92
FDIC Insurance........................................................ 94
EXPERTS................................................................... 95
LEGAL OPINION............................................................. 95
MANAGEMENT AND ADDITIONAL INFORMATION..................................... 95
FINANCIAL STATEMENTS..................................................... F-1
</TABLE>
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION AND AGREEMENT AND PLAN OF
MERGER
APPENDIX B MONTANA BUSINESS CORPORATION ACT, SECTIONS 35-1-826 THROUGH
35-1-839
APPENDIX C OPINION OF D.A. DAVIDSON & CO.
---------------------
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-
5
<PAGE>
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 BMS
SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
6
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in
all respects by the more detailed information included in this Proxy
Statement-Prospectus, the Appendices hereto, and the documents incorporated by
reference herein. Shareholders of BMS are urged to read carefully the entire
Proxy Statement-Prospectus, including the Appendices. As used in this Proxy
Statement-Prospectus, the terms "Norwest" and "BMS" 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 BMS included in this Proxy Statement-Prospectus has been furnished
by BMS to Norwest for incorporation herein.
THE COMPANIES
Norwest Corporation
Norwest Corporation is a regional bank holding company organized under
the laws of Delaware in 1929 and 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 September 30, 1993, Norwest had consolidated total assets of $50.4
billion, total deposits of $31.6 billion, and total stockholders' equity of
$3.4 billion. Based on total assets at September 30, 1993, Norwest was the
13th largest commercial banking organization in the United States. Norwest
recently completed, through its subsidiary GST Co., the acquisition of First
United Bank Group, Inc. ("First United"), a bank holding company headquartered
in Albuquerque, New Mexico, in exchange for 17,785,447 shares (exclusive of
shares reserved for stock options) of Norwest Common Stock. First United
owned and operated banks in New Mexico and Texas as well as other subsidiaries
engaged in related businesses, and had $3.5 billion in assets at September 30,
1993. See also "RECENT OPERATING RESULTS OF NORWEST."
Norwest regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of Norwest does
not make a public announcement about an acquisition until a definitive
agreement has been signed. Norwest has entered into definitive agreements for
the acquisition of various other financial institutions having aggregate total
assets at September 30, 1993, of approximately $546 million (excluding BMS).
Certain of these acquisitions have received regulatory approval and are
expected to be completed in the first quarter of 1994. The remaining
acquisitions are subject to the approval of regulatory authorities and are
also expected to be
7
<PAGE>
completed in the first quarter of 1994. None of these acquisitions are
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, Minneapolis, Minnesota 55479-1000, and its telephone
number is 612-667-1234.
Additional information concerning Norwest is included in the Norwest
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Bank of Montana System
BMS is a bank holding company registered under the BHC Act and
headquartered in Great Falls, Montana. BMS owns all of the outstanding
capital stock of Bank of Montana, a bank chartered under the laws of Montana
with 17 branches in 15 Montana communities. BMS also owns all of the
outstanding capital stock of Montana Bancsystem, Inc., a bank holding company
registered under the BHC Act and headquartered in Billings, Montana ("MBI"),
which in turn owns approximately 99.6% of the outstanding capital stock of
Montana Bank, a bank chartered under the laws of Montana with 12 branches in
12 Montana communities. At September 30, 1993, BMS had consolidated total
assets of $797.0 million and total shareholders' equity of $55.2 million.
Through Bank of Montana and Montana Bank, BMS offers a range of traditional
banking services, including commercial, retail and agricultural lending,
credit cards, data processing and other financial services. BMS is a Montana
corporation. Its main office is located at 410 Central Avenue, Great Falls,
Montana 59403, and its telephone number is (406) 727-3100. See "INFORMATION
ABOUT BMS--Business."
THE MERGER
The Merger Agreement provides for the merger of a wholly owned subsidiary
of Norwest with BMS, with BMS as the surviving corporation. Upon consummation
of the Merger, each share of BMS Common Stock that was outstanding immediately
prior to consummation of the Merger (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 (the "Exchange Ratio")
determined by dividing the Adjusted Norwest Shares (as defined below) by the
number of shares of BMS Common Stock then outstanding. The "Adjusted Norwest
Shares" means 4,200,000 shares subject to reduction prior to consummation of
the Merger as a result of certain severance and bonus payments, certain share
purchases by BMS's employee stock ownership plan (the "ESOP"), certain
payments to Norwest for assistance with the operations, data processing and
internal audit functions of BMS, certain losses identified in the general
ledger balancing and account reconciliation process and certain environmental
remediation costs, if any. See "THE MERGER--Terms of the Merger."
THE SPECIAL MEETING AND VOTE REQUIRED
The Special Meeting of BMS shareholders to consider and vote on the
Merger will be held on Monday, March 14, 1994, at 9:00 a.m., local time, at
5500 Wayzata Boulevard, Suite 145, Golden Valley, Minnesota. Only holders of
record of BMS Common Stock at the close of business on February 3, 1994,
will be entitled to vote at the Special Meeting. At such date, there were
2,014,676 shares of BMS Common Stock outstanding. Each share of BMS Common
Stock is entitled
8
<PAGE>
to one vote. For additional information relating to the Special Meeting, see
"MEETING INFORMATION."
Approval of the Merger Agreement requires the affirmative vote of the
holders of two-thirds of the outstanding shares of BMS Common Stock. See
"MEETING INFORMATION--Record Date; Vote Required."
As of the record date for the Special Meeting, directors and officers of
BMS and their affiliates owned beneficially or controlled the voting of an
aggregate of 1,717,648 shares of BMS Common Stock, or 85.3% of the shares of
BMS Common Stock outstanding on that date. BMS's directors and officers have
informed BMS that they intend to vote all of their shares in favor of the
Merger Agreement. ACCORDINGLY, THE DIRECTORS AND OFFICERS OF BMS HAVE THE
ABILITY TO APPROVE THE MERGER WITHOUT THE VOTE OF THE REMAINING BMS
SHAREHOLDERS. At the record date, directors and executive officers of Norwest
did not own beneficially any shares of BMS Common Stock. At the record date,
Norwest Capital Management & Trust Co., Montana, a subsidiary of Norwest, held
in its fiduciary capacity, and had sole discretionary authority to vote, 2,000
shares of BMS Common Stock. See "MEETING INFORMATION--Record Date; Vote
Required" and "MEETING INFORMATION--Principal Shareholders and Security
Ownership of Management."
REASONS FOR THE MERGER
After careful consideration and review, the BMS Board of Directors (the
"Board") has reached the conclusion that the terms of the Merger are in the
best interest of the BMS shareholders. The Board believes that the terms of
the Merger are reasonable and will enhance the value of the BMS shareholders'
investment. The decision to merge with Norwest was reached by the Board based
on their analysis of several critical factors. These factors included the
fact that, with the rapidly changing environment in the banking industry, BMS
would benefit from the association with a larger banking organization and its
resources. Also, in reaching its decision, the Board considered, among other
things, the current market price for Norwest Common Stock, Norwest's dividend
payments, book value, recent earnings, and management ability, the
compatibility of operating philosophies, the report and opinion of D.A.
Davidson & Co. ("D.A. Davidson"), financial advisor to BMS, the anticipated
income tax consequences to the BMS shareholders, the terms of the Merger
Agreement and the other proposals it received regarding potential business
combinations. Norwest's Board of Directors believes that its acquisition of
BMS will strengthen its existing presence in Montana and lower its costs by
combining certain business units. See "THE MERGER--Background of and Reasons
for the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF BMS
THE BOARD OF DIRECTORS OF BMS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF
BMS VOTE FOR APPROVAL OF THE MERGER. For information concerning the interests
in the Merger of certain members of the BMS Board of Directors and management
who are also principal shareholders of BMS, see "THE MERGER--Interests of
Certain Persons in the Merger; Certain Transactions."
9
<PAGE>
OPINION OF BMS FINANCIAL ADVISOR
D.A. Davidson has rendered its opinion to the Board of Directors of BMS
as to the fairness, from a financial point of view, of the consideration to be
received by BMS's shareholders in the Merger. The full text of the written
opinion of D.A. Davidson, which sets forth the procedures followed,
assumptions made and other matters considered is attached as Appendix C to
this Proxy Statement-Prospectus and should be read in its entirety. See "THE
MERGER--Opinion of BMS Financial Advisor."
EFFECTIVE DATE AND TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Merger
will be effective on the date on which an executed Agreement and Plan of
Merger and Articles of Merger are filed with the Secretary of State of the
State of Montana (the "Effective Date of the Merger") at 11:59 p.m.,
Minneapolis, Minnesota time (the "Effective Time of the Merger"). Such filing
shall be made not later than five business days following the satisfaction or
waiver of all conditions set forth in the Merger Agreement or on such other
date upon which the parties may agree, but no earlier than February 6, 1994
(the "Closing Date"), and the time at which such filing will be made is
hereinafter referred to as the "Time of Filing." The parties have agreed to
use their best efforts to cause the Merger to be completed within ten business
days after the satisfaction or waiver of the conditions set forth in the
Merger Agreement that the Merger Agreement be approved by the BMS
shareholders, that all regulatory approvals be received without unduly
burdensome conditions, and that all waiting and appeal periods be expired.
The closing of the Merger will occur on the Effective Date of the Merger. The
parties expect the Merger to become effective as soon as practicable following
shareholder approval of the Merger. See "THE MERGER--Effective Date and Time
of the Merger" and "THE MERGER--Conditions to the Merger."
CONDITIONS AND TERMINATION
The respective obligations of Norwest and BMS to consummate the Merger
are subject to certain conditions, including the receipt of regulatory
approvals without unduly burdensome conditions, approval of the Merger
Agreement by the shareholders of BMS, receipt by BMS of certain tax opinions
and certain other conditions customary in transactions of this nature. See
"THE MERGER--Conditions to the Merger" and "THE MERGER--Regulatory Approvals."
The Merger Agreement may be terminated at any time prior to the Time of
Filing, whether prior to or after approval by the BMS shareholders, by either
party under certain specified conditions, including if the Merger shall not
have been consummated by April 15, 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 Merger Agreement. In addition,
BMS has the right to terminate the Merger Agreement upon giving written notice
to Norwest no later than 5:00 p.m. Minneapolis time on the first business day
immediately preceding the scheduled Closing Date in the event that the average
of the closing prices of a share of Norwest Common Stock as reported on the
consolidated tape of the NYSE during the period of twenty trading days ending
at the end of the third trading day immediately preceding the Closing Date
(the "Norwest Measurement Price") is less than $23.50. See "THE MERGER--
Waiver, Amendment, and Termination."
10
<PAGE>
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests of Norwest and BMS under generally accepted accounting principles.
See "THE MERGER--Accounting Treatment."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under Sections 3 and
4 of the BHC Act. The Merger may not be consummated until the 30th day
following the date of the Federal Reserve Board approval, during which time
the United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action could stay the effectiveness
of the Federal Reserve Board's approval unless a court specifically orders
otherwise.
Norwest filed applications with the Federal Reserve Board for approval of
the Merger on November 2, 1992. As a result of an analysis of the probable
competitive effects of the Merger, including conversations with the staff of
the Federal Reserve System, in the application to the Federal Reserve Board,
Norwest committed to sell two branches of Bank of Montana and one branch of
Montana Bank to competitively suitable acquirors. Therefore, the sale of such
branches will be a condition to any approval of the Merger by the Federal
Reserve Board. There can be no assurance that the Federal Reserve Board will
approve the Merger and, if the Merger is approved, there can be no assurance
concerning the date of such approvals. There also can be no assurance that
Norwest will be successful in selling such branches or that any such approval
will not contain other conditions or requirements which could cause such
approval to fail to satisfy the conditions to the consummation of the Merger.
Furthermore, there can be no assurance that the Department of Justice will not
challenge the Merger or, if such a challenge is made, what the result will be.
See "THE MERGER--Conditions to the Merger" and "THE MERGER--Regulatory
Approvals."
Effective October 1, 1993, the Montana Bank Act was amended to permit a
bank holding company with headquarters in certain states outside of Montana to
acquire a bank located in Montana if the interstate banking laws of the state
in which the headquarters are located are substantially similar to those of
Montana. The Montana Bank Act also requires that certain documentation be
filed with the Montana Department of Commerce and permits the Montana
Department of Commerce to intervene in or take other action in a federal
banking regulatory authority proceeding. Norwest has filed the required
documentation and believes that the Montana and Minnesota interstate banking
laws are substantially similar. There can be no assurance, however, that the
Montana Department of Commerce will not intervene in or take other action with
respect to the proposed Merger. See "THE MERGER--Regulatory Approvals."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Merger, Norwest intends to operate BMS's bank affiliates at
their present locations and to provide products and services offered by
Norwest affiliates. In its application to the Federal Reserve Board, Norwest
has committed to sell two branches of Bank of Montana and one branch of
Montana Bank to competitively suitable acquirors. Norwest also intends to
sell the escrow business of BMS. See "THE MERGER--Management and Operations
After the Merger."
11
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN TRANSACTIONS
Certain members of the Board of Directors of BMS and executive officers
of BMS, who are also principal shareholders of BMS, have interests in the
Merger that are in addition to or different from the interests of BMS
shareholders generally. Also, at the time of negotiating the terms of the
Merger, BMS, certain of its bank subsidiaries and certain of its directors and
executive officers, had various lending, correspondent-banking and other
account relationships with one or more of Norwest's affiliates. See "THE
MERGER--Interests of Certain Persons; Certain Transactions" and "INFORMATION
ABOUT BMS--Business--Recent Developments." The Board of Directors of BMS was
aware of such interests in the Merger and such pre-existing relationships and
considered such interests and relationships, among other matters, in
recommending approval of the Merger and the transactions contemplated thereby.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, the BMS shareholders will become Norwest
stockholders. As a result, their rights as shareholders, which are now
governed by Montana state law and by the Restated Articles of Incorporation
and the Bylaws of BMS, will be governed by Delaware state law and the
Certificate of Incorporation and the By-Laws of Norwest. See "THE MERGER--
Certain Differences in Rights of Shareholders" for a summary of certain
material differences between the rights of holders of BMS Common Stock and the
rights of holders of Norwest Common Stock.
DISSENTERS' RIGHTS
Any shareholder of BMS may, as an alternative to receiving the
consideration specified in the Merger Agreement, dissent from the Merger and
obtain payment of the fair value of such shareholder's BMS Common Stock
pursuant to Sections 35-1-826 through 35-1-839 of the Montana Business
Corporation Act (the "MBCA"). Any BMS shareholder contemplating exercising
the right to demand such payment should carefully review Sections 35-1-826
through 35-1-839 of the MBCA, a copy of which is included as Appendix B to
this Proxy Statement-Prospectus, and in particular the required procedural
steps. A shareholder who fails to comply with these procedural requirements
may lose the right to dissent and obtain payment of the fair value of such
shareholder's BMS Common Stock. See "THE MERGER--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of
1986, as amended (the "Code"). If the Merger so qualifies, (i) no gain or
loss will be recognized by holders of BMS Common Stock upon their receipt of
Norwest Common Stock in exchange for their shares of BMS Common Stock, except
with respect to cash received in lieu of fractional shares, (ii) the income
tax basis of the Norwest Common Stock received generally will be equal to the
income tax basis of the BMS Common Stock surrendered, and (iii) the holding
period of the Norwest Common Stock received generally will include the holding
period of the BMS Common Stock surrendered. BMS's obligation to consummate
the Merger is conditioned upon its receipt of an opinion from its counsel to
the effect that the Merger will qualify as a reorganization within the meaning
of Sections 368(a)(1)(A) and
12
<PAGE>
368(a)(2)(E) of the Code. EACH HOLDER OF BMS COMMON STOCK IS URGED TO
CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISORS CONCERNING THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER, AS WELL AS ANY APPLICABLE STATE, LOCAL,
FOREIGN OR OTHER TAX CONSEQUENCES, BASED UPON SUCH HOLDER'S OWN
PARTICULAR FACTS AND CIRCUMSTANCES. See "THE MERGER--Conditions to the
Merger" and "THE MERGER--Certain Federal Income Tax Consequences."
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of BMS upon
consummation of the Merger have been registered under the Securities Act of
1933, as amended (the "Securities Act"). Such shares may be traded freely and
without restriction by those shareholders not deemed to be "affiliates" of BMS
or Norwest as that term is defined in the rules under the Securities Act.
Norwest Common Stock received by those shareholders of BMS who are deemed to
be "affiliates" of BMS may be resold without registration as provided for by
Rule 145 under the Securities Act, or as otherwise permitted under the
Securities Act. See "THE MERGER--Resale of Norwest Common Stock."
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the NYSE and the CHX. On September 10,
1993, the last trading day preceding public announcement of the proposed
Merger, the closing price per share of Norwest Common Stock was $ 27.25 and on
February 8, 1994, the price was $25.00. There is no established public
trading market for BMS Common Stock. See "INFORMATION ABOUT BMS--Business-
Market Price of and Dividends on BMS Common Stock." BMS shareholders are
advised to obtain current market quotations for Norwest Common Stock. The
market price for Norwest Common Stock will fluctuate between the date of this
Proxy Statement-Prospectus and the Effective Date of the Merger, which may be
a period of several weeks or months. As a result, the market value of the
Norwest Common Stock that BMS shareholders ultimately receive in the Merger
could be more or less than its market value on the date of this Proxy
Statement-Prospectus. Because the Exchange Ratio is fixed except for certain
specified reductions, BMS shareholders will not be compensated for decreases
in the market price of Norwest Common Stock which could occur before the
Effective Time of the Merger. See "THE MERGER--Waiver, Amendment, and
Termination" for a discussion of BMS's right to terminate the Merger Agreement
if the Norwest Measurement Price is below $23.50. No assurance can be given
concerning the market price of Norwest Common Stock before or after the
Effective Date of the Merger.
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
BMS Common Stock on a historical and a pro forma equivalent basis giving
effect to the Merger using the pooling of interests method of accounting. See
"THE MERGER--Accounting Treatment." This information is derived from the
consolidated historical financial statements of Norwest, including the related
notes thereto, incorporated by reference into this Proxy Statement-Prospectus
and the consolidated historical financial statements of BMS, including the
notes thereto, appearing elsewhere in this Proxy Statement-Prospectus. This
information should be read in conjunction with such historical financial
statements
13
<PAGE>
and the related notes thereto. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "INFORMATION ABOUT BMS," and "FINANCIAL STATEMENTS."
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 Merger been consummated prior to the periods indicated.
14
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
Norwest Common Stock BMS Common Stock
--------------------- ----------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
September 30, 1993 $10.65 10.69 27.41 22.19
December 31, 1992 9.69 9.65 23.27 20.05
DIVIDENDS DECLARED (2):
Nine Months Ended:
September 30, 1993 0.475 0.475 1.18 0.986
Year Ended:
December 31, 1992 0.540 0.540 1.44 1.121
December 31, 1991 0.470 0.470 1.20 0.976
December 31, 1990 0.423 0.423 1.20 0.878
NET INCOME (3):
Nine Months Ended:
September 30, 1993 1.53 1.53 2.74 3.18
Year Ended:
December 31, 1992 1.16 1.16 3.86 2.41
December 31, 1991 1.33 1.32 2.97 2.75
December 31, 1990 0.57 0.57 2.32 1.18
</TABLE>
-------------------------
(1) The pro forma combined book values per share of Norwest Common Stock are
based upon the historical total combined common equity for Norwest and BMS,
divided by total pro forma common shares of the combined entity assuming
conversion of the BMS Common Stock at an Exchange Ratio of 2.076769 (assuming a
reduction to the Adjusted Norwest Shares of $385,000 for certain severance and
bonus arrangements divided by a Norwest Measurement Price calculated for the
twenty trading days ending December 31, 1993). The pro forma equivalent book
values per share of BMS Common Stock represent the pro forma combined amounts
multiplied by 2.076769.
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of BMS Common Stock represent the cash dividends declared on
a share of Norwest Common Stock multiplied by 2.076769.
(3) The pro forma combined net income per share (based on fully diluted
weighted average shares outstanding) is based upon the combined historical net
income for Norwest and BMS divided by the pro forma weighted average common
shares of the combined entity. The pro forma equivalent net income per share of
BMS Common Stock represents the pro forma combined net income per share
multiplied by 2.076769.
15
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected historical financial
information for Norwest and BMS. For a description of the pooling of interests
method of accounting with respect to the Merger and the related effects on the
historical financial statements of Norwest, see "THE MERGER--Accounting
Treatment." The historical income statement and balance sheet data included in
the selected financial data for the five years ended December 31, 1992, are
derived from audited consolidated financial statements of Norwest for such five-
year period and the audited consolidated financial statements of BMS for such
five-year period. The financial data for the nine-month periods ended September
30, 1993 and 1992, are derived from the unaudited historical financial
statements of Norwest and BMS. All financial information derived from the
unaudited financial statements reflects, in the respective opinions of
management of Norwest and BMS, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such data. Results
for the nine months ended September 30, 1993, 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 consolidated
financial statements of BMS, including the notes thereto, appearing elsewhere in
this Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "INFORMATION ABOUT BMS," and "FINANCIAL STATEMENTS."
16
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------- --------------------------------------------------------
1993 1992 1992(1) 1991 1990(2) 1989(3) 1988
---------- ------- ---------- --------- ----------- ----------- --------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
NORWEST:
Interest income $ 2,768.2 2,680.0 3,587.0 3,802.1 3,690.7 3,440.7 2,948.2
Interest expense 1,011.2 1,168.9 1,509.2 2,024.2 2,201.9 2,100.9 1,696.4
--------- -------- -------- -------- -------- -------- --------
Net interest income 1,757.0 1,511.1 2,077.8 1,777.9 1,489.5 1,339.8 1,251.8
Provision for credit losses 99.6 154.5 266.7 401.9 428.3 225.5 184.0
Non-interest income 1,116.5 923.8 1,228.8 1,031.2 872.1 711.9 604.0
Non-interest expenses 2,090.4 1,775.8 2,436.6 1,939.5 1,666.9 1,455.3 1,359.6
--------- -------- -------- -------- -------- -------- --------
Income before income taxes 683.5 504.6 603.3 467.7 266.4 370.9 312.2
Income tax expense 204.9 130.1 163.2 66.8 110.1 96.0 28.4
--------- -------- -------- -------- -------- -------- --------
Income before cumulative effect
of a change in accounting method 478.6 374.5 440.1 400.9 156.3 274.9 283.8
Cumulative effect on years prior to
1992 of change in accounting method -- (76.0) (76.0) -- -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 478.6 298.5 364.1 400.9 156.3 274.9 283.8
========= ======== ======== ======== ======== ======== ========
Net income per share:
Primary:
Before cumulative effect of a
change in accounting method $ 1.56 1.22 1.42 1.34 0.57 1.00 1.04
Cumulative effect on years prior to
1992 of change in accounting method -- (0.26) (0.26) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.56 0.96 1.16 1.34 0.57 1.00 1.04
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Before cumulative effect of a
change in accounting method $ 1.53 1.20 1.41 1.33 0.57 0.99 1.02
Cumulative effect on years prior to
1992 of change in accounting method -- (0.25) (0.25) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.53 0.95 1.16 1.33 0.57 0.99 1.02
========= ======== ======== ======== ======== ======== ========
Dividends declared per common share $ 0.475 0.395 0.540 0.470 0.423 0.380 0.325
At period end:
Total assets $50,387.9 43,278.0 46,657.2 42,736.3 41,088.4 36,229.3 32,984.5
Long-term debt 6,001.7 4,455.7 4,481.0 3,610.4 3,007.0 2,658.0 2,381.0
Total stockholders' equity 3,438.6 3,121.6 3,140.7 2,984.8 2,296.5 2,163.6 2,136.2
</TABLE>
(1) 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.
(2) 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.
17
<PAGE>
(3) On May 1, 1990, First Interstate Corporation of Wisconsin ("FIWI"), a $2.0
billion financial institution headquartered in Sheboygan, Wisconsin, merged with
Norwest in a pooling transaction. Norwest's historical results have been
restated to include the historical results of FIWI. Appropriate Norwest items
reflect $12.0 million in charges resulting from FIWI's decision to sell its
portfolio of stripped mortgage-backed securities, an increase in FIWI's
provision for credit losses of $16.2 million, and $24.5 million in FIWI's
provisions and expenditures for costs related to restructuring activities.
18
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months
Ended September 30 Year Ended December 31
------------------ ----------------------------------
1993(1) 1992 1992 1991 1990 1989 1988
-------- ------- ----- ----- ----- ----- -----
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
BMS
Interest income $ 34.2 24.9 33.4 34.8 30.9 27.1 21.9
Interest expense 14.1 12.1 15.6 19.9 18.2 16.4 12.8
------ ----- ----- ----- ----- ----- -----
Net interest income 20.1 12.8 17.8 14.9 12.7 10.7 9.1
Provision for credit
losses 0.5 0.6 0.8 0.6 0.2 (0.5) 0.1
Non-interest income 6.7 4.8 6.3 5.1 3.5 2.9 3.1
Non-interest expense 18.7 11.4 15.4 13.4 11.3 10.0 9.9
------ ----- ----- ----- ----- ----- -----
Income before income
tax 7.6 5.6 7.9 6.0 4.7 4.1 2.2
Income tax expense 2.7 2.1 2.9 2.0 1.6 0.9 0.2
------ ----- ----- ----- ----- ----- -----
Net income $ 4.9 3.5 5.0 4.0 3.1 3.2 2.0
====== ===== ===== ===== ===== ===== =====
Net income per share:
Primary $ 2.74 2.70 3.86 2.97 2.32 2.57 1.57
Fully diluted $ 2.74 2.70 3.86 2.97 2.32 2.57 1.57
Dividends declared per
common share $ 1.18 1.08 1.44 1.20 1.20 1.17 0.80
At end of period:
Total assets $797.0 464.4 500.0 440.7 418.0 321.7 300.0
Long term debt 17.4 10.3 9.9 9.0 8.4 3.6 1.5
Shareholders' equity 55.2 29.1 30.0 27.1 26.6 23.3 21.5
</TABLE>
(1) On March 31, 1993, MBI, a $320.6 million bank holding company headquartered
in Billings, Montana, was acquired by BMS in a cash transaction accounted for
under the purchase method of accounting. See "INFORMATION ABOUT BMS--Business--
Recent Developments" and the consolidated financial statements of BMS presented
elsewhere herein for a discussion of the MBI acquisition.
19
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of BMS
Common Stock in connection with the solicitation of proxies by the Board of
Directors of BMS for use at the Special Meeting to be held on Monday,
March 14, 1994, and any adjournments thereof, to consider and take action
upon a proposal to approve the Merger Agreement and such other business as may
properly come before the Special Meeting or any adjournments thereof. Each
copy of this Proxy Statement-Prospectus mailed to holders of BMS 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 BMS
shareholders as a prospectus in connection with the issuance by Norwest of
shares of Norwest Common Stock upon consummation of the Merger. This Proxy
Statement-Prospectus, the attached Notice of Special Meeting, and the form of
proxy enclosed herewith are first being mailed to BMS shareholders on or about
February 10, 1994.
DATE, PLACE, AND TIME
The Special Meeting will be held at 5500 Wayzata Boulevard, Suite 145,
Golden Valley, Minnesota, on Monday, March 14, 1994, at 9:00 a.m., local
time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of BMS has fixed the close of business on
February 3, 1994, as the record date for the determination of shareholders of
BMS entitled to receive notice of, and to vote at, the Special Meeting. On
the record date there were 2,014,676 shares of BMS Common Stock outstanding.
Each share of BMS Common Stock outstanding on the record date is entitled to
one vote. Approval of the Merger Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of BMS Common Stock. The
Merger cannot be consummated without shareholder approval of the Merger
Agreement.
As of the record date for the Special Meeting, directors and officers of
BMS and their affiliates owned beneficially or controlled the voting of an
aggregate of 1,717,648 shares of BMS Common Stock or 85.3% of the shares of
BMS Common Stock outstanding on that date. BMS's directors and officers have
informed BMS that they intend to vote all of their shares in favor of the
Merger Agreement. ACCORDINGLY, THE DIRECTORS AND OFFICERS OF BMS HAVE THE
ABILITY TO APPROVE THE MERGER WITHOUT THE VOTE OF THE REMAINING BMS
SHAREHOLDERS. Information regarding the shares of BMS Common Stock
beneficially owned, directly or indirectly, by certain shareholders, by each
director and executive officer of BMS, and by all directors and officers as a
group is set forth in the table under the heading "Principal Shareholders and
Security Ownership of Management" below.
As of September 30, 1993, directors and executive officers of Norwest did
not own beneficially any shares of BMS Common Stock. At the record date,
Norwest Capital Management & Trust Co., Montana, a subsidiary of Norwest, held
in its fiduciary
20
<PAGE>
capacity, and had sole discretionary authority to vote, 2,000 shares of BMS
Common Stock.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
Principal Shareholders
Set forth below are the names and 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, five percent (5%)
or more of the outstanding shares of BMS Common Stock. Each shareholder named
below has sole voting and investment power over the shares shown in the table,
unless otherwise indicated.
<TABLE>
<CAPTION>
Number of Shares
Name and Beneficially Percent of
Address Owned (1) Class
-------- ---------------- ----------
<S> <C> <C>
John M. Morrison 940,991(2) 46.7%
27 Casa Mare
Naples, FL 33940
W. Duncan MacMillan 330,645 16.4%
151 South Westwood Lane
Wayzata, MN 55391
Barbara L. Forster 316,784(2)(3) 15.7%
2650 Marshland Road
Wayzata, MN 55391
Michael J. Pint 111,329(2) 5.5%
5551 Village Drive
Edina, MN 55439
- --------------------------------------------------
</TABLE>
(1) The shares shown in the table include all shares the named parties may be
deemed to own beneficially, including shares held by spouses, minor children,
relatives sharing the home of such party, entities controlled by such party,
or trusts of which such parties are trustees or beneficiaries.
(2) These shares have been pledged to Norwest Bank Minnesota, N.A., a
subsidiary of Norwest ("Norwest Bank"), as collateral under certain promissory
notes from Mr. Morrison and Mr. Pint to Norwest. See "THE MERGER--Interests
of Certain Persons in the Merger; Certain Transactions."
21
<PAGE>
(3) Includes 158,400 shares held under an irrevocable Grantor Retained
Annuity Trust pursuant to which Ms. Forster is a co-trustee with respect to
the assets held under such trust.
Security Ownership of Management
Set forth below is the number of shares of BMS Common Stock held by each
director and executive officer, and by all directors and officers as a group,
of BMS as of the record date for the Special Meeting.
<TABLE>
<CAPTION>
Number of Shares
Name and Beneficially Percent of
Address Owned (1) Class
- -------- ---------------- ----------
<S> <C> <C>
John M. Morrison 940,991 46.7%
Chairman of the Board
of Directors
W. Duncan MacMillan 330,645 16.4%
Director
Barbara L. Forster 316,784 15.7%
Vice Chairman of the
Board of Directors
Michael J. Pint 111,329 5.5%
President and Director
David D. MacMillan 16,129(2) *
Director
Edward C. Lamb 1,481.74(3) *
Executive Vice President
and Director
Directors and officers as a 1,717,648 85.3%
group (8 persons)
- ------------------
</TABLE>
* Does not exceed 1%.
(1) See Footnotes 1 through 3 in the Principal Shareholder table set forth
above.
(2) Shares are held under an irrevocable trust, pursuant to which Mr.
MacMillan is a beneficiary.
(3) Includes 1,280.736 shares held by the ESOP. The trustee under the ESOP
has sole discretion to vote the shares. Vested
22
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shares held under the ESOP for the benefit of participants may be distributed
after certain events of maturity (separation from service, death or
disability).
VOTING AND REVOCATION OF PROXIES
Shares of BMS 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 BMS Common Stock represented by such proxy will be
voted FOR approval of the Merger Agreement. Any proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before the
proxy is voted by filing either an instrument revoking it or a duly executed
proxy bearing a later date with the Secretary of BMS 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. An abstention or a failure to vote
(including broker non-votes) will have the same effect as a vote against the
Merger Agreement.
The Board of Directors of BMS 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 BMS may solicit proxies from the shareholders of BMS, 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. BMS will bear its own expenses in connection with the solicitation of
proxies for the Special Meeting. See "THE MERGER--Expenses."
HOLDERS OF BMS COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO BMS IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE.
THE MERGER
This section of the Proxy Statement-Prospectus describes certain aspects
of the Merger. The following description does not purport to be complete and
is qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to this Proxy Statement-Prospectus and is incorporated
by reference herein. ALL SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT
IN ITS ENTIRETY.
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BACKGROUND OF AND REASONS FOR THE MERGER
BMS
Prior to 1993, bank holding companies not resident in the State of
Montana were prohibited from acquiring banks located in Montana. On April 11,
1993, the Governor of Montana signed into law a bill permitting limited
interstate banking in Montana. This legislation enabled bank holding
companies in Colorado, Idaho, Minnesota, North Dakota, South Dakota,
Wisconsin, and Wyoming (the "Reciprocal States"), to own and operate banks in
Montana, subject to certain restrictions. The interstate banking law became
effective on October 1, 1993. For a further discussion of the interstate
banking law, see "Regulatory Approvals" and "INFORMATION ABOUT BMS--Business--
Supervision and Regulation."
As a consequence of this change in the law, during the second quarter of
1993, BMS received inquiries from and on behalf of regional bank holding
companies located in Reciprocal States regarding possible business
combinations with BMS. In response to such inquiries, John Morrison, Chairman
of the Board of Directors of BMS, held preliminary discussions with certain
regional bank holding companies (including Norwest) located in the Reciprocal
States regarding possible business combinations with BMS. These preliminary
discussions resulted in three proposals to acquire all or a portion of BMS
through various forms of transactions, including an offer from Norwest in the
form of a letter of intent. In order to induce Norwest to continue
negotiating with BMS and to indicate to Norwest its interest in discussing in
more detail the possible acquisition of BMS by Norwest, BMS entered into a
letter of intent with Norwest on June 22, 1993. The letter of intent outlined
the general terms of a proposed acquisition of BMS by Norwest, required the
immediate preparation of a definitive merger agreement and prohibited BMS from
soliciting proposals from other persons regarding an acquisition of BMS during
a 23-day period ending July 15, 1993. The letter of intent, however, did not
obligate BMS to be acquired by Norwest nor did it prohibit BMS from soliciting
new proposals or negotiating with other parties after the letter of intent
expired which was initially on July 15, 1993. Management of BMS believed it
was in the best interest of BMS to have the opportunity to review the terms of
the definitive merger agreement before presenting the Norwest offer to the
Board of Directors of BMS. Subsequent to the July 12 meeting of the Board of
Directors (discussed below), the letter of intent was amended to extend its
term beyond the initial July 15 termination date.
During this time, BMS had existing relationships with certain affiliates
of Norwest including a line of credit and various correspondent-bank
arrangements, such as demand deposit accounts, brokerage and safekeeping
arrangements, repurchase agreements, and secured and unsecured "Fed Funds"
credit lines. Certain of the borrowings under the existing line of credit
arose in connection with prior acquisitions by BMS, including the acquisition
of MBI. Also, part of the required financing for the acquisition of MBI by
BMS originally was to have been provided through the purchase of convertible
preferred stock by Norwest. Due to regulatory issues raised by the staff of
the Federal Reserve System, Norwest's agreement to purchase the convertible
preferred stock was terminated in February of 1993. To replace the proceeds
from such financing, certain directors of BMS purchased newly issued BMS
Common Stock. See "INFORMATION ABOUT BMS--Business--Recent Developments" for
a discussion of the acquisition of MBI and the related financing. Also, see
"THE
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MERGER--Interests of Certain Persons in the Merger; Certain Transactions" for
a discussion of certain other commercial relationships between certain
affiliates of Norwest and certain affiliates of BMS and for a discussion of
the loans made by affiliates of Norwest to certain directors of BMS in
connection with the financing of the acquisition of MBI.
In anticipation of the consideration by the Board of Directors of BMS of
the three acquisition proposals from the regional bank holding companies, BMS
engaged D.A. Davidson, an investment banking firm located in Great Falls,
Montana, to assist the Board in evaluating BMS's strategic options. At a
special meeting of the Board held on July 12, 1993, management of BMS
presented to the Board for its consideration the three acquisition proposals.
The Board considered each proposal, as well as other alternative strategies to
maximize shareholder value, including capital-raising strategies, continuing
as an independent entity or a combination of such strategies. The Board
resolved to pursue further negotiations with Norwest regarding the possible
acquisition of BMS through a merger and directed management of BMS and its
financial and legal advisors to conduct further discussions and analysis.
During the period from late July through early September 1993, Norwest
conducted its due diligence investigation of BMS and agreement on the terms of
the proposed merger with Norwest and the related merger agreement was reached
after extensive negotiations between representatives of BMS and Norwest. Also
during this time, management of BMS received unsolicited revised proposals
from the two other regional bank holding companies that had previously made
acquisition proposals. These proposals were evaluated by management of BMS.
The Board held a second special meeting on September 7, 1993 to discuss the
terms of the resulting proposed merger agreement with Norwest and the
transactions contemplated thereby, and to discuss the other unsolicited
proposals. At this meeting, D.A. Davidson discussed with the Board its
opinion as to the fairness, from a financial point of view, of the proposed
consideration to be received by BMS's shareholders in the proposed merger.
See "Opinion of BMS Financial Advisor" for a discussion of the factors
considered and the analytical methods employed by D.A. Davidson in reaching
such conclusion. By unanimous vote at the September 7 special meeting, the
Board approved the proposed form of merger agreement, subject to the final
negotiation thereof by certain officers of BMS and approved the transactions
contemplated thereby. The Merger Agreement was executed by BMS and Norwest on
September 13, 1993.
The decision to merge with Norwest was reached by the Board based on
their analysis of several critical factors. These factors included the fact
that, with the rapidly changing environment in the banking industry, BMS would
benefit from the association with a larger banking organization and its
resources. Additionally, in light of the regional and national wave of bank
consolidations, the current interest rate environment, the new legislation in
Montana allowing limited interstate banking and the favorable strategic market
position of BMS, the Board concluded that a business combination with a larger
regional bank holding company would be the most advantageous method of
maximizing shareholder value. An added benefit considered by the Board was
that the shareholders of BMS would have the diversification of owning stock in
a publicly traded and geographically diverse banking organization. Also, in
reaching its decision, the Board considered, among other things, the current
market price for Norwest Common Stock,
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Norwest's dividend payments, book value, recent earnings, and management
ability, the compatibility of operating philosophies, the D.A. Davidson report
and opinion, the anticipated income tax consequences to the BMS shareholders,
the terms of the Merger Agreement and the other proposals it received
regarding potential business combinations.
After careful consideration and review, the BMS Board of Directors has
reached the conclusion that the terms of the Merger are in the best interest
of the BMS shareholders. The Board believes that the terms of the Merger are
reasonable and will enhance the value of the BMS shareholders' investment on a
tax-free basis. See "THE MERGER--Certain Federal Income Tax Consequences."
Also, because only a very limited market currently exists for the purchase and
sale of BMS Common Shares, the exchange of the BMS Common Shares for Norwest
Common Stock will provide the BMS shareholders with a more liquid market for
their shares. In the judgment of the Board, the Merger should result in
significant cost savings, enhance the services offered to customers of BMS's
banking subsidiaries, benefit the communities in which those banks operate,
and at the same time provide BMS shareholders with the potential of increased
long-term value.
Norwest
Norwest's Board of Directors believes that its acquisition of BMS will
significantly strengthen Norwest's existing presence in Montana by expanding
its network of bank subsidiaries into a number of Montana communities in which
it does not have a bank subsidiary as well as expanding its services in
communities that already have Norwest bank subsidiaries. The Merger will
approximately double Norwest's presence in Montana and permit it to lower
costs by combining certain operations and data processing, trust services, and
other business components for its existing bank subsidiaries with those of
BMS's bank subsidiaries acquired as a result of the Merger.
THE BOARD OF DIRECTORS OF BMS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF
BMS VOTE FOR APPROVAL OF THE MERGER.
OPINION OF BMS FINANCIAL ADVISOR
BMS retained D.A. Davidson to render its opinion as to the fairness, from
a financial point of view, of the consideration to be received by BMS's common
shareholders in the Merger. D.A. Davidson has delivered to the BMS Board of
Directors its written opinions that, based upon and subject to the various
considerations set forth in the opinions, as of September 13, 1993 and the
date of this Proxy Statement-Prospectus, the Exchange Ratio was fair from a
financial point of view to BMS's shareholders. No limitations were imposed by
the BMS Board of Directors upon D.A. Davidson with respect to the
investigations made or procedures followed by them in rendering their
opinions.
The full text of the opinion of D.A. Davidson dated as of the date of
this Proxy Statement-Prospectus, which sets forth assumptions made, matters
considered, and limitations on the review undertaken, is attached as Appendix
C to this Proxy Statement-Prospectus. BMS shareholders are urged to read this
opinion in its entirety. D.A. Davidson's opinion is directed only to the
Exchange Ratio and does not constitute a recommendation to any BMS shareholder
as to how such shareholder should vote at the Special Meeting. The discussion
of the opinion of D.A. Davidson set forth in this Proxy
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Statement-Prospectus is qualified in its entirety by reference to the full
text of such opinion. The September 13, 1993 opinion is substantially
identical to the opinion attached hereto.
In arriving at its opinion, D.A. Davidson (i) analyzed certain publicly
available financial statements and other information of BMS, (ii) analyzed
certain internal financial statements and other financial and operating data
concerning BMS prepared by the management of BMS, (iii) reviewed and
considered the composition and geographical diversity of BMS's branch banking
operations, (iv) analyzed certain financial projections prepared by the
management of BMS, (v) discussed the past and current operations and financial
condition and the prospects, including asset quality trends, of BMS with
senior executives of BMS, (vi) reviewed the reported prices and trading
activity for BMS Common Shares, (vii) analyzed certain publicly available
financial statements and other information of Norwest, (viii) reviewed the
reported prices and trading activity for Norwest Common Stock, (ix) compared
the financial performance of BMS with the financial performance of certain
other comparable bank holding companies, (x) reviewed the financial terms, to
the extent available, of certain comparable acquisition transactions, (xi)
discussed the strategic alternatives to the Merger with BMS, (xii) reviewed
the Merger Agreement and certain related documents, and (xiii) performed such
other analyses as it deemed appropriate.
D.A. Davidson assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for purposes
of rendering its opinion. With respect to the financial projections, D.A.
Davidson assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of BMS. D.A. Davidson also assumed, without independent
verification, that BMS and Norwest have adequately reserved against losses
which may be incurred as a result of nonperforming or defaulting loans. D.A.
Davidson did not make any independent valuation or appraisal of the assets or
liabilities of BMS or Norwest, nor was D.A. Davidson furnished with any such
appraisals, and D.A. Davidson did not examine any individual loan credit
files. D.A. Davidson's opinions were based on economic, market and other
conditions as in effect on, and the information made available to it as of,
the respective dates of the opinions.
As part of its financial analysis, D.A. Davidson evaluated (i) the
possible valuations of BMS on a stand-alone basis, (ii) the implied valuation
of BMS as a public company and (iii) the acquisition value of BMS based upon
specific assumptions. In addition, D.A. Davidson considered premiums paid in
comparable national and in-market transactions. The following is a brief
summary of the written and verbal report presented by D.A. Davidson to the BMS
Board of Directors on September 7, 1993 (the "D.A. Davidson Report") in
connection with its September 13, 1993 opinion:
Summary of Proposal
D.A. Davidson described the key financial terms of the proposed
transaction as reflected in the proposed Merger Agreement, including the
Exchange Ratio. D.A. Davidson reviewed the implied value of the 4,200,000
shares of Norwest Common Stock offered as consideration in the Merger. D.A.
Davidson noted that under the proposed terms of the Merger, BMS was allowed
the option to terminate the Merger if the
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average closing price of Norwest's Common Stock during the 20 trading days
preceding closing was less than $23.50. D.A. Davidson also noted that if the
market price of Norwest Common Stock at closing equaled $23.50, the market
value of the Norwest Common Stock exchanged in the Merger would be
approximately $98.7 million, or $48.98 per share. D.A. Davidson noted that
the market price of Norwest Common Stock on the date of its analysis was
$27.375 per share.
Capitalization of Current Earnings Analysis
D.A. Davidson applied a capitalization of current earnings analysis as
one of several methodologies in assessing the going concern value of BMS.
Using this method, the known or estimated amount of net income of a company is
capitalized at what is considered to be an appropriate rate of return on the
investment, the result being the investment value of the company based upon
current earnings results or expectations. Based on D.A. Davidson's evaluation
of market factors and the character and risk of an investment in BMS, D.A.
Davidson derived a capitalization rate of 11.9%. D.A. Davidson then applied
the derived capitalization rate to BMS management's estimate of earnings for
the twelve months ending June 30, 1994 to derive an estimated value using the
capitalization of current earnings analysis of approximately $71.4 million, or
$35.45 per share. D.A. Davidson noted, however, that the capitalization of
current earnings method may tend to understate the value of a company as it
fails to adequately account for reasonably anticipated growth of earnings in
future years.
Dividend Paying Capacity Analysis
Another methodology applied by D.A. Davidson in assessing the going
concern value of BMS was the dividend paying capacity analysis. Using this
analysis, the value of a company is derived by applying the dividend payout
ratio (i.e., the ratio of dividends paid to net income) and dividend yield
(i.e., the annual dividends paid per share of common stock to the market price
per share) of comparable public companies to the earnings of the subject
company. As such, the dividend paying capacity of the company is emphasized
rather than the actual history of dividends paid. D.A. Davidson established
an average dividend payout ratio for publicly traded banks during the first
half of 1993 of 30.8% and an average dividend yield of 3.1% (in each case
based upon data published by the First Boston Corporation as derived from a
base of 35 bank holding companies). By applying these figures to BMS
management's estimate of earnings for the twelve months ending June 30, 1994,
D.A. Davidson imputed a value for BMS using the dividend paying capacity
analysis of approximately $84.5 million, or $41.94 per share.
Discounted Dividend Stream Analysis
Using a discounted dividend stream analysis, D.A. Davidson estimated the
present value of the future streams of after tax cash flows that BMS could
produce through 1998 and distribute to shareholders ("dividendable net
income"). In this analysis, D.A. Davidson assumed that BMS performed in
accordance with the earnings forecasts provided to D.A. Davidson by BMS's
management and that BMS could pay out up to 100% of its adjusted net income.
D.A. Davidson estimated the terminal value for BMS common stock at 9.5 times
BMS's 1998 estimated net income (consistent with estimated historic earnings
multiples in the banking industry of 9 to 10 times earnings). The
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dividendable net income streams and terminal value were then discounted to
present values using a discount rate of 13.9%, chosen to reflect D.A.
Davidson's assessment of a reasonably expected rate of return to holders or
prospective buyers of BMS Common Shares in consideration of market factors,
the character and risk of an investment in BMS and the uncertainty inherent in
future earnings projections. This discounted dividend stream analysis
indicated a value for BMS of approximately $93.3 million or $46.30 per share.
This analysis was based upon BMS management's projections. Management's
projections are based upon many factors and assumptions, many of which are
beyond the control of BMS. Consequently, this analysis is not necessarily
indicative of actual values or actual future results.
Comparison of Selected Public Companies
D.A. Davidson assessed the market value of BMS by applying several
generally recognized valuation criteria for comparable publicly held companies
to the financial condition and expected operating results of BMS. The
valuation multiples used by D.A. Davidson in its analysis were derived from a
group of 35 bank holding companies as of June 1993. The valuation criteria
used were price to book, price to tangible book and price to estimated 1993
earnings. D.A. Davidson noted that the average price to book ratio of the
subject companies was 1.60x, the price to tangible book ratio was 1.68x and
the price to estimated 1993 earnings ratio was 9.90x. In applying these
valuation multiples to BMS, D.A. Davidson derived market values for BMS of
approximately $86.9 million (or $43.13 per share), $74.9 million (or $37.17
per share) and $84.1 million (or $41.74 per share), respectively. D.A.
Davidson also examined the market valuation multiples for five regional bank
holding companies which D.A. Davidson determined to be generally comparable to
BMS and which operated in the Northern Rockies/Upper Midwest region (the "Peer
Group"). The Peer Group included West One Bancorp, First Security
Corporation, Community First Bankshares, Zions Bancorporation and First Bank
System. D.A. Davidson noted that the average price to book ratio for the Peer
Group was 1.71x and the average price to estimated 1993 earnings for the Peer
Group was 10.82x. In applying the price to book and price to 1993 earnings
multiples to BMS, D.A. Davidson derived values for BMS of approximately $92.9
million (or $46.10 per share) and $92.0 million (or $45.66 per share),
respectively. In calculating the above ratios, the book values for the
selected companies were derived from the most recent financial reports of the
companies; 1993 earnings estimates for the companies were the mean earnings
estimates for the companies, as published by the Institutional Brokers
Estimate Service.
Analysis of Selected Bank Merger Transactions
D.A. Davidson reviewed the pricing multiples paid in recently-announced
bank merger or acquisition transactions as a basis for comparison of the
financial terms offered BMS in the Merger. D.A. Davidson noted that according
to data compiled by the First Boston Corporation from SNL Securities, 57 bank
merger or acquisition transactions were announced during the quarter ended
June 30, 1993 (including both private and public companies). The reported
average valuation multiples involved with these transactions were: a price to
book ratio of 1.65x; a price to tangible book ratio of 1.71x; a price to
trailing twelve months earnings ratio of 16.30x; a price to average assets
ratio of 13.0%; a price to average deposits ratio of 15.1%; and a premium to
core deposits ratio of 5.18%. This analysis yielded an average implied value
for BMS based upon a broad compilation of
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recent bank merger and acquisition transactions of approximately $99.3
million, or $49.28 per share.
In addition to its analysis of pricing multiples paid in announced bank
merger or acquisition transactions generally, D.A. Davidson also examined four
merger transactions involving public bank holding companies in the western
U.S. announced since June 30, 1992. Those merger transactions included First
Bank System's acquisition of Colorado National Bancshares, KeyCorp's
acquisition of Puget Sound Bancorp, Washington Federal Savings's acquisition
of First Federal Savings Bank of Utah and West One Bancorp's acquisition of
Ben Franklin State Bank. D.A. Davidson noted that the average price to book
multiple for these transactions was approximately 1.82x and the average price
to earnings multiple was approximately 14.30x, resulting in an implied value
for BMS (with equal weightings to each valuation criterion) of approximately
$101.3 million, or $50.25 per share.
Finally, D.A. Davidson examined three bank acquisition transactions
occurring within the state of Montana since 1992, including BMS's acquisition
of Montana Bancsystem, Inc., Charles Celania, et al.'s acquisition of First
Security Bank of Havre and Glacier Bancorporation's acquisition of Evergreen
Bancorporation. D.A. Davidson noted that the average price to book multiple
paid in these transactions was approximately 1.26x and the average price to
earnings multiple was approximately 8.63x, resulting in an implied valuation
for BMS (with equal weightings to each valuation criterion) of approximately
$70.9 million, or $35.19 per share. D.A. Davidson noted, however, that BMS
shareholders should reasonably expect higher valuation multiples than those
attracted in other recent Montana transactions due to BMS's expansive banking
franchise in Montana, BMS's strong financial performance and the passage of
limited interstate banking in Montana effective October 1, 1993.
No company or transaction used in any of the above analyses as a
comparison is identical to BMS or the contemplated transaction. Accordingly,
an analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in characteristics of the
companies and the transactions to which comparisons are made. Mathematical
analysis is not, in itself, a determinative method of establishing comparable
value, particularly when applied to isolated or a limited number of
transactions or companies.
In connection with its opinion dated as of the date of this Proxy
Statement-Prospectus, D.A. Davidson confirmed the appropriateness of its
reliance on the analyses used to render its September 13, 1993 opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith. The foregoing summary does not purport to be a complete
description of the analyses performed by D.A. Davidson. D.A. Davidson
believes that its analyses and the summary set forth above must be considered
as a whole and that selected portions of its analyses, without considering all
factors and analyses, could create an incomplete view of the process
underlying its opinion. In addition, D.A. Davidson may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges
of valuations resulting from any particular analysis described above should
not be taken to be D.A. Davidson's view of the actual value of
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BMS. In performing its analyses, D.A. Davidson made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of BMS or Norwest. The
analyses performed by D.A. Davidson are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely
as part of D.A. Davidson's overall analysis of the fairness of the Exchange
Ratio to BMS's shareholders and were provided to the BMS Board in connection
with the delivery of D.A. Davidson's opinion. The analyses do not purport to
be appraisals or to reflect the prices at which a company might actually be
sold. In addition, as described above, D.A. Davidson's opinion and
presentation to the BMS Board was one of the many factors taken into
consideration by the BMS Board in making its determination to approve the
Merger Agreement and related transactions. Consequently, the D.A. Davidson
analyses described above should not be viewed as determinative of the BMS
Board's or BMS management's opinion with respect to the value of BMS or of
whether the BMS Board or BMS management would have been willing to agree to a
different Exchange Ratio.
The BMS Board of Directors retained D.A. Davidson based upon its
experience, expertise and familiarity with BMS. D.A. Davidson is a recognized
regional investment banking and advisory firm in certain portions of the
northwest United States. D.A. Davidson, as part of its investment business,
is engaged in the valuation of businesses and securities in connection with
investment research, mergers and acquisitions, negotiated underwritings,
private placements and valuations for corporate and other purposes. From time
to time, D. A. Davidson and its affiliates have provided certain financial
advisory and financing services to BMS and have received customary fees for
the rendering of these services.
Pursuant to a letter agreement dated July 14, 1993 between BMS and D.A.
Davidson, BMS paid D.A. Davidson a fee upon delivery of its opinion in the
amount of $50,000. The letter agreement with D.A. Davidson also provides that
BMS will reimburse D.A. Davidson for its reasonable out-of-pocket expenses and
will indemnify D.A. Davidson against certain liabilities, including
liabilities under securities laws, incurred in connection with its services.
TERMS OF THE MERGER
At the Effective Time of the Merger, a wholly owned subsidiary of Norwest
incorporated in Montana solely for the purpose of consummating the Merger
("Merger Co.") will merge into BMS, with BMS as the surviving corporation. At
the Effective Time of the Merger, each outstanding share of BMS Common Stock
will be converted into a number of shares of Norwest Common Stock (the
"Exchange Ratio") determined by dividing the "Adjusted Norwest Shares" (as
defined below) by the number of shares of BMS Common Stock then outstanding.
The "Adjusted Norwest Shares" shall mean 4,200,000 shares minus (i) $385,000,
divided by the Norwest Measurement Price (to account for certain severance and
bonus agreement payments); (ii) the number of shares of BMS Common Stock
purchased as required by the ESOP from June 22, 1993 through the Effective
Date of the Merger, multiplied by the Adjusted Norwest Shares after the
adjustments in clauses (i), (iii), (iv), and (v) have been made, divided by
2,014,676; (iii) the amount BMS owes to Norwest for providing, as an
independent contractor, assistance
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with the operations, data processing and internal audit functions at BMS,
divided by the Norwest Measurement Price; (iv) any "Losses" (as defined below)
that Norwest reasonably determines exist as of 30 days prior to the Effective
Date of the Merger and (without duplication) any Losses that have been charged
off in the financial statements of BMS from June 30, 1993 to the Effective
Time of the Merger, divided by the Norwest Measurement Price; and (v) with
respect to certain environmental remediation costs, the lesser of the "Net
Cost" (as defined below) and $100,000, divided by the Norwest Measurement
Price. For a further discussion of the events that result in a reduction to
the Adjusted Norwest Shares and hence to the Exchange Ratio, see "Conditions
to the Merger," "Business Pending the Merger," and "Interests of Certain
Persons in the Merger; Certain Transactions."
"Losses" is defined in the Merger Agreement as those amounts that the
general ledger balancing and account reconciliation process identifies as (i)
reconciling items that do not represent valid timing differences and with
respect to which 45 days have elapsed since the date of origination of the
related individual general ledger account entries, or (ii) out of balance
conditions including situations in which the entries in the general ledger and
the subsidiary ledgers do not correspond or situations in which entries or
balances in the general ledger or the subsidiary ledgers are not supported by
valid original source documents or by certifiable systems applications
balances.
"Net Cost" is defined in the Merger Agreement as the amount equal to (i)
the aggregate costs for certain environmental remediation and for the
development and implementation of certain environmental remediation plans, but
not for certain environmental assessments, actually paid by BMS prior to the
Effective Date of the Merger plus the estimated costs contemplated to be paid
by BMS pursuant to any such environmental remediation plan, but which have not
been paid as of the Effective Date of the Merger, minus (ii) the aggregate
amount received by BMS prior to the Effective Date of the Merger from any
third party that may be obligated to reimburse BMS for such costs (including
the State of Montana).
The reductions to the Adjusted Norwest Shares and hence to the Exchange
Ratio can not be determined at this time and will not be determinable until
immediately prior to the Effective Time of the Merger. The reduction to the
Adjusted Norwest Shares with respect to the employment and severance
agreements will be based on $385,000; however, this and all of the other
reductions to the Adjusted Norwest Shares are based, directly or indirectly in
the case of the reduction with respect to the purchase of shares by the BMS
ESOP, on the Norwest Measurement Price which cannot be determined at this
time. While there have been no purchases of shares by the BMS ESOP from June
22, 1993 to the date of this Proxy Statement-Prospectus, there can be no
assurances that such purchases will not occur between the date of this Proxy
Statement-Prospectus and the Effective Date of the Merger. As of the date of
this Proxy Statement-Prospectus, Norwest continues to provide assistance with
the operations, data processing and internal audit functions and, therefore,
the amount owed to Norwest for such services is not determinable at this time.
Although no Losses have been charged off in the financial statements of BMS
since June 30, 1993, there can be no assurances that Losses will not be
charged off between the date of this Proxy Statement-Prospectus and the
Effective Time of the Merger or that other Losses will not be determined by
Norwest in its reasonable judgment to exist as of 30 days prior to the
Effective Date of the Merger. With respect to any reduction to the Adjusted
Norwest
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Shares in connection with environmental remediation or environmental
remediation plans, the "Net Cost" can not be determined at this time and
although no more than $100,000 is to be used to calculate the reduction to the
Adjusted Norwest Shares, in the event that the Net Cost exceeds $100,000,
Norwest is not obligated to close unless BMS agrees to calculate the reduction
to the Adjusted Norwest Shares based on the full Net Cost including the amount
of Net Cost that exceeds $100,000. See "Conditions to the Merger."
The market price for Norwest Common Stock will fluctuate between the date
of this Proxy Statement-Prospectus and the Effective Date of the Merger, which
may be a period of several weeks or several months, and the Norwest
Measurement Price will fluctuate accordingly. As a result, the market value
of the Norwest Common Stock that BMS shareholders ultimately receive in the
Merger could be more or less than its market value on the date of this Proxy
Statement-Prospectus. Because the Exchange Ratio is fixed except for the
reductions specified above, BMS shareholders will not be compensated for
decreases in the market price of Norwest Common Stock which could occur before
the Effective Time of the Merger. See "Waiver, Amendment, and Termination"
for a discussion of BMS's right to terminate the Merger Agreement if the
Norwest Measurement Price is below $23.50.
The following illustration of the Exchange Ratio is based on the
provisions of the Merger Agreement and the following assumptions: that the
Effective Date of the Merger was December 31, 1993, on which date the Norwest
Measurement Price would have been $23.86; that no shares of BMS Common Stock
were purchased by the ESOP from June 22, 1993 to December 31, 1993; that BMS
owed Norwest $118,900 for providing assistance with the operations, data
processing and internal audit functions at BMS; that $90,000 of Losses existed
as of December 31, 1993, and that no Losses were charged off in the financial
statements from June 30, 1993 to December 31, 1993; that the Net Cost of
certain environmental remediation and environmental remediation plans was
$10,000; and that the number of shares of BMS Common Stock outstanding on
December 31, 1993 was 2,014,676. Based on the foregoing assumptions, the
Adjusted Norwest Shares would have been 4,174,690 and the Exchange Ratio would
have been 2.072.
The Merger Agreement provides that if, between the date of the Merger
Agreement and the Effective Time of the Merger, shares of Norwest Common Stock
are changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares,
or readjustment, or if a stock dividend thereon is declared with a record date
within the same period, the conversion ratios provided for in the Merger
Agreement will be adjusted accordingly.
No fractional shares of Norwest Common Stock will be issued in the Merger.
Instead, Norwest will pay to each holder of BMS 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 BMS shareholder would
otherwise be entitled multiplied by the average of the closing prices of a
share of Norwest Common Stock as reported by the consolidated tape of the NYSE
for each of the five trading days immediately preceding the Effective Time of
the Merger.
Each share of capital stock of Merger Co. outstanding immediately prior
to the Effective Time of the Merger will be converted into shares of BMS
Common Stock.
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Shares of Norwest Common Stock issued and outstanding immediately prior to
the Effective Time of the Merger will remain issued and outstanding.
EFFECTIVE DATE AND TIME OF THE MERGER
Subject to the terms and conditions of the Merger Agreement, the Merger
will be effective on the date on which an executed Agreement and Plan of
Merger and Articles of Merger are filed with the Secretary of State of the
State of Montana and at the time of 11:59 p.m., Minneapolis, Minnesota time.
Such filing shall be made no later than five business days following the
satisfaction or waiver of all conditions set forth in the Merger Agreement or
on such other date upon which the parties agree, but not prior to February 6,
1994. Norwest and BMS also agreed to use their best efforts to cause the
Merger to be completed within ten business days after the satisfaction or
waiver of the conditions of the Merger Agreement that the Merger Agreement be
approved by the requisite vote of the shareholders of BMS, that all necessary
regulatory approvals, including the approval of the Federal Reserve Board, be
received, that all applicable waiting and approval periods have expired, and
that no such approvals contain any conditions that are unduly burdensome to
Norwest. Norwest and BMS anticipate that the closing will occur as soon as
possible following the Special Meeting. See "Terms of the Merger,"
"Conditions to the Merger," and "Regulatory Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Merger, Norwest
Bank Minnesota, National Association, acting in the capacity of exchange agent
for Norwest (the "Exchange Agent"), will mail to each former holder of record
of shares of BMS Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's BMS Common Stock certificates
for a certificate representing Norwest Common Stock.
BMS SHAREHOLDERS 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 BMS
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.
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All Norwest Common Stock issued pursuant to the Merger will be deemed
issued as of the Effective Time of the Merger. No dividends with a record
date after the Effective Time of the Merger will be paid to BMS shareholders
entitled to receive certificates for shares of Norwest Common Stock until such
shareholders surrender their certificates representing shares of BMS Common
Stock. Upon such surrender, there shall be paid to the shareholder in whose
name the certificates representing such shares of Norwest Common Stock are
issued any dividends the record and payment dates of which shall have been
after the Effective Time of the Merger and before the date of such surrender.
After such surrender, there shall be paid to the person in whose name the
certificate representing such shares of Norwest Common Stock is issued, on the
appropriate dividend payment date, any dividend on such shares of Norwest
Common Stock which shall have a record date after the Effective Time of the
Merger and prior to the date of surrender, but a payment date subsequent to
the surrender. In no event shall the persons entitled to receive such
dividends be entitled to receive interest on amounts payable as dividends.
CONDITIONS TO THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
requisite vote of the shareholders of BMS. In addition, the Merger will occur
only if all necessary regulatory approvals, including the approval of the
Federal Reserve Board, are received, and all conditions contained therein are
met, all applicable waiting and approval periods have expired, and the
approvals contain no condition or requirement relating to BMS or any of its
subsidiaries that is unduly burdensome to Norwest; provided that a condition
of the Federal Reserve Board approval that Norwest sell one or more of (i) the
Bank of Montana branch in Lewistown, Montana, (ii) the Bank of Montana branch
in Anaconda, Montana and (iii) one, but not both, of the Montana Bank and Bank
of Montana branches in Butte, Montana shall not in and of itself be deemed
unduly burdensome provided the terms and conditions of such sales are
acceptable to Norwest in its sole discretion. Norwest has committed to the
Federal Reserve Board to sell such branches and, therefore, such sale will be
a condition to the Federal Reserve Board approval, and, hence, a condition to
the closing. See "Regulatory Approvals."
Consummation of the Merger is subject to the satisfaction of certain other
conditions, unless waived in writing, to the extent waiver is permitted by
applicable law. Such conditions to the obligations of both parties to
consummate the Merger include, but are not limited to, (i) the continued
effectiveness under the Securities Act of the Registration Statement of which
this Proxy Statement-Prospectus is a part and receipt by Norwest of all state
securities law or blue sky authorizations necessary for the Merger, (ii) the
absence of any order of a court or governmental authority of competent
jurisdiction restraining, enjoining, or otherwise prohibiting consummation of
the Merger, (iii) the continued accuracy of the representations and warranties
by the other party in the Merger Agreement, (iv) the performance by the other
party of its obligations under the Merger Agreement, (v) the receipt of
certain officers' certificates from the other party, and (vi) the receipt by
each party of a letter (the "Comfort Letters") from KPMG Peat Marwick with
respect to the financial statements and certain other information contained in
the Proxy Statement-Prospectus about the other party. Norwest and BMS have
waived the condition that the Comfort Letters be delivered on the condition
that each party deliver to the other a letter dated as of the date of this
Proxy Statement-Prospectus and updated through the Effective Date of the
Merger stating that: (a) the interim quarterly financial statements of such
party included or incorporated by reference in the Registration Statement are
prepared in accordance with
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generally accepted accounting principles applied on a basis consistent with
the audited financial statements of such party; (b) the amounts reported in
the interim financial statements of such party agree with its
general ledger; (c) the annual and interim financial statements of such
party and its 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; (d) from September
30, 1993 to a specified date not more than 5 days prior to the date of the
letters, there have been no increases in long-term debt, changes in the
capital stock or decreases in stockholders' equity of such party and its
subsidiaries, except for changes, increases or decreases which the
Registration Statement discloses have occurred or may occur or which are
described in such letters and 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 such party
and its subsidiaries, or 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; and (e) such party has reviewed certain amounts,
percentages, numbers of shares and financial information that are derived from
the general accounting records of such party and its subsidiaries that appear
in the Registration Statement under certain captions to be specified by the
other party, and have compared certain of such amounts, percentages, numbers
and financial information with the accounting records of such party and its
subsidiaries and have found them to be in agreement with financial records and
analyses prepared by such party included in the annual and quarterly financial
statements, except as disclosed in such letters.
BMS's obligation to consummate the Merger 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 Merger and (ii)
the receipt of an opinion of its counsel to the effect that, for federal
income tax purposes the Merger will be a tax-free reorganization (see "Certain
Federal Income Tax Consequences" for a discussion of such opinion and the
assumptions on which it will be based).
Norwest's obligation to consummate the Merger is also subject to (i) the
receipt by BMS 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 Merger, and the receipt by BMS
and its subsidiaries of any and all material permits, authorizations,
consents, waivers, and approvals required for the consummation of the Merger;
(ii) the requirement that BMS and its subsidiaries shall have taken no action
since June 22, 1993 that would disqualify the Merger as a pooling of interests
for accounting purposes (other than actions required under the Merger
Agreement or requested by Norwest, if any); (iii) the total number of shares
of BMS Common Stock outstanding and subject to issuance upon exercise of all
warrants, options, conversion rights, phantom shares, or other share
equivalents not having exceeded 2,014,676; (iv) the requirement that BMS and
its subsidiaries considered as a whole shall not have sustained since June 30,
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) subject to certain specified exceptions, the absence
of any reasonable basis for any proceeding, claim or action of any nature
seeking to impose, or that could reasonably be expected to result in the
imposition on BMS or any of its subsidiaries of, any liability arising under
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any violation of or obligation 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 BMS and its
subsidiaries taken as a whole; (vi) the completion, prior to the Effective
Date of the Merger, of certain environmental remediation or, if such
remediation is not practicable prior to such time using due diligence, then
the development and implementation of environmental remediation plans
acceptable to Norwest, provided that if the Net Cost of such remediation and
remediation plans exceeds $100,000, Norwest shall not be obligated to close
the Merger unless BMS elects to reduce the Exchange Ratio by taking into
account the full amount of the Net Cost (including the amount by which the Net
Cost exceeds $100,000) although Norwest has the right to waive such
requirement in which event BMS would be obligated to close and the amount by
which the Net Cost exceeds $100,000 will not be taken into account in
determining the reduction to the Exchange Ratio (see "Terms of the Merger");
(vii) the receipt by Norwest of written reports containing the conclusions of
Phase I and Phase II environmental assessments and studies of the properties
of BMS and its subsidiaries; (viii) the absence of any change or circumstances
which might reasonably be expected to have a material adverse effect on the
financial condition, results of operations, business, or prospects of BMS and
its subsidiaries taken as a whole, other than changes in banking laws or
regulations, changes in generally accepted accounting principles or
interpretations thereof that affect the banking industry generally or changes
in general economic conditions that uniformly affect the banking industry on a
nationwide basis, including changes in the general level of interest rates;
(ix) the delivery of certain representation letters by BMS's executive
officers, directors and "affiliates," as such term is used in Rule 145 under
the Securities Act (see "Resale of Norwest Common Stock"); (x) the requirement
that BMS provide Norwest with the net tax basis and the supporting
calculations for its properties and the stock in its subsidiaries; (xi) the
termination or assignment of certain management agreements, leases, life
insurance policies and related death benefit agreements and correspondent
service and correspondent master data processing contracts (see "Interests of
Certain Persons in the Merger; Certain Transactions"); (xii) the delivery at
the closing of the Merger of the stock certificates for all of the capital
stock in BMS's subsidiaries (except for certain shares of common stock of
Montana Bank not owned by MBI) which shall be owned by BMS free and clear of
liens (see "Interests of Certain Persons in the Merger; Certain Transactions"
for a discussion of liens in favor of Norwest on the capital stock of BMS's
subsidiaries); and (xiii) the requirement that the operations and data
processing functions of BMS and its subsidiaries be operating in a manner
satisfactory to Norwest. See "Terms of the Merger," "Business Pending the
Merger," and "Interests of Certain Persons in the Merger; Certain
Transactions" for a discussion of the agreement of Norwest to assist with
BMS's operations and data processing.
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Federal Reserve Board
under Sections 3 and 4 of 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. The BHC Act prohibits the Federal
Reserve Board from approving the Merger if it would result in a monopoly or be
in furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or if its
effect in any section of the country may be substantially to lessen
competition or to tend
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to create a monopoly, or if it would in any other manner be a restraint of
trade, unless the Federal Reserve Board finds that the anticompetitive effects
of the Merger are clearly outweighed in the public interest by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served. The Federal Reserve Board also has the authority to
deny an application if it concludes that the combined organization would have
an inadequate capital position.
Under the BHC Act, the Merger may not be consummated until the 30th day
following the date of the Federal Reserve Board approval, during which time
the United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness
of the Federal Reserve Board's approval unless a court specifically orders
otherwise. The BHC Act provides for the publication of notice and public
comment on the applications and authorizes the regulatory agency to permit
interested parties to intervene in the proceedings.
Norwest filed applications with the Federal Reserve Board for approval of
the Merger on November 2, 1993. There can be no assurance that the Federal
Reserve Board will approve the Merger, and if the Merger is approved, there
can be no assurance as to the date of such approvals or as to what conditions,
if any, may be imposed in such approvals.
The Merger Agreement provides, among other conditions, that Norwest's
obligation to consummate the Merger is conditioned upon no approval, license
or consent granted by any regulatory authority in connection with the Merger
containing any condition or requirement relating to BMS or its subsidiaries
that is unduly burdensome to Norwest, provided that a condition of the Federal
Reserve Board approval that Norwest sell one or more of (a) the Bank of
Montana branch in Lewistown, Montana, (b) the Bank of Montana branch in
Anaconda, Montana and (c) one, but not both of, the Montana Bank and Bank of
Montana branches in Butte, Montana shall not in and of itself be deemed unduly
burdensome provided the terms and conditions of such sales are acceptable to
Norwest in its sole discretion. As a result of an analysis of the probable
competitive effects of the Merger, including conversations with the staff of
the Federal Reserve System, in the application to the Federal Reserve Board,
Norwest committed to sell the Bank of Montana branches in Lewistown, Montana
and Anaconda, Montana and the Montana Bank branch in Butte, Montana to
competitively suitable acquirors. Norwest committed itself to execute
agreements for the sale of such branches prior to the Effective Date of the
Merger and to consummate such sales within 180 days after the Effective Date
of the Merger. Therefore, it will be a condition of any Federal Reserve Board
approval that Norwest comply with these commitments. BMS has agreed to
cooperate with Norwest in the sale of these branches. There can be no
assurances that Norwest will be able to execute an agreement to sell such
branches prior to the Effective Date of the Merger on terms and conditions
acceptable to it or that Norwest will be able to consummate such sales within
180 days after the Effective Date of the Merger. If Norwest does not
consummate such sales within such 180-day period, it has committed itself in
its application to the Federal Reserve Board, to transfer the three branches
to an independent trustee with full discretion to sell them to a purchaser
acceptable to the Federal Reserve System without regard to price. There also
can be no assurance that the Federal Reserve Board will not impose other
conditions which may be unduly burdensome to Norwest. See "Conditions to the
Merger," "Business Pending the Merger," and "Management and Operations After
the Merger."
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There likewise can be no assurance that the Department of Justice will not
challenge the Merger or, if such a challenge is made, what the result would
be. Any approval of the 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.
Effective October 1, 1993, the Montana Bank Act, Sections 32-1-101 et
seq., Montana Code Annotated, was amended to permit a bank holding company
that does not have its headquarters in Montana and that either has its
headquarters in Colorado, Idaho, Minnesota, North Dakota, South Dakota,
Wisconsin, and Wyoming or that controlled a bank in Montana on January 1, 1993
to acquire control of a bank located in Montana under the following
circumstances: if the laws of such Reciprocal States authorized a Montana
bank holding company to acquire a bank in such Reciprocal States under terms
and conditions substantially similar to the terms and conditions imposed by
Montana law; and if the bank to be acquired has been conducting business
continuously for at least six years prior to the acquisition. Montana law
requires that a bank holding company seeking to acquire a bank located in
Montana file with the Montana Department of Commerce a copy of the
applications submitted to the federal banking regulatory agency and a
statement verifying that the bank holding company will not control more than
18% of all deposits in federally insured banks, savings associations and
credit unions in Montana and that all bank holding companies headquartered
outside of Montana will not control more than 49% of all deposits in federally
insured banks and savings associations in Montana. The Montana law provides
for the publication of notice and public comment on the applications and
authorizes the Montana Department of Commerce to intervene in or take other
action in the federal banking regulatory authority proceedings. See
"Background of and Reasons for the Merger" and "INFORMATION ABOUT BMS--
Business--Supervision and Regulation."
Norwest filed copies of the Federal Reserve Board applications and the
statements required by Montana law with the Montana Department of Commerce on
November 3, 1993 and believes that the Montana and Minnesota laws authorizing
limited interstate banking are substantially similar. There can be no
assurance, however, that the Montana Department of Commerce will not intervene
or take other action with respect to the Merger or, if such intervention or
action were taken, what its result would be.
Norwest and BMS are not aware of any governmental approvals or compliance
with banking laws and regulations that are required for consummation of the
Merger other than those described above. Should any other approval or action
be required, it is presently contemplated that such approval or action would
be sought. There can be no assurance that any such approval or action, if
needed, could be obtained and, if such approvals or actions are obtained,
there can be no assurance as to the timing thereof or as to what conditions,
if any, may be imposed in such approvals. The Merger cannot proceed in the
absence of all requisite regulatory approvals. See "Conditions to the
Merger," "Effective Time of the Merger," and "Waiver, Amendment, and
Termination."
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BUSINESS PENDING THE MERGER
Under the Merger Agreement, BMS and each of its subsidiaries are
generally obligated to maintain their corporate existence in good standing; to
maintain the general character of their business and conduct their business in
its ordinary and usual manner; to maintain proper business and accounting
records in accordance with reasonable business practices; to maintain their
properties in good repair and condition, ordinary wear and tear excepted; to
maintain in all material respects presently existing insurance coverage; to
use their best efforts to preserve their business organization intact, to keep
the services of their present principal employees and to preserve their good
will and the good will of their suppliers, customers and others having
business relationships with them; to use their best efforts to obtain any
approvals or consents required to maintain existing leases and other contracts
in effect following the Merger; to comply in all material respects with all
laws, regulations, ordinances, codes, orders, licenses and permits applicable
to the properties and operations of BMS and each of its subsidiaries
(including, without limitation, the Americans With Disabilities Act), the non-
compliance with which reasonably could be expected to have a material adverse
effect on BMS and its subsidiaries taken as a whole; and to permit Norwest and
its representatives (including KPMG Peat Marwick) to examine the books,
records and properties, and to interview the officers, employees and agents,
of BMS and its subsidiaries at any time during normal business hours, provided
however that no such examination by Norwest or its representatives either
before or after the date of the Merger Agreement shall in any way affect,
diminish or terminate any of the representations, warranties or covenants of
BMS set forth in the Merger Agreement.
The Merger Agreement also provides that, prior to the Effective Time of
the Merger, neither BMS nor any of its subsidiaries will (without the prior
written consent of Norwest) amend or otherwise change its articles of
incorporation 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 $25,000, except banking transactions in the ordinary
course of business and in accordance with policies and procedures in effect on
the date of the Merger Agreement; make any investments, except investments
made by BMS subsidiaries in the ordinary course of business for terms of up to
two years and in amounts of $1,000,000 or less; except for the termination of
MBI's ESOP and the merger of the 401(k) plans of MBI and BMS and except as
requested by Norwest, amend or terminate any "employee benefit plan" (as
defined in the Employee Retirement Income Security Act of 1974, as amended),
except as required by law; make any contributions to any such plan except as
required by the terms of such plan in effect as of the date of the Merger
Agreement; redeem, purchase or otherwise acquire, directly or indirectly, any
of the capital stock of BMS, except pursuant to and as required by the ESOP
(see "Terms of the Merger"); increase the compensation of any officers,
directors or executive employees, except pursuant to existing compensation
plans and practices and except that BMS and its subsidiaries may enter into
severance and bonus agreements with certain specified employees (see
"Interests of Certain Persons in the Merger; Certain Transactions" for a
description of such agreements, and see "Terms of the Merger" for their effect
on the Exchange Ratio); sell or otherwise dispose of any shares of the capital
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stock of any BMS subsidiary; or sell or otherwise dispose of any of its assets
or properties other than in the ordinary course of business.
Furthermore, the Merger Agreement provides that neither BMS nor any of
its subsidiaries will (without prior consultation with Norwest) make any new
loan or modify, restructure or renew any existing loan (except pursuant to
commitments made prior to the date of the Merger Agreement) to any borrower if
the amount of the resulting loan, when aggregated with all other loans or
extensions of credit to such person, would be in excess of $500,000, no more
than $100,000 of which shall be unsecured loans or extensions of credit.
Neither BMS nor any of its subsidiaries, nor any director, officer,
representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of, or enter into any discussions with or execute
any agreement in principle or definitive agreement with any corporation,
partnership, person, or other entity or group (other than Norwest or its
representatives) 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 BMS or any of its subsidiaries; (ii) to make a tender
or exchange offer for any shares of BMS Common Stock or other equity security;
(iii) to purchase, lease, or otherwise acquire the assets of BMS or any of its
subsidiaries, except in the ordinary course of business; or (iv) to merge,
consolidate, or otherwise combine with BMS or any of its subsidiaries. Any
offer or inquiry to BMS or any of its subsidiaries concerning any of the
foregoing must be promptly disclosed, along with the terms thereof, to
Norwest.
BMS also agreed in the Merger Agreement that neither BMS nor its
subsidiaries will take any action (other than actions required under the
Merger Agreement or requested by Norwest, if any) that would disqualify the
Merger as a pooling of interests for accounting purposes and that BMS would
establish such additional accruals and reserves that are necessary to conform
to the accounting and credit loss reserve practices and methods of Norwest and
to reflect Norwest's plans with respect to the conduct of BMS's business
following the Merger and to provide for certain costs and expenses relating to
the Merger.
BMS has also agreed not to consummate the planned merger of Montana Bank
into Bank of Montana, but to use its best efforts to obtain extensions from
the appropriate regulatory authorities to permit consummation of the Merger of
the bank subsidiaries at some future date. As of December 13, 1993, the
Federal Reserve Board had extended until March 18, 1994 its approval of the
consummation of such merger.
The Merger Agreement also provided that BMS would take certain actions
with respect to its planned acquisition of Heritage. Subsequent to the
execution of the Merger Agreement, BMS assigned its rights to acquire
Heritage. Norwest consented to the assignment and waived compliance by BMS
with the provisions of the Merger Agreement that related to Heritage or to the
proposed Heritage acquisition. See "Conditions to the Merger" and "Interests
of Certain Persons in the Merger; Certain Transactions."
BMS also agreed in the Merger Agreement to cooperate with Norwest in the
sale of the Bank of Montana branches in Lewistown, Montana and Anaconda,
Montana and one, but not both, of the Bank of Montana and Montana Bank
branches in Butte, Montana to the
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extent such branches must be sold (see "Conditions to the Merger" and
"Regulatory Approvals") and in the sale of the business of escrowing title
under contracts for deed or bank contracts and the related services in which
BMS and its subsidiaries are engaged (the "Escrow Business"). Such
cooperation may include legally effecting such sales immediately prior to the
Effective Time of the Merger and permitting potential purchasers to examine
the books, records and properties of and to interview officers, employees and
agents of BMS and its subsidiaries at any time during normal business hours.
BMS also agreed to use its best efforts to sell the insurance business
conducted under the name "Roundup Agency." Such sale was consummated on
November 1, 1993.
BMS has also agreed to pay in full all indebtedness of BMS to Norwest
Bank, immediately prior to the Effective Time of the Merger. Norwest
Corporation has agreed in the Merger Agreement to loan BMS, immediately prior
to the Effective Time of the Merger, sufficient funds to enable BMS to pay
such indebtedness in full. See "Interests of Certain Persons in the Merger;
Certain Transactions" for a description of such indebtedness. It is a
condition to the closing that such indebtedness be paid and that BMS deliver
the stock it owns in its subsidiaries to Norwest free and clear of all liens.
See "Conditions to the Merger."
In the Merger Agreement, Norwest and BMS agreed that BMS would retain
Norwest as an independent contractor to provide assistance with the
operations, data processing and internal audit functions of BMS. The Exchange
Ratio will be reduced based on the amount that Norwest will be compensated.
See "Terms of the Merger" and "Interests of Certain Persons in the Merger;
Certain Transactions." It is a condition to the Merger that the operations
and data processing functions be operating in a manner satisfactory to
Norwest. See "Conditions to the Merger."
BMS also agreed in the Merger Agreement to complete certain environmental
remediation at the Montana Bank branch sites in Roundup, Montana and Big
Sandy, Montana and the Heritage site in Great Falls, Montana or if it is not
practicable to complete such remediation using due diligence prior to the
Effective Date of the Merger, to develop and implement, prior to the Effective
Date of the Merger, a comprehensive plan acceptable to Norwest to complete
such environmental remediation. In no event shall BMS be required to incur
cost in excess of $100,000 for conducting such remediation or implementing
such remediation plans, provided that if the Net Cost of such remediation and
remediation plans exceeds $100,000, Norwest shall not be obligated to close
unless BMS elects to reduce the Exchange Ratio by taking into account the full
amount of the Net Cost (including the amount by which the Net Cost exceeds
$100,000) although Norwest has the right to waive such requirement in which
event BMS would be obligated to close and the amount by which the Net Cost
exceeds $100,000 would not be taken into account in determining the reduction
to the Exchange Ratio. See "Terms of the Merger" for a further discussion of
the effect of the Net Cost on the Exchange Ratio. See also "Conditions to the
Merger." BMS has assigned its rights to acquire Heritage and Norwest
consented to the assignment and waived compliance with this covenant as it
relates to Heritage. See "Interests of Certain Persons in the Merger; Certain
Transactions" for a further discussion of BMS's assignment of its rights to
acquire Heritage.
BMS has agreed that prior to the Effective Time of the Merger it will not
declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock
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except that it may pay regular quarterly cash dividends not exceeding $0.42
per share each quarter and except that if the Effective Date of the Merger
occurs on or before the record date for Norwest Common Stock for a particular
quarterly dividend period, BMS may pay a cash dividend equal to $846,164,
minus the dividend paid on 4,200,000 shares of Norwest Common Stock the
preceding quarter, prorated for the number of days in such dividend period
that precede the Effective Date of the Merger, divided by the number of
outstanding shares of BMS Common Stock. For example, the record date for the
Norwest Common Stock dividend for the fourth quarter was November 5, 1993, the
dividend on Norwest Common Stock for such quarter was $0.165 per share, BMS
paid its third quarter dividend on August 26, 1993, and the number of
outstanding shares of BMS Common Stock on November 1, 1993 was 2,014,676. If
the Effective Date of the Merger had been on November 1, 1993, BMS would have
been permitted, under the terms of the Merger Agreement, to declare a dividend
of $.06 per share for the fourth quarter. Any of the BMS Subsidiaries may
declare and pay any regular dividend in accordance with applicable law.
WAIVER, AMENDMENT, AND TERMINATION
Either Norwest or BMS may, in writing, waive any inaccuracies in the
representations and warranties of the other party or compliance by the other
party with any of the covenants and conditions in the Merger Agreement.
At any time before the Time of Filing the parties may amend the Merger
Agreement by action of their respective Boards of Directors or pursuant to
authority delegated by their respective Boards of Directors; provided,
however, that no such amendment occurring after approval of the Merger by the
BMS shareholders may adversely affect the consideration to be received by the
BMS shareholders.
The Merger Agreement provides that it may be terminated at any time prior
to the Time of Filing (i) by mutual written consent of the parties; (ii) by
either party by written notice to the other if the Merger shall not have been
consummated by April 15, 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 Merger Agreement; (iii) by either party by written notice to the
other if any court or governmental authority of competent jurisdiction shall
have issued a final order restraining, enjoining, or otherwise prohibiting the
consummation of the transactions contemplated by the Merger Agreement; or (iv)
by BMS by written notice to Norwest given no later than 5:00 p.m. Minneapolis
time on the first business day immediately preceding the scheduled Closing
Date in the event that the Norwest Measurement Price is less than $23.50 per
share. Certain provisions of the Merger Agreement relating to (a) the duty of
each party to preserve the confidentiality of certain information of the other
party, (b) Norwest's duty to indemnify and hold BMS harmless for losses caused
by Norwest in connection with Norwest's environmental investigation of BMS,
and (c) expenses incurred in connection with the Merger Agreement, will
survive the termination of the Merger Agreement pursuant to the above
described termination provisions.
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MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the Merger, BMS will become a direct subsidiary of Norwest. Bank of
Montana and Montana Bank will remain wholly owned subsidiaries of BMS and will
become indirect subsidiaries of Norwest. Norwest will operate at the present
locations of Bank of Montana and Montana Bank providing products and services
offered by Norwest affiliates. In its application to the Federal Reserve
Board, Norwest has committed itself to consummate the sale of the Bank of
Montana branches in Lewistown, Montana and Anaconda, Montana and the Montana
Bank branch in Butte, Montana to competitively suitable acquirors within 180
days after the Effective Date of the Merger. See "Regulatory Approvals" for a
further discussion of such sales. In addition, Norwest also intends to sell
the Escrow Business. See "Business Pending the Merger" for a further
discussion of such sale.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN TRANSACTIONS
The Board of Directors of BMS was aware of the agreements, transactions
and interests of certain persons in the Merger described below and considered
them, among other matters, in recommending approval of the Merger and the
transactions contemplated thereby.
Under the Merger Agreement, Norwest, for three years following the
Effective Time of the Merger, must maintain directors' and officers' liability
insurance in favor of BMS's directors and officers with respect to future
claims arising from facts or events that occurred before the Effective Time of
the Merger. Such insurance must contain terms and conditions no less
favorable than the policies currently maintained by BMS in favor of its
directors and officers. Norwest must also insure that all rights to
indemnification and all limitations of liability existing in favor of any
director, officer, employee, fiduciary or agent of BMS or its subsidiaries in
BMS's Articles of Incorporation and Bylaws or similar governing documents of
any subsidiary of BMS, as in effect on the date of the Merger Agreement, or
allowed under applicable law as in effect on such date, with respect to claims
arising from facts or events that occurred before the Effective Time of the
Merger, shall survive the Merger and shall continue in full force and effect,
without amendment, for a period of not less than three years from the
Effective Time of the Merger.
Under the Merger Agreement, BMS must terminate the Service Agreement,
between BMS and Central Financial Services, Inc. ("Central Financial"),
pursuant to which Central Financial provides management, accounting and data
processing services to BMS and a Sublease Agreement between BMS and Central
Financial pertaining to the lease of office facilities in Golden Valley,
Minnesota. John Morrison, an officer and director of BMS, owns all of the
capital stock of Central Financial and Michael Pint, also an officer and
director of BMS, is President and a director of Central Financial. In
addition, pursuant to the Merger Agreement, BMS must terminate all key man and
split dollar life insurance policies and related death benefit agreements.
Edward C. Lamb, a director and Executive Vice President of BMS, is a
beneficiary of a key man life insurance policy. Mr. Morrison and Mr. Pint are
beneficiaries of split dollar life insurance policies. The termination of the
Service Agreement, the Sublease Agreement and the insurance policies is to be
effective no later than the Effective Date of the Merger and is to be effected
without payment of any consideration, penalty or other amount with respect to
such
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termination by BMS or its subsidiaries. BMS has also agreed to use its best
efforts to cancel all correspondent service contracts and correspondent master
data processing contracts between BMS Computer Corporation, a subsidiary of
BMS, and all entities other than Bank of Montana and Montana Bank at the
lowest possible cost, which costs must be approved in advance by Norwest.
Central Bank of Stillwater, Minnesota ("Central Bank") and First National Bank
of Barron in Barron, Wisconsin ("Barron") have such contracts. Mr. Morrison
owns 100% of Central Bank and Mr. Pint is a director of Central Bank and
Barron.
Under that certain Combination Stock Purchase Agreement and Agreement
and Plan of Merger, dated as of July 1, 1993 (the "Heritage Acquisition
Agreement"), by and among BMS, Bank of Montana, John Buchanan and Sheila
Buchanan (the "Buchanans") and Heritage, BMS, subject to the satisfaction of
certain conditions in the Heritage Acquisition Agreement, was obligated to
acquire the outstanding Common Stock of Heritage held by the Buchanans and to
consummate certain other transactions contemplated by the Heritage Acquisition
Agreement. BMS has entered into a Conditional Termination and Assignment
Agreement, dated as of January 19, 1994, whereby BMS assigned its rights
under the Heritage Acquisition Agreement to a corporation ("Heritage
Acquisition Corporation") of which Barbara Forster, an officer and director of
BMS, is the sole shareholder (the "Assignment"). The Assignment has been
structured so that the consummation of any business combination between
Heritage Acquisition Corporation and Heritage will not be effected prior to
the Effective Date of the Merger and BMS will retain its right to acquire
Heritage on the same terms and conditions currently in place under the
Heritage Acquisition Agreement in the event that the Merger is not
consummated. On November 10, 1993, Norwest consented to the Assignment and
waived compliance by BMS with certain provisions of the Merger Agreement with
respect to Heritage and the Heritage Acquisition Agreement. The Assignment
will not affect the Exchange Ratio.
BMS is currently indebted to Norwest Bank in the principal amount of
$18.3 million pursuant to a Note, dated March 31, 1993, executed by BMS in
favor of Norwest Bank. The outstanding principal on the Note is payable in
increasing installments of principal through December 31, 2001. Interest on
the Note is payable quarterly at an annual rate of interest equal to Norwest
Bank's "base" or "prime" lending rate. Approximately $8,516,000 of the
proceeds of the Note were used by BMS to pay a portion of the purchase price
in connection with BMS's acquisition of MBI. See "INFORMATION ABOUT BMS--
Business--Recent Developments" for a discussion of the acquisition of MBI.
The balance of the proceeds of the Note was used to refinance existing
indebtedness to Norwest Bank incurred primarily in connection with other bank
acquisitions by BMS. Repayment of the Note is secured by all of the capital
stock of the subsidiary banks. Certain of Norwest's affiliates and BMS have
also entered into additional agreements relating to correspondent-bank
practices such as: demand deposit accounts, brokerage and safekeeping
arrangements, a revolving line of credit, repurchase agreements, secured and
unsecured "Fed Funds" lines and other non-lending account and customer
relationships. These agreements have all been established on substantially
the same terms as those generally established from time to time by Norwest
banking or brokerage affiliates for comparable account and customer
relationships with their business, correspondent banking or brokerage
customers. Under the terms of the Merger Agreement, prior to the Effective
Time of the Merger, Norwest will make a loan to BMS to enable BMS to pay in
full its indebtedness to Norwest Bank.
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John Morrison is currently indebted to Norwest Bank in the principal
amount of $16.8 million pursuant to two Notes (the "Morrison Notes") dated
March 31, 1993 and April 20, 1993, each executed by Mr. Morrison in favor of
Norwest Bank. The outstanding principal on the Morrison Notes is payable in
increasing installments of principal through March 2003. The proceeds of the
Morrison Notes were used by Mr. Morrison to finance his purchases of BMS
Common Stock from time to time, including in connection with the financing of
the acquisition of MBI by BMS, and for other business purposes. See
"INFORMATION ABOUT BMS--Business--Recent Developments." The Morrison Notes
are secured by substantially all of the BMS Common Stock held by Mr. Morrison
and Mr. Pint and certain shares held by Ms. Forster. Mr. Morrison is also
indebted to Norwest Bank pursuant to a commercial real estate mortgage loan in
the principal amount of $210,100 which is due in November of 1994 and carries
an interest rate of 4.35%. Michael Pint is currently indebted to Norwest
Bank in the principal amount of $750,000 pursuant to a Demand Note (the "Pint
Note") dated November 24, 1993, executed by Mr. Pint in favor of Norwest
Bank. The proceeds of the Pint Note were used by Mr. Pint to acquire his BMS
Common Stock from time to time from 1989 to 1991 and for other business
purposes. The Pint Note is also secured by substantially all of the BMS
Common Stock held by Mr Morrison and Mr. Pint and certain shares held by Ms.
Forster. One of the Morrison Notes and the Pint Note accrue interest on the
outstanding principal at an annual rate at or above Norwest Bank's "base" or
"prime" lending rate and contain substantially the same terms as those
generally established from time to time by Norwest Bank for comparable lending
relationships. The other Morrison Note carries an interest rate of 2% over
the federal funds rate.
The Merger Agreement permits BMS to enter into severance and bonus
agreements with certain specified employees including Steven Feurt, a director
of BMS prior to March 31, 1992, and Edward Lamb, currently a director of BMS.
Such agreements may provide that, for a period of one year from the Effective
Date of the Merger, in the event that Norwest terminates such person's
employment other than for cause, such person will receive a severance payment
equal to the number of weeks from but excluding the date of termination
through the date that is one year from the Effective Date of the Merger
divided by 52 and then multiplied by such person's current annual salary. See
"Terms of the Merger" for a discussion of the related reduction in the
Exchange Ratio.
Under the Merger Agreement, BMS has agreed to retain Norwest as an
independent contractor to provide assistance to BMS in the operations, data
processing and internal audit functions including integrating such functions
at Bank of Montana with such functions at Montana Bank. BMS has entered into
an agreement with Norwest whereby Norwest is providing such services for an
amount equal to the salary, cost of benefits and out of pocket expenses for
each employee of Norwest who performs any such services. The Exchange Ratio
will be reduced based on the amount that Norwest will be compensated. See
"Terms of the Merger." If the Merger is not consummated, the agreement
automatically terminates. It is a condition to the Merger that the operations
and data processing functions be operating in a manner satisfactory to
Norwest. See "Conditions to the Merger."
On July 25, 1992, Norwest entered into an Agreement and Plan of
Reorganization with Rocky Mountain Bankshares, Inc. ("RMBI") pursuant to which
a wholly owned subsidiary of Norwest was merged into RMBI (the "RMBI
Merger"). The RMBI Merger
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was consummated on January 8, 1993. RMBI was a bank holding company that
owned The Bank of Aspen, a bank chartered under the laws of the state of
Colorado. John M. Morrison owned 24.5% of the outstanding common stock of
RMBI. W. Duncan MacMillan owned 33.0% of the outstanding common stock of
RMBI. Michael J. Pint owned 9.5% of the outstanding common stock of RMBI.
Messrs. Morrison, Pint, and MacMillan each received Norwest Common Stock in
exchange for their shares of RMBI Common Stock pursuant to the RMBI Merger.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
The rights of BMS shareholders are governed by the Restated Articles of
Incorporation of BMS, as amended (the "BMS Articles"), the Bylaws of BMS (the
"BMS Bylaws") and the laws of the State of Montana. The rights of Norwest
stockholders are governed by the Restated Certificate of Incorporation of
Norwest, as amended (the "Norwest Certificate"), the By-Laws of Norwest (the
"Norwest By-Laws") and the laws of the State of Delaware. After the Merger
becomes effective, the rights of BMS shareholders who become Norwest
stockholders will be governed by the Norwest Certificate, the Norwest By-Laws
and the laws of the State of Delaware. In certain respects, rights of BMS
shareholders and Norwest stockholders are similar. While it is not practical
to describe all changes in the rights of BMS shareholders that will result
from the application of Delaware law in lieu of Montana law and the
differences between the BMS Articles and Bylaws and the Norwest Certificate
and Bylaws, the following is a summary of certain significant differences.
Capital Stock
The BMS Articles authorize the issuance of 4,000,000 shares of capital
stock, par value $2.50 per share, and do not authorize the issuance of
preferred stock. BMS currently has outstanding only one class of capital
stock. Accordingly, all BMS shareholders have equal rights and preferences
with respect to dividends and distributions upon liquidation. The Norwest
Certificate authorizes the issuance of 500,000,000 shares of common stock, par
value $1-2/3 per share (the "Norwest Common Stock"), of which 290,770,768
shares were outstanding and 2,328,700 were held as treasury shares at
September 30, 1993, and 5,000,000 shares of preferred stock (the "Norwest
Preferred Stock") of which 2,276,500 shares were outstanding at September 30,
1993, and 1,000,000 shares are reserved for issuance upon the exercise of
certain rights described below.
Norwest has authorized for issuance from time to time and registered with
the Commission an additional 1,700,000 shares of Norwest Preferred Stock.
Norwest has also authorized for issuance from time to time and registered with
the Commission 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 effective shelf
registration statements, when added to shares of Preferred Stock and Common
Stock already reserved for issuance, issued, or outstanding, could not exceed,
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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 Norwest Preferred Stock
or Shelf Securities issuable as, or convertible into, Norwest Preferred Stock
may be issued by the Board of Directors of Norwest without further action by
Norwest stockholders. Holders of Norwest Preferred Stock have certain rights
and preferences with respect to dividends and upon liquidation that are
superior to those of holders of Norwest Common Stock. The relative rights and
preferences of any Norwest Preferred Stock issued in the future may be
established by the Norwest Board of Directors without stockholder action.
Although management has no current plans for the issuance of any shares of
Norwest Preferred Stock, except as disclosed in this Proxy Statement-
Prospectus, such shares of Norwest Preferred Stock, when and if issued, could
have dividend, liquidation, voting, and other rights superior to those of
Norwest Common Stock.
Rights to Purchase Norwest Preferred Stock
On November 22, 1988, the Board of Directors of Norwest declared a
dividend of one preferred share purchase right (collectively, the "Rights")
for each outstanding share of Norwest Common Stock. The dividend was paid on
December 9, 1988, to stockholders of record on that date. Holders of shares
of Norwest Common Stock issued subsequent to that date, including those to be
issued in connection with the Merger, will receive the Rights with their
shares. The Rights trade automatically with shares of Norwest Common Stock
and become exercisable only under certain circumstances. The Rights are
designed to protect the interests of Norwest and its stockholders against
coercive takeover tactics. The purpose of the Rights is to encourage
potential acquirors to negotiate with Norwest's Board of Directors prior to
attempting a takeover and to give the Board leverage in negotiating on behalf
of all stockholders the terms of any proposed takeover. The Rights may, but
are not intended to, deter takeover proposals.
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:
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(i) 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.
(ii) 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.
(iii) 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.
Election of Directors
All holders of BMS Common Stock have the right of cumulative voting, that
is, the right to vote the number of shares held, multiplied by the number of
directors to be
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elected, and to cast such votes for one director or distribute such votes
among as many nominees as desired. Stockholders of Norwest do not have the
right of cumulative voting, but instead are entitled to one vote for each
share of capital stock held. Under Delaware law, directors are elected by a
plurality of votes.
Required Vote for Authorization of Certain Actions
The Montana Business Corporation Act (the "MBCA") generally requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
each class entitled to vote to approve a merger, consolidation, share
exchange, or sale, lease, exchange, or other disposition of all or
substantially all of a corporation's property not made in the regular course
of business. In certain circumstances, the holders of outstanding shares of a
class of capital stock of a Montana corporation are entitled to vote as a
separate voting group, regardless of whether the articles of incorporation
provide that such shares of capital stock are entitled to vote. However, no
vote of shareholders of a Montana corporation is required to approve a merger
if (i) that corporation is the surviving corporation of the merger, (ii) the
related plan of merger does not amend the corporation's articles of
incorporation in a manner that would require a shareholder vote, (iii) each
shareholder of the surviving corporation whose shares are outstanding
immediately before the merger will hold the same number of shares, with
identical designations, preferences, limitations, and relative rights,
immediately after the merger, and (iv) the number of voting shares or shares
entitled to participate without limitation in distributions of the corporation
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
voting shares or participating shares, as the case may be, of that corporation
outstanding immediately before the merger.
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 (i) the related agreement of merger does not amend the Norwest
Certificate, (ii) each share of stock of Norwest outstanding immediately
before the merger is an identical outstanding or treasury share of Norwest
after the merger, and (iii) 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.
Amendment of Corporation Charter
Under the MBCA, the Board of Directors can establish conditions for the
amendment of the Articles of Incorporation (e.g., super-majority vote, no more
than a given percentage dissent, etc.). The Board of Directors is required to
make a recommendation on the desirability of any amendment (unless a conflict
of interest prohibits them from doing so). The MBCA provides that certain
significant amendments to articles of incorporation, but not all amendments,
must be approved by the shareholders. Pursuant to Section 35-1-227 of the
MBCA, the vote of shareholders needed to approve an amendment depends in part
on the voting groups entitled to vote separately on the
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amendment and in part on whether any of those voting groups would be entitled
to dissenter's rights if the amendment were adopted. Generally, if
dissenter's rights would not arise in connection with the amendment, Section
35-1-528 of the MBCA provides that if a quorum exists, action on a matter
other than the election of directors is approved if the votes cast within the
voting group favoring the action exceed the votes cast opposing the action,
unless the articles of incorporation or the MBCA require a greater number of
affirmative votes. If the amendment would give rise to dissenters' rights
under the MBCA, the amendment must be approved by the holders of a majority of
the outstanding shares of each voting group that will have dissenters' rights
if the amendment were adopted, unless the articles of incorporation, the board
of directors or the MBCA specifies a greater quorum or voting requirement for
a voting group to approve an amendment of any type.
Delaware law requires the vote of a simple majority of the outstanding
shares of Norwest Common Stock in order to amend the Norwest Certificate.
Dissenters' Rights
Under the MBCA, any shareholder of a corporation is entitled to receive
payment of the fair value of such shareholder's shares of capital stock if
such shareholder properly dissents from (i) any merger, share exchange or
consummation of a sale or exchange of all or substantially all of the property
of the corporation not made in the regular course of business for which a vote
of such shareholder is required, (ii) any corporate action that results in an
amendment of the articles of incorporation that materially and adversely
affects rights with respect to a dissenter's shares because it alters or
abolishes a preferential right of the shares, creates, alters or abolishes a
right in respect of redemption, alters or abolishes a preemptive right of the
holder of the shares, excludes or limits the right of the shares to be voted
on any matter or to cumulate votes, or reduces the number of shares owned by
the shareholder to a fraction of a share if the fractional share so created is
to be acquired for cash, or (iii) any other corporate action taken pursuant to
a shareholder vote to the extent the articles of incorporation, bylaws or
resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and to obtain payment for their shares.
See the more detailed discussion below under "Dissenters' Rights."
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 (i) shares listed on a national securities exchange or
held of record by more than 2,000 persons or (ii) shares of the corporation
surviving a merger, if the merger did not require the approval of the
stockholders of such corporation, unless in either case, the holders of such
stock are required by the terms of the merger to accept anything other than
(a) shares of stock of the surviving corporation, (b) shares of stock of
another corporation which are also listed on the national securities exchange
or held by more than 2,000 holders, or (c) cash in lieu of fractional shares
of such stock. Appraisal rights are not available for a sale of assets or an
amendment to the Norwest Certificate. 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.
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Special Meetings
Under the MBCA and the BMS Bylaws, a special meeting of BMS shareholders
may be called by the Chairman, the President or by the Board of Directors, and
must be called by the President at the request of holders of not less than 10%
of all outstanding shares of the corporation entitled to vote at the meeting.
Under Delaware law and the Norwest By-Laws, 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.
Anti-Takeover Statutes
Montana does not have an anti-takeover statute. The Delaware anti-
takeover 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 (i) the board of directors approved the business combination before the
stockholder became an interested stockholder, (ii) upon consummation of the
transaction which resulted in a 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 (iii) 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.
Dividends and Distributions
Distributions to shareholders of a Montana corporation, including
redemptions, repurchases and dividends, may not be made if any such
distribution would render the corporation unable to meet its liabilities in
the ordinary course of business or, if as a result of such distribution, the
excess of the corporation's assets over its liabilities would be less than the
liquidation preference of all shares having a preference on liquidation over
the class or series to which the distribution is made.
A Delaware corporation may make repurchases or redemptions that do not
impair capital and may pay dividends out of any surplus account (generally the
stockholders' equity of the corporation less the par value of the capital
stock outstanding) or, if there exists no surplus, out of net profits of the
current and preceding fiscal years (provided that certain provisions must be
made for preferences of outstanding stock having a liquidation preference).
Dividends may not be paid out of net profits if, after the payment of the
dividend, capital is less than the capital represented by the outstanding
stock of all classes having a preference upon the distribution of assets.
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Norwest and BMS are subject to the same Federal Reserve Board policies
regarding payment of dividends, which generally limit dividends to operating
earnings. See "INFORMATION ABOUT BMS" and "CERTAIN REGULATORY
CONSIDERATIONS."
Action Without a Meeting
Under the MBCA, any action required or permitted to be taken at a
shareholders' meeting may be taken without a meeting if the action is taken by
all the shareholders entitled to vote on the action and is evidenced by
written consents. Delaware law permits any action required or permitted to be
taken at a stockholder's meeting to be taken by written consent, signed by the
holders of a number of shares that would have been required to effect the
action at an actual meeting of the stockholders at which all shares entitled
to vote were present and voted. Generally, holders of a majority of
outstanding shares can effect such an action. Delaware law also provides that
a corporation's certificate of incorporation may restrict or prohibit
stockholders' action without a meeting. The Norwest Certificate does not
restrict or prohibit stockholders' action without a meeting.
Removal of Directors
Under the MBCA and the BMS Articles, the shareholders of a Montana
corporation may remove one or more directors with or without cause. In
addition, any director or the entire Board of Directors may be removed only by
a vote of the holders of two-thirds of the shares entitled to vote at an
election of directors. A director may not be removed if the votes cast
against the removal of such director would be sufficient to elect him if
cumulatively voted at an election of the entire board of directors. Under
Delaware law, any director or the entire Board of Directors of Norwest may be
removed with or without cause, by the holders of a majority of the shares then
entitled to vote in an election of directors.
Limitation of Director Liability and Indemnification in Certain
Circumstances
Under the MBCA, a director of a Montana corporation is not liable for any
action taken as a director or for any failure to take any action if he or she
performed the duties of a director's office in good faith, with the care an
ordinarily prudent person in a similar position would exercise under similar
circumstances, and in a manner the director reasonably believes to be in the
best interests of the corporation.
The BMS Bylaws generally provide that BMS must indemnify its officers and
directors made a party to any action, suit, or proceeding, whether civil or
criminal, from any judgments, penalties, and reasonable expenses, including
attorneys' fees, if such person was made a party to the action by reason of
the fact that he or she was an officer or director of BMS and he or she
conducted himself or herself in good faith and reasonably believed (i) in the
case of conduct in his or her official capacity with BMS, that his or her
conduct was in the best interests of BMS; (ii) in all other non-criminal
cases, that his or her conduct was at least not opposed to BMS's best
interests; and (iii) in the case of criminal proceedings, that he or she had
no reasonable cause to believe the conduct was unlawful.
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If the action was by or in the right of BMS (a "derivative action"),
indemnification is only available for any reasonable expenses incurred. No
indemnification is available where the officer or director is adjudged liable
to BMS or in which the officer or director has been adjudged liable on the
basis that he or she improperly received a personal benefit. The board of
directors of BMS or a court of competent jurisdiction must determine, prior to
any indemnification, that the director or officer has met the applicable
standard of conduct set forth in the bylaws.
Expenses incurred in defending any action may be paid by BMS in advance
of the final disposition of such action upon receipt of an undertaking by a
director or officer to repay such amount unless it is ultimately determined
that he or she is entitled to be indemnified. The indemnification provided by
the Bylaws is substantially similar to the indemnification provisions in the
MBCA. The MBCA, however, provides that the indemnification provisions in a
corporation's articles, bylaws, resolutions or contracts are invalid to the
extent they are inconsistent with the statute.
Under Delaware law, absent a provision in the certificate of
incorporation to the contrary, directors can be held liable for gross
negligence in connection with the decisions made on behalf of the corporation
and the performance of their duty of care, but will not be liable for simple
negligence. As permitted under Delaware law, the Norwest Certificate provides
that a director (including an officer who is also a director) of Norwest shall
not be liable personally to Norwest or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability arising out
of (i) any breach of a director's duty of loyalty to Norwest or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of a
dividend or approval of a stock repurchase in violation of Section 174 of the
Delaware General Corporation Law, or (iv) any transaction from which the
director derives improper personal benefit. This provision protects Norwest's
directors against personal liability for monetary damages from breaches of
their duty of care. However, it does not eliminate the director's duty of
care. For example, this provision in the Norwest Certificate has no effect on
the availability of equitable remedies, such as an injunction or rescission,
based upon a director's breach of his duty of care.
Delaware law provides that directors, officers, and other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits, or proceedings, whether civil, criminal, administrative, or
investigative (other than a derivative action) if they acted in good faith and
in a manner they reasonably believed to be in, or not opposed to, the best
interests of the corporation, and regarding any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. A similar
standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred
in connection with the defense or settlement of such actions. In the case of
derivative actions, Delaware law requires court approval before there can be
any indemnification where the person seeking indemnification has been found
liable to the corporation. To the extent that a person otherwise eligible to
be indemnified is successful on the merits of any claim or defense described
above, indemnification for expenses (including attorneys' fees) actually and
reasonably incurred is mandated by Delaware law.
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The Norwest Certificate provides that Norwest must indemnify, to the
fullest extent authorized by Delaware law, each person who was or is made a
party to, is threatened to be made a party to, or is involved in, any action,
suit, or proceeding because he is or was a director or officer of Norwest (or
was serving at the request of Norwest as a director, trustee, officer,
employee, or agent of another entity) while serving in such capacity against
all expenses, liabilities, or loss incurred by such person in connection
therewith, provided that indemnification in connection with a proceeding
brought by such person will be permitted only if the proceeding was authorized
by the Norwest Board of Directors. The Norwest Certificate also provides
that Norwest must pay expenses incurred in defending the proceedings specified
above in advance of their final disposition, provided that if so required by
Delaware law, such advance payments for expenses incurred by a director or
officer may be made only if he undertakes to repay all amounts so advanced if
it is ultimately determined that the person receiving such payments is not
entitled to be indemnified.
The Norwest Certificate authorizes Norwest to provide similar
indemnification to employees or agents of Norwest.
Pursuant to the Norwest Certificate, Norwest may maintain insurance, at
its expense, to protect itself and any directors, officers, employees, or
agents of Norwest or another entity against any expense, liability, or loss,
regardless of whether Norwest has the power or obligation to indemnify that
person against such expense, liability, or loss under Delaware law.
The right to indemnification is not exclusive of any other right which
any person may have or acquire under any statute, provision of the Norwest
Certificate or By-Laws, agreement, vote of stockholders or disinterested
directors, or otherwise.
Shareholder Derivative Proceedings
Under Delaware and Montana law, before a shareholder may bring an action
by or on behalf of the corporation (a "derivative action"), a shareholder must
make a demand on the corporation's Board of Directors to remedy the situation
about which the shareholder complains. Under Delaware law, the demand
requirement may be excused if the shareholder can show that such demand would
be futile because the alleged wrongdoers comprised or controlled a majority of
the Board of Directors. Under the MBCA, the futility exception to the demand
requirement has been eliminated. Therefore, a shareholder bringing a
derivative action on behalf of a Montana corporation will be required in all
instances to make a demand on the corporation's Board of Directors.
In addition to being subject to the laws of Montana and Delaware,
respectively, both BMS and Norwest, as bank holding companies, are subject to
various provisions of federal law with respect to mergers, consolidations and
certain other corporate transactions.
DISSENTERS' RIGHTS
Any shareholder of BMS may, as an alternative to receiving a
consideration specified in the Merger Agreement, dissent from the Merger and
obtain payment of the fair
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value of such shareholder's BMS Common Stock pursuant to Sections 35-1-826
through 35-1-839 of the MBCA. "Fair Value" with respect to a dissenter's
shares, means the value of the shares immediately before the Effective Time of
the Merger, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. Any BMS shareholder
contemplating exercising the right to demand such payment should carefully
review Sections 35-1-826 through 35-1-839 of the MBCA, a copy of which is
included as Appendix B to this Proxy Statement-Prospectus, and in particular
the required procedural steps. A SHAREHOLDER WHO FAILS TO COMPLY WITH THESE
PROCEDURAL REQUIREMENTS MAY LOSE THE RIGHT TO DISSENT.
Set forth below, to be read in conjunction with the full text of Sections
35-1-826 through 35-1-839 of the MBCA, is a summary of the procedures relating
to the exercise of dissenters' rights. The following summary does not purport
to be complete and is qualified in it entirety by reference to Appendix B. As
used in the following discussion, "BMS" means BMS before the Effective Time of
the Merger and Norwest as BMS's successor after the Effective Time of the
Merger.
A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if such shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
such shareholder asserts dissenters' rights. In that event, such
shareholder's rights shall be determined as if the shares as to which such
shareholder dissents and such shareholder's other shares were registered in
the name of different shareholders. A beneficial shareholder may assert
dissenters' rights as to shares held on such shareholder's behalf only if such
shareholder submits to the corporation a written consent by the record holder
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights and such shareholder does so with respect to all shares of
which the shareholder is the beneficial owner or over which such shareholder
has power to direct the vote.
Any BMS shareholder who wishes to dissent must deliver to BMS, prior to
the vote on the Merger Agreement, a written notice of intent to demand payment
for such shareholder's shares if the Merger is effectuated. In addition, the
shareholder must refrain from voting in favor of the Merger Agreement. A
shareholder who fails to deliver the notice on time or who votes in favor of
the Merger Agreement will not have any dissenters' rights. If a shareholder
returns a signed proxy but does not specify a vote against approval of the
Merger Agreement or a direction to abstain, the proxy will be voted for
approval of the Merger Agreement, which will have the effect of waiving that
shareholder's dissenters' rights.
If the Merger Agreement is approved by the required vote, BMS is required
to deliver a written dissenters' notice to all shareholders who gave a timely
notice of intent to demand payment and who did not vote in favor of the Merger
Agreement. The notice must be sent no later than 10 days after the Merger
Agreement is approved and must (i) state where the payment demand must be sent
and where and when certificates for certificated shares must be deposited,
(ii) inform shareholders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment is received, (iii) supply a
form for demanding payment that includes the date of the first announcement to
news media or to
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shareholders of the terms of the proposed corporate action and that requires
the person asserting dissenters' rights to certify whether or not such
shareholder acquired beneficial ownership of the shares before that date, (iv)
set a date by which BMS must receive the payment demand, which may not be
fewer than 30 nor more than 60 days after the date the required dissenters'
notice is delivered, and (v) be accompanied by a copy of Sections 35-1-826
through 35-1-839 of the MBCA.
A shareholder who is sent the dissenters' notice described above must
demand payment, certify whether the shareholder acquired beneficial ownership
of the shares before the date required to be set forth in the dissenters'
notice, and deposit such shareholder's certificates in accordance with the
terms of the notice. A shareholder who does not demand payment or deposit
certificates where and when required is not entitled to payment for such
shareholder's shares. A shareholder who demands payment and deposits his
certificates as requested by the dissenters' notice retains all other rights
of a shareholder until such rights are canceled by the consummation of the
Merger. BMS may restrict the transfer of uncertificated shares from the date
of the demand for payment until the Merger is consummated; however, the holder
of uncertificated shares retains all other rights of a shareholder until those
rights are canceled by the consummation of the Merger.
Except as provided in the following paragraph, as soon as the Merger is
effectuated or upon receipt of the payment demand, BMS must pay each dissenter
who complied with the foregoing requirements the amount BMS estimates to be
the Fair Value of the dissenters' shares plus accrued interest. The payment
must be accompanied by certain financial information concerning BMS, a
statement of BMS's estimate of the Fair Value of the shares, an explanation of
how the interest was calculated, a statement of the dissenter's right to
demand payment if the dissenter is dissatisfied with the payment or offer (as
further described in the next paragraph), and a copy of Sections 35-1-826
through 35-1-839 of the MBCA. If the Merger does not occur within 60 days
after the date set in the dissenters' notice for demanding payment and
depositing certificates, BMS must return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
Notwithstanding the foregoing, BMS may elect to withhold payment from any
dissenter with respect to shares of which the dissenter or the person on whose
behalf the dissenter acts was not the beneficial owner before September 14,
1993, the date of the first announcement to news media of the terms of the
Merger. If BMS elects to withhold such payments, after the consummation of
the Merger, BMS must estimate the Fair Value of the shares plus accrued
interest and pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. BMS must send with its offer a statement of its
estimate of Fair Value of the shares, an explanation of how interest was
calculated and a statement of the dissenter's right to demand payment if he is
dissatisfied with the offer.
A dissenter may notify BMS in writing of the dissenter's own estimate of
the Fair Value of the dissenter's shares and the amount of interest due with
respect thereto and may demand payment of the dissenter's estimate, less any
previous payment, or reject BMS's offer and demand payment of the Fair Value
of the dissenter's shares and the interest due if (i) the dissenter believes
that the amount paid or offered is less than the Fair Value of the dissenter's
shares or that the interest due is incorrectly calculated, (ii) BMS fails to
make payment within 60 days after the date set for demanding payment, or (iii)
BMS, having failed to effectuate the Merger, does not return the deposited
certificates or release the transfer restrictions on uncertificated shares
within 60 days after the date set for demanding
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payment. A dissenter waives the right to demand payment unless the dissenter
notifies the corporation of his demand in writing within 30 days after BMS
made or offered payment for the dissenter's shares.
Within 60 days after any such subsequent demand is submitted by a
shareholder, if such demand remains unsettled, BMS is required to file in an
appropriate court in Montana, a petition to determine the Fair Value of the
shares and accrued interest. If BMS does not commence the proceeding within
the 60-day period, it is to pay each dissenter whose demand remains unsettled
the amount demanded. Each dissenter made a party to the proceeding is
entitled to judgment for the amount, if any, by which the court finds the Fair
Value of the dissenter's shares plus interest exceeds the amount paid by BMS
or for the Fair Value plus accrued interest of his after-acquired shares for
which BMS elected to withhold payment. The cost and expenses of any such
court proceedings will be assessed against BMS except that the court may
assess any part of those costs as an expense against all or some dissenters
who are parties to the proceeding and whose action in demanding a payment in
addition to that offered by BMS the court finds to be arbitrary, vexatious, or
not in good faith. The court may also assess the fees and expenses of counsel
and experts for the respective parties, in amounts the court finds equitable,
against BMS and in favor of any or all dissenters if the court finds that BMS
failed to comply substantially with the statutory requirements or against
either BMS or a dissenter, in favor of any other party, if the court finds
that the party against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith. If the court finds that the
services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against BMS, it may
award to the counsel reasonable fees to be paid out of the amount awarded to
the dissenters who were benefitted.
BMS shareholders considering exercising dissenters' rights should bear in
mind that the Fair Value of their BMS Common Shares determined under Section
35-1-826 through 35-1-839 could be more than, the same as or less than the
value of the consideration they will receive pursuant to the Merger Agreement
if they do not exercise dissenters' rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
BMS expects that the Merger will be treated as a tax-free reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and
that for federal income tax purposes no gain or loss will be recognized by any
shareholder of BMS upon receipt of Norwest Common Stock pursuant to the
Merger, except upon the receipt of cash in lieu of fractional shares of
Norwest Common Stock. The Internal Revenue Service (the "Service") has not
been and will not be asked to rule upon the tax consequences of the Merger.
Instead, BMS will rely upon the opinion of Dorsey & Whitney, its special
outside legal counsel, as to certain federal income tax consequences of the
Merger to BMS's shareholders. It is a condition to the consummation of the
Merger that BMS receive such opinion from Dorsey & Whitney. The opinion of
Dorsey & Whitney will be based upon the facts described herein and upon
certain representations made by BMS, Norwest and certain principal
shareholders of BMS. The opinion of Dorsey & Whitney will also be based upon
the Code, regulations now in effect thereunder, current administrative rulings
and practice, and judicial authority, all of which are subject to change. An
opinion of counsel is not binding on the Service and there can be no
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assurance, and none is hereby given, that the Service will not take a position
contrary to one or more positions reflected herein or that the opinion will be
upheld by the courts if challenged by the Service. EACH HOLDER OF BMS COMMON
STOCK IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISORS AS TO THE
EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR
FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE MERGER.
Based upon the facts and representations provided to it, and subject to
various assumptions and qualifications, Dorsey & Whitney will opine that the
following federal income tax consequences to the shareholders of BMS will
result from the Merger:
(i) The Merger will qualify as a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code;
(ii) No gain or loss will be recognized by the holders of BMS
Common Stock upon the exchange of BMS Common Stock solely for Norwest
Common Stock pursuant to the Merger (but see clause (v) below for the tax
consequences of payments in lieu of fractional shares);
(iii) The income tax basis of the Norwest Common Stock received by
a stockholder of BMS pursuant to the Merger, including any fractional
share interest deemed received as described in (v) below, will be the
same as the income tax basis of the BMS Common Stock surrendered in
exchange therefor;
(iv) The holding period of the Norwest Common Stock received by a
shareholder of BMS pursuant to the Merger will include the period during
which the BMS Common Stock surrendered therefor was held, provided that
such BMS Common Stock is a capital asset in the hands of the shareholder
of BMS on the Effective Date of the Merger; and
(v) A holder of BMS Common Stock receiving cash in lieu of a
fractional share of Norwest Common Stock will be treated as having
received the fractional share of Norwest Common Stock in the Merger and
then having received the payment in lieu of the fractional share as a
distribution in full payment in exchange for the fractional share as
provided in Section 302(a) of the Code.
The opinion described above will be based upon certain assumptions,
including the assumption that the shareholders of BMS do not have any plan or
intention to dispose of more than 50% of the Norwest Common Stock received
pursuant to the Merger and the assumption that, after the Merger, BMS will
meet the "substantially all" test defined by the Service which requires, in
part, that BMS hold assets representing at least 90% of the fair market value
of the net assets and at least 70% of the fair market value of the gross
assets held by BMS immediately prior to the Merger. For purposes of such
assumptions, the Escrow Business and the Bank of Montana branches in
Lewistown, Montana and Anaconda, Montana and the Montana Bank branch in Butte,
Montana that may be disposed of after the Merger, as well as amounts paid by
BMS to dissenting shareholders and amounts paid for reorganization expenses of
BMS, will be considered as assets held by BMS immediately prior to the Merger.
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Norwest has represented that (other than the sale of the Escrow Business
and the sale of such branches) it does not have any current plan or intention
to take any action within the twelve month period following the Effective Date
of the Merger that would cause BMS to violate the "substantially all" test.
Norwest has further covenanted not to take any such action within the twelve-
month period following the Effective Date of the Merger. The Merger Agreement
provides that the BMS shareholders who are holders of record immediately prior
to the Effective Time of the Merger are third party beneficiaries of the
foregoing Norwest representation and covenant and are entitled to rely
thereon.
The foregoing is only a general description of certain anticipated
federal income tax consequences of the Merger, without regard to the
particular facts and circumstances of the tax situation of each shareholder of
BMS. It does not discuss all of the consequences that may be relevant to
shareholders of BMS entitled to special treatment under the Code (such as
insurance companies, dealers in securities, exempt organizations or foreign
persons) or to shareholders of BMS who acquired their BMS Common Stock
pursuant to the exercise of employee stock options or otherwise as
compensation. The summary set forth above does not purport to be a complete
analysis of all potential tax effects of the transactions contemplated by the
Merger Agreement or the Merger itself. No information is provided herein with
respect to the tax consequences, if any, of the Merger under state, local,
foreign or other tax laws.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of BMS upon
consummation of the Merger have been registered under the Securities Act.
Such shares may be traded freely and without restriction by those shareholders
not deemed to be "affiliates" of BMS or Norwest as that term is defined in the
rules under the Securities Act. Norwest Common Stock received by those
shareholders of BMS who are deemed to be "affiliates" of BMS may be resold
without registration as provided for by Rule 145, or as otherwise permitted
under the Securities Act. In the Merger Agreement, BMS has agreed to use its
best efforts to cause each BMS shareholder who is an executive officer or
director of BMS or who may otherwise reasonably be deemed to be an affiliate
of BMS to enter into an agreement with Norwest providing that such affiliate
will not sell, transfer, or otherwise dispose of the shares of Norwest Common
Stock to be received by such person in the Merger except in compliance with
the applicable provisions of the Securities Act and the rules and regulations
promulgated thereunder. This Proxy Statement-Prospectus does not cover any
resales of Norwest Common Stock received by affiliates of BMS. EACH
SHAREHOLDER WHO MAY BE DEEMED TO BE AN AFFILIATE IS URGED TO CONSULT
INDEPENDENT LEGAL COUNSEL CONCERNING APPLICABLE RESTRICTIONS ON RESALE.
The Merger Agreement provides for the filing by Norwest of listing
applications with the NYSE and the CHX covering the shares of Norwest Common
Stock issuable upon consummation of the Merger. It is a condition to the
consummation of the Merger that such shares of Norwest Common Stock shall have
been authorized for listing on the NYSE and the CHX effective upon official
notice of issuance.
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EFFECT ON BMS EMPLOYEE BENEFIT PLANS
Each person who is an employee of BMS or its subsidiaries as of the
Effective Date of the Merger ("BMS Employees") will be eligible for
participation in certain employee welfare benefit plans (as set forth in the
Merger Agreement) and the Norwest Savings-Investment Plan, subject to any
eligibility requirements (with full credit for years of past service to BMS or
its subsidiaries, as the case may be, or to any predecessor-in-interest of BMS
or its subsidiaries to the extent such service is presently given credit under
the plans of BMS or its subsidiaries, for the purpose of satisfying any
eligibility and vesting periods) applicable to such plans (but, with respect
to the employee welfare benefit plans, not subject to any pre-existing
condition exclusions) and shall enter into such plans not later than the first
day of the calendar quarter which begins at least 32 days after the Effective
Date of the Merger. Each BMS Employee shall be eligible for participation, as
a new employee, in the Norwest Pension Plan under the terms thereof.
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
Norwest currently has an automatic Dividend Reinvestment and Optional Cash
Payment Plan which provides in substance, for those stockholders who elect to
participate, that dividends on Norwest Common Stock will be reinvested in
shares of Norwest Common Stock at market price (as defined in such plan). The
plan also permits participants to invest through voluntary cash payments,
within certain dollar limitations, in additional shares of Norwest Common
Stock at the market price (as defined in such plan) of such stock at the time
of purchase. It is anticipated that after the Effective Time of the Merger,
Norwest will continue to offer its Dividend Reinvestment and Optional Cash
Payment Plan and that shareholders of BMS who receive Norwest Common Stock in
the Merger will have the right to participate in such plan.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "pooling of
interests" transaction in accordance with generally accepted accounting
principles.
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of Norwest and BMS will be combined at the
Effective Time of the Merger and carried forward at their previously recorded
amounts, and the shareholders' equity accounts of BMS will be combined with
Norwest's on Norwest's consolidated balance sheet. Income and other financial
statements of Norwest will not be restated retroactively because the Merger is
not material to the financial statements of Norwest.
In order for the Merger to qualify for pooling of interests accounting
treatment, among other things, substantially all (90% or more) of the
outstanding BMS Common Stock must be exchanged for Norwest Common Stock. BMS
has agreed not to take any action (other than actions required under the
Merger Agreement or requested by Norwest) that would disqualify the Merger
from pooling of interests treatment by Norwest.
The unaudited per share data contained in this Proxy Statement-Prospectus
has been prepared using the pooling of interests accounting method to account
for the Merger. See "SUMMARY--Comparative Unaudited Per Share Data."
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<PAGE>
EXPENSES
Norwest and BMS will each pay their own expenses in connection with the
Merger and the transactions contemplated thereby, including fees and expenses
of their respective accountants and counsel.
INFORMATION ABOUT BMS
BUSINESS
General
BMS is a bank holding company registered under the BHC Act and
headquartered in Great Falls, Montana. BMS was incorporated as a Montana
corporation in 1956. BMS owns all of the outstanding capital stock of Bank of
Montana, a bank chartered under the laws of Montana with 17 branches in 15
Montana communities. On March 31, 1993, BMS acquired all of the outstanding
capital stock of MBI (see discussion under "Recent Developments" below). MBI
is a bank holding company registered under the BHC Act and headquartered in
Billings, Montana. MBI in turn owns approximately 99.6% of the outstanding
capital stock of Montana Bank ("Montana Bank"), a bank chartered under the
laws of Montana with 12 branches in 12 Montana communities. BMS also has
certain other subsidiaries engaged in activities related to banking. At
September 30, 1993, BMS had consolidated total assets of $797.0 million and
total shareholders' equity of $55.2 million. See the Unaudited Consolidated
Financial Statements and Notes thereto of BMS contained in "FINANCIAL
STATEMENTS."
BMS derives substantially all of its revenues from cash dividends and
service fees paid by Bank of Montana and Montana Bank, its bank subsidiaries.
Dividend payments by subsidiary banks are determined on an individual basis
considering each bank's earnings, deposit growth and capital requirements.
Service fees paid by BMS's bank subsidiaries to BMS represent payments for
services provided to each bank subsidiary by BMS personnel. It has been BMS's
practice to increase the capital of each subsidiary primarily through
retention of earnings.
Bank of Montana was organized in 1961 and accounts for approximately 57%
of BMS's consolidated assets. Montana Bank was organized in 1978 and accounts
for approximately 42% of BMS's consolidated assets. Bank of Montana and
Montana Bank operate exclusively in Montana through 29 branches located in 25
Montana communities. BMS's bank subsidiaries serve a wide range of
commercial, agricultural and consumer borrowing needs within their markets.
Such banks extend various types of loans, including short- and long-term
residential and commercial real estate mortgage loans to individuals and
businesses. Commercial lending products include lines and letters of credit,
receivable and inventory financing and equipment financing and leasing. In
addition, BMS's bank subsidiaries provide various types of secured and
unsecured consumer loans, indirect installment loans and second mortgages and
equity lines.
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BMS's bank subsidiaries provide a full range of deposit products,
including checking accounts, savings accounts, certificates of deposit and
money market instruments. BMS's bank subsidiaries also offer other services,
including individual retirement accounts, credit card services and annuities.
Management services are provided to the bank subsidiaries by certain
other subsidiaries of BMS and by Central Financial in the areas of asset and
liability management, investment administration and portfolio planning,
business development, personnel selection and training, advertising and data
processing. While the managers of the individual branch banks and the
officers of the bank subsidiaries are responsible for day-to-day management,
BMS monitors lending and accounting policies, budgeting goals and long-range
plans by means of centralized auditing, lending and accounting control
systems.
Recent Developments
The acquisition of MBI in March 1993 represented a significant
acquisition for BMS and substantially increased BMS's outstanding loans,
deposits and geographic representation in the state of Montana. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION" and "FINANCIAL
STATEMENTS." BMS had discussed a possible business combination with MBI prior
to 1992 but had been unable to agree with MBI on the terms of such a
combination. In April 1992, BMS representatives contacted representatives of
MBI and presented to MBI a proposal to acquire all of the issued and
outstanding capital stock of MBI. After significant due diligence and
negotiation, on September 1, 1992, BMS and MBI entered into a definitive
merger agreement pursuant to which BMS agreed to purchase all of the
outstanding capital stock of MBI for $19.00 per share for an aggregate
purchase of approximately $39,000,000. BMS initially contemplated financing
the MBI acquisition with the proceeds from (i) the sale of $11.25 million of a
new class of BMS convertible preferred stock (the "Preferred Stock") to
Norwest, (ii) the sale of $11.25 million of Preferred Stock to W. Duncan
MacMillan, (iii) an $8.5 million loan from Norwest Bank (the "Norwest Loan"),
and (iv) a cash dividend from Montana Bank to MBI of $8,000,000. The purchase
agreement for the Preferred Stock would have given Norwest a limited right of
first refusal with respect to the sale of BMS and the right to convert the
Preferred Stock to BMS Common Stock after five years. The acquisition of MBI
and the financing of the acquisition were required to be approved by the
Federal Reserve Board.
Because of regulatory concerns on the part of the staff of the Federal
Reserve System regarding the proposed sale of the Preferred Stock to Norwest,
BMS, Norwest and Mr. MacMillan terminated all agreements with respect to the
sale of the Preferred Stock and the Preferred Stock was never authorized. To
replace the proceeds from the contemplated sale of the Preferred Stock,
Messrs. MacMillan, Morrison and Pint purchased newly issued BMS Common Stock.
See "THE MERGER--Interests of Certain Persons in the Merger; Certain
Transactions" for a discussion of the loan from Norwest to Mr. Morrison used
to finance such purchases by Mr. Morrison. The Federal Reserve Board
subsequently approved the MBI acquisition, including the revised financing
structure, and the MBI acquisition was consummated on March 31, 1993.
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Market Area and Competition
BMS competes exclusively in Montana, except for the credit card services
offered by the bank subsidiaries which are marketed throughout the United
States. With the acquisition of MBI in March 1993, BMS became the largest
Montana-based banking organization doing business in Montana. BMS now
operates branch banks in substantially all significant markets in Montana.
BMS competes with numerous financial institutions in its market areas,
including commercial banks, savings and loan associations, savings banks,
mortgage companies, commercial bank loan production offices, insurance
companies, consumer finance companies, securities brokerage firms, credit
unions and mutual funds.
Properties
Real property owned or leased by BMS consists primarily of bank buildings
for Bank of Montana and Montana Bank. BMS's executive offices, which are
leased, are located at 410 Central Avenue, Great Falls, Montana. BMS or its
banking subsidiaries own all but two of the bank branch locations. BMS also
leases space in connection with its data processing center which services the
bank subsidiaries.
Employees
As of September 30, 1993, BMS and its subsidiaries employed 450 people on
a full-time equivalent basis. Management considers its relationship with its
employees to be good.
Market Price of and Dividends on BMS Common Stock
There is no established public trading market for BMS Common Stock. BMS
is aware of only limited transactions involving the sale of BMS Common Stock
since the Merger Agreement was executed. The prices for the BMS Common Stock
in such transactions should not be considered indicative of prices that could
be obtained in an active market involving a substantial number of shares.
There were 202 shareholders of record of BMS Common Stock as of the
Record Date for the Special Meeting. BMS has declared a cash dividend in
every quarter since the second quarter of 1987. See "SUMMARY--Comparative
Unaudited Per Share Data."
Supervision and Regulation
To the extent the information below consists of summaries of certain
statutory provisions, it is qualified in its entirety by reference to the
statutory provisions so described. For a description of federal regulations
generally applicable to bank holding companies, see "CERTAIN REGULATORY
CONSIDERATIONS."
BMS is subject to the provisions of the BHC Act, which requires a bank
holding company to register with the Federal Reserve Board and be subject to
its supervision. The BHC Act requires prior approval by the Federal Reserve
Board of the acquisition by a bank holding company of more than 5% of the
voting stock or substantially all the assets
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<PAGE>
of any bank, but does not require prior approval before acquisition of
additional shares in banks, the majority of the shares of which are already
controlled by such bank holding company. A bank holding company is
prohibited, with limited exceptions, from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company that
is not a bank and from engaging in activities other than those of banking or
of managing or controlling banks and other authorized subsidiaries and
providing services to its subsidiaries. One of the exceptions to this
prohibition permits ownership of the shares of a company, the activities of
which the Federal Reserve Board determines to be so closely related to the
business of banking or of managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board has published regulations
regarding these matters, which, in the opinion of management of BMS, enable
BMS to engage in its present operations. In addition, bank holding companies
are subject to certain restrictions on their ability to own banks in more than
one state.
BMS is required to file periodic reports with the Federal Reserve Board
and such other information as may be required to keep the Federal Reserve
Board informed regarding BMS's compliance with the provisions of the BHC Act
and the rules, regulations and orders issued thereunder, and the Federal
Reserve Board examines BMS and its subsidiary banks periodically.
Bank of Montana and Montana Bank, as state-chartered banks, are subject
to the supervision and regulation of, and are regularly examined by, the
Division of Banking and Financial Institutions of the State of Montana
Department of Commerce (the "Division") and, as members of the Federal Reserve
System, are subject to regulation by the Federal Reserve Board. Bank of
Montana and Montana Bank are members of the Federal Deposit Insurance
Corporation.
As members of the Federal Reserve System, Bank of Montana and Montana
Bank are limited in their ability to pay dividends to BMS to the same extent
as a national bank. Without prior approval, federal law limits the payment of
dividends by a national bank if (i) such dividends would impair the bank's
capital, (ii) the bank's surplus is not equal to its common capital, or (iii)
dividends declared in any year exceed the total of net profits for that year
combined with retained net profits for the preceding two years, less any
required transfers to surplus or to a fund for the retirement of preferred
stock. Under Montana law, Bank of Montana and Montana Bank may not pay or
declare dividends in excess of net undivided profits (as defined) less any
required transfers to surplus and must provide notice to the Division of any
dividend exceeding two years of net earnings.
The Federal Reserve Board has broad powers to expand and contract the
supply of money and credit. The supply of money and credit is also affected
by the fiscal practices of the United States government. These may directly
or indirectly affect the growth of loans and deposits and the interest rates
charged on loans and paid for deposits and may affect the operations of Bank
of Montana and Montana Bank.
Effective October 1, 1993, the Montana Bank Act, Sections 32-1-101 et
seq., Montana Code Annotated, was amended by legislation (i) authorizing
interstate bank acquisitions, subject to certain restrictions, by a bank
holding company that does not have its headquarters in Montana and either has
headquarters in Colorado, Idaho, Minnesota, North Dakota, South Dakota,
Wisconsin or Wyoming, or controlled a bank in Montana on
65
<PAGE>
January 1, 1993; (ii) revising limits on detached teller facilities; and (iii)
generally revising the laws relating to banking, including reducing the time
between bank inspections, authorizing the acceptance of federal reports in
lieu of examinations, clarifying the purpose of banking laws, applying the
general corporate law to the formation and reorganization of banks, excluding
repurchase agreements from the limitation on borrowing, revising bank
investments, removing the limit on safe deposit functions, revising reserve
requirements to comport with the requirements of the appropriate federal
regulator that are currently in effect, and revising dissolution, closing and
liquidation procedures.
Legal Proceedings
There are no material pending legal proceedings other than ordinary
routine litigation to which BMS or its subsidiaries are or may be considered a
party. There are no material pending legal proceedings to which any director,
officer, or affiliate of BMS is or may be a party adverse to BMS or has or may
have a material interest adverse to BMS or any of its subsidiaries.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
FINANCIAL REVIEW
General
The following is management's discussion and analysis of the significant
factors affecting BMS and its subsidiaries consolidated results of operations
and financial condition. This should be read in conjunction with BMS's audited
and unaudited consolidated financial statements and accompanying footnotes and
other selected financial data presented elsewhere herein.
The results reflect the operation of BMS's subsidiary banks, Bank of Montana
and Montana Bank, its non-bank subsidiaries, and parent company operations. BMS
acquired MBI in a cash transaction on March 31, 1993. Operations of MBI
beginning April 1, 1993 are included in BMS's financial results. See
"INFORMATION ABOUT BMS--Business" for a discussion of the MBI acquisition. In
1992, Bank of Montana Anaconda was established to acquire certain assets and
assume $29.6 million of deposit liabilities of First Security Bank of Anaconda,
which was declared insolvent by the Montana Department of Commerce. In 1990, BMS
acquired Village Bank of Great Falls ("Village Bank") and Toole County State
Bank of Shelby ("Toole County State Bank") in stock transactions. The combined
assets of Village Bank and Toole County State Bank was $76.5 million. (See
Footnote 12 to the consolidated financial statements of BMS presented elsewhere
herein).
COMPARISONS OF THREE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
Earnings Performance
BMS recorded net income of $1.74 million and $1.29 million for the
three-month periods ended September 30, 1993 and 1992, respectively. A
discussion of the major components of net income follows.
Net Interest Income
Net interest income represents the difference between interest earned on
assets and interest paid on liabilities. Changes in the types and volumes of
earning assets and interest bearing liabilities, their related yields and
overall interest rates all can have a significant impact on net interest income.
For the three months ended September 30, 1993, net interest income, the largest
component of earnings, increased to $7.8 million a 68.4% increase from the same
period in 1992. The increase is primarily due to the acquisition of MBI.
Excluding MBI, BMS's net interest income was $4.56 million for the third quarter
of 1993, versus $4.63 million a decrease of $74,000 or 1.6%. The relatively
small change in net interest income results from the repricing of maturing
assets more quickly than interest-bearing liabilities, compared to the prior
year when interest-bearing liabilities were repricing more quickly, producing an
expanding net interest margin.
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<PAGE>
Total interest income increased $4.6 million to $13.0 million, an increase of
54.8%. This increase was caused primarily by the acquisition of MBI. Excluding
MBI, total interest income decreased $.6 million, or 6.9%. This is a result of
the low interest rate environment on investment securities. Individually, loan
interest income was up $.2 million due to larger volumes, while investment
interest income decreased $.8 million.
Total interest expense increased 38.2% to $5.2 million for the three months
ended September 30, 1993 as compared to the same period in 1992. Excluding MBI,
interest expense dropped $.5 million, or 13.3%. This drop is reflective of lower
interest rates in all deposit categories.
Provision for Loan Losses
The provision for loan losses increased to $126,000 for the three months
ended September 30, 1993 compared to $63,000 for the comparable period in 1992.
The provision for loan losses is based on management's assessment of the
inherent risks in the loan portfolio and is calculated in an amount sufficient
to maintain the allowance for loan losses at a level considered necessary to
absorb estimated loan losses in the loan portfolio. Net charge-offs were $.31
million for the three months ended September 30, 1993, compared to $50,000 in
the same period of 1992. The increase in net charge-offs is a result of
charge-offs of credit card receivables.
Other Operating Income and Expenses
Other operating income, which consists primarily of service charges on
deposit accounts, gains on the sale of investment securities, customer fees and
miscellaneous charges, increased by 71.7% during the three months ended
September 30, 1993 compared to the same period in 1992. Excluding the MBI
acquisition, other operating income was up $.3 million, or 19.8%. This increase
is a result of fees from the sale of annuities, credit life insurance and
disability insurance and from fees on BMS's credit card base, which was up 10.2%
on personal credit cards, and was up 54.8% on merchant cards, over the same
period a year ago.
Other operating expenses, which consists of salaries and benefits, occupancy
expenses, equipment expense, premiums paid to the Federal Deposit Insurance
Corporation ("FDIC insurance"), legal expenses and other miscellaneous expenses,
increased 93% in 1993 over the comparable three month period in 1992. Excluding
the effects of the acquisition of MBI, other operating expense went up $.68
million, or 17.2%. Of this increase, $.45 million is attributed to salaries and
benefits. An increase of $115,000 of salaries occurred in the data center due to
increased data center activity. Also, incentive compensation was expensed
entirely in the fourth quarter of 1992, but was spread over the third quarter
and fourth quarter in 1993, and accounted for $105,000 of the increase.
Income Taxes
BMS files a consolidated federal income tax return with its subsidiaries. The
provision for income taxes includes taxes deferred to future periods resulting
from timing differences in the recognition of income and expense for tax and
financial reporting purposes. The effective tax rate differs from the federal
statutory rate primarily as a result of nondeductible goodwill, nontaxable
appreciation of key person life insurance surrender value and tax-exempt
interest.
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COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
Financial Condition
Total consolidated assets increased $332.6 million during the first nine
months of 1993 to $797 million at September 30, 1993. This increase was
primarily due to the acquisition of MBI. Without the MBI acquisition, assets of
BMS would have decreased from $464 million on September 30, 1992 to $457 million
on September 30, 1993. This decrease in assets was due to a lack of deposit
growth to fund new assets. Deposits decreased $3.2 million in BMS, excluding the
effect of the acquisition of MBI. The decrease in deposits is attributed in
large part to the low interest rates being paid on deposit products such as
Certificates of Deposits and money market accounts. Competition from investments
in mutual funds and the stock market have left many financial institutions with
little or no deposit growth. MBI's deposits at September 30, 1993 were $280.9
million.
During the first nine months of 1993, outstanding loans increased from $244
million to $386 million, an increase of $142 million. MBI accounted for the
majority of the increase. Outstanding loans in MBI at the acquisition date of
March 31, 1993, were $109 million. The balance of the increase in outstanding
loans is the result of an increased effort by Bank of Montana and Montana Bank
to generate new loans. Montana Bank loans increased from $109 million at
acquisition date to $157 million on September 30, 1993.
Allowance for Loan Losses
The allowance for loan losses totaled $6.0 million as of September 30, 1993
which represented 1.6% of all outstanding loans. As of December 31,1992 the
allowance was $2.5 million or 1.01% of outstanding loans. BMS, excluding MBI,
saw its reserve go from $2.5 million to $2.1 million at September 30, 1993. The
decrease is a result of net charge-offs exceeding provision expense. The
allowance is maintained at a level deemed appropriate by management to
adequately provide for known and inherent risks in the loan portfolio. The
adequacy of the allowance is based on a continuous evaluation of the loan
portfolio, recent loss experience and other pertinent factors, including current
and anticipated economic conditions.
Nonaccrual loans as of September 30, 1993 were $.9 million, of which $.7
million relate to the MBI acquisition. This compares to $.57 million, or .23% of
total outstanding loans, at December 31, 1992. The coverage ratio of nonaccrual
loans (allowance for loan losses divided by nonaccrual loans) was 433.6%, at
December 31, 1992. BMS places loans on nonaccrual status when management
believes the collection of the loan is in jeopardy or if either the interest or
principal becomes contractually past due by 90 days or more. If a loan is placed
on nonaccrual status, all interest previously accrued but not collected is
reversed against current period interest income. Any interest received on such
loans is then recognized as income when received.
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Earnings Performance
BMS recorded net income of $4.9 million for the nine-month period ended
September 30, 1993, compared to net income of $3.5 million for the comparable
period in 1992. Discussion of the major components of net income follows.
Net Interest Income
For the nine months ended September 30, 1993, net interest income, the
largest component of earnings, grew to $20.1 million a 56.8% increase from the
same period in 1992. The increase is the result of the acquisition of MBI and of
interest rates on interest-bearing liabilities declining more than interest
rates on interest-bearing assets. Also, on March 16, 1992, Bank of Montana
Anaconda was established to acquire certain assets and assume the deposit
liabilities of First Security Bank of Anaconda. Excluding the effects of MBI,
net interest income increased for the first nine months to $14.1 million from
$12.8 million. Of this increase, $.3 million is attributed to having the results
of Bank of Montana Anaconda included for a full nine months in 1993.
Total interest income increased $9.3 million or 37.5% from one year ago. Most
of the increase is a result of the MBI acquisition. Excluding the effect of MBI,
overall interest income decreased $.6 million. Loan interest income increased
$2.3 million due to the increased volume of loans and a focus on more profitable
lending activities. Investment securities interest income decreased $2.9
million, due to reduced volumes and rates.
Total interest expense for the nine months ended September 30, 1993,
increased $2.1 million, or 17% to $14.1 million as compared to the same period
in 1992. Excluding MBI, interest expense decreased $1.9 million. This decrease
was the result of repricing interest-bearing liabilities in a decreasing rate
environment during the first nine months of 1993.
Provision for Loan Losses
The provision for loan losses decreased to $.46 million for the nine months
ended September 30, 1993, compared to $.6 million for the comparable period in
1992. The provision for loan losses is based on management's assessment of the
inherent risks in the loan portfolio. Net charge-offs of $.9 million for the
nine months ended September 30, 1993 compares to net charge-offs of $.4 million
for the same period in 1992.
Other Operating Income and Expenses
Other operating income increased 37.3% to $6.7 million during the first
nine-months of 1993 compared to the same period in 1992. The increase in other
operating income from the MBI acquisition was partially offset by a decrease of
$.9 million in net gains on sales of investment and mortgage-backed securities.
Other operating expenses increased $7.3 million or 63.5% in 1993 over the
comparable nine-month period in 1992. All categories of expenses increased as a
result of the acquisition of MBI. Salaries and wages
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and other expenses increased by $2.5 million and $2.8 million respectively.
Excluding MBI, BMS had an increase of $1.4 million, or 12.7%. The most
significant increases were found in credit card processing expenses, travel
expenses and correspondent fees.
Income Taxes
The increase in income tax expense for the first nine months of 1993 as
compared to the comparable period in 1992 was the result of the increase in
pretax earnings. The effective tax rate differs from the federal statutory rate
primarily as a result of nondeductible goodwill, nontaxable appreciation of key
person life insurance surrender value and tax exempt interest.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
Earnings Performance
BMS earned net income of $5.0 million in 1992, $4.0 million in 1991 and $3.1
million in 1990. The increase in earnings from 1991 to 1992 was primarily due
to a 20% increase in net interest income and the acquisition of Bank of Montana
Anaconda. The increase in earnings from 1990 to 1991 was primarily due to
increases in net interest income. The increase in net interest income during
these years is attributable to the decreasing interest rate environment and a
concentrated effort by Bank of Montana to move funds from lower yielding assets
such as government and agency securities and Federal Funds to higher yielding
assets such as commercial and consumer loans. The consolidated return on average
assets was 1.10% in 1992 compared to .99% in 1991 and .91% in 1990. Return on
average shareholders' equity was 17.6% in 1992 compared to 15.1% and 12.6% in
1991 and 1990, respectively. On a per share basis, total earnings for the years
1992, 1991 and 1990 were $3.86, $2.97 and $2.32, respectively.
The following is a condensed summary of the consolidated statements of
operations (in thousands):
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Net interest income $17,847 14,874 12,677
Provision for loan losses 796 617 198
Other operating income 6,267 5,137 3,479
Other operating expense 15,358 13,374 11,264
Net income 5,003 4,048 3,101
</TABLE>
Net Interest Income
Net interest income is affected by changes in both interest rates and the
volume of average earning assets and interest-bearing liabilities. Interest
bearing liabilities generally reprice more quickly than interest bearing assets
in a decreasing rate environment. A dramatic increase in interest rates could
significantly affect the gross interest spread of BMS.
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The following table is provided to show changes in interest income and
expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Percent Increase
Dollars (in thousands) (decrease)
---------------------- ----------------
1992 1991 1990 1992/91 1991/90
----- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $19,103 $17,461 $15,611 9.4% 11.9%
Investment and mortgage-backed
securities 14,138 16,699 13,960 (15.3) 19.6
Federal funds sold 186 588 1,376 (68.4) (57.3)
------- ------- -------
Total interest income 33,427 34,748 30,947 (3.8) 12.3
------- ------- -------
Interest expense:
Deposits 13,405 17,418 16,299 (23.0) 6.9
Short-term borrowings 1,302 1,544 1,287 (15.7) 20.0
Note payable 873 912 684 (4.2) 33.2
------- ------- -------
Total interest expense 15,580 19,874 18,270 (21.6) 8.8
------- ------- -------
Net interest income $17,847 $14,874 $12,677 20.0% 17.3%
======= ======= =======
</TABLE>
The following table is provided to show changes in interest income and
expense attributable to changes in volume and interest rates of significant
interest-bearing assets and liabilities (in thousands):
<TABLE>
<CAPTION>
1992-1991 1991-1990
--------- ---------
Attributable to change Attributable to change
Total ---------------------- Total ----------------------
Interest-earning Assets change in volume in rate change in volume in rate
- ----------------------- ------ --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 1,642 4,673 (3,031) 1,850 2,938 (1,088)
Investment & mortgage-
backed securities (2,561) 660 (3,221) 2,739 4,164 (1,425)
Federal funds sold (402) (436) 34 (788) (595) (193)
------- ------ ------- ------ ------ -------
Total interest income $(1,321) 4,897 (6,218) 3,801 6,507 (2,706)
======= ====== ======= ====== ====== =======
</TABLE>
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<TABLE>
<CAPTION>
1992-1991 1991-1990
--------- ---------
Attributable to change Attributable to change
Total ---------------------- Total ----------------------
Interest-bearing liabilities change in volume in rate change in volume in rate
- ---------------------------- ------- --------- ------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Deposits (4,014) 2,023 (6,037) 1,120 3,240 (2,120)
Short-term borrowings (242) 313 (555) 257 596 (339)
Note payable (38) 67 (105) 227 341 (114)
------- --------- ------- ------ --------- -------
Total interest expense ($4,294) 2,403 (6,697) 1,604 4,177 (2,573)
======= ========= ======= ====== ========= =======
</TABLE>
The change in interest income/expense attributable to volume reflects the
change in volume times the prior year's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the
prior year's volume. The change due to combined rate/volume variance is
allocated to the change due to rate and the change due to volume on the basis
of the percent of the total change.
The following table presents average asset and liability balances and
percentage changes.
<TABLE>
<CAPTION>
Percent increase
------------------
Dollars (in thousands) (decrease)
-------------------------- ------------------
1992 1991 1990 1992/91 1991/90
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Loans $210,285 165,890 139,613 26.8% 18.8%
Investment and mortgage-backed securities 209,295 201,339 155,078 4.0 29.8
Federal funds sold 2,475 9,546 16,826 (74.1) (43.3)
-------- ------- -------
Total average interest-earning assets $422,055 376,775 311,517 12.0% 20.9%
======== ======= =======
Deposits:
Noninterest-bearing demand 53,099 47,644 43,050 11.4% 10.7%
Interest-bearing demand 67,608 47,169 39,105 43.3% 20.6%
Savings 110,465 86,061 68,052 28.4% 26.4%
Time 151,517 162,059 139,165 (6.5)% 16.5%
-------- ------- -------
Total average interest-bearing deposits $329,590 295,289 246,322 11.6% 19.9%
Short-term borrowings 29,645 24,650 16,848 20.3 46.3
Note payable 11,026 10,266 6,848 7.4 49.9
-------- ------- -------
Total average interest-bearing liabilities $370,261 330,205 270,018 12.1% 22.3%
======== ======= =======
</TABLE>
(1) Amounts calculated using month-end average balances.
73
<PAGE>
The following table shows the average interest yield on interest-bearing
assets (not on a tax equivalent basis) and the average interest rate paid on
interest-bearing liabilities:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Average yield earned:
Loans 9.08% 10.53% 11.18%
Investment and mortgage-backed 6.76 8.29 9.00
Federal funds sold 7.52 6.16 8.18
Total interest-earning assets 7.92% 9.22% 9.93%
---- ----- -----
Average rates paid:
Interest-bearing deposits 4.07 5.90 6.62
Short-term borrowings 4.39 6.26 7.64
Note payable 7.92 8.88 9.99
Total interest-bearing liabilities 4.21% 6.02% 6.77%
---- ---- ----
Interest rate spread 3.71% 3.20% 3.16%
==== ===== =====
The following table shows the net
yield on earning assets:
1992 1991 1990
---- ---- ----
Average yield earned 7.92% 9.22% 9.93%
Interest expense to average earning assets 3.69 5.27 5.86
---- ---- ----
Net yield on interest-earning assets 4.23% 3.95% 4.07%
==== ===== =====
</TABLE>
Net interest income was $17.8 million in 1992, compared with $14.9 million
in 1991 and $12.7 million in 1990. During 1991, interest rates in the United
States began a general decline with short-term interest rates falling faster
than long-term rates. This trend continued throughout 1992. When this happens,
a financial institution's cost of funds generally will fall faster than the
yield on assets in which it is investing those funds. In this manner the net
yield on interest-earning assets generally increases in a declining rate
environment. Contributing to the increase in net interest income in 1992 was the
acquisition of Bank of Montana Anaconda, and in 1991 the acquisitions of Village
Bank and Toole County State Bank.
Total interest income decreased to $33.4 million or 3.8% in 1992 as compared
to $34.7 million in 1991, which was up from $30.9 million in 1990. Interest
income was greatly affected by seven prime rate cuts during 1991 and one prime
rate cut in 1992. Average earning assets increased to $422.1 million in 1992
from $376.8 million in 1991 and $311.5 million in 1990. The increase in average
earning assets during 1992 was primarily attributable to the acquisition of Bank
of Montana Anaconda. The 1991 increase over 1990 was largely due to the
acquisition of Village Bank and Toole County State Bank.
74
<PAGE>
Total interest expense in 1992 of $15.6 million declined from $19.9 million
in 1991, or a decrease of 21.6%. This decline was attributable primarily to
rates on interest-bearing liabilities declining to 4.21% in 1992, from 6.02% in
1991. The 181 basis point decline from 1991 to 1992 was caused by the general
economic and market conditions, which moved interest rates lower in 1992. Total
interest expense in 1991 increased over 1990, when interest expense was $18.3
million. Though rates continued lower in 1991, as pointed out by the rates paid
on interest-bearing liabilities, acquisitions of Village Bank and Toole County
State Bank in 1990 caused 1991's interest expense to increase.
Provision for Loan Losses
The allowance for loan losses is determined based on management's evaluation
of the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. BMS's provision for loan losses was $.8 million, $.6 million
and $.2 million in 1992, 1991 and 1990, respectively.
Net charge-offs in 1992 decreased to $.6 million from $.76 million in
1991. Net charge offs were $.2 million in 1990. The ratio of net charge-offs
to average loans in 1992 was .30% which was down from the 1991 ratio of .46%.
The loan loss reserve as a percentage of loans was 1.01%, 1.22% and 1.39% at
December 31, 1992, 1991 and 1990, respectively.
Other Operating Income
The following table presents a summary of other operating income
(in thousands) and percentage changes:
<TABLE>
<CAPTION>
Percent increase
(decrease)
1992 1991 1990 1992/91 1991/90
------ ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Service charge on deposit accounts $1,738 1,625 1,395 7.0% 16.5%
Net gains on sales of securities 1,356 960 210 41.3 357.1
Other 3,173 2,552 1,874 24.3 36.2
------ ----- -----
$6,267 5,137 3,479 22.0% 47.7%
====== ===== =====
</TABLE>
Other operating income continues to be a significant source of revenues for
BMS and increased $1.1 million or 22% in 1992 over 1991. This increase was
partially attributed to a $.4 million increase in gains on sales of securities
in 1992. The increase in service charges on deposit accounts from 1990 to 1991
is primarily the result of a significant increase in deposit accounts relating
to the acquisitions of Village Bank of Great Falls and Toole County State Bank
in May and November of 1990 respectively. The increase in service charges on
deposit accounts during 1992 can be attributed in part to the Bank of Montana
Anaconda acquisition and to general increases in the level of service charges.
75
<PAGE>
Other Operating Expenses
The following table presents a summary of other operating expenses (in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percent increase
(decrease)
----------
1992 1991 1990 1992/91 1991/90
------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Salaries and benefits $ 6,446 5,426 4,667 18.8% 16.3%
Premises and fixed assets 2,226 2,043 1,720 8.9 18.8
Other expenses 6,686 5,905 4,877 13.2 21.1
------- ------ ------
$15,358 13,374 11,264 14.8% 18.7%
======= ====== ======
</TABLE>
Total other operating expenses increased to $15.4 million in 1992, compared
to $13.4 million in 1991 and $11.3 million in 1990. The increase in 1992 is
largely attributable to increases in salaries and benefits, FDIC insurance
expense, and data processing expense. FDIC insurance increased $134,000 or
16.4%, in 1992. The increase is due to the impact of increased premium rates as
well as increased levels of deposits in the period. The increase in other
operating expenses from 1990 to 1991 results from the acquisitions of Village
Bank in May 1990 and Toole County State Bank in November 1990. The increase in
salaries in 1992 was primarily the result of existing staff receiving annual
increases based on their performance and the acquisition of Bank of Montana
Anaconda. The increase in 1991 is primarily the result of the Village Bank of
Great Falls and Toole County State Bank acquisitions in addition to normal
salary increases.
Also included in operating expenses are management advisory service fees
paid by BMS to Central Financial Services, Inc. a related party of BMS
aggregating $779,000, $703,000 and $533,000 in 1992, 1991 and 1990, respectively
(See "THE MERGER--Interests of Certain Persons in the Merger; Certain
Transactions" and footnote 11 to the consolidated financial statements of BMS
contained elsewhere herein). The increase in 1991 over 1990, was the result of
acquisitions which raised the assets of BMS, which is a component of the service
fee calculation.
Income Taxes
The changes in income tax expense were primarily a result of the changes in
pretax earnings. The effective tax rate differs from the federal statutory rate
primarily as a result of nondeductible goodwill, nontaxable appreciation of key
person life insurance surrender value and tax-exempt interest.
76
<PAGE>
Funding Sources and Liquidity Management
BMS relies primarily on its two subsidiary banks for sources of funding. The
cash flow from the subsidiary banks to BMS comes in the form of dividends and
tax benefits. The subsidiary banks are restricted in paying dividends due to the
general regulatory capital requirements that apply to all banks. See "Capital
Management of Bank Subsidiaries" below and "INFORMATION ABOUT BMS-Business-
Supervision and Regulation."
BMS's Asset-Liability Committee is charged with the responsibility of
maintaining an adequate level of liquidity for the subsidiary banks and managing
the risks associated with interest rate changes while sustaining stable growth
in net interest income. BMS's basic strategy is to minimize interest rate risk
through matching the repricing periods of earning assets and interest-bearing
liabilities.
The operations of the subsidiary banks are primarily funded through the use
of borrowings in the form of demand and time deposits, negotiable certificates
of deposit, and short-term funds. 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 short-term marketable securities.
Capital Management of Bank Subsidiaries
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 final rules effective December 31, 1992, all financial
institutions are required to maintain a level of core capital (known as Tier 1
capital), which must be at least 4.0% of risk-weighted assets, and a minimum
level of total capital of at least 8.0% of risk-weighted assets. Tier 1 capital
consists principally of stockholders' equity less goodwill. Total capital is
comprised of Tier 1 capital, certain debt instruments and a portion of the
allowance for loan losses. In late 1990, the Federal Reserve Board adopted a
minimum ratio of Tier 1 capital to total assets of 3%, known as the 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 base. The
definition of Tier 1 capital for the leverage ratio is the same as the December
31, 1992 Tier 1 capital definition in the risk-based capital guidelines. The
FDIC adopted final regulations, effective June 16, 1992 defining what capital
ratios were necessary to be "well capitalized." The subsidiary banks' actual
risk-based capital, risk-based capital ratios, risk-weighted assets, and
leverage ratios at September 30, 1993 and December 31, 1992, are summarized as
follows:
Regulatory Capital Requirements:
<TABLE>
<CAPTION>
Tier 1 Total Leverage
Capital Risk-Based Capital Capital
------- ------------------ --------
<S> <C> <C> <C>
Minimum 4.0% 8.0% 3.0%
Well Capitalized 6.0% 10.0% 5.0%
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
BANK OF MONTANA: September 30, 1993 December 31, 1992
(000's omitted) ------------------ -----------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Tier 1 capital $ 34,121 9.55% $ 38,454 9.68%
===== =====
Allowable portion of allowance
for loan losses 2,052 2,479
-------- --------
Total risk-based capital 36,173 10.12% $ 40,933 10.31%
======== ===== ======== =====
Risk-weighted assets $357,328 $397,118
======== ========
Leverage Ratio 7.35% 7.79%
===== =====
MONTANA BANK: September 30, 1993 December 31, 1992
------------------ -----------------
Amount Percent Amount Percent
-------- ------- -------- -------
Tier 1 capital $ 24,042 14.05% $ 24,664 16.06%
===== =====
Allowable portion of allowance
for loan losses 2,162 1,935
-------- --------
Total risk-based capital $ 26,204 15.31% $ 26,599 17.31%
======== ===== ======== =====
Risk-weighted assets
requirement $171,168 $153,537
======== ========
Leverage Ratio 7.1% 7.65%
===== =====
</TABLE>
Subsidiary banks that are unable to meet the minimum regulatory capital
requirements are limited in their ability to pay dividends to parent bank
holding companies. As of September 30, 1993, Bank of Montana and Montana Bank
met or exceeded each of the capital requirements set forth by federal banking
regulatory agencies.
78
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Disclosures About Market Value of Financial Instruments
In December 1992 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 107 (SFAS No. 107) entitled
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 statement of financial
position) for which it is practicable to estimate fair value, except those
financial instruments specifically excluded. The disclosure shall be either in
the body of the financial statements or in the accompanying notes and shall also
include the methods and significant assumptions used to estimate the fair value
of financial instruments. Certain information shall also be disclosed if it is
not practicable for an entity to estimate the fair value of a financial
instrument or a class of financial instruments as well as the reasons why it is
not practicable to estimate the fair value. SFAS No. 107 is effective for
financial statements issued for fiscal years ending after December 15, 1992 and
the required disclosure is included in Note 17 of the consolidated financial
statements of BMS.
Accounting for Income Taxes
On February 10, 1992 the FASB issued Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. This statement
has superseded both Accounting Principals Board (APB) No. 11 and SFAS No. 96,
the previous authoritative literature on income tax accounting.
SFAS No. 109 calculates taxes on the liability method; thus requiring the
recognition of current and deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the financial
statements or tax return. Under SFAS No. 109, the tax expense or benefit in the
statement of operations will be the current tax liability plus the change in
deferred tax liabilities and assets occurring during the year. This statement's
emphasis on the balance sheet is consistent with SFAS No. 96, but is a change
from APB No. 11's emphasis on the expense calculation.
SFAS No. 109 is effective for fiscal years beginning after December 15,
1992, with retroactive restatement permitted and earlier application encouraged.
Adoption of the statement in 1993 is not expected to have a material impact on
the financial statements of BMS.
Accounting for Investment Securities
In May 1993 the FASB issued Statement of Financial Accounting Standards
No. 115 (SFAS No. 115), Accounting for Certain Investments in Debt and Equity
Securities. This statement addresses the accounting and reporting for
investments that have readily determinable fair values. Those investments are to
be classified in three categories and accounted for as follows:
1. Debt Securities that the enterprise has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost.
79
<PAGE>
2. Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported as fair value, with unrealized gains and losses
included in earnings.
3. Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of shareholder's
equity.
The Statement does not apply to unsecuritized loans. However, after mortgage
loans are converted to mortgage-backed securities, they are subject to its
provisions. The Statement supersedes SFAS No. #12, Accounting for Certain
Marketable Securities, and amends SFAS No.#65, Accounting for Certain Mortgage
Banking Activities, to eliminate mortgage-backed securities from its scope. SFAS
No. 115 is effective for fiscal years beginning after December 15, 1993.
BMS will implement SFAS No. 115 on January 1, 1994, by properly classifying
all securities into either the held-to-maturity investment account or the
available-for-sale account. BMS has not used a trading account in the past and
has no current plans to begin using one.
80
<PAGE>
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following tables set forth certain selected statistical information (in
thousands) and should be read in conjunction with the consolidated financial
statements of Bank of Montana System and subsidiaries. Yields on tax exempt
obligations are not computed on a tax equivalent basis.
<TABLE>
<CAPTION>
1992 1991 1990
-------------------------------- ------------------------------ ------------------------------
Average Average Average Average Average Average
Assets Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
- ------ -------- -------- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $210,285 $ 19,103 9.08% $165,890 $17,461 10.53% $139,613 $15,611 11.18%
Investment securities 209,295 14,138 6.76% 201,339 16,699 8.29% 155,078 13,960 9.00%
Federal funds sold 2,475 186 7.52% 9,546 588 6.16% 16,826 1,376 8.18%
------------------- ----------------- ------------------
Total earning assets 422,055 33,427 7.92% 376,775 34,748 9.22% 311,517 30,947 9.93%
-------- ------- -------
Allowance for loan losses (2,394) (2,116) (1,638)
Cash and due from banks 15,132 14,050 13,471
Other assets 21,618 21,418 18,785
-------- -------- --------
Total assets $456,411 $410,127 $342,135
======== ======== ========
Liabilities and
Stockholders' equity
- --------------------
Interest bearing demand deposits $ 67,607 1,879 2.78% $ 47,169 2,112 4.48% $ 39,105 1,899 4.86%
Savings deposits $110,465 4,091 3.70% $ 86,061 4,473 5.20% $ 68,052 3,702 5.44%
Time deposits 151,517 7,435 4.91% 162,059 10,833 6.68% 139,165 10,698 7.69%
Short-term debt 29,645 1,302 4.39% 24,650 1,544 6.26% 16,848 1,287 7.64%
Notes payable 11,026 873 7.92% 10,266 912 8.88% 6,848 684 9.99%
------------------- ------------------ ------------------
Total interest bearing
liabilities 370,260 15,580 4.21% 330,205 19,874 6.02% 270,018 18,270 6.77%
-------- -------- --------
Demand deposits 53,099 47,644 43,050
Other liabilities 4,605 5,527 4,351
Stockholders' equity 28,447 26,751 24,716
-------- -------- --------
Total liabilities and
stockholders' equity $456,411 $410,127 $342,135
======== ======== ========
Net interest income $ 17,847 $ 14,874 $ 12,677
======== ======== ========
Interest rate spread 3.71% 3.20% 3.16%
Interest expense to average
earning assets 3.69% 5.27% 5.86%
Net interest income to
average earning assets 4.23% 3.95% 4.07%
Annual net income $ 5,003 $ 4,048 $ 3,101
Return on average assets 1.10% 0.99% 0.91%
Return on equity 17.59% 15.13% 12.55%
Dividend payout ratio 37.31% 40.40% 51.72%
Equity to assets ratio 6.23% 6.52% 7.22%
</TABLE>
81
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Selected Statistical Information
Investment and Mortgage-Backed Securities
Following is a table of the carrying value (in thousands) of investment and
mortgage-backed securities as of December 31:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury $ 7,330 $ 7,297 $ 17,442
Municipals 6,654 5,490 4,483
Other securities (including
mortgage-backed securities) 195,661 202,804 154,154
------- ------- --------
$209,645 $215,591 $176,079
======== ======== ========
</TABLE>
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average yield at December 31,
1992:
<TABLE>
<CAPTION>
Maturing within (in thousands)
------------------------------
Less
than 1-5 5-10 More than
1 year years years 10 years Total
------ ----- ----- --------- -------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $5,336 1,994 - - 7,330
Weighted average yield 5.5% 4.8% - - 5.3%
Municipals 676 911 1,606 3,461 6,654
Weighted average yield 7.6% 8.7% 6.5% 6.3% 6.8%
Other securities (including
mortgage-backed securities) 2,423 26,062 19,253 147,923 195,661
Weighted average yield 6.4% 6.5% 6.8% 6.2% 6.3%
------ ------ ------ ------- -------
Total securities $8,435 28,967 20,859 151,384 209,645
====== ====== ====== ======= =======
Weighted average yield 5.9% 6.5% 6.8% 6.2% 6.3%
=== === === === ===
</TABLE>
82
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Selected Statistical Information
Loan Portfolio
<TABLE>
<CAPTION>
The following table classifies loans by major category as of December 31 (in
thousands):
1992 1991 1990 1989 1988
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial $ 81,659 66,936 62,374 42,740 33,613
Agriculture 32,241 22,644 23,683 15,281 11,715
Real estate:
Commercial 32,011 24,036 23,915 15,491 21,793
Residential 12,555 5,396 6,792 8,145 8,990
Construction 2,457 2,446 1,916 719 609
Consumer 83,546 47,537 40,494 34,612 31,379
-------- ------- ------- ------- -------
Total loans $244,469 168,995 159,174 116,988 108,099
======== ======= ======= ======= =======
</TABLE>
The following tables present maturities and sensitivities of loans to changes
in interest rates as of December 31, 1992 (in thousands):
<TABLE>
<CAPTION>
Less
than 1-4 More than
1 year years 4 years Total
-------- ------- --------- --------
<S> <C> <C> <C> <C>
1. Maturities
a. Agriculture $ 18,110 $ 7,112 $ 7,019 $ 32,241
Commercial 53,647 20,900 7,112 81,659
Real estate 14,574 15,398 17,051 47,023
Consumer 53,787 26,246 3,513 83,546
-------- ------- ------- --------
$140,118 $69,656 $34,695 $244,469
======== ======= ======= ========
b. Amount of loans due after
four years which have:
Predetermined interest rates $ 18,656
Floating/adjustable rates 16,039
--------
$ 34,695
========
</TABLE>
83
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS
At December 31 (in thousands)
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $572 $1,297 $1,031 $ 817 $1,684
Restructured loans 427 719 711 1,215 1,307
---- ------ ------ ------ ------
$999 2,016 1,742 2,032 2,991
==== ====== ====== ====== ======
Loans past due 90 days or
more $531 $196 $1,052 $301 $425
==== ==== ====== ==== ====
</TABLE>
If interest on nonaccrual loans had been accrued, such income would have
approximated $77,000 in 1992, $121,000 in 1991, $65,000 in 1990, $106,000 in
1989, and $209,000 in 1988.
84
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
At December 31, (in thousands)
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
Allowance % to Allowance % to Allowance % to
for Loan loans in for Loan loans in for Loan loans in
losses category losses category losses category
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 987 1.21 $1,430 2.14 $1,287 2.06
Agriculture 81 .25 57 .25 119 .50
Real Estate 32 .07 281 .88 313 .96
Consumer 1,373 1.64 301 .63 335 .83
----- ---- ------ ---- ------ ----
$2,473 1.01 $2,069 1.22 $2,054 1.29
====== ====== ======
Unallocated 7 0 162
----- ----- -----
$2,480 1.01 $2,069 1.22 $2,216 1.39
====== ==== ====== ==== ====== ====
1989 1988
---- ----
Allowance % to Allowance % to
for Loan loans in for Loan loans in
losses category losses category
------ -------- ------ --------
Commercial $1,001 2.34 $1,268 3.77
Agriculture 38 .25 41 .35
Real Estate 141 .58 136 .43
Consumer 240 .69 382 1.22
------ ---- ------ ----
$1,420 1.21 $1,827 1.69
====== ======
Unallocated 35 34
------ ------
$1,455 1.24 $1,861 1.72
====== ==== ====== ====
</TABLE>
(Note: The allocation of the allowance for loan losses is based on management's
judgment of potential losses in the respective portfolios. While management has
allocated reserves to various portfolio segments for purposes of this table, the
allowance is general in nature and is available for the portfolio in its
entirety.)
85
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Selected Statistical Information
Analysis of Allowance for Loan Losses
At December 31 (in thousands)
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance beginning of year $2,069 $2,216 $1,455 $1,861 $2,016
Provision for loan losses 796 617 198 (507) 118
Reserve for loan loss of subsidiary
banks acquired 238 0 768 0 0
Charge-offs:
Commercial 308 683 200 355 374
Consumer 366 138 64 82 88
Real estate 28 129 80 48 21
Other 22 0 21 12 7
------ ------ ------ ------ ------
Total loan losses 724 950 365 497 490
Recoveries:
Commercial 60 105 107 572 182
Consumer 21 50 33 22 32
Real estate 20 31 14 0 1
Other 0 0 6 4 2
------ ------ ------ ------ ------
Total loan recoveries 101 186 160 598 217
------ ------ ------ ------ ------
Net charge-offs 623 764 205 (101) 273
------ ------ ------ ------ ------
Balance end of year $2,480 2,069 2,216 1,455 1,861
====== ====== ====== ====== ======
Allowance for loan losses to:
Total loans at year-end 1.01% 1.22% 1.39% 1.24 % 1.72%
Net charge-offs 3.98 2.71 10.81 (14.41) 6.82
Provision for loan losses to
average loans 0.38% 0.37% 0.14% (0.44)% 0.11%
Net Charge-offs to average loans 0.29% 0.46% 0.15% (0.09)% 0.25%
</TABLE>
86
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Maturity of Time Deposits of $100,000 or More
At December 31, 1992 (in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over 12
3 months months months months Total
-------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other
time deposit $8,250 $4,372 $5,203 $508 $18,333
</TABLE>
87
<PAGE>
RECENT OPERATING RESULTS OF NORWEST
Norwest's net income was $653.6 million for the year ended December 31,
1993, an increase of 48.5% over the $440.1 million earned in 1992. Net income
per common share was $2.13 for the year ended December 31, 1993, compared with
$1.42 in 1992, an increase of 50.4%. Return on common equity was 20.9% and
return on assets was 1.38% for the year ended December 31, 1993, compared with
15.2% and 1.03%, respectively, in 1992.
Norwest reported net income of $175.0 million for the quarter ended
December 31, 1993, a 167.1% increase over the $65.6 million earned in the
fourth quarter of 1992. Net income per common share was $0.57 for the fourth
quarter of 1993, compared with $0.20 for the same quarter of 1992. Return on
assets was 1.37% and return on common equity was 21.3% for the quarter ended
December 31, 1993, compared with 0.59% and 8.3%, respectively, for the fourth
quarter of 1992.
The 1992 results have been restated for the 2-for-1 stock split (effected
in the form of a 100% stock dividend) distributed on June 28, 1993, and
include Lincoln Financial Corporation (Lincoln), acquired on February 9, 1993,
in a pooling of interests transaction. The fourth quarter of 1992 results
include $93.5 million pre-tax charges taken by Lincoln to conform their credit
and accounting practices to those of Norwest and other restructuring-related
charges. The 1992 annual results, for comparative purposes, do not include a
one-time special charge of $76.0 million, or $0.26 per common share, related
to Norwest's early adoption of Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
Consolidated tax-equivalent net interest income was $2,408.7 million and
$627.4 million for the year and quarter ended December 31, 1993, compared with
$2,114.7 million and $575.4 million, respectively, in 1992, increases of 13.9
percent and 9.0 percent, respectively. The increase for the year is primarily
due to an 11.3% increase in average earning assets and a 13 basis point
increase in net interest margin. The increase from the fourth quarter of 1992
is due to a 14.2 percent increase in average earnings assets, partially offset
by a 25 basis point decrease in net interest margin.
Norwest provided $140.1 million and $40.5 million for credit losses for
the year and quarter ended December 31, 1993, or 0.56% and 0.61% of average
loans and leases, compared with $266.7 million and $112.2 million,
respectively, or 1.22% and 1.95% of average loans and leases, for the same
periods in 1992. The 1992 provision includes $60.0 million for credit losses
taken by Lincoln during the fourth quarter. Net credit losses totaled $173.6
million and $61.9 million for the year and quarter ended December 31, 1993,
compared with $217.6 million and $64.3 million, respectively, for the same
periods in 1992.
As a percent of average loans and leases, net credit losses were 0.70%
and 0.93% for the year and quarter ended December 31, 1993, compared with
1.00% and 1.12% for the same periods in 1992.
Non-performing assets, including non-accrual, restructured, and 90-day
past due loans and leases, and other real estate owned, totaled $285.5
million, or 0.6% of total assets, at December 31, 1993, compared with $372.7
million, or 0.8%, at December 31, 1992. The
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<PAGE>
decrease is primarily due to a $29.6 million, $23.5 million and $36.2 million
reduction in real estate non- accrual loans, commercial non-accrual loans and
other real estate owned, respectively, partially offset by a $5.1 million
increase in restructured loans. The allowance for credit losses was $744.9
million at December 31, 1993, and represents 260.9% of non-performing assets.
Norwest consolidated non-interest income was $1,542.5 million and $426.0
million for the year and quarter ended December 31, 1993, compared with
$1,228.8 million and $305.0 million, respectively, for the same periods in
1992. The full year increase from 1992 reflects growth in mortgage banking
revenues, net venture capital gains and various fee-based services, partially
offset by decreases in credit card fees, trading account gains and net gains
on investment securities available for sale. Excluding gains on
investment/mortgage-backed securities, venture capital gains, and gains on
investment/mortgage-backed securities available for sale, non-interest income
was up 26.1% over 1992.
Non-interest expenses were $2,840.8 million and $750.4 million for the
year and quarter ended December 31, 1993, compared with $2,436.6 million and
$660.8 million, respectively, for the same periods in 1992. The increase for
the year ended December 31, 1993 is primarily attributable to an increase in
salaries and benefits at both the mortgage banking operations to support large
volume increases in originations and servicing, and at Norwest Financial
Services, Inc., due to the acquisition in the fourth quarter of 1992 of Trans
Canada Credit Corporation, Ltd., and increased charitable contributions.
Norwest's banking group reported earnings of $397.2 million and $108.6
million for the year and quarter ended December 31, 1993, compared with $227.7
million and $8.0 million, respectively, for the same periods in 1992. Included
in the fourth quarter of 1992 banking group results are Lincoln's special
provision for credit losses, merger and transition related expenses and
restructuring costs totaling $93.5 million before income taxes. Mortgage
banking operations earned $56.3 million and $10.2 million for the year and
quarter ended December 31, 1993, compared with $53.4 million and $9.4 million,
respectively, for the same periods in 1992. Norwest Financial Services, Inc.
(commercial and consumer finance) reported earnings of $200.1 million and
$56.2 million for the year and quarter ended December 31, 1993, compared with
$159.0 million and $48.2 million, respectively, for the same periods in 1992.
At December 31, 1993, total assets were $50.8 billion, compared with
$46.7 billion at December 31, 1992. The increase is primarily due to a $4.3
billion increase in loans and leases, and student loans and mortgages held for
sale, including $2.6 billion of loans and leases acquired in acquisitions
completed during 1993. This increase was partially offset by a $0.4 billion
decrease in investment securities and investment securities available for
sale. Total long-term debt at December 31, 1993, was $6.8 billion compared
with $4.5 billion at December 31, 1992. This increase is primarily due to a
net increase of $1.0 billion of Federal Home Loan Bank advances by subsidiary
banks of Norwest and a net increase of $1.0 billion of long-term debt issued
by Norwest. Total stockholders' equity was $3.6 billion at December 31, 1993,
compared with $3.1 billion at December 31, 1992. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, Norwest is subject to the supervision of the
Federal Reserve Board. Norwest's banking subsidiaries are subject to
supervision and examination by applicable federal and state banking agencies.
All of Norwest's banking subsidiaries are insured, and therefore 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.
Norwest is a legal entity separate and distinct from its banking and
nonbanking subsidiaries. Accordingly, the right of Norwest, and thus the
right 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.
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 September 30, 1993, without obtaining prior regulatory approval, aggregate
dividends of at least $136.3 million. The payment of dividends by any
subsidiary bank may also be affected by other factors, such as the maintenance
of adequate capital for such subsidiary bank.
If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice
and hearing, that such bank cease and desist from such practice. The Federal
Reserve Board, the OCC, and the FDIC have issued policy statements which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
HOLDING COMPANY STRUCTURE
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
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<PAGE>
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 1990 provides that in the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC after
August 9, 1989, in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the
FDIC to a commonly controlled FDIC-insured depository institution in danger of
default. "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence
of certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance.
Federal law (12 U.S.C. (S)55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any
such pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. Similarly,
the laws of certain states provide for such assessment and sale with respect
to banks chartered by such states. Norwest, as the sole shareholder of
certain of its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
In January 1989, the Federal Reserve Board issued final risk-based capital
guidelines for bank holding companies, such as Norwest. The new guidelines,
which became effective December 31, 1990, were phased in over two years. 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 composed of common equity, retained
earnings, and a limited amount of 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 approved in August 1990 final minimum "leverage ratio" (the ratio of
Tier 1 capital to quarterly average total assets) guidelines for bank holding
companies and state member banks. These guidelines provide for a minimum
leverage ratio of 3% for bank holding companies and
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<PAGE>
state member banks that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies and state
member banks 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 September 30,
1993, Norwest's Tier 1 and total capital (the sum of Tier 1 and Tier 2
capital) to risk-adjusted assets ratios were 9.80% and 12.42%, respectively,
and Norwest's leverage ratio for the quarter ended September 30, 1993, was
6.81%. Neither Norwest nor any subsidiary bank has been advised by the
appropriate federal regulatory agency of any specific leverage ratio
applicable to it.
The Federal Reserve Board has adopted changes to its risk-based and
leverage ratio requirements applicable to bank holding companies and state
chartered member banks that require that all intangibles, including core
deposit intangibles, purchased mortgage servicing rights ("PMSRs"), and
purchased credit card relationships ("PCCRs") be deducted from Tier 1 capital.
The changes, however, grandfather identifiable assets (other than PMSRs and
PCCRs) acquired on or before February 19, 1992, and permit the inclusion of
readily marketable PMSRs and PCCRs in Tier 1 capital to the extent that (i)
PMSRs and PCCRs do not exceed 50% of Tier 1 capital and (ii) PCCRs do not
exceed 25% of Tier 1 capital. For such purposes, PMSRs and PCCRs each would
be included in Tier 1 capital only up to the lesser of (a) 90% of their fair
market value (which must be determined quarterly) and (b) 100% of the
remaining unamortized book value of such assets. The OCC has adopted
substantially similar regulations. Management does not expect the foregoing
changes to have a material impact on the results of operations of Norwest.
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 revises
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 agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." A
depository institution's capital tier will depend upon where its capital
levels are in relation to various relevant capital measures, which will
include a risk-based capital measure and a leverage ratio capital measure, and
certain other factors.
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly
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<PAGE>
undercapitalized if it is significantly below any such measure, and critically
undercapitalized if it fails to meet any critical capital level set forth in
regulations. The critical capital level must be a level of tangible equity
equal to not less than 2% of total assets and not more than 65% of the minimum
leverage ratio to be prescribed by regulation (except to the extent that 2%
would be higher than such 65% level). An institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if, among other things, it receives an unsatisfactory examination
rating.
Under regulations adopted pursuant to the foregoing provisions, for an
institution to be well capitalized it must have a Tier 1 risk-based capital
ratio of a least 6%, a total risk-based capital ratio of at least 10%, and a
leverage ratio of at least 5%, and not be subject to any specific capital
order or directive. For an institution to be adequately capitalized it must
have a Tier 1 risk-based capital ratio of at least 4%, a total risk-based
capital ratio of at least 8%, and a leverage ratio of a least 4% (and in some
cases 3%). As of September 30, 1993, all of Norwest's banking subsidiaries
were well capitalized.
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 impact of such standards on Norwest cannot 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
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<PAGE>
lending, "truth in savings" provisions, and the requirement that a depository
institution give 90 days' notice to customers and regulatory authorities
before closing any branch.
Under other regulations promulgated under FDICIA a bank cannot accept
brokered deposits (that is, deposits obtained through a person engaged in the
business of placing deposits with insured depository institutions or with
interest rates significantly higher than prevailing market rates) unless (i)
it is "well capitalized" or (ii) it is "adequately capitalized" and receives a
waiver from the FDIC. A bank is defined to be well capitalized if it
maintains a leverage ratio of at least 5%, a ratio of Tier 1 capital to risk-
adjusted assets of at least 6%, and a ratio of total capital to risk-adjusted
assets of at least 10%, and is not otherwise in a "troubled condition" as
specified by the appropriate federal regulatory agency. 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 September 30, 1993, all of Norwest's banking
subsidiaries were well capitalized and therefore were not subject to these
restrictions.
FDIC INSURANCE
Effective January 1, 1993, the deposit insurance assessment rate for the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") 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 or SAIF 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% (or undercapitalized Subgroup C institutions). Adequately capitalized
institutions will be assigned assessment rates ranging from 0.26% to 0.30%.
Norwest incurred $66.2 million of FDIC insurance expense in 1993. Because of
decreases in the reserves of the BIF and SAIF due to the increased number of
bank failures in recent years, it is possible the BIF and SAIF premiums will
be further increased and it is possible that there may be a special
assessment. Any such further increase or special assessment would also
decrease net income, and a special assessment could have a material adverse
effect on the results of operations of Norwest.
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<PAGE>
EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1992 and 1991, and for each of the years in the three-year period
ended December 31, 1992, incorporated by reference herein, have been
incorporated herein in reliance upon the report of KPMG Peat Marwick,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of BMS and subsidiaries as of
December 31, 1992 and 1991, and for each of the years in the three-year period
ended December 31, 1992, have been included herein in reliance upon the report
of KPMG Peat Marwick, independent certified public accountants, included
herein and upon the authority of said firm as experts in accounting and
auditing.
LEGAL OPINION
A legal opinion to the effect that the shares of Norwest Common Stock
offered hereby, when issued in accordance with the Merger Agreement, will be
validly issued and fully paid and nonassessable, has been rendered by Stanley
S. Stroup, Executive Vice President and General Counsel of Norwest. At
September 30, 1993, Mr. Stroup was the beneficial owner of approximately
102,250 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, 1992, and Amendment No. 1 on Form 8 dated March 3, 1993,
which are incorporated in this Proxy Statement-Prospectus by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of BMS
desiring copies of such documents may contact Norwest at its address or phone
number indicated under "AVAILABLE INFORMATION" above.
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FINANCIAL STATEMENTS
OF
BANK OF MONTANA SYSTEM
AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Beginning
page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets - December 31, 1992 and 1991 F-3
Consolidated Statements of Income - each of the years in F-4
the three-year period ended December 31, 1992
Consolidated Statements of Changes in Stockholders' Equity - F-5
each of the years in the three-year period ended
December 31, 1992
Consolidated Statements of Cash Flows - each of the years F-6
in the three-year period ended December 31, 1992
Notes to Consolidated Financial Statements F-8
Consolidated Balance Sheets - September 30, 1993 and F-26
December 31, 1992 (unaudited)
Consolidated Statements of Income - each of the nine-month F-27
periods ended September 30, 1993 and 1992 (unaudited)
Consolidated Statements of Cash Flows - each of the nine-month F-29
periods ended September 30, 1993 and 1992 (unaudited)
Consolidated Statements of Changes in Stockholders' Equity F-30
(unaudited)
Notes to Unaudited Consolidated Financial Statements - September 30,
1993 and 1992 F-31
</TABLE>
F-1
<PAGE>
(LETTERHEAD OF KMPG PEAT MARWICK)
Report of Independent Auditors
------------------------------
The Board of Directors and Stockholders
Bank of Montana System:
We have audited the accompanying consolidated balance sheets of Bank of Montana
System and subsidiaries as of December 31, 1992 and 1991 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1992.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bank of Montana
System and subsidiaries at December 31, 1992 and 1991 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1992 in conformity with generally accepted accounting
principles.
/S/ KPMG Peat Marwick
February 5, 1993, except as Note 13,
which is as of March 9, 1993
F-2
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------
Assets 1992 1991
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 22,339,152 $ 22,912,162
Federal funds sold 5,300,000 14,850,000
Investment securities (approximate market
value 1992 - $212,244,000, 1991 - $221,447,000):
U.S. Government and agency obligations 192,596,776 182,294,955
State, county and municipal obligations 6,653,500 5,490,458
Other investments 10,394,643 27,805,537
------------ ------------
Total investment securities 209,644,919 215,590,950
------------ ------------
Loans 244,469,158 168,995,283
Less: Reserve for loan losses 2,480,038 2,068,929
------------ ------------
Net loans 241,989,120 166,926,354
------------ ------------
Premises and equipment, net 7,010,295 6,819,545
Accrued income receivable 3,739,640 3,912,004
Excess of purchase price over equity in net assets
acquired and other intangible assets, net 2,997,126 3,242,074
Cash value of life insurance 5,758,827 5,444,455
Other real estate owned 398,590 281,788
Other assets 842,377 757,567
------------ ------------
Total assets $500,020,046 $440,736,899
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Non-interest bearing $ 63,844,603 $ 62,603,036
Interest bearing 346,149,352 306,470,644
------------ ------------
Total deposits 409,993,955 369,073,680
Repurchase agreements 40,811,097 29,721,002
Income taxes payable 875,327 795,169
Notes, mortgages and contracts payable 10,505,668 10,462,795
Accrued expenses and other liabilities 7,799,957 3,590,917
------------ ------------
Total liabilities 469,986,004 413,643,563
Commitments and contingencies
Stockholders' equity:
Common stock, $2.50 par value; 4,000,000 shares
authorized, 1,290,547 outstanding in 1992
(1,299,109 in 1991) 3,226,368 3,247,773
Additional paid-in capital 3,962,545 4,137,915
Retained earnings 22,845,129 19,707,648
------------ ------------
Total stockholders' equity 30,034,042 27,093,336
------------ ------------
Total liabilities and stockholders' equity $500,020,046 $440,736,899
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1992 1991 1990
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $19,103,410 $17,460,531 $15,610,773
Interest on deposits with banks - 48,198 308,630
Interest on U.S. Government and agency
obligations 12,398,179 13,741,689 10,381,090
Interest on state, county and
municipal obligations 443,105 422,567 167,552
Interest on other investments 1,296,094 2,487,308 3,102,978
Interest on federal funds sold 185,946 587,738 1,376,281
----------- ----------- -----------
Total interest income 33,426,734 34,748,031 30,947,304
----------- ----------- -----------
Interest expense:
Interest on deposit accounts 13,405,145 17,418,578 16,299,116
Interest on federal funds purchased and
repurchase agreements 1,302,300 1,544,388 1,287,313
Interest on notes, mortgages and
contracts 872,627 911,506 684,135
----------- ----------- -----------
Total interest expense 15,580,072 19,874,472 18,270,564
----------- ----------- -----------
Net interest income 17,846,662 14,873,559 12,676,740
Provision for loan losses 796,374 617,387 197,611
----------- ----------- -----------
Net interest income after provision for
loan losses 17,050,288 14,256,172 12,479,129
----------- ----------- -----------
Other operating income:
Service charges on deposit accounts 1,738,607 1,625,213 1,395,146
Gain on sale of investment securities,
net 1,355,618 960,160 209,910
Other income 3,173,042 2,551,774 1,873,829
----------- ----------- -----------
Total other operating income 6,267,267 5,137,147 3,478,885
----------- ----------- -----------
Other operating expense:
Salaries and wages 5,560,838 4,645,044 3,935,710
Employee benefits 884,812 781,129 731,932
Net occupancy expense 984,958 853,587 836,835
Furniture and equipment
expense 1,241,193 1,189,677 883,038
Other operating expense 6,686,374 5,904,682 4,876,560
----------- ----------- -----------
Total other operating expense 15,358,175 13,374,119 11,264,075
----------- ----------- -----------
Income before income taxes 7,959,380 6,019,200 4,693,939
----------- ----------- -----------
Applicable income tax expense (benefit):
Current 2,856,433 2,231,083 1,519,515
Deferred 99,520 (259,745) 73,759
----------- ----------- -----------
Total income tax expense 2,955,953 1,971,338 1,593,274
----------- ----------- -----------
Net income $ 5,003,427 $ 4,047,862 $ 3,100,665
=========== =========== ===========
Weighted average number of common shares
outstanding 1,296,779 1,362,439 1,334,435
=========== =========== ===========
Net income per share $ 3.86 $ 2.97 $ 2.32
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional ESOP shares Total
Common paid-in Retained purchased stockholders'
stock capital earnings with debt equity
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1989 $3,106,000 $ 5,241,297 $15,817,869 $(880,000) $23,285,166
Net income - - 3,100,665 - 3,100,665
Dividends paid, $1.20 per
share - - (1,621,338) - (1,621,338)
Acquisition of subsidiary
banks 500,403 1,159,020 - - 1,659,423
ESOP debt reduction - - - 160,000 160,000
---------- ----------- ----------- --------- -----------
Balance December 31, 1990 3,606,403 6,400,317 17,297,196 (720,000) 26,583,916
Net income - - 4,047,862 - 4,047,862
Dividends paid, $1.20 per
share - - (1,637,410) - (1,637,410)
Purchase of 113,561 shares
from former director (283,902) (1,589,855) - - (1,873,757)
Purchase of 29,891 shares
from ESOP and retired
employees (74,728) (672,547) - - (747,275)
ESOP debt reduction - - - 720,000 720,000
---------- ---------- ----------- --------- -----------
Balance December 31, 1991 3,247,773 4,137,915 19,707,648 - 27,093,336
Net income - - 5,003,427 - 5,003,427
Dividends paid, $1.44 per
share - - (1,865,946) - (1,865,946)
Purchase of 3,844 shares
from shareholders (9,610) (69,215) - - (78,825)
Purchase of 4,718 shares
from ESOP and retired
employees (11,795) (106,155) - - (117,950)
---------- ---------- ----------- --------- -----------
Balance December 31, 1992 $3,226,368 $3,962,545 $22,845,129 $ - $30,034,042
========== ========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1992 1991 1990
- ------------------------------------------------ ------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,003,427 $ 4,047,862 $ 3,100,665
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,218,028 1,158,008 935,398
Provision for loan losses 796,374 617,387 197,611
Deferred income taxes 99,520 (259,745) 73,759
Changes in operating assets and liabilities:
Unearned discount 11,292 28,515 (9,415)
Accrued income receivable 408,063 776,594 1,246,811
Income taxes payable (19,362) (23,084) (84,168)
Accrued expenses and other liabilities 4,053,345 (653,045) (366,804)
Other (223,905) (723,621) 296,751
------------ ------------- ------------
Net cash provided by operating activities 11,346,782 4,968,871 5,390,608
------------ ------------- ------------
Cash flows from investing activities:
Purchases of investment securities (125,813,543) (148,990,337) (40,253,890)
Maturities and sales of investment securities 136,169,610 109,478,439 49,765,825
Interest bearing deposits with banks, net - 962,532 3,628,643
Federal funds sold, net 10,875,000 28,785,000 (25,610,000)
Net increase in loans (60,273,003) (10,614,023) (9,391,932)
Premises and equipment, net (1,020,916) (400,530) (1,156,536)
Net (increase) decrease in other real estate (116,802) 144,595 114,278
Additional investments in life insurance, net - (379,381) -
Acquired subsidiaries' cash and cash equivalents 7,929,047 - 3,842,800
Deferred acquisition costs (175,277) - -
------------ ------------- ------------
Net cash used in investing activities (32,425,884) (21,013,705) (19,060,812)
------------ ------------- ------------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing deposits (1,988,160) 5,337,288 2,927,802
Net increase in interest bearing deposits 13,424,005 7,211,526 13,568,894
Net increase in repurchase agreements 11,090,095 10,516,921 3,535,312
Proceeds of debt financing 2,025,000 1,753,757 -
Payments on debt financing (1,982,127) (1,699,986) (1,867,006)
ESOP debt reduction - 720,000 160,000
Dividends paid (1,865,946) (1,637,410) (1,621,338)
Payments to acquire Company common stock (196,775) (2,621,032) -
------------ ------------- ------------
Net cash provided by financing activities 20,506,092 19,581,064 16,703,664
------------ ------------- ------------
Net change in cash and cash equivalents (573,010) 3,536,230 3,033,460
Cash and cash equivalents, beginning of year 22,912,162 19,375,932 16,342,472
------------ ------------- ------------
Cash and cash equivalents, end of year $ 22,339,152 $ 22,912,162 $ 19,375,932
============= ============= ============
(Continued)
</TABLE>
F-6
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Noncash Investing and Financing Activities
- ------------------------------------------
In 1992, the Company acquired all of the capital stock of a bank for the
issuance of $2 million in debt. Assets acquired and liabilities assumed were as
follows:
<TABLE>
<S> <C>
Cash and due from banks $ 1,032,846
Investment securities 4,410,036
Federal funds sold 1,325,000
Loans, net 15,597,429
Premises and equipment 15,914
Accrued income receivable 235,699
FDIC receivable 6,896,201
-----------
29,513,125
Less liabilities assumed:
Deposits 29,484,430
Accrued expenses and other liabilities 155,695
-----------
Goodwill recorded $ 127,000
===========
</TABLE>
In 1990, the Company acquired all of the capital stock of two banks for the
issuance of 200,161 shares of Company common stock and the assumption of long-
term debt. Assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Assets acquired (historical book value):
Cash and cash equivalents $ 3,842,800
Federal funds sold and interest bearing deposits 977,273
Investment securities 33,990,539
Loans, net 32,221,239
Premises and equipment 499,205
Other assets 5,026,748
-----------
76,557,804
===========
Less liabilities assumed:
Deposits 66,738,920
Long-term debt 6,350,000
Other liabilities 1,809,461
-----------
Common stock issued $ 1,659,423
===========
</TABLE>
Supplemental Disclosures
- ------------------------
<TABLE>
<CAPTION>
1992 1991 1990
----------- ------------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest expense $16,343,149 $ 20,674,465 $17,605,296
Income taxes 2,882,221 2,254,167 1,603,683
=========== ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three Years Ended December 31, 1992
(1) Summary of Significant Accounting Policies
------------------------------------------
General - Bank of Montana System and subsidiaries (the Company) provides a
full range of banking services to individual and corporate customers
through its subsidiary and branch offices throughout the state of Montana.
The Company is subject to competition from other financial institutions and
financial service providers. The Company is subject to the regulations of
certain Federal and state agencies and undergoes periodic examinations by
those regulatory authorities.
The consolidated financial statements include the accounts of Bank of
Montana System (Parent) and its subsidiaries, Bank of Montana, Bank of
Montana - Butte, and five non-bank subsidiaries. Effective September 1,
1992, seventeen former subsidiaries were merged into Bank of Montana. The
previously existing subsidiaries are now operating as branch offices in the
same locations. All material intercompany balances have been eliminated.
Basis of Presentation - The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan
losses. In connection with the determination of the allowances for loan
losses, management obtains independent appraisals for significant
properties. Management believes that the allowances for losses on loans is
adequate. While management uses available information to recognize losses
on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
banks' allowance for losses on loans. Such agencies may require the banks
to recognize additions to the allowance based on their judgements about
information available to them at the time of their examination.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and amounts due from banks. Federal
funds are purchased and sold on a consolidated basis and are generally
bought and sold for one day periods.
Aggregate average reserves in the form of deposits with the Federal Reserve
Bank of $205,000 ($623,000 in 1991) were maintained in conjunction with
satisfying Federal regulatory reserve requirements for 1992. No
compensating balances are required to be maintained with correspondent
banks as compensation for check clearing services.
Investment Securities - Investment securities are segregated based on
whether the investments are held for short-term appreciation in market
value or for long-term investment. At December 31, 1992 and 1991 there
were no securities held for short term appreciation.
Investment securities held for long-term investment are stated at cost,
adjusted for amortization of premium and accretion of discount which are
recognized as adjustments to interest income using the straight-line
method. The results of using the straight-line method do not differ
materially from results using the interest method. Such securities are
also subject to adjustments, if any, for permanent impairments in value.
At December 31, 1992 and 1991 no such adjustments were necessary.
(Continued)
F-8
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Gains and losses from sales of investment securities are based on the net
proceeds and the adjusted carrying amount of the securities sold using the
specific identification method and reported "net" in other operating income
in the consolidated statements of income.
Loans - Secured and unsecured loans are stated at the principal amount
outstanding net of unearned discount and reserve for loan losses. Interest
on commercial, real estate and certain consumer loans is credited to income
based upon the principal amount outstanding. Unearned discount on other
consumer loans is recognized as income over the terms of the loans by using
principal amounts outstanding.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued when
either reasonable doubt exists as to the full, timely collection of
interest or principal or, when the loan becomes contractually past due by
ninety days or more with respect to interest or principal unless such past
due loan is well secured and in the process of collection. When a loan is
placed on nonaccrual status, all interest previously accrued but not
collected is reversed against current period interest income unless
principal and interest are well secured by sound collateral values.
Interest accruals are resumed on such loans only when they are brought
fully current with respect to interest and principal and when, in the
judgement of management, the loans are estimated to be fully collectible as
to both principal and interest.
Restructured rate loans are loans that have been restructured to provide
for a reduction of the originally contracted principal and/or rate of
interest as a result of a weakening in the financial position of the
borrower. Interest income on these loans is accrued at the restructured
rate.
Loan Fees - Net loan origination fees, if significant, are recognized as
interest income over the life of the related loans as an adjustment of the
interest yield.
Reserve for Loan Losses - The reserve for loan losses is maintained through
a provision for loan losses which is charged to expense. Loans are charged
against the reserve for loan losses when management believes that the
collectibility of the principal is unlikely. The reserve is maintained at
an amount that management believes will be adequate to absorb losses
inherent in existing loans, leases, and commitments to extend credit, based
on evaluations of collectibility, collateral values, and prior loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the portfolio, overall portfolio
quality, loan concentrations, specific problem loans, leases, and
commitments, and current and anticipated economic conditions that may
affect the borrowers' ability to pay.
Premises and Equipment - Bank premises and equipment are stated at cost
less accumulated depreciation and amortization, which is charged to
operating expense over the estimated useful lives of the respective assets
using the straight-line method for bank premises and accelerated and
straight-line methods for equipment. Consolidated depreciation expense was
$846,080, $795,585 and $688,392 for 1992, 1991 and 1990, respectively.
Repairs and maintenance costs are charged to expense as incurred.
Intangible Assets - The excess of purchase price over equity in net assets
acquired after October 31, 1970, is being amortized over twelve to forty
years. The remainder ($884,610 at December 31, 1992) is not being amortized
since, in the opinion of management, there has been no decline in value of
the assets and business markets acquired.
The excess of purchase price over equity in net assets of the data
processing facility acquired in 1987 of $234,000 is being amortized over 12
years. The value of service contracts acquired in this acquisition of
$1,330,000 is being amortized over 8 years, based on an evaluation of
contract terms, equipment leases, software owned and other factors.
(Continued)
F-9
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Cash Surrender Value of Life Insurance - The Company maintains life
insurance policies on certain of its key officers whereby the cash
surrender value is received if the policy is terminated, or the death
benefit is received upon the death of the insured.
Other Real Estate Owned - Other real estate owned represents property
acquired in satisfaction of loans, including in-substance foreclosure. At
time of acquisition other real estate is recorded at the lower of the
Bank's carrying value of the related loan or the asset's fair market value
which becomes the property's new carrying value. Any write-downs at date
of acquisition are charged to the allowance for loan losses. Expenses, net
of related income, incurred in maintaining assets and subsequent
write-downs to reflect declines in the net realizable value of the property
are included in other operating expenses.
A loan is deemed foreclosed in-substance when it has been determined that
repayment in full is not expected and the borrower has little or no equity
in the collateral and is not expected to be able to rebuild equity in the
foreseeable future.
Income Taxes - The Parent Company and its subsidiaries have elected to be
included in a consolidated Federal income tax return. State statute
currently prevents the Bank from filing a consolidated Montana income tax
return with the Parent and, accordingly, separate returns are filed and
taxes paid by the Parent Company and each bank subsidiary. Federal income
taxes attributable to the subsidiaries, computed on a separate return
basis, are paid to or received from the Parent Company.
The income tax effects of transactions are recognized for financial
reporting purposes in the year in which they enter into determination of
recorded income, regardless of when the transactions are recognized for tax
purposes. Accordingly, applicable income taxes in the consolidated
statements of income include charges or credits for deferred income taxes
relating to such temporary differences. These deferred income taxes are
recognized for these temporary differences by applying enacted statutory
tax rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(the Statement). The Statement requires certain changes to the asset and
liability method of accounting for income taxes, primarily related to the
recognition of deferred tax assets. Adoption of the Statement in 1993 is
not expected to have a material impact on consolidated earnings or
financial position.
Earnings Per Share - Earnings per common share is computed by dividing net
income by the weighted average number of common shares outstanding during
the period.
Reclassification - Certain reclassifications have been made to the prior
years' financial statements amounts to conform to the 1992 presentation.
(Continued)
F-10
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Investment Securities
---------------------
The amortized cost and estimated market values of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
1992 cost gains losses value
---- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,330,215 $ 72,833 $ - $ 7,403,048
State, county and municipal 6,653,500 135,944 (13) 6,789,431
Asset-backed securities 262,376 4,166 - 266,542
Mortgage-backed securities 192,438,764 2,857,323 (481,108) 194,814,979
Corporate securities 2,960,064 9,936 - 2,970,000
------------ ---------- -------- ------------
Total $209,644,919 $3,080,202 $(481,121) $212,244,000
============ ========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
1991 cost gains losses value
---- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,296,521 $ 127,194 $ - $ 7,423,715
State, county and municipal 5,490,458 209,951 (5) 5,700,404
Asset-backed securities 595,825 14,381 - 610,206
Mortgage-backed securities 195,893,013 5,913,516 (63,854) 201,742,675
Corporate securities 6,315,133 - (345,133) 5,970,000
----------- ---------- --------- ------------
Total $215,590,950 $6,265,042 $(408,992) $221,447,000
============ ========== ========= ============
</TABLE>
Proceeds from sale of investment securities were $49,110,818 and
$92,910,000 in 1992 and 1991, respectively. Gross gains of $1,368,192 and
$986,054, and gross losses of $12,574 and $25,894 were realized on sales of
investment securities in 1992 and 1991, respectively.
Maturities of the investment securities by contractual maturity at December
31, 1992 are shown below. Maturities of securities do not reflect rate
repricing opportunities present in many adjustable rate mortgage-backed and
corporate securities, nor do they reflect expected shorter maturities based
upon early prepayments of principal. At December 31, 1992, approximately
$102,215,000 of floating rate securities are included in maturities of
mortgage-backed and other investment securities beyond five years.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1992 1991
------------------------ -----------
Estimated
Amortized Market Amortized
cost value cost
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury securities:
Due in one year or less $ 5,335,623 $ 5,399,288 $ 3,979,441
After one year but within five years 1,994,592 2,003,760 3,317,080
----------- ----------- -----------
Total $ 7,330,215 $ 7,403,048 $ 7,296,521
=========== =========== ===========
</TABLE>
(continued)
F-11
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1992 1991
-------------------------- ------------
Estimated
Amortized Market Amortized
cost value cost
----------- ------------- ------------
<S> <C> <C> <C>
State, county and municipal:
Due in one year or less $ 675,724 $ 682,984 $ 400,996
After one year but within five years 910,954 933,597 1,414,084
After five years but within ten years 1,605,499 1,644,300 1,563,741
After ten years 3,461,323 3,528,550 2,111,637
------------ ------------ ------------
Total $ 6,653,500 $ 6,789,431 $ 5,490,458
============ ============ ============
Asset-backed securities:
After one year but within five years $ 262,376 $ 266,542 $ 595,825
============ ============ ============
Mortgage-backed securities:
Due in one year $ 2,423,297 $ 2,456,526 $ 1,424,123
After one year but within five years 25,799,984 25,950,070 4,833,088
After five years but within ten years 16,292,709 16,707,505 23,133,035
After ten years 147,922,774 149,700,878 166,502,767
------------ ------------ ------------
Total $192,438,764 $194,814,979 $195,893,013
============ ============ ============
Corporate securities:
After five years but within ten years $ 2,960,064 $ 2,970,000 $ 2,952,549
After ten years - - 3,362,584
------------ ------------ ------------
$ 2,960,064 $ 2,970,000 $ 6,315,133
============ ============ ============
</TABLE>
Investment securities carried at approximately $82,000,000 ($62,000,000 in
1991) were pledged to secure public or trust deposits, securities sold
under repurchase agreements, seasonal borrowing lines with the Federal
Reserve Bank or for other purposes required or permitted by law at December
31, 1992.
(3) Loans
-----
Loans by classification follow:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1992 1991
------------------- -------------------
Amount % Amount %
------------ ----- ----------- -----
<S> <C> <C> <C> <C>
Commercial and financial $ 81,659,789 33.8% $ 66,936,489 40.1%
Commercial loans secured by real estate 32,010,793 13.2 24,036,550 14.4
Agricultural 32,241,303 13.3 22,644,275 13.6
Real estate - construction 2,456,939 1.0 2,445,984 1.5
Real estate - mortgage 12,554,600 5.2 5,395,588 3.2
Consumer 83,545,734 34.5 47,536,397 28.5
------------ ----- ------------ -----
Total loans 244,469,158 101.0 168,995,283 101.3
------------ ----- ------------ -----
Less: Reserve for loan losses 2,480,038 1.0 2,068,929 1.3
------------ ----- ------------ -----
Net loans $241,989,120 100.0% $166,926,354 100.0%
============ ===== ============ =====
</TABLE>
(continued)
F-12
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company had no concentrations of loans to borrowers engaged in other
industry classifications which exceeded 10% of total loans other than
disclosed above.
Nonaccrual loans amounted to $572,000, $1,297,000, and $1,031,000 at
December 31, 1992, 1991 and 1990, respectively. If interest on these loans
had been accrued, such income would have approximated $77,000, $121,000 and
$65,000, respectively. Included in total loans at December 31, 1992 and
1991 are loans with a carrying value of $427,000 and $719,000,
respectively, the terms of which have been modified in troubled debt
restructurings. Interest is generally accrued on such loans in accordance
with the renegotiated terms. At December 31, 1992, there were no
commitments to lend additional funds to borrowers whose existing loans have
been restructured or are classified as nonaccrual.
Over 77% of the Company's loan activity is with customers within the state
of Montana. At December 31, 1992, $56,000,000 of loans or purchased
participation loans were acquired where the customers are out of the state.
Included in this balance is $10,987,000 of mortgages and other loans from
companies and individuals secured by homes, autos, trucks, and recreational
vehicles. Anticipated credit losses arising from these transactions compare
favorably with the Company's credit loss experience of its loan portfolio
as a whole.
(4) Reserve for Loan Losses
-----------------------
A summary of changes in the reserve for loan losses for the three years
ended December 31, 1992, follows:
<TABLE>
<CAPTION>
1992 1991 1990
---------- ---------- ----------
<S> <C> <C> <C>
Balance - beginning of year $2,068,929 $2,215,507 $1,454,886
Additions:
Recoveries on loans previously
charged-off 101,049 185,820 159,862
Provision charged to operating
expense 796,374 617,387 197,611
Reserve for loan loss of
subsidiary banks acquired 238,000 - 767,807
---------- ---------- ----------
3,204,352 3,018,714 2,580,166
Losses charged to the reserve 724,314 949,785 364,659
---------- ---------- ----------
Balance - end of year $2,480,038 $2,068,929 $2,215,507
========== ========== ==========
(5) Premises and Equipment
----------------------
A summary of premises and equipment at December 31, 1992 and 1991 follows:
</TABLE>
<TABLE>
<CAPTION>
1992 1991
------------------------- -----------------------
Parent Parent
Company Company
Consolidated only Consolidated only
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Land $ 1,649,698 $ - $ 1,558,698 $ -
Buildings and
improvements 7,970,635 - 7,887,186 -
Equipment 4,731,233 - 4,365,443 118,956
----------- ----------- ----------- ---------
Total cost 14,351,566 - 13,811,327 118,956
Less: accumulated
depreciation 7,341,271 - 6,991,782 86,936
----------- ----------- ----------- ---------
Total $ 7,010,295 - $ 6,819,545 $ 32,020
=========== =========== =========== =========
</TABLE>
(Continued)
F-13
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Buildings and improvements are depreciated over 10 to 40 years and
equipment over 3 to 10 years.
(6) Deposits
--------
Deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1992 1991
------------ ------------
<S> <C> <C>
Noninterest bearing demand $ 63,844,603 $ 62,603,036
------------ ------------
Interest bearing:
Demand 75,344,136 56,095,880
Savings 125,406,557 94,237,370
Time, $100,000 and over 18,333,181 19,981,843
Time, other 127,065,478 136,155,551
------------ ------------
Total interest bearing 346,149,352 306,470,644
------------ ------------
$409,993,955 $369,073,680
============ ============
</TABLE>
The maturities of time certificates of deposit issued in denominations of
$100,000 or greater at December 31, 1992 and 1991, is as follows:
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Within three months $ 8,250,527 $ 9,818,944
After three but within six months 4,372,501 3,965,130
After six but within twelve months 5,202,535 6,097,769
After twelve months 507,618 100,000
----------- -----------
Total $18,333,181 $19,981,843
=========== ===========
</TABLE>
Interest expense relating to such certificates was approximately $852,000
in 1992 ($1,658,000 in 1991).
(7) Income Taxes
------------
Income tax expense (benefit) from operations follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1992 1991 1990
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $2,242,475 $ 1,770,179 $ 1,091,971
State 613,958 460,904 427,544
---------- ----------- -----------
2,856,433 2,231,083 1,519,515
---------- ----------- -----------
Deferred:
Federal 83,409 (247,743) 133,347
State 16,111 (12,002) (59,588)
---------- ----------- -----------
99,520 (259,745) 73,759
---------- ----------- -----------
Income tax expense $2,955,953 $ 1,971,338 $ 1,593,274
========== =========== ===========
</TABLE>
(Continued)
F-14
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The sources of timing differences resulting in deferred income taxes for
1992, 1991 and 1990 and the tax effect of each are as follows:
<TABLE>
<CAPTION>
1992 1991 1990
-------- ---------- ---------
<S> <C> <C> <C>
Loan loss deduction on tax return
greater (less) than provisions
charged to operating expense $(83,133) $ (32,649) $ 2,711
Losses on other real estate owned
less than amounts realized for
income tax purposes (4,080) 8,241 403,154
Expenses not deductible until paid 96,000 (96,000) -
Reversal of prior year accrual - (110,384) -
Other 90,733 (28,953) (194,879)
Conversion to accrual basis for
income tax reporting - - (357,681)
Alternative minimum tax - - 220,454
-------- --------- ---------
Total $ 99,520 $(259,745) $ 73,759
======== ========= =========
</TABLE>
Total income tax expense applicable to income from operations before income
taxes differs from tax expense computed by applying the U.S. Federal income
tax rate of 34% to income before income taxes and extraordinary items as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
------------------ ------------------ ------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at Federal
statutory rate $2,706,189 34.0% $2,046,528 34.0% $1,595,939 34.0%
State taxes, net of
Federal benefit 363,321 4.6 296,275 4.9 242,851 5.2
Tax-exempt interest (210,715) (2.7) (198,643) (3.3) (166,696) (3.6)
Other, net 97,158 1.2 (172,822) (2.8) (78,820) (1.7)
---------- ---- ---------- ---- ---------- ----
Actual tax expense $2,955,953 37.1% 1,971,338 32.8% 1,593,274 33.9%
========== ==== ========== ==== ========== ====
</TABLE>
(8) Other Operating Expense
-----------------------
The components of other operating expense follow:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1992 1991 1990
---------- ---------- ----------
<S> <C> <C> <C>
Advertising $ 245,080 $ 214,488 $ 183,773
FDIC and state assessments 947,864 814,184 409,014
Other Insurance 305,550 302,307 244,696
Legal, audit and professional 582,917 580,683 628,119
Postage, freight and express 431,024 367,660 269,207
Printing, stationery and supplies 488,517 409,981 358,045
Telephone expense 325,382 401,950 240,352
Losses on other real estate owned 30,727 61,377 213,694
All other expenses 3,329,313 2,752,052 2,329,660
---------- ---------- ----------
Total $6,686,374 $5,904,682 $4,876,560
========== ========== ==========
</TABLE>
(Continued)
F-15
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Notes, Mortgages and Contracts
-------------------------------
A summary of notes, mortgages and contracts at December 31, 1992 and 1991,
follows:
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Parent Company:
Adjustable rate term note payable, maturing
through 2000 $10,500,000 $ 9,540,000
7.75% mortgage loan - 202,509
10% Industrial Development Revenue bond - 483,959
Adjustable rate revolving line of credit - 100,000
----------- -----------
Parent Company - total 10,500,000 10,326,468
----------- -----------
Subsidiaries:
10.33% SID payable, maturing through 2002 5,668 6,327
Adjustable rate bank note payable - 130,000
----------- -----------
Subsidiaries - total 5,668 136,327
----------- -----------
Total notes, mortgages and contracts $10,505,668 $10,462,795
=========== ===========
</TABLE>
The Company's adjustable rate term loan payable is secured by all stock
owned in the Company's bank subsidiaries. The term loan agreement contains
various restrictive covenants including limitations on capital spending and
acceleration of maturity in the event of four consecutive quarters of
operating losses in any subsidiary bank or the Parent Company.
The Company has a $100,000 revolving line of credit with interest at prime
rate (6% at December 31, 1992). The line of credit is also secured by all
stock of the subsidiary banks. The line of credit must be fully repaid for
thirty consecutive days each year. At December 31, 1992, this line of
credit was unused. Further, one of the subsidiary banks has a $10,000,000
Federal Funds line of credit for seasonal needs. At December 31, 1992,
this line of credit was unused.
Approximate maturities of notes and contracts payable for the five years
subsequent to December 31, 1992 are as follows: $600,550 in 1993; $750,550
in 1994; $1,000,550 in 1995; $1,300,550 in 1996; and $1,550,550 in 1997.
(10) Employee Benefit Plans
----------------------
The Company provides a Cash or Deferred Profit Sharing Plan and Trust (the
Plan) which covers substantially all employees. Under the Plan, employees
may elect to contribute a percentage of their monthly compensation to the
Plan. The employee's funds, in addition to a 75% employer matching
contribution (within certain limits), are used to purchase investments for
the accounts of the participating employees. Employer contributions to the
plan were approximately $128,000, $83,000 and $62,000 in 1992, 1991 and
1990, respectively.
The Plan was the resultant entity from the merger of a previously existing
401(k) plan and an Employee Stock Ownership Plan (ESOP), which covered
substantially all employees. Contributions (expense) to the ESOP were
$49,500 and $198,000 in 1991 and 1990, respectively. The Company had
assumed certain obligations of the ESOP. The Company had also committed to
make contributions to the ESOP sufficient to repay the ESOP obligations
assumed. Payments on the ESOP obligations funded by the Company's ESOP
contributions were charged to employee benefit expense for the principal
portion and interest expense for the interest. The deferred charge against
stockholders' equity was also reduced as ESOP obligation principal payments
were made. Interest expense components of ESOP contributions were
approximately $18,000 and $80,000 in 1991 and 1990, respectively.
(Continued)
F-16
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During 1991, the Parent Company and a subsidiary redeemed 6,400 and 21,200
shares, respectively, of the Company's common stock from the ESOP and the
ESOP subsequently paid off its remaining debt. The 52,591 shares of stock
owned by the ESOP have been allocated to the plan participants. The
Company is obligated to redeem shares of plan participants upon retirement
or termination.
In addition to the Plan, the Company provides post retirement death
benefits for certain key employees as an inducement to continue employment
through age 65. The Company currently has one employee eligible for
benefits under the plan. There were no benefits paid in 1992, 1991 or
1990.
(11) Related Party Transactions
--------------------------
The Parent Company has entered into a comprehensive service agreement with
Central Financial Services, Inc. (CFS) of Golden Valley, Minnesota. CFS is
owned by the Chairman of the Board of Directors of the Company. CFS
provides certain advisory and consulting services to the Company's
subsidiary banks. Fees paid to CFS amounted to $779,000 in 1992, $703,000
in 1991 and $533,000 in 1990. 1992 fees include ten months' assessment on
the bank acquired in 1992. 1991 fees include a full years' assessment on
the two additional banks acquired in 1990. Fees charged are based on
actual costs and other services provided by CFS.
Certain officers and directors of the subsidiary banks and the Parent
Company and certain corporations and individuals related to such persons
incurred indebtedness of approximately $178,000 in the form of loans, as
customers of the subsidiary banks. These loans were made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other customers and
did not involve more than normal risk of collectibility.
The Parent Company and subsidiaries have, in the normal course of business,
other arms length transactions with related parties.
(12) Acquisition of Subsidiary Banks
-------------------------------
On March 17, 1992, the Company acquired certain assets and liabilities of a
closed financial institution in Anaconda, Montana from the Federal Deposit
Insurance Corporation (FDIC). The amount of liabilities assumed was
$29,640,125 for which the Company received assets valued at $29,513,125.
Goodwill of $127,000 was recorded at acquisition. Certain assets acquired
were subject to a put-back agreement whereby the FDIC would repurchase
those assets from the Company.
On May 1, 1990, the Company acquired all of the outstanding common stock of
Big Sky Bankshares, Inc. (Big Sky). Big Sky owned 100% of the stock of
Village Bank of Great Falls, Montana (Village), a state chartered bank.
Both Big Sky and the Company obtained independent third party appraisals to
determine the exchange ratio. Big Sky was jointly owned by the Chairman of
the Board of Directors and an officer of the Company (controlling
shareholders).
The Company issued 117,350 shares of its common stock and assumed
$1,350,000 of Big Sky's debt in exchange for all of the shares of Big Sky.
This transaction between the Company and the controlling shareholders was
accounted for as a purchase transaction using the controlling shareholders'
historical cost. The unaudited net book value of Village at May 1, 1990
was $2,437,170 which included net intangible assets of $389,500.
(Continued)
F-17
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The operations of Big Sky and Village are included in the consolidated
statement of income beginning May 1, 1990.
On November 1, 1990, the Company acquired all of the outstanding common
stock of Toole County State Bank, Shelby, Montana (Shelby), a state
chartered bank. The exchange ratio was determined by independent third
party appraisals. Shelby was also jointly owned by the controlling
shareholders.
The Company issued 82,811 shares of its common stock and assumed
$5,000,000 of the controlling shareholder's debt in exchange for all of
the shares of Shelby. This transaction between the Company and the
controlling shareholders was accounted for as a purchase transaction
using the controlling shareholders' historical cost. The unaudited net
book value of Shelby at November 1, 1990 was $5,572,253.
The operations of Shelby are included in the consolidated statement of
income beginning November 1, 1990.
(13) Commitments and Contingent Liabilities
--------------------------------------
On August 31, 1992, the Company entered into an agreement to purchase all
of the outstanding capital stock of Montana Bancsystems, Inc., for $19 per
share for a total of approximately $39,000,000. Approval of the
transaction was granted on March 1, 1993 by the Federal Reserve Bank of
Minneapolis. Final closing is expected to occur on or about March 31,
1993.
The transaction will be financed by the sale to shareholders of
$22,500,000 of newly issued common stock of the Company. Additional
borrowings on the existing line of credit will also be used.
Selected financial information about Montana Bancsystems, Inc. at December
31, 1992 follows:
<TABLE>
<S> <C>
Total assets $326,303,000
============
Total stockholders equity $ 31,424,000
============
Total interest income $ 24,622,000
============
Net income for the year ended December 31, 1992 $ 4,004,000
============
</TABLE>
During 1989, a bank subsidiary was identified as a potentially responsible
party (PRP) in connection with material claims asserted under the
Comprehensive Environmental Response, Compensation and Liability Act and
corresponding state environmental laws. On December 30, 1992 the bank
subsidiary was fully and unconditionally released from all claims under
Federal and State laws and from future liability relating to the claims.
In the normal course of their business, the Company and its subsidiary
banks are named or threatened to be named as defendants in various other
lawsuits, some of which involve claims for substantial amounts of punitive
damages. With respect to each of these other suits it is the opinion of
management, following consultation with legal counsel, that these suits are
without merit or in the event the plaintiff prevails, the ultimate
liability or disposition thereof will not have a material adverse effect on
the consolidated financial condition of the Company.
(Continued)
F-18
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Rental Obligations
------------------
Certain subsidiaries lease premises and equipment from unrelated parties.
The terms of certain leases are from one to three years and in most cases
are cancelable at the option of either party with appropriate written
notice. The leases generally contain no options to renew and no purchase
options upon expiration of the lease. Rental expense aggregated
approximately $649,000 in 1992, $641,000 in 1991, and $616,000 in 1990.
Under agreements existing at December 31, 1992, required annual rentals are
approximately $279,000 in 1993, $240,000 in 1994 and $111,000 in 1995.
(15) Financial Instruments With Off-Balance-Sheet Risk
-------------------------------------------------
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit and interest swaps and collars. These instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of amounts recognized in the consolidated balance sheet.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon
extension of credit is based on management's credit evaluation of the
customer. Collateral held varies but may include accounts receivable,
inventory, property, plant, and equipment, and income-producing commercial
properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. Most commitments extend for no more than 2
years. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company holds various collateral supporting those
commitments for which collateral is deemed necessary. The Company uses the
same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. At December 31, 1992, stand-by letters of credit in the
amount of $1,320,000 were outstanding. Commitments to extend credit to
existing and new borrowers approximated $27,638,000 at December 31, 1992.
Effective January 10, 1992, the Company entered into an interest rate swap
agreement (the swap) to hedge its exposure to interest rate risk on
adjustable rate debt. The swap is an agreement to exchange interest
payment streams based on a notional principal amount. The swap has a
notional principal amount of $5,000,000 and terminates January 10, 1995.
Revenues and expenses resulting from the swap are recognized as components
of interest revenue or expense over the life of the swap. The Company
recorded additional interest expense of $102,274 in 1992 due to the net
rate differential.
(Continued)
F-19
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In 1989, the Company entered into an interest rate collar (Collar)
agreement to hedge its exposure to interest rate risk on adjustable rate
debt. The Company paid interest on the $4,000,000 notional Collar
principal when the prime interest rate fell below 9.0% and would have
received interest if the prime rate rose above 11.5%. The agreement
terminated July 28, 1992. The net rate differential paid or received on
the Collar was recorded as an adjustment to interest expense on borrowed
funds. The Company recorded additional interest expense of $59,778 in 1992
and $23,556 in 1991, due to net rate differentials in those years. There
was no net rate differential in 1990. The notional amount of the Collar
did not represent exposure to credit loss. The Company controlled the
credit risk of its interest rate collar agreement through limits and
monitoring procedures.
(16) Regulatory Matters
------------------
In January 1989, the Federal Reserve Board (FRB) and the Federal Deposit
Insurance Corporation (FDIC) issued risk-based capital guidelines to more
accurately consider the credit risk inherent in the assets and
off-balance-sheet activities of a bank or bank holding company and their
assessment of capital adequacy.
Under the guidelines, total capital has been redefined as core capital and
supplementary capital. The Company's core capital consists primarily of
stockholders' equity, while supplementary capital consists primarily of the
allowance for loan losses (not to exceed 1.25% of risk weighted assets).
Under the guidelines, all goodwill is to be excluded from the components of
core capital. The definition of assets has also been modified to include
items on and off the balance sheet, with each item being assigned a
predefined credit "risk-weight".
At December 31, 1992, the Company's total risk-based capital (core plus
supplementary) and core capital ratios, calculated in accordance with the
guidelines, were 10.13% and 9.27%, respectively. In addition to the
risk-based guidelines discussed above, the FRB and FDIC also established a
leverage ratio defined as core capital as a percentage of average tangible
assets. The Bank's leverage ratio at December 31, 1992 was 5.41%.
The Company's and the Bank's capital ratios exceed the highest capital
category, which requires total risk-based capital of at least 10%, core
capital of at least 6% and a leverage ratio of at least 5%.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), which
was enacted on December 19, 1991, substantially revises 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 agencies to
implement differing levels of oversight depending on the institution's
capital category, as defined in the regulations. A depository
institution's capital category will depend upon where its capital ratios
are in relation to various relevant capital measures, which include the
risk-based capital and leverage ratios. The capital categories represent
minimum standards that will generally be applied to all institutions.
However, the regulatory agencies may impose higher minimum standards on
individual institutions or may downgrade an institution at the applicable
agency's discretion. FDICIA generally restricts 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 (less than 8% total
risk-based capital or 4% core capital and leverage).
(Continued)
F-20
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
FDICIA directs that each federal banking agency prescribe standards that
may affect FDIC insurance rates and the operations of banks and bank
holding companies. Because such standards have not yet been established,
management is unable to assess their impact.
(17) Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments (Statement 107), required that the Company
disclose the estimated fair values of its financial instruments. The
methods and significant assumptions used to estimate fair values for the
various financial instruments are set forth below.
Cash and Cash Equivalents
-------------------------
Due to the liquid nature of the instruments, the carrying value of due
from banks and federal funds sold approximates market value.
Investment Securities
---------------------
Fair values of investment securities are based on quoted market prices or
dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
The following table represents the carrying value and estimated fair
value of investment securities at December 31, 1992:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------ ------------
<S> <C> <C>
U.S. Treasury securities $ 7,330,215 $ 7,403,048
States, country and municipal 6,653,500 6,789,431
Corporate securities 2,960,064 2,970,000
Mortgage-backed securities 192,438,764 194,814,979
Asset-backed securities 262,376 266,542
------------ ------------
Total $209,644,919 $212,244,000
============ ============
</TABLE>
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real
estate, and installment. Each loan category is further segmented into
fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value of performing fixed rate loans is calculated by
discounting scheduled cash flows through estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan category using the U.S. Treasury yield curve
adjusted to bond equivalent yields. The estimate of maturity is based on
the Company's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic and lending conditions. For performing real estate
loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources.
(Continued)
F-21
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of adjustable rate loans was considered to be the carrying
value of these instruments due to the frequent repricing, provided there
had been no change in credit quality since origination. At December 31,
1992, the carrying value of net loans was $241,989,120 and the estimated
fair value of net loans was $250,912,000.
Deposits and Securities Sold Under Repurchase Agreements
--------------------------------------------------------
The fair value of demand deposits, savings accounts, and securities sold
under repurchase agreements is the amount payable on demand at the
reporting date, due to the liquid nature of the instruments and the
frequent repricing.
The fair value of fixed-maturity certificates of deposit is estimated
using external market rates currently offered for deposits of similar
remaining maturities.
Following are the carrying value and estimated fair value of deposits and
securities sold under repurchase agreements at December 31, 1992:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------ ------------
<S> <C> <C>
Noninterest bearing demand $ 63,844,603 $ 63,844,603
------------ ------------
Interest bearing:
Demand 75,344,136 75,344,136
Savings 125,406,557 125,406,557
Time deposits 145,398,659 147,296,529
------------ ------------
Total interest bearing 346,149,352 348,047,222
------------ ------------
$409,993,955 $411,891,825
============ ============
Securities sold under repurchase agreements $ 40,811,097 $ 40,811,097
============ ============
</TABLE>
Other Borrowed Funds and Long-Term Debt
---------------------------------------
The term note payable and line of credit borrowings bear interest at a
floating market rate and, as such, the carrying amounts are deemed to
reflect fair value.
Commitments to Extend Credit and Standby Letters of Credit
----------------------------------------------------------
The fair value of commitments to extend credit can be estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
creditworthiness of the counterparties. It is not practicable to
estimate fair value because sufficient records are not readily available
to support estimates of fees which can be realized on these instruments.
Loan fees for the year ended December 31, 1992, including fees charged
for commitments to extend credit and standby letters of credit, were
approximately $330,000, of which a significant portion related to real
estate refinancing.
(Continued)
F-22
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire
holdings of a particular instrument. Because no market exists for a
significant portion of the Bank's financial instruments, fair value
estimates are based on judgments regarding comparable market interest
rates, future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets that are
not considered financial assets include property and equipment. In
addition, the tax effect of the difference between the fair value and
carrying value of financial instruments can have a significant effect on
fair value estimates and have not been considered in the estimates.
(18) Parent Company Information
--------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------
Condensed Balance Sheets 1992 1991
------------------------ ----------- -----------
<S> <C> <C>
Assets:
Cash and short-term deposits $ 22,813 $ 39,615
Advances to subsidiaries, net - 166,199
Investment in subsidiaries at equity in net assets 38,919,969 35,781,893
Intangible assets 2,187,886 2,159,332
Other assets - 95,144
----------- -----------
Total assets $41,130,668 $38,242,183
=========== ===========
Liabilities and stockholders' equity:
Accounts payable and accrued expenses $ (2,574) $ 292,379
Long-term debt 10,500,000 10,326,468
Stockholders' equity 30,633,242 27,623,336
----------- -----------
Total liabilities and stockholders' equity $41,130,668 $38,242,183
=========== ===========
</TABLE>
(Continued)
F-23
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
Condensed Statements of Income 1992 1991 1990
- ------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Dividends from
subsidiaries $ 4,671,500 $ 3,927,000 $ 2,873,141
Interest income 4,617 5,810 9,360
Other income 180 4,002 3,734
----------- ----------- -----------
4,676,297 3,936,812 2,886,235
Expenses:
Interest and related expenses 869,353 844,147 535,922
Other expenses 203,697 175,768 189,698
----------- ----------- -----------
1,073,050 1,019,915 725,620
Income before income tax benefit
and equity in undistributed income of
subsidiaries 3,603,247 2,916,897 2,160,615
Income tax benefit 266,508 93,911 97,690
----------- ----------- -----------
Income before equity in undistributed
income of subsidiaries 3,869,755 3,010,808 2,258,305
Equity in undistributed income of
subsidiaries 1,133,672 1,037,054 842,360
----------- ----------- -----------
Net income $ 5,003,427 $ 4,047,862 $ 3,100,665
=========== =========== ===========
Condensed Statements of Cash Flows
- ----------------------------------
Net cash provided by operating
activities $ 3,641,392 $ 2,820,555 $ 3,045,645
----------- ----------- -----------
Investing activities:
Investment in subsidiaries, net (4,404) (50,000) -
Advances to (from) subsidiaries, net 166,199 163,010 (54,132)
----------- ----------- -----------
Net cash provided (used) by
investing activities 161,795 113,010 (54,132)
----------- ----------- -----------
Financing activities:
Long-term debt, net (1,826,468) (63,656) (1,620,355)
Payments to acquire common stock (127,575) (2,091,032) -
ESOP debt reduction - 720,000 160,000
Dividends paid (1,865,946) (1,637,410) (1,621,338)
----------- ----------- -----------
Net cash used by financing activities (3,819,989) (3,072,098) (3,081,693)
Net change in cash (16,802) (138,533) (90,180)
Cash at beginning of year 39,615 178,148 268,328
----------- ----------- -----------
Cash at end of year $ 22,813 $ 39,615 $ 178,148
=========== =========== ===========
</TABLE>
(Continued)
F-24
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Noncash Investing and Financing Activities
- ------------------------------------------
During 1991, the Parent liquidated certain non-bank subsidiaries. The Parent
recorded net assets of $855,320 and assumed $490,276 of debt. Subsequently, the
Parent contributed certain of these net assets received with a historical net
book value of $512,766 to a bank subsidiary in Lewistown, Montana.
Also during 1991, a bank subsidiary assumed a liability previously carried by
the Parent for $296,556.
In 1990, the Company acquired all of the capital stock of two banks for issuance
of 200,161 shares of Company common stock and the assumption of long-term debt.
Assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Investment in bank stock $8,009,423
Less long-term debt assumed 6,350,000
----------
Common stock issued $1,659,423
==========
</TABLE>
F-25
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
------------------------------
1993 1992
------------------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 28,991,379 $ 22,339,152
Federal funds sold 2,425,000 5,300,000
Investment securities:(approximate market
value 1993 - $344,795,000,
1992 - $212,244,000):
U.S. Government and agency obligations 288,429,860 192,596,776
State, county and municipal obligations 40,090,810 6,653,500
Other investments 11,940,056 10,394,643
--------------------------
Total investment securities 340,460,726 209,644,919
--------------------------
Loans 386,184,620 244,469,158
Less: Reserve for loan losses 6,011,454 2,480,038
--------------------------
Net loans 380,173,166 241,989,120
--------------------------
Premises and equipment, net 19,170,569 7,010,295
Accrued income receivable 4,647,285 3,739,640
Excess of purchase price over
equity in net assets acquired
and other intangible assets, net 9,645,437 2,997,126
Cash value of life insurance 5,980,820 5,758,827
Other real estate owned 369,820 398,590
Other assets 5,171,979 842,377
--------------------------
TOTAL ASSETS $797,036,181 $500,020,046
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $111,172,772 $ 63,844,603
Interest bearing 552,583,426 346,149,352
--------------------------
Total deposits 663,756,198 409,993,955
Federal funds purchased and repurchase
agreements 53,541,100 40,811,097
Income taxes payable 2,272,924 875,327
Notes, mortgages and
contracts payable 18,550,000 10,505,668
Accrued expenses and other
liabilities 3,570,653 7,799,957
--------------------------
Total liabilities 741,690,875 469,986,004
Minority interest 117,511 -
Commitments and contingencies
Stockholders' equity:
Common stock, $2.50 par value; 4,000,000 shares
authorized, 2,014,676 outstanding in 1993
(1,290,547 in 1992) 5,036,690 3,226,368
Additional paid-in capital 24,603,589 3,962,545
Retained earnings 25,587,516 22,845,129
--------------------------
Total stockholders' equity 55,227,795 30,034,042
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $797,036,181 $500,020,046
==========================
</TABLE>
F-26
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1993 1992
----------- -----------
<S> <C> <C>
Interest income:
Interest and fees on loans $22,429,278 $13,825,522
Interest on U.S. Government and agency
obligations 9,964,619 9,452,334
Interest on state, county and
municipal obligations 1,051,629 327,382
Interest on other investments 480,130 1,106,568
Interest on federal funds sold 299,050 180,765
----------- -----------
Total interest income 34,224,706 24,892,571
----------- ----------
Interest expense:
Interest on deposit accounts 11,979,880 10,388,382
Interest on federal funds purchased and
repurchase agreements 1,263,290 1,007,075
Interest on notes, mortgages and contracts 879,854 675,323
----------- ----------
Total interest expense 14,123,024 12,070,780
----------- -----------
Net interest income 20,101,682 12,821,791
Provision for loan losses 456,598 603,748
----------- -----------
Net interest income after provision for
loan losses 19,645,084 12,218,043
---------- -----------
Other operating income:
Service charges on deposit accounts 2,665,193 1,291,055
Gain on sale of investment securities, net 300,437 1,204,390
Other income 3,712,446 2,369,135
----------- -----------
Total other operating income 6,678,076 4,864,580
----------- -----------
Other operating expense:
Salaries and wages 6,531,886 4,025,753
Employee benefits 1,276,893 641,723
Net occupancy expense 1,741,012 714,397
Furniture and equipment expense 1,230,266 923,536
Other expense 7,917,814 5,129,407
----------- -----------
Total other operating expense 18,697,871 11,434,816
----------- -----------
Income before income taxes 7,625,289 5,647,807
Applicable income tax expense 2,761,318 2,139,376
Minority interest 4,266 -
----------- -----------
NET INCOME $ 4,859,705 $ 3,508,431
=========== ===========
Weighted average number of common shares
outstanding 1,773,586 1,297,571
=========== ===========
NET INCOME PER SHARE $2.74 $2.70
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-27
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1993 1992
----------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $8,713,812 $5,191,615
Interest on U.S. Government and agency
obligations 3,737,801 2,809,364
Interest on state, county and
municipal obligations 489,934 117,694
Interest on other investments 76,670 289,954
---------- ----------
Total interest income 13,018,217 8,408,627
---------- ----------
Interest expense:
Interest on deposit accounts 4,498,162 3,218,511
Interest on federal funds
purchased and repurchase
agreements 375,790 348,169
Interest on notes, mortgages
and contracts 351,020 213,086
---------- ----------
Total interest expense 5,224,972 3,779,766
---------- ----------
Net interest income 7,793,245 4,628,861
Provision for loan losses 126,230 62,792
---------- ----------
Net interest income after
provision for loan losses 7,667,015 4,566,069
---------- ----------
Other operating income:
Service charges on deposit
accounts 1,149,419 441,361
Gain on sale of investment
securities, net 73,841 217,655
Other income 1,476,200 913,532
---------- ----------
Total other operating income 2,699,460 1,572,548
---------- ----------
Other operating expense:
Salaries and wages 2,652,043 1,368,287
Employee benefits 622,261 226,931
Net occupancy expense 909,025 249,407
Furniture and equipment
expense 290,634 305,198
Other expense 3,175,264 1,814,080
---------- ----------
Total other operating expense 7,649,227 3,963,903
---------- ----------
Income before income taxes 2,717,248 2,174,714
Applicable income tax expense 972,537 880,894
Minority interest 2,411 -
---------- ----------
NET INCOME $1,742,300 $1,293,820
========== ==========
Weighted average number of common
shares outstanding 2,014,676 1,296,341
========== ==========
NET INCOME PER SHARE $0.86 $1.00
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-28
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
--------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1993 1992
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,859,705 $ 3,508,431
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,681,685 900,922
Provision for loan losses 456,598 603,748
Changes in operating assets and liabilities:
Accrued income receivable 2,147,355 (589,586)
Income taxes payable (405,908) 135,581
Accrued expenses and other liabilities (6,842,872) (1,305,287)
Other (3,887,700) (659,179)
------------- ------------
Net cash provided by operating activities (1,991,137) 2,594,630
------------- ------------
Cash flows from investing activities:
Purchases of investment securities (306,712,665) (91,845,434)
Maturities and sales of investment securities 344,050,279 117,285,041
Federal funds sold, net 13,645,000 16,175,000
Net increase in loans (33,594,469) (48,814,070)
Premises and equipment, net (1,141,101) (892,453)
Net (increase) decrease in other real estate 159,770 (294,313)
Acquired subsidiaries' cash and cash equivalents - 7,929,047
Payment for purchase of Montana Bancsystem, Inc., net of cash acquired (18,277,814) -
------------- ------------
Net cash used in investing activities (1,871,000) (457,182)
------------- ------------
Cash flows from financing activities:
Net increase (decrease) in non-interest bearing deposits (345,063) (11,815,361)
Net increase (decrease) in interest bearing deposits (22,156,594) (744,638)
Net increase (decrease) in repurchase agreements 5,707,641 5,281,172
Proceeds of debt financing 8,700,000 2,000,000
Payments on debt financing (1,725,668) (1,556,744)
Dividends paid (2,117,318) (1,401,044)
Proceeds from issuance of common stock 22,500,000 -
Payments to acquire company common stock (48,634) (69,200)
------------- ------------
Net cash provided by financing activities 10,514,364 (8,305,815)
------------- ------------
Net change in cash and cash equivalents 6,652,227 (6,168,367)
Cash and cash equivalents, beginning of period 22,339,152 22,912,162
------------- ------------
Cash and cash equivalents, end of period $ 28,991,379 $ 16,743,795
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
BANK OF MONTANA SYSTEM AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional ESOP shares
Common Paid-in Retained purchased
Stock Capital Earnings with debt Total
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1990 $3,606,403 6,400,317 17,297,196 (720,000) 26,583,916
Net income - - 2,914,221 - 2,914,221
Dividends paid, $.90 per share - - (1,247,677) - (1,247,677)
ESOP debt reduction - - - 720,000 720,000
Purchase of 113,561 shares from
former director (283,903) (1,589,854) - - (1,873,757)
Purchase of 27,600 shares from
ESOP and retired employees (69,000) (621,000) - - (690,000)
---------- ----------- ----------- --------- -----------
Balance September 30, 1991 $3,253,500 $ 4,189,463 $18,963,740 $ 0 $26,406,703
========== =========== =========== ========= ===========
Balance December 31, 1991 $3,247,773 4,137,915 19,707,648 - 27,093,336
Net income - - 3,508,431 - 3,508,431
Dividends paid, $1.08 per share - - (1,401,044) - (1,401,044)
Purchase of 2,768 shares from
ESOP and retired employees (6,920) (62,280) - - (69,200)
---------- ----------- ----------- --------- -----------
Balance September 30, 1992 $3,240,853 $ 4,075,635 $21,815,035 $ 0 $29,131,523
========== =========== =========== ========= ===========
Balance December 31, 1992 $3,226,368 3,962,545 22,845,129 - 30,034,042
Net income - - 4,859,705 - 4,859,705
Dividends paid, $1.18 per share - - (2,117,318) - (2,117,318)
Issuance of 725,806 shares for
the acquisition of Montana
Bancsystem, Inc. 1,814,515 20,685,485 - - 22,500,000
Purchase of 1,677 shares from
ESOP and retired employees (4,193) (44,441) - - (48,634)
---------- ----------- ----------- --------- -----------
Balance September 30, 1993 $5,036,690 $24,603,589 $25,587,516 $ 0 $55,227,795
========== =========== =========== ========= ===========
</TABLE>
F-30
<PAGE>
BANK OF MONTANA SYSTEM
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992
- --------------------------------------------------------------------------------
(1) Management's Opinion
The consolidated financial statements included herein include the accounts of
Bank of Montana System and its subsidiaries (collectively, the Company) and have
been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the consolidated financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. Although the Company
believes that the disclosures are adequate to make the information presented not
misleading, it is suggested that these financial statements be read in
connection with the consolidated financial statements and the notes thereto
included in the Company's annual report to shareholders for the year ended
December 31, 1992.
In the opinion of the Company, the accompanying unaudited September 30, 1993 and
audited December 31, 1992 consolidated financial statements contain all
adjustments necessary to present fairly the Company's financial position, and
the results of its operations and its cash flows for the nine months ended
September 30, 1993 and 1992, and the results of operations for the three months
ended September 30, 1993 and 1992.
The results of operations for the nine months ended September 30, 1993 are not
necessarily indicative of the results to be expected for the full year.
(2) Acquisition
On March 31, 1993, Bank of Montana System ("BMS") completed the acquisition of
Montana Bancsystem, Inc. ("MBI") and its subsidiary, Montana Bank, with twelve
branches located in Montana. Under the terms of the merger agreement, BMS
purchased all of the outstanding common shares of MBI and 99.6% of the
outstanding shares of Montana Bank for cash. The purchase price of $38,977,000
included $38,202,000 related to the purchase of MBI's common stock and $775,000
of direct acquisition costs. The results of operations and financial position
of MBI and its subsidiary subsequent to its acquisition date have been included
in the Company's consolidated financial statements of September 30, 1993.
The Merger was recorded during the first quarter of 1993 by the parent using the
purchase method of accounting in accordance with APB No. 16. At September 30,
1993, goodwill (net of accumulated amortization) recorded in connection with the
Merger, which represents the excess of the purchase price over the estimated
fair value of the identifiable net assets at the consummation of the Merger,
amounted to approximately $6,930,000. The amount of goodwill is subject to
change as the refinement of purchase accounting adjustments is finalized.
F-31
<PAGE>
BANK OF MONTANA SYSTEM
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992
- --------------------------------------------------------------------------------
The assets and liabilities of MBI acquired were as follows:
<TABLE>
<CAPTION>
March 31, 1993
--------------
<S> <C>
Investment securities $168,153
Federal funds sold 10,770
Loans, net 105,046
Cash and due from banks 14,012
Other assets 22,608
--------
Total assets $320,589
========
Deposits $276,264
Other liabilities 12,153
Minority interest 113
Stockholders' equity 32,059
--------
Total liabilities and stockholder's equity $320,589
========
</TABLE>
The following Unaudited Pro Forma Combined Summary of Operations presents a pro
forma combined summary of operations of the Company and MBI and its
subsidiaries for the nine months ended September 30, 1993 and 1992.
The unaudited Pro Forma Combined Summary of Operations is presented as if the
Merger had been effective on January 1, 1993. The Unaudited Pro Forma Combined
Summary of Operations for the nine months ended September 30, 1993 combines the
Company's historical results of operations for the nine months ended September
30, 1993, which included combined operations from April 1, 1993 forward, and
MBI's results of operations for the period ended January 1, 1993 through March
31, 1993. This combined historical summary of operations information was
adjusted for the amortization of purchase accounting adjustments, as well as for
the elimination of expenses that are not ongoing. The unaudited Pro Forma
Combined Summary of Operations for the nine months ended September 30, 1992
combines the historical results of operations of the Company and MBI for the
nine months ended September 30, 1992, after giving effect to amortization of
purchase accounting adjustments and the elimination of the expenses that are
not ongoing. Certain amounts in MBI'S historical results of operations were
reclassified to conform to the Company's financial statement presentation.
The Unaudited Pro Forma Combined Summary of Operations data is intended for
informational purposes only and is not necessarily indicative of the future
results of operations of the Company, or of the results of operations that
would have actually occurred had the Merger been in effect for the full periods
presented.
F-32
<PAGE>
BANK OF MONTANA SYSTEM
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992
- --------------------------------------------------------------------------------
Unaudited Pro Forma Combined Summary of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
(dollar amounts in thousands, except per share data) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Summary of Operations:
Interest income $39,412 $42,666
Interest expense 16,297 20,102
--------------------------
Net interest income 23,115 22,564
Provision for loan losses 457 493
--------------------------
Net interest income after provision for loan losses 22,658 22,071
Noninterest income 7,328 6,989
Securities gains 438 1,259
Noninterest expense 22,061 21,214
--------------------------
Income before income taxes 8,363 9,105
Provision for income taxes 2,960 3,211
Minority interest 7 37
--------------------------
Net income $ 5,396 $ 5,857
==========================
Earnings per common share $2.68 $2.91
----- -----
</TABLE>
(3) Notes Payable
- ------------------
A summary of consolidated notes payable at September 30, 1993 and 1992, follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Parent:
-------
Adjustable rate term note payable maturing
through 2001 $18,500 $10,900
Adjustable rate revolving line of credit 50 0
--------------------------
18,550 10,900
--------------------------
Subsidiaries:
-------------
10.33% SID payable, paid in 1993 0 6
--------------------------
$18,550 $10,906
==========================
</TABLE>
The maximum amount of short-term debt outstanding at any month-end during the
report periods was $100,000.
F-33
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AND
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 13th day of September, 1993, by and between BANK OF MONTANA SYSTEM ("BMS"),
a Montana corporation, and NORWEST CORPORATION ("Norwest"), a Delaware
corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest will merge with and into BMS (the "Merger")
pursuant to a plan of merger (the "Merger Agreement") in substantially the form
attached hereto as Exhibit A, which provides, among other things, for the
conversion and exchange of the shares of Capital Stock of BMS of the par value
of $2.50 per share ("BMS Common Stock") outstanding immediately prior to the
time the Merger becomes effective in accordance with the provisions of the
Merger Agreement (the "Effective Time of the Merger") into shares of voting
Common Stock of Norwest of the par value of $1-2/3 per share ("Norwest Common
Stock"),
NOW, THEREFORE, to effect such reorganization and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLAN OF REORGANIZATION
(a) Merger. Subject to the terms and conditions contained herein, a
wholly-owned subsidiary of Norwest incorporated in Montana ("Merger Co.") will
be merged by statutory merger with and into BMS pursuant to the Merger
Agreement, with BMS as the surviving corporation, in which merger each share of
BMS Common Stock outstanding immediately prior to the Effective Time of the
Merger (other than shares as to which statutory dissenters' appraisal rights
have been exercised) will be converted into and exchanged for the number of
shares of Norwest Common Stock determined by dividing the Adjusted Norwest
Shares (as defined below) by the number of shares of BMS Common Stock then
outstanding. "Adjusted Norwest Shares" shall mean 4,200,000; provided, however,
that
(i) With respect to any severance or bonus agreements described in
Schedule 4(b), the Adjusted Norwest Shares shall be reduced by a number
equal to (A) $385,000 divided by (B) the Norwest Measurement Price (as
defined below);
A-1
<PAGE>
(ii) with respect to any shares of BMS Common Stock that are redeemed,
purchased or otherwise acquired pursuant to and as required by BMS's
employee stock ownership plan from and including June 22, 1993 to and
including the Effective Date, the Adjusted Norwest Shares shall be reduced
by a number equal to (A) the number of shares so redeemed, purchased or
otherwise acquired multiplied by (B) the Adjusted Norwest Shares after all
adjustments described in subparagraphs 1(a)(i) and 1(a)(iii) through
1(a)(v) are made divided by (C) 2,014,676;
(iii) with respect to the contracting by BMS of Norwest's services as
provided in paragraph 4(x), the Adjusted Norwest Shares shall be reduced by
a number equal to (A) the amount BMS owes Norwest with respect to such
services pursuant to paragraph 4(x) divided by (B) the Norwest Measurement
Price (as defined below);
(iv) if Norwest reasonably determines that (A) any Losses (as defined
below) exist as of 30 days prior to the Effective Date or (B) any Losses
have been charged off in the financial statements of BMS during the period
from but excluding June 30, 1993 to immediately prior to the Effective
Time, then the Adjusted Norwest Shares shall be reduced by a number equal
to (y) the Losses (without duplication) described in clauses (A) and (B)
above divided by (z) the Norwest Measurement Price (as defined below);
(v) with respect to the Remediation (as defined in paragraph 4(aa) and
the development and implementation of Remediation Plans (as defined in
paragraph 4(aa)) required by paragraph 4(aa) (other than the costs of any
Phase I or II environmental assessments as described in paragraph 7(m)) ,
the Adjusted Norwest Shares shall be reduced by a number equal to (A)the
lesser of the Net Cost (as defined below) and $100,000 divided by (B) the
Norwest Measurement Price (as defined below); and
(vi) the Adjusted Norwest Shares shall be adjusted as provided in
subparagraph (b) below.
The "Norwest Measurement Price" shall mean 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 twenty (20) trading days
ending at the end of the third trading day immediately preceding the Closing
Date (as appropriately and proportionately adjusted in the event that, between
the date hereof and the termination of such twenty trading day period, 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 stock dividend).
A-2
<PAGE>
"Losses" shall mean those amounts that the general ledger balancing and
account reconciliation process identifies as 1) reconciling items that do not
represent valid timing differences and with respect to which, as of the date of
determination described in paragraph 1(a)(iv), 45 days has elapsed since the
date of origination of the related individual general ledger account entries, or
2) out of balance conditions including situations in which the entries in the
general ledger and the subsidiary ledgers do not correspond or situations in
which entries or balances in the general ledger or the subsidiary ledgers are
not supported by valid original source documents or by certifiable systems
applications balances.
"Net Cost" shall mean an amount equal to (y) the aggregate costs for
Remediation (as defined in paragraph 4(aa)) and the development and
implementation of Remediation Plans (as defined in paragraph 4(aa)) (but not the
assessments described in paragraph 7(m)), actually paid by BMS or the BMS
Subsidiaries prior to the Effective Date plus the estimated costs contemplated
to be paid by BMS or the BMS Subsidiaries pursuant to any Remediation Plan, but
which have not been paid as of the Effective Date, minus (z) the aggregate
amount received by BMS or any BMS Subsidiary prior to the Effective Date from
any third party that may be a responsible party or other party otherwise
obligated to reimburse BMS or any BMS Subsidiary for such costs (including the
State of Montana).
(b) Norwest Common Stock Adjustments. If between the date hereof and the
Effective Time of the Merger, shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or 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 BMS Common Stock shall be converted pursuant to
subparagraph (a), above, will be appropriately and proportionately adjusted so
that the number of such shares of Norwest Common Stock into which a share of BMS
Common Stock shall be converted will equal the number of shares of Norwest
Common Stock which holders of shares of BMS 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 Merger.
(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 Merger.
A-3
<PAGE>
(d) Mechanics of Closing Merger. Subject to the terms and conditions set
forth herein, the Merger Agreement shall be executed and it and Articles of
Merger shall be filed with the Secretary of State of the State of Montana not
later than five (5) 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, but in no event prior to February
6, 1994 (the "Closing Date"). Each of the parties agrees to use its best
efforts to cause the Merger to be completed within ten (10) business days after
the satisfaction or waiver of all conditions precedent set forth in Sections
6(d), 6(e), 7(c) and 7(e) of this Agreement. The time that the filing referred
to in the first sentence of this paragraph is made is herein referred to as the
"Time of Filing". The day on which such filing is made and accepted is herein
referred to as the "Effective Date of the Merger". The Effective Time of the
Merger shall be 11:59 p.m. Minneapolis, Minnesota time on the Effective Date of
the Merger. At the Effective Time of the Merger on the Effective Date of the
Merger, the separate existence of Merger Co. shall cease and Merger Co. will be
merged with and into BMS pursuant to the Merger Agreement.
The closing of the transactions contemplated by this Agreement and the
Merger Agreement (the "Closing") shall take place on the Closing Date at the
offices of Norwest, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota.
2. REPRESENTATIONS AND WARRANTIES OF BMS. BMS represents and warrants to
Norwest, as of the date of this Agreement (except as otherwise expressly
provided), as follows:
(a) Organization and Authority. BMS is a corporation duly organized,
validly existing and in good standing under the laws of the State of Montana, is
duly qualified to do business and is in good standing in all jurisdictions where
(i) its ownership or leasing of property or the conduct of its business requires
it to be so qualified and (ii) failure to be so qualified would have a material
adverse effect on BMS and the "BMS Subsidiaries" (as hereinafter defined) taken
as a whole; and BMS has corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. BMS is
registered as a bank holding company with the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). BMS has furnished
Norwest true and correct copies of its articles of incorporation and by-laws, as
amended.
(b) BMS's Subsidiaries. Schedule 2(b) sets forth a complete and correct
list of all of BMS's subsidiaries as of the date hereof (individually a "BMS
Subsidiary" and collectively the "BMS Subsidiaries," provided that from and
after the consummation of the acquisition by BMS of Heritage Bank, if such
acquisition is consummated, the term "BMS Subsidiary" shall be deemed to include
Heritage
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Bank), 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 BMS. No equity
security of any BMS 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 BMS 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, nor are there
any stock appreciation, phantom stock or similar rights outstanding. Subject to
12 U.S.C. (S) 55 (1982) and except as set forth on Schedule 2(b), all of such
shares so owned by BMS 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 BMS Subsidiary is a corporation or state 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), BMS does not own beneficially, directly or indirectly, more than
5% of any class of equity securities or similar interests of any corporation,
bank, business trust, association or similar organization, and is not, directly
or indirectly, a partner in any partnership or party to any joint venture.
(c) Capitalization. The authorized capital stock of BMS consists of
4,000,000 shares of capital stock, $2.50 par value, of which, as of the close of
business on March 31, 1993, 2,016,353 shares were outstanding and no shares were
held in the treasury. All of the outstanding shares of capital stock of BMS
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 BMS to issue, sell or otherwise dispose of, or to
purchase, redeem or otherwise acquire, any shares of capital stock of BMS, nor
are there any stock appreciation, phantom stock or similar rights outstanding.
Except as set forth on Schedule 2(c), since March 31, 1993, no shares of BMS
capital stock have been purchased, redeemed or otherwise acquired, directly or
indirectly, by BMS or any BMS Subsidiary and no dividends or other distributions
have been declared, set aside, made or paid to the shareholders of BMS. The
maximum number of shares of BMS Common Stock (assuming for this purpose that
phantom shares and other share-equivalents constitute BMS Common Stock) that
would be outstanding as of the Effective Date of the Merger if all options,
warrants, conversion rights and other rights with respect thereto were exercised
is 2,014,676.
(d) Authorization. BMS has the corporate power and authority to enter
into this Agreement and the Merger Agreement and, subject to any required
approvals of its shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
Merger
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Agreement by BMS and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of BMS. Subject
to such approvals of shareholders and of government agencies and other governing
boards having regulatory authority over BMS as may be required by statute or
regulation, this Agreement and the Merger Agreement are valid and binding
obligations of BMS enforceable against BMS in accordance with their respective
terms.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by BMS of this Agreement or the Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor compliance
by BMS 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 BMS or any BMS Subsidiary under any of the terms,
conditions or provisions of (x) its articles of incorporation or by-laws or (y),
except to the extent that such violation, conflict, breach, default, termination
acceleration or lien could not reasonably be expected to have a material adverse
effect on the business, financial condition or results of operations of BMS and
the BMS Subsidiaries taken as a whole, any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
BMS or any BMS Subsidiary is a party or by which it may be bound, or to which
BMS or any BMS Subsidiary or any of the properties or assets of BMS or any BMS
Subsidiary may be subject, or (ii) subject to compliance with the statutes and
regulations referred to in the next paragraph, violate any statute, rule or
regulation or, to the best knowledge of BMS, violate any judgment, ruling,
order, writ, injunction, or decree applicable to BMS or any BMS 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, banking, insurance or blue sky
laws of the various states, 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 Merger under Montana law, no notice to, filing with, exemption or review by,
or authorization, consent or approval of, any public body or authority is
necessary for the consummation by BMS of the transactions contemplated by this
Agreement and the Merger Agreement.
(e) BMS Financial Statements. The consolidated statements of financial
condition of BMS and its subsidiaries as of December 31, 1992 and 1991 and
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related consolidated statements of income, changes in stockholders' equity and
cash flows for the three years ended December 31, 1992, together with the notes
thereto, certified by KPMG Peat Marwick, and the unaudited consolidated
statements of financial condition of BMS and the BMS Subsidiaries as of June 30,
1993 and the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the six months then ended, 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 and without
notes thereto) the consolidated financial position of BMS and the BMS
Subsidiaries at the dates and the consolidated results of operations and cash
flows of BMS and its subsidiaries for the periods stated therein.
The consolidated statements of financial condition of Montana Bancsystem,
Inc. and its subsidiaries ("MBI") as of December 31, 1992 and 1991 and related
consolidated statements of income, changes in stockholders' equity and cash
flows for the three years ended December 31, 1992, together with the notes
thereto, certified by KPMG Peat Marwick, and the unaudited consolidated
statements of financial condition of MBI as of March 31, 1993 and the related
unaudited consolidated statements of income, changes in stockholders' equity and
cash flows for the three months then ended, 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 and without notes thereto) the
consolidated financial position of MBI at the dates and the consolidated results
of operations and cash flows of MBI for the periods stated therein.
(f) Reports. Since December 31, 1988, each of BMS and the BMS
Subsidiaries has filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with (i) the
Securities and Exchange Commission (the "SEC"), including, but not limited to,
Forms 10-K, Forms 10-Q and proxy statements, (ii) the Federal Reserve Board,
(iii) the Federal Deposit Insurance Corporation (the "FDIC"), (iv) the United
States Comptroller of the Currency (the "Comptroller") and (v) any applicable
state securities or banking authorities. All such reports and statements filed
with any such regulatory body or authority are collectively referred to herein
as the "BMS Reports". As of their respective dates, the BMS Reports complied in
all material respects with all the rules and regulations promulgated by the SEC,
the Federal Reserve Board, the FDIC, the Comptroller and applicable state
securities or banking authorities, as the case may be, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Copies of all
BMS Reports have been made available to Norwest by BMS.
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(g) Properties and Leases. Except (i) as set forth on Schedule 2(g), (ii)
as may be reflected in the financial statements referred to in paragraph 2(e),
and (iii) for any lien for current taxes not yet delinquent, BMS and each BMS
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 BMS's consolidated balance sheet as of June 30,
1993, 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 leases with annual rental
payments aggregating $25,000 or more to which BMS or any BMS 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, except as set forth on Schedule 2(g), any
material existing default by BMS or any BMS Subsidiary or any event which, with
notice or lapse of time or both, would constitute such a material default.
Substantially all BMS's and each BMS 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 BMS and the BMS Subsidiaries has filed all federal,
state, county, local and foreign tax returns, including information returns,
required to be filed by it, and paid all taxes owed by it, including those with
respect to income, withholding, social security, unemployment, workers
compensation, franchise, ad valorem, premium, excise and sales taxes, and no
taxes shown on such returns to be owed by it or assessments received by it are
delinquent. The federal income tax returns of BMS and the BMS Subsidiaries
(other than MBI) for the fiscal year ended December 31, 1989, and for all fiscal
years prior thereto, and the federal income tax returns of MBI for the fiscal
year ended December 31, 1988, 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 as set forth on Schedule 2(h), (i) neither BMS nor
any BMS Subsidiary is a party to any pending action or proceeding, nor, to the
knowledge of BMS, is any such action or proceeding threatened by any
governmental authority, for the assessment or collection of taxes or related
interest, penalties, assessments or deficiencies and (ii) to the knowledge of
BMS, 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 BMS or any BMS Subsidiary which has not been settled,
resolved and fully satisfied. Each of BMS and the BMS 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 June 30,
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 BMS and the BMS Subsidiaries with
respect to all periods through the date thereof.
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(i) Absence of Certain Changes. Since June 30, 1993, there has been no
change in the business, financial condition or results of operations of BMS or
any BMS 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 BMS and the BMS Subsidiaries taken as a whole (other than changes
in banking laws or regulations, changes in generally accepted accounting
principles or interpretations thereof that affect the banking industry
generally, or changes in general economic conditions that uniformly affect the
banking industry on a nationwide basis, including changes in the general level
of interest rates).
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
neither BMS nor any BMS 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 BMS or such BMS Subsidiary);
(ii) any management contract or any compensation plan including but
not limited to any plan, contract or understanding providing for any bonus,
pension, option, warrant or similar rights, deferred compensation,
retirement payment, incentive or 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 BMS or any BMS 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, BMS or
any BMS Subsidiary may carry on its business (other than as may be required
by law or applicable regulatory authorities);
(v) any contract not made in the ordinary course of business which is
material to BMS and the BMS Subsidiaries, taken as a whole, and is to be
performed in whole or in part at or after the date hereof or was entered
into not more than two years before the date hereof;
(vi) any contract to which directors, officers, voting trustees, or,
to the best knowledge of BMS, security-holders are parties, other than
contracts involving only the purchase or sale of current assets having a
determinable market price, at such market price; or
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(vii) any contract calling for the acquisition or sale of any
property, plant or equipment for a consideration exceeding 15 percent of
the fixed assets of BMS and the BMS Subsidiaries, on a consolidated basis,
as of June 30, 1993.
(k) Litigation and Other Proceedings. BMS has furnished Norwest copies of
(i) all attorney responses to the request of the independent auditors for BMS
and MBI with respect to loss contingencies as of December 31, 1992, in
connection with the financial statements described in paragraph 2(e), and (ii) a
written list of legal and regulatory proceedings filed against BMS or any BMS
Subsidiary since such date. Except as set forth on Schedule 2(k), there is no
pending or, to the best knowledge of BMS, threatened claim, action, suit,
investigation or proceeding against BMS or any BMS Subsidiary, nor is BMS or any
BMS Subsidiary 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 BMS and the BMS Subsidiaries taken as a whole.
(l) Insurance. BMS and each BMS Subsidiary is presently insured, and
during each of the past five calendar years (or during such lesser period of
time as BMS has owned such BMS 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. BMS and each BMS 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 both (i) 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 (ii) that are material to the business of BMS and the
BMS Subsidiaries, taken as a whole; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the best
knowledge of BMS, no suspension or cancellation of any of them is threatened;
and all such filings, applications and registrations are current. Except as set
forth on Schedule 2(m), the conduct by BMS and each BMS Subsidiary of its
business and the condition and use of its properties does not violate or
infringe any applicable domestic (federal, state or local) or foreign law,
statute, ordinance, license or regulation, including without limitation the
Americans With Disabilities Act, except where such violation or infringement
could not reasonably be expected to have a material adverse effect on the
business, financial condition or results of operations of BMS and the BMS
Subsidiaries taken as a whole; provided, however, that the representations and
warranties included in this sentence shall be limited to matters not relating to
environmental laws and regulations, as to which BMS makes only the
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representations and warranties set forth in paragraph 3(v). Neither BMS nor any
BMS Subsidiary is in default under any order, license 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 where such default could not
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of BMS and the BMS Subsidiaries,
taken as a whole. Except for statutory or regulatory restrictions of general
application and except as set forth on Schedule 2(m), no federal, state,
municipal or other governmental authority has placed any restriction on the
business or properties of BMS or any BMS Subsidiary which reasonably could be
expected to have a material adverse effect on the business or properties of BMS
and the BMS Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving BMS or any BMS Subsidiary is
pending or, to the best knowledge of BMS, threatened. Neither BMS nor any BMS
Subsidiary is involved in, or threatened with or affected by, any labor dispute,
arbitration, lawsuit or administrative proceeding which could reasonably be
expected to materially and adversely affect the business of BMS and the BMS
Subsidiaries, taken as a whole. Employees of BMS and the BMS 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. Except as set forth on
Schedule 2(o), to the best knowledge of BMS, no officer or director of BMS or
any BMS Subsidiary, or any Associate (as hereinafter defined) of any such
officers or directors, has any interest in any material contract or property
(real or personal), tangible or intangible, used in or pertaining to the
business of BMS or any BMS Subsidiary. For purposes of this paragraph 2(o), the
term "Associate" means (i) any corporation or organization (other than BMS or
any BMS Subsidiary) of which any officer or director of BMS or any BMS
Subsidiary, is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which any such officer or director has a
substantial beneficial interest or as to which any such officer or director
serves as trustee or in a similar fiduciary capacity, and (iii) any relative or
spouse of any such officer or director, or any relative of such spouse, who has
the same home as any such officer or director, or who is a director or officer
of BMS or any BMS Subsidiaries.
Schedule 2(o) sets forth a correct and complete list of all loans from BMS
or any BMS Subsidiary to any present officer, director, employee or any
Associate or "related interest" (as defined in Regulation O of the Federal
Reserve Board) of any such person which was required under Regulation O of the
Federal Reserve Board to be approved by or reported to BMS's or such BMS
Subsidiary's Board of Directors.
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(p) BMS 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 BMS or any BMS Subsidiary 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 BMS or any BMS
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), BMS or the BMS subsidiaries have received
favorable determination letters from the Internal Revenue Service under the
provisions of the Tax Equity and Fiscal Responsibility Act ("TEFRA"), the
Deficit Reduction Act ("DEFRA") and the Retirement Equity Act ("REA") for
each of the Plans to which the qualification requirements of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), apply. BMS
knows of no reason that any Plan which is subject to the qualification
provisions of Section 401(a) of the Code is not "qualified" within the
meaning of Section 401(a) of the Code and that each related trust is not
exempt from taxation under Section 501(a) of the Code, except that any such
Plan may not have been amended to comply with the Tax Reform Act of 1986
(the "TRA") and other recent legislation and regulations, although each
such Plan is within the remedial amendment period during which retroactive
amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as of the end of the most recent Plan year, exceed the value of
the assets of the Plan allocable to such vested or accrued benefits.
(iv) Except as set forth in Schedule 2(p), and to the best knowledge
of BMS, 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 BMS, such Plan or trust, or
any trustee, fiduciary or administrator thereof, or any party dealing with
any such Plan or trust, to the tax or penalty on prohibited transactions
imposed by said Section 4975 or would result in material liability to BMS
and the BMS Subsidiaries taken as a whole.
(v) Except as set forth on Schedule 2(p), no Plan which is subject to
Title IV of ERISA or any trust created thereunder has been terminated, nor
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have there been any "reportable events" as that term is defined in Section
4043 of ERISA, with respect to any Plan, other than those events which may
result from the transactions contemplated by this Agreement and the Merger
Agreement.
(vi) No Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 412 of
the Code (whether or not waived), since the effective date of ERISA.
(vii) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement nor the consummation of
the 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 BMS or any BMS 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 BMS and the BMS
Subsidiaries supplied or to be supplied by BMS 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 BMS Common Stock pursuant to the provisions of the Merger Agreement
(together with all amendments and supplements thereto, the "Registration
Statement"), (ii) the prospectus-proxy statement to be included in such
Registration Statement relating to (x) the shares of Norwest Common Stock to be
delivered to the shareholders of BMS pursuant to the Merger Agreement and (y)
the holding of a special meeting of the shareholders to consider and vote on the
Merger, and to be mailed to BMS's shareholders in connection with such meeting
(the "Prospectus-Proxy Statement") and (iii) any other documents to be filed
with the SEC or any regulatory authority in connection with the transactions
contemplated hereby or by the Merger Agreement will, at the respective times
such documents are filed with the SEC or any regulatory authority and, in the
case of the Registration Statement, when it becomes effective and, with respect
to the Prospectus-Proxy Statement, when mailed, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements contained therein, in light of the
circumstances under which they are made, not misleading or, in the case of the
Prospectus-Proxy Statement or any amendment thereof or supplement thereto, at
the time of the meeting of shareholders referred to in paragraph 4(c), or at the
Effective Time of the Merger, 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 statement contained therein, in light of the circumstances under which they
are made, not misleading or omit to state a material fact necessary to correct
any statement in any earlier communication with
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respect to the solicitation of any proxy for such meeting. All documents which
BMS and the BMS Subsidiaries are responsible for filing with the SEC and any
other regulatory authority in connection with the Merger will comply as to form
in all material respects with the provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(r), neither
BMS nor any BMS Subsidiary is under any obligation, contingent or otherwise,
which will survive the Merger by reason of any agreement to register any of its
securities under the Securities Act.
(s) Brokers and Finders. Except as set forth on Schedule 2(s), neither BMS
nor any BMS 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 BMS or any BMS Subsidiary
in connection with this Agreement and the Merger Agreement or the transactions
contemplated hereby and thereby.
(t) Administration of Trust Accounts. BMS and each BMS Subsidiary has
properly administered in all respects material, and which could reasonably be
expected to be material, to the financial condition of BMS and the BMS
Subsidiaries taken as a whole all accounts for which it acts as a fiduciary
(excluding IRA Custodial Accounts invested solely in bank insured deposits),
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 and all such accounts are listed on
Schedule 2(t). Neither BMS, any BMS Subsidiary, nor any director, officer or
employee of BMS or any BMS 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, the financial condition of BMS and the BMS
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. There have been no indemnity claims made
pursuant to the Stock Acquisition Agreement, dated as of June 16, 1986, between
DADCO Incorporated and BMS.
(u) No Defaults. Except as set forth on Schedule 2(u), neither BMS nor any
BMS 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
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 BMS and the BMS Subsidiaries, taken as a whole. To
the best of BMS's knowledge, all parties with whom BMS or any BMS Subsidiary has
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material leases, agreements or contracts or who owe to BMS or any BMS Subsidiary
material obligations, other than with respect to those arising in the ordinary
course of the banking business of the BMS Subsidiaries, are in compliance
therewith in all material respects.
(v) Environmental Liability. Except as set forth on Schedule 2(v), 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 BMS or any BMS Subsidiary, any liability arising from the
violation of or obligation under any local, state or federal environmental
statute, regulation or ordinance pending or to the best of BMS's knowledge,
threatened against BMS or any BMS Subsidiary the result of which has had or
could reasonably be expected to have a material adverse effect upon BMS and the
BMS Subsidiaries taken as a whole. Except for the remediation described in
paragraph 4(aa), to the best of BMS's knowledge there is no reasonable basis for
any such proceeding, claim or action. To the best of BMS's knowledge neither
BMS nor any BMS 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 BMS, as of the date of this Agreement (except as otherwise expressly
provided), 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 (i) its ownership or leasing of property or the conduct of its business
requires it to be so qualified and (ii) failure to be so qualified would have a
material adverse effect on Norwest and its subsidiaries taken as a whole, and
Norwest 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, 1992, 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
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additional shares of its capital stock. Subject to 12 U.S.C. (S) 55 (1982), all
of such shares so owned by Norwest are fully paid and nonassessable and are
owned by it free and clear of any lien, claim, charge, option, encumbrance or
agreement with respect thereto. Each Norwest Subsidiary is a corporation or
national banking association duly organized, validly existing, duly qualified to
do business and in good standing under the laws of its jurisdiction of
incorporation, and has corporate power and authority to own or lease its
properties and assets and to carry on its business as it is now being conducted.
(c) Norwest Capitalization. The authorized capital stock of Norwest consists
of (i) 5,000,000 shares of Preferred Stock, without par value, of which, as of
the close of business on June 30, 1993, 1,132,750 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 June 30, 1993, 290,811,725 shares were outstanding and
2,287,743 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 Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory authority over Norwest as may be required by statute or
regulation, this Agreement is a valid and binding obligation of Norwest
enforceable against Norwest in accordance with its terms.
Neither the execution, delivery and performance by Norwest of this Agreement
or the Merger Agreement, nor the consummation of the transactions contemplated
hereby and thereby, nor compliance by Norwest with any of the provisions hereof
or thereof, will (i) 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), except to the extent
that such violation, conflict, breach, default, termination, acceleration or
lien could not 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, any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or
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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, violate any statute, rule or regulation or, to the best
knowledge of Norwest, violate any judgment, ruling, order, writ, injunction or
decree 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, banking, insurance or blue sky
laws of the various states, filings, consents, reviews, authorizations,
approvals or exemptions required under the BHC Act or the HSR Act, and filings
required to effect the Merger under Montana law, no notice to, filing with,
exemption or review by, or authorization, consent or approval of, any public
body or authority is necessary for the consummation by Norwest of the
transactions contemplated by this Agreement and the Merger Agreement.
(e) Norwest Financial Statements. The consolidated statements of financial
condition of Norwest and Norwest's subsidiaries as of December 31, 1992 and 1991
and related consolidated statements of income, stockholders' equity and cash
flows for the three years ended December 31, 1992, 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, 1992, as amended by Form 8
dated March 3, 1993 (the "Norwest 10-K"), as filed with the SEC, and the
unaudited consolidated balance sheets of Norwest and its subsidiaries as of
June 30, 1993 and the related unaudited consolidated statements of income and
cash flows for the six months then ended included in Norwest's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1993, as filed with the SEC
(collectively, the "Norwest Financial Statements"), have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and present fairly (subject, in the case of financial statements for
interim periods, to normal recurring adjustments) the consolidated financial
position of Norwest and its subsidiaries at the dates and the consolidated
results of operations, changes in financial position and cash flows of Norwest
and its subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1988, each of Norwest and the Norwest
Subsidiaries 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
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complied in all material respects with all the rules and regulations promulgated
by the SEC, the Federal Reserve Board, the FDIC, the Comptroller and any
applicable state securities or banking authorities, as the case may be, and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Norwest has timely filed with the SEC all reports, statements and
forms required to be filed pursuant to the Exchange Act.
(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 June 30, 1993, 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 that
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. 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 or related 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. To the knowledge of
Norwest, no issue has been raised by any federal, state, local or foreign taxing
authority in connection with an audit or examination
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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 June 30, 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 (other than changes
in banking laws or regulations, changes in generally accepted accounting
principles or interpretations thereof that affect the banking industry
generally, or changes in general economic conditions that uniformly affect the
banking industry on a nationwide basis, including changes in the general level
of interest rates).
(j) Commitments and Contracts. Except as set forth on Schedule 3(j), as of
the date hereof 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); or
(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
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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 both (i) 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 (ii) that are material to the business of Norwest and
its Subsidiaries, taken as a whole; 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 any applicable
domestic (federal, state or local) or foreign law, statute, ordinance, license
or regulation, including without limitation the American With Disabilities Act,
except where such violation or infringement could not reasonably be expected to
have a material adverse effect on the business, financial condition or results
of operation of Norwest and its subsidiaries taken as a whole. 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 where such
default could not 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. 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
reasonably be expected to materially and adversely affect the business of
Norwest and the Norwest Subsidiaries, taken as a whole. 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
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Subsidiary acts as plan sponsor as defined in ERISA Section 3(16)(B) with
respect to which any liability under ERISA or otherwise exists or may be
incurred by Norwest or any Norwest Subsidiary are those set forth on
Schedule 3(o) (the "Norwest Plans"). No Norwest Plan is a "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects operated
and administered in accordance with its provisions and applicable law.
Except as set forth on Schedule 3(o), Norwest or the Norwest Subsidiaries
have received favorable determination letters from the Internal Revenue
Service under the provisions of the Tax Equity and Fiscal Responsibility
Act ("TEFRA"), the Deficit Reduction Act ("DEFRA") and the Retirement
Equity Act ("REA") for each of the Norwest Plans to which the qualification
requirements of Section 401(a) of the Code apply. Norwest knows of no
reason that any Norwest Plan which is subject to the qualification
provisions of Section 401(a) of the Code is not "qualified" within the
meaning of Section 401(a) of the Code and that each related trust is not
exempt from taxation under Section 501(a) of the Code, except that any such
Norwest Plan may not have been amended to comply with TRA and other recent
legislation and regulations, although each such Norwest Plan is within the
remedial amendment period during which retroactive amendment may be made.
(iii) The present value of all benefits vested and all benefits accrued
under each Norwest Plan which is subject to Title IV of ERISA did not, in
each case, as of the end of the most recent Plan year, exceed the value of
the assets of the Norwest Plans allocable to such vested or accrued
benefits.
(iv) Except as set forth on Schedule 3(o), and to the best knowledge of
Norwest, no Norwest Plan or any trust created thereunder, nor any trustee,
fiduciary or administrator thereof, has engaged in a "prohibited
transaction", as such term is defined in Section 4975 of the Code or
Section 406 of ERISA or violated fiduciary standards under Part 4 of Title
I of ERISA, which could subject, to the best knowledge of Norwest, such
Norwest Plan or trust, or any trustee, fiduciary or administrator thereof,
or any party dealing with any such Norwest Plan or trust, to the tax or
penalty on prohibited transactions imposed by said Section 4975 or would
result in material liability to Norwest and its subsidiaries taken as a
whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other
than those events which may result from the transactions contemplated by
this Agreement and the Merger Agreement.
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(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including,
without limitation, severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or employee or former employee
of Norwest under any Norwest Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Norwest Plan or (iii) result in
the acceleration of the time of payment or vesting of any such benefits to
any material extent.
(p) Registration Statement, etc. None of the information regarding Norwest
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Prospectus-Proxy Statement, or (iii) any
other documents to be filed with the SEC or any regulatory authority in
connection with the transactions contemplated hereby or by the Merger Agreement
will, at the respective times such documents are filed with the SEC or any
regulatory authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Prospectus-Proxy Statement, when
mailed, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they are made not
misleading or, in the case of the Prospectus-Proxy Statement or any amendment
thereof or supplement thereto, at the time of the meeting of shareholders
referred to in paragraph 4(c), or at the Effective Time of the Merger, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they are made, not
misleading, or omit to state a 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 Merger will comply as to form in all material respects with
the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor any
of their respective officers, directors or employees has employed any broker or
finder or 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
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Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any agreement, indenture, loan
agreement or other instrument to which it is a party or by which it or any of
its assets is bound or to which any of its assets is subject, the result of
which has had or could reasonably be expected to have a material adverse effect
upon Norwest and its subsidiaries taken as a whole. To the best of Norwest's
knowledge, all parties with whom Norwest or any Norwest Subsidiary has material
leases, agreements or contracts or who owe to Norwest or any Norwest Subsidiary
material obligations, other than with respect to those arising in the ordinary
course of the banking business of the Norwest Subsidiaries, are in compliance
therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition, on Norwest or any Norwest
Subsidiary of any liability arising from any violation of or obligation under
any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, pending or to the best of
Norwest's knowledge, threatened against Norwest or any Norwest Subsidiary, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole; to the best
of Norwest's knowledge there is no reasonable basis for any such proceeding,
claim or action; and to the best of Norwest's knowledge neither Norwest nor any
Norwest Subsidiary is subject to any agreement, order, judgment, or decree by or
with any court, governmental authority or third party imposing any such
environmental liability.
(t) Merger Co. As of the Closing Date, Merger Co. will be a corporation duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and will have corporate
power and authority to own or lease its properties and assets and to carry on
its business.
(u) Current Plans or Intentions.
(i) Except as provided in clause (ii) below, Norwest does not have
any current plan or intention to take any of the following actions within
the twelve month period immediately following the Effective Date:
(A) liquidate BMS,
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(B) liquidate any BMS Subsidiary, except if the assets of such
BMS Subsidiary are distributed to BMS or another BMS Subsidiary,
(C) merge BMS with or into another corporation, except if BMS is
the surviving corporation,
(D) merge any BMS Subsidiary with or into another corporation,
except if such BMS Subsidiary is the surviving corporation, if such
merger is with BMS or another BMS Subsidiary, or if such merger were a
sale of assets described in clause (E) below, it would not result in a
violation of the "substantially all" test described in such clause
(E),
(E) cause BMS or any BMS Subsidiary to sell or otherwise dispose
of any of its assets to any entity other than BMS or a BMS Subsidiary,
with the following exceptions (A) sales or dispositions in the
ordinary course of business or (B) sales or dispositions which would
not violate the "substantially all" test as defined in Rev. Proc. 77-
37, 1977-2 C.B. 568 Section 3.01.
For purposes of this paragraph 3(u), the term "BMS Subsidiary" shall mean any
entity with respect to which BMS or another BMS Subsidiary (so defined), at the
time of the occurrence of the event described in this paragraph 3(u), owns stock
that possess at least 80% of the total voting power of such entity and has a
value equal to at least 80% of the total value of the stock of such entity.
(ii) Norwest may, for business or regulatory reasons, sell the
following, whether as a sale of assets or stock by merger, and BMS and
Norwest hereby agree that any such transactions shall not be deemed a
breach of this paragraph 3(u):
(A) the Escrow Business (as defined in paragraph 4(v)), and
(B) the branch banks described in paragraph 7(e).
4. COVENANTS OF BMS. BMS 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 Merger, BMS, and each BMS
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; Maintain proper business and accounting records in accordance
with
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reasonable business practices; 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 Merger; Comply in all material respects
with all laws, regulations, ordinances, codes, orders, licenses and permits
applicable to the properties and operations of BMS and each BMS Subsidiary
(including, without limitation, the Americans With Disabilities Act), the non-
compliance with which reasonably could be expected to have a material adverse
effect on BMS and the BMS Subsidiaries taken as a whole; and Permit Norwest and
its representatives (including KPMG Peat Marwick) to examine the books, records
and properties, and to interview the officers, employees and agents, of BMS and
the BMS Subsidiaries at any time during normal business hours, provided however
that 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 BMS herein expressed.
(b) Except as otherwise permitted or required by this Agreement, from
the date hereof until the Effective Time of the Merger,
(i) neither BMS nor any BMS Subsidiary will (without the prior written
consent of Norwest): Amend or otherwise change its articles of
incorporation 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 $25,000 except banking transactions in
the ordinary course of business and in accordance with policies and
procedures in effect on the date hereof; Make any investments except
investments made by BMS Subsidiaries in the ordinary course of business for
terms of up to two years and in amounts of $1,000,000 or less; Except for
the termination of MBI's employee stock ownership plan and the merger of
the 401(k) plans of MBI and BMS and except as required by paragraph 4(j),
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; Redeem, purchase or otherwise acquire,
directly or indirectly, any of the capital stock of BMS, except pursuant to
and as required by BMS's employee stock ownership plan; Increase the
compensation of any officers, directors or executive employees, except
pursuant to existing
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compensation plans and practices and except that BMS and the BMS
Subsidiaries may enter into the severance and bonus agreements described on
Schedule 4(b) with their respective employees; Sell or otherwise dispose of
any shares of the capital stock of any BMS Subsidiary; or Sell or otherwise
dispose of any of its assets or properties other than in the ordinary
course of business; and
(ii) neither BMS nor any BMS Subsidiary will (without prior
consultation with Norwest) make any new loan or modify, restructure or
renew any existing loan (except pursuant to commitments made prior to the
date of this Agreement) to any borrower if the amount of the resulting
loan, when aggregated with all other loans or extensions of credit to such
person, would be in excess of $500,000, no more than $100,000 of which
shall be unsecured loans or extensions of credit.
(c) BMS will cause to be duly called, and will cause to be held not later
than forty-five (45) days following the later of (i) the effective date of the
Registration Statement referred to in paragraph 2(q) hereof and (ii) the date
Norwest shall have received approval by the Federal Reserve Board and such other
governmental agencies as may be required by law of the transactions contemplated
by this Agreement and the Merger Agreement (excluding, however, the expiration
of any waiting or appeal periods prescribed by law or regulation), a meeting of
its shareholders and will direct that this Agreement and the Merger Agreement be
submitted to a vote at such meeting. BMS will (i) cause proper notice of such
meeting to be given to its shareholders in compliance with the Montana Business
Corporation Act and other applicable law and regulation, (ii) recommend by the
affirmative vote of the Board of Directors a vote in favor of approval of this
Agreement and the Merger Agreement, and (iii) use its best efforts to solicit
from its shareholders proxies in favor thereof.
(d) BMS will furnish or cause to be furnished to Norwest all the
information concerning BMS and the BMS Subsidiaries required for inclusion in,
and will cooperate with Norwest in the preparation of, the Registration
Statement and Prospectus-Proxy Statement referred to in paragraph 2(q) hereof
(including audited financial statements, prepared in accordance with generally
accepted accounting principles, in form suitable for inclusion in the
Registration Statement and Prospectus-Proxy Statement), or any statement or
application made by Norwest to any governmental body in connection with the
transactions contemplated by this Agreement. BMS agrees promptly to advise
Norwest if at any time prior to the Effective Date of the Merger, any
information provided by or on behalf of BMS becomes incorrect or incomplete in
any material respect and to provide the information needed to correct such
inaccuracy or omission.
(e) BMS will promptly take all necessary corporate and other action and
use its best efforts to obtain all approvals of regulatory authorities, consents
and
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other approvals required of BMS 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) BMS 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) BMS will hold in confidence all documents and information concerning
Norwest and its subsidiaries furnished to BMS 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 BMS'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 BMS, in the public domain, or later acquired by
BMS 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 BMS, nor any BMS Subsidiary, nor any director, officer,
representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of or enter into any discussions with or execute any
agreement in principle or definitive agreement with any corporation,
partnership, person or other entity or group (other than Norwest or its
representatives) 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 BMS or any BMS 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 BMS or any BMS
Subsidiary except in the ordinary course of business, or (iv) to merge,
consolidate or otherwise combine with BMS or any BMS Subsidiary. If any
corporation, partnership, person or other entity or group makes an offer or
inquiry to BMS or any BMS Subsidiary concerning any of the foregoing, BMS or
such BMS Subsidiary will promptly disclose such offer or inquiry, including the
terms thereof, to Norwest.
(i) BMS 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) BMS and each BMS Subsidiary will take all action necessary or required
(i) to terminate or amend, if requested by Norwest, all qualified pension and
welfare benefit plans and all non-qualified benefit plans and compensation
arrangements as of the Effective Date of the Merger, (ii) to amend the Plans to
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comply with the provisions of the TRA and regulations thereunder and other
applicable law as of the Effective Date of the Merger, and (iii) to submit
application to the Internal Revenue Service for a favorable determination letter
for each of the Plans which is subject to the qualification requirements of
Section 401(a) of the Code prior to the Effective Date of the Merger, provided
that BMS and each BMS Subsidiary will not be required to submit such application
to the Internal Revenue Service, if the Internal Revenue Service does not accept
such applications prior to the Effective Date of the Merger.
(k) From and after the date of this Agreement, neither BMS nor any BMS
Subsidiary shall take any action which, with respect to BMS, would disqualify
the Merger as a "pooling of interests" for accounting purposes; provided,
however, any action taken by BMS or any BMS Subsidiary pursuant to any request
by Norwest, including but not limited to under paragraph 4(j) or pursuant to a
specific requirement of this Agreement shall not constitute a breach of this
paragraph 4(k).
(l) BMS shall use its best efforts to obtain and deliver to Norwest, at
least 32 days prior to the Effective Date of the Merger, signed representations
substantially in the form attached hereto as Exhibit B by each executive
officer, director or shareholder of BMS who may reasonably be deemed an
"affiliate" of BMS within the meaning of such term as used in Rule 145 under the
Securities Act.
(m) As of December 31, 1993, BMS shall establish such asset depreciation
schedules, fixed asset and credit loss reserves and such other additional
accruals and reserves as may be necessary to conform BMS's credit loss reserve
and other accounting practices and methods to those of Norwest and Norwest's
plans with respect to the conduct of BMS's business following the Merger and to
provide for the costs and expenses relating to the consummation by BMS of the
Merger and the other transactions contemplated by this Agreement.
(n) BMS shall cause Montana Bank and Bank of Montana not to consummate the
merger of Montana Bank with and into Bank of Montana pursuant to the Agreement
and Plan of Merger, dated as of April 1, 1993, by and between Montana Bank and
Bank of Montana or otherwise (the "Billings Merger"). BMS shall use its best
efforts to obtain extensions from the appropriate regulatory authorities,
including without limitation, the Federal Reserve Board and the Montana
Department of Commerce, to permit consummation of the Billings Merger at some
future date.
(o) With respect to the transactions contemplated by the Combination
Stock Purchase Agreement and Agreement and Plan of Merger, dated as of July 1,
1993, by and among BMS, Bank of Montana, John Buchanan and Sheila Buchanan and
Heritage Bank, a Federal savings bank, (the "Heritage Acquisition Agreement"):
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(i) BMS shall promptly inform Norwest of any developments, and
promptly forward copies of all correspondence (including any report of OTS
examination) with respect to the Heritage Acquisition Agreement;
(ii) without the prior written consent of Norwest, BMS shall not, and
shall not permit Bank of Montana to, amend or agree to amend any of the
terms or conditions of, or waive any conditions precedent to the closing
of, the Heritage Acquisition Agreement (other than as required by
subparagraphs (iv) and (v) below);
(iii) BMS shall promptly obtain the written consent of Heritage Bank
and the Buchanans to permit Norwest to conduct due diligence with respect
to the transactions contemplated by the Heritage Acquisition Agreement in
accordance with Section 15 thereof and paragraph 4(a) of this Agreement;
(iv) the Heritage Acquisition Agreement shall be amended, and the Real
Estate Purchase Agreement between John D. Buchanan and Charlie M. Byrne and
Bank of Montana executed on or about July 1, 1993 shall be terminated, such
that Heritage Bank will not acquire any ownership interest in, and will
sell, prior to the acquisition of Heritage Bank by Bank of Montana, any
existing ownership interest in, the property located at 120 First Avenue
North, Great Falls, Montana on such terms and conditions (including
consideration to be paid) as BMS and Norwest shall mutually agree; and
(v) the Heritage Acquisition Agreement shall be amended to eliminate
any provisions regarding the merger of Heritage Bank with Bank of Montana
and BMS shall not, and shall cause Bank of Montana not to, consummate any
such merger.
(p) BMS shall cooperate with Norwest in obtaining the Phase I and Phase II
environmental assessments and studies described in paragraph 7(m).
(q) BMS shall terminate that certain Service Agreement, dated as of January
1, 1989, by and between BMS and Central Financial Services, Inc. (formerly known
as Valley Holding Company, Inc.) as it has been amended from time to time, such
termination to be effective no later than the Effective Date of the Merger, and
without payment of any consideration, penalty or other amount (other than
reasonable attorneys' fees and similar reasonable expenses incurred in
connection with any such termination) with respect to such termination by BMS or
the BMS Subsidiaries.
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<PAGE>
(r) BMS shall terminate or assign that certain Lease Agreement, dated as of
March 12, 1992, by and between Minnesota CC Properties, Inc. and BMS, as it has
been amended from time to time, the Sublease Agreement, dated June 15, 1993,
between Central Financial Services, Inc. and BMS, as it has been amended from
time to time and any and all other agreements relating to the lease of the
property known as The Colonnade, 5500 Wayzata Boulevard, Golden Valley,
Minnesota, such terminations or assignments to be effective no later than the
Effective Date of the Merger, and without payment of any consideration, penalty
or other amount (other than reasonable attorneys' fees and similar reasonable
expenses incurred in connection with any such termination) with respect to such
termination by BMS or the BMS Subsidiaries.
(s) BMS shall obtain, at its sole expense, commitments for title insurance
and boundary surveys for each bank facility which shall be delivered to Norwest
no later than November 1, 1993.
(t) BMS shall cooperate with Norwest in any sale of branches described in
paragraph 5(r) of this Agreement, which cooperation shall include, but not be
limited to, legally effecting the sale of such branches immediately prior to the
Effective Time if necessary or desirable in the opinion of Norwest and
permitting potential purchasers of such branches or their representatives to
examine the books, records and properties of, and to interview the officers,
employees and agents of, BMS and the BMS Subsidiaries at any time during normal
business hours.
(u) Immediately prior to the Effective Time of the Merger, BMS shall apply
the funds to be loaned to it by Norwest pursuant to paragraph 5(s) hereof to pay
in full all indebtedness of BMS to Norwest Bank Minnesota, N.A.
(v) If Norwest wishes to sell the business of escrowing title under
contracts for deed or land contracts and the related services in which BMS and
the BMS Subsidiaries are engaged (the "Escrow Business"), BMS shall cooperate
with Norwest in completing such sale, which cooperation shall include, but not
be limited to, legally effecting the sale of the Escrow Business immediately
prior to the Effective Date if necessary or desirable in the opinion of Norwest
and permitting potential purchasers of the Escrow Business or their
representatives to examine the books, records, and properties of, and to
interview the officers, employees and agents of, BMS and the BMS Subsidiaries at
any time during normal business hours.
(w) BMS shall use its best efforts to consummate the sale of the insurance
business conducted at Montana Bank in Roundup, Montana or conducted under the
name "Roundup Agency" or any similar name prior to the Effective Date; provided,
however, that such business shall not be sold at a loss for financial reporting
purposes (as calculated in accordance with generally accepted accounting
principles) without the consent of Norwest. The agreement to sell such business
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shall be upon terms and conditions as BMS and Norwest shall mutually agree and
shall not contain any agreement by BMS or any BMS Subsidiary not to compete
except to the extent that Norwest has given prior written approval of the
specific language of such non-compete agreement but in no event shall such non-
compete agreement, but in no event shall such non-compete agreement restrict
BMS, any BMS Subsidiary or Norwest from selling hail insurance.
(x) BMS shall retain Norwest as an independent contractor, and Norwest
agrees, to provide assistance with the operations, data processing and internal
audit functions, including but not limited to, assistance in integrating such
functions at Bank of Montana with such functions at Montana Bank. BMS shall
compensate Norwest pursuant to paragraph 1(a)(iii) in an amount equal to the
salary, cost of benefits, and out-of-pocket expenses (including, but not limited
to, expenses for travel to and from the work site and for meals and
accommodations) for each employee of Norwest whose services are utilized.
(y) Prior to the Effective Date, all "key man" and "split dollar" life
insurance policies shall be surrendered and the cash surrender value shall be
recovered as an asset of BMS or the appropriate BMS Subsidiary and all related
death benefit agreements shall be canceled without payment of any consideration,
penalty or other amount (other than reasonable attorneys' fees and similar
reasonable expenses incurred in connection with any such termination) with
respect to such cancellation.
(z) Prior to the Effective Date, BMS shall use its best efforts, to cancel
all correspondent service contracts and correspondent master data processing
contracts between BMS Computer Corporation and entities other than BMS and the
BMS Subsidiaries at the lowest possible cost. Any payment of consideration,
penalty or other amount (other than reasonable attorneys' fees and similar
reasonable expenses incurred in connection with any such termination) with
respect to such cancellation shall be approved in advance by Norwest; provided,
however that if Norwest does not approve such payment, then BMS shall not have
any obligation to terminate such contract pursuant to this paragraph 4(z).
(aa) BMS shall, or shall cause the appropriate BMS Subsidiary to, complete
prior to the Effective Date such Remediation (as defined below) of the Montana
Bank branch sites in Roundup, Montana, and Big Sandy, Montana, and the Heritage
Bank site in Great Falls, Montana as may be necessary and required under
applicable environmental laws and regulations; provided, however, if it is not
practicable to complete such Remediation using due diligence prior to the
Effective Date, BMS or the appropriate BMS Subsidiary shall develop and
implement prior to the Effective Date a comprehensive plan (including cost
estimates) acceptable to Norwest to complete the Remediation as may be required
under applicable laws and regulations("Remediation Plans"). For purposes of
this Agreement, "Remediation" shall mean the investigation, removal and/or
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<PAGE>
remediation of, or other response to (including testing, monitoring, sampling or
other investigation) any contamination in, on or emanating from the properties
or assets of BMS or the BMS Subsidiaries which is required of BMS or any BMS
Subsidiary by the Montana Department of Health and Environmental Sciences, or
other applicable state or Federal governmental authority, to comply with
environmental laws and regulations. BMS shall use its best efforts to present
Remediation Plans to the appropriate state authority and to obtain approval and
certification of the completion of any necessary Remediation. In no event shall
this covenant require BMS to incur Net Costs in excess of $100,000 for
conducting such Remediation or implementing Remediation Plans.
(bb) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Merger, neither BMS nor any BMS
Subsidiary shall (without the prior written consent of Norwest) declare, set
aside, make or pay any dividend or other distribution with respect to its
capital stock except as permitted pursuant to this paragraph (bb). The Board of
Directors of BMS may declare, and BMS may pay to its shareholders of record,
regular quarterly cash dividends (i) with respect to the third calendar quarter
of 1993, in an amount not exceeding $0.41 per share of outstanding BMS Common
Stock (which amount was declared on August 2, 1993 and paid on August 26, 1993)
and (ii) with respect to each approximately 91-day period from the last payment
date of the BMS regular quarterly cash dividend (The "91-day Period") in which
the Effective Date does not occur, in an amount not exceeding $0.42 per share of
outstanding BMS Common Stock. With respect to the 91-day Period in which the
Effective Date does occur, (A) if the Effective Date occurs on or before the
record date for dividends on Norwest Common Stock for such quarter, the Board of
Directors of BMS may declare, and BMS may pay to its shareholders of record, a
quarterly cash dividend (the record date for which may be the Effective Date) in
an amount equal to (I) $846,164 minus (II) the aggregate dividends declared and
paid by Norwest with respect to 4,200,000 shares of Norwest common stock in the
immediately preceding calendar quarter multiplied by (III) a fraction the
numerator of which is the number of days from and including the date of the
immediately preceding dividend payment made to BMS shareholders through but
excluding the Effective Date and the denominator of which is 91, and (B) if the
Effective Date occurs after the record date for dividends on Norwest Common
Stock for such quarter and before the next BMS dividend payment date, the Board
of Directors of BMS may declare, and BMS may pay to its shareholders of record,
a quarterly cash dividend in an amount not exceeding $0.42 per share of
outstanding BMS Common Stock. Any of the Boards of Directors of the BMS
Subsidiaries may declare, and any such BMS Subsidiary may pay, any regular
dividend in accordance with applicable law and regulation. BMS shall cause its
dividend record and payment dates to coincide with the Norwest dividend record
and payment dates.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with BMS as
follows:
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(a) From the date hereof until the Effective Time of the Merger, Norwest
will maintain its corporate existence in good standing; conduct, and cause the
Norwest Subsidiaries to conduct, their respective businesses in compliance with
all material obligations and duties imposed on them by all laws, governmental
regulations, rules and ordinances, and judicial orders, judgments and decrees
applicable to Norwest or the Norwest Subsidiaries, their businesses or their
properties; maintain all books and records of it and the Norwest Subsidiaries,
including all financial statements, in accordance with the accounting principles
and practices consistent with those used for the Norwest Financial Statements,
except for changes in such principles and practices required under generally
accepted accounting principles.
(b) Norwest will furnish to BMS all the information concerning Norwest
required for inclusion in, and will cooperate in the preparation of, the
Prospectus-Proxy Statement to be sent to the shareholders of BMS, or in any
statement or application made by BMS to any governmental body in connection with
the transactions contemplated by this Agreement. Norwest agrees promptly to
advise BMS if at any time prior to the Effective Date of the Merger, any
information provided by Norwest in the Prospectus-Proxy Statement becomes
incorrect or incomplete in any material respect and to provide the information
needed to correct such inaccuracy or omission.
(c) As promptly as practicable after the execution of this Agreement,
Norwest will file with the SEC the Registration Statement under the Securities
Act and any other applicable documents, which will include the Prospectus-Proxy
Statement, and will use its best efforts to cause the Registration Statement to
become effective under the Securities Act and applicable state securities laws
as soon as practicable. Norwest shall advise BMS promptly when the Registration
Statement has become effective and of any supplements or amendments thereto, and
Norwest shall furnish BMS with copies of all such documents. At the time the
Registration Statement becomes effective, the Registration Statement and the
Prospectus-Proxy 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 contained therein, in light of the circumstances under which they are
made, not misleading, and at the time of mailing thereof to the BMS
shareholders, at the time of the BMS shareholders' meeting referred to in
paragraph 4(c) hereof and at the Effective Time of the Merger, the Prospectus-
Proxy Statement included as part of the Registration Statement or any amendment
thereof or supplement thereto, will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they are
made, not misleading or omit to state a material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the BMS shareholders' meeting; provided, however,
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that none of the provisions of this subparagraph shall apply to statements in or
omissions from the Registration Statement or the Prospectus-Proxy Statement made
in reliance upon and in conformity with information furnished by BMS or any BMS
Subsidiary for use in the Registration Statement or the Prospectus-Proxy
Statement. Norwest shall bear the costs of all SEC filing fees with respect to
the Registration Statement and the costs of qualifying the shares of Norwest
Common Stock under state blue sky laws as necessary.
(d) Norwest will file all documents required to be filed to list the
Norwest Common Stock to be issued pursuant to the Merger Agreement on the New
York Stock Exchange and the Chicago Stock Exchange and use its best efforts to
effect said listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of BMS pursuant to this Agreement and the Merger Agreement will,
upon such issuance and delivery to said shareholders pursuant to the Merger
Agreement, be duly authorized, validly issued, fully paid and nonassessable.
The shares of Norwest Common Stock to be delivered to the shareholders of BMS
pursuant to the Merger Agreement are and will be free of any preemptive rights
of the stockholders of Norwest.
(f) Norwest will file all documents required to obtain prior to the
Effective Time of the Merger all necessary Blue Sky permits and approvals, if
any, required to carry out the transactions contemplated by this Agreement, will
pay all expenses incident thereto and will use its best efforts to obtain such
permits and approvals.
(g) Norwest will promptly 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 BMS to obtain all such approvals and consents required by BMS.
(h) Norwest will hold in confidence all documents and information
concerning BMS and BMS'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 BMS (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
BMS.
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(i) Norwest will file any documents or agreements required to be filed in
connection with the Merger under the Montana Business Corporation 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 BMS 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 promptly give BMS written notice of receipt of the
regulatory approvals referred to in paragraph 7(e).
(m) Norwest shall use its best efforts to obtain and deliver to BMS, at
least 32 days prior to the Effective Date of the Merger, signed representations
from the directors and executive officers of Norwest to the effect that they
will not sell shares of Norwest or BMS 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 BMS and Norwest.
(n) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit BMS 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 BMS or
its representatives shall in any way affect, diminish or terminate any of the
representations, warranties or covenants of Norwest herein expressed.
(o) Norwest shall continue to file all reports and data with the SEC
necessary to permit the shareholders of BMS who may be deemed "underwriters'
(within the meaning of Rule 145 under the Securities Act) of BMS Common Stock to
sell the Norwest Common Stock received by them in connection with the Merger
pursuant to Rules 144 and 145(d) under the Securities Act if they would
otherwise be so entitled. After the Effective Date, Norwest will file with the
SEC reports, statements, and other materials required by the federal securities
laws on a timely basis.
(p) For three years following the Effective Time of the Merger, Norwest
shall maintain directors' and officers' liability insurance with respect to
future claims arising from facts or events that occurred before the Effective
Time of the Merger, which insurance shall contain terms and conditions
(including the amount of such coverage, amount of any deductibles and exclusions
thereunder) no less favorable than the policies currently maintained by BMS
(except that such policy shall not cover employees who are not officers or
directors of BMS). Norwest shall insure that all rights to indemnification and
all limitations of liability existing in favor of any person who is now, or has
been at any time prior to the date
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hereof, or who becomes prior to the Effective Time of the Merger, a director,
officer, employee, fiduciary or agent of BMS or any BMS Subsidiary (the
"Indemnified Parties") in BMS's Articles of Incorporation and By-laws or similar
governing documents of any BMS Subsidiary, as in effect on the date hereof, or
allowed under applicable law as in effect on the date hereof, shall, with
respect to claims arising from facts or events that occurred before the
Effective Time of the Merger, survive the Merger and shall continue in full
force and effect, without any amendment, for a period of not less than three
years from the Effective Time of the Merger; provided, however, that all rights
to indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim. Nothing contained in
this paragraph 5(p) shall be deemed to preclude the liquidation, consolidation
or merger of BMS or any BMS Subsidiary in a manner consistent with the
provisions of paragraph 5(t), in which case all of such rights to
indemnification and limitations on liability shall be deemed to so survive and
continue notwithstanding any such liquidation, consolidation or merger;
provided, however, that in the event of a liquidation or sale of substantially
all of the assets of BMS, Norwest shall guarantee, to the extent of the net
asset value of BMS as of the Effective Date, the indemnification obligations of
BMS to the extent provided by law. Notwithstanding anything to the contrary
contained in this paragraph 5(p), nothing contained herein shall require Norwest
to indemnify any person who was a director or officer of a corporation, banking
institution or other entity acquired by BMS or any BMS Subsidiary with respect
to claims based on, or arising out of, or pertaining to, a matter which occurred
prior to the consummation of any such acquisition to a greater extent than BMS
or any BMS Subsidiary is, as of the date of this Agreement, required to
indemnify any such person. This paragraph is intended for the benefit of and
shall be enforceable by each Indemnified Party and each Indemnified Party's
heirs and representatives.
(q) Norwest agrees to assist BMS in the preparation of the schedules,
accruals and reserves described in paragraph 4(m) and in the calculation of the
net tax basis and the tax basis described in paragraph 7(p).
(r) Norwest shall use its best efforts to comply with any condition or
requirement of the Federal Reserve Board approval of the transactions
contemplated by this Agreement and the Merger Agreement that Norwest sell one or
more of (i) the Bank of Montana branch bank located in Lewistown, Montana (ii)
the Bank of Montana branch bank located in Anaconda, Montana and (iii) one, but
not both of, the Montana Bank and Bank of Montana branch banks located in Butte,
Montana; provided, however, that the terms and conditions of such sales shall be
acceptable to Norwest in its sole discretion.
(s) Immediately prior to the Effective Time of the Merger, Norwest shall
loan to BMS funds sufficient to enable BMS to pay in full all of its
indebtedness to Norwest Bank Minnesota, N.A.
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(t) (i) Consistent with the representation made in paragraph 3(u), except
as provided in clause (ii) below, Norwest shall not take any of the
following actions within the twelve month period immediately following the
Effective Date:
(A) liquidate BMS,
(B) liquidate any BMS Subsidiary, except if the assets of such
BMS Subsidiary are distributed to BMS or another BMS Subsidiary,
(C) merge BMS with or into another corporation, except if BMS is
the surviving corporation,
(D) merge any BMS Subsidiary with or into another corporation,
except if such BMS Subsidiary is the surviving corporation, if such
merger is with BMS or another BMS Subsidiary, or if such merger were a
sale of assets described in clause (E) below, it would not result in a
violation of the "substantially all" test described in such clause
(E),
(E) cause BMS or any BMS Subsidiary to sell or otherwise dispose
of any of its assets to any entity other than BMS or a BMS Subsidiary,
with the following exceptions (A) sales or dispositions in the
ordinary course of business or (B) sales or dispositions which would
not violate the "substantially all" test as defined in Rev. Proc. 77-
37, 1977-2 C.B. 568 Section 3.01.
For purposes of this paragraph 5(t), the term "BMS Subsidiary" shall mean any
entity with respect to which BMS or another BMS Subsidiary (so defined), at the
time of the occurrence of the event described in this paragraph 5(t), owns stock
that possesses at least 80% of the total voting power of such entity and has a
value equal to at least 80% of the total value of the stock of such entity.
(ii) Norwest may, for business or regulatory reasons, sell the
following, whether as a sale of assets or stock or by merger, and BMS and
Norwest hereby agree that any such transactions shall not be deemed a
breach of this paragraph 3(a).
(A) the Escrow Business (as defined in paragrah 4(v)),
(B) the branch banks described in paragraph 7(e),
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(u) Norwest shall have the right to conduct an environmental
investigation prior to Closing, including Phase I and Phase II assessments and
studies of the properties of BMS and the BMS Subsidiaries. Norwest's
investigation shall be conducted by a competent environmental consultant
selected by Norwest. Said environmental consultant shall be licensed, bonded
and insured in accordance with applicable laws and regulations. Within seventy-
five (75) days after the date hereof, Norwest shall complete its investigation
and deliver to BMS, without cost, one legible, true, correct and complete copy
of each report produced as a result thereof and of all data and other
information delivered to Norwest in connection therewith. Norwest will hold in
confidence such reports, data and other information with respect to such
environmental investigation in accordance with paragraph 5(h). The rights
granted to Norwest shall be exercised at Norwest's sole risk. Norwest agrees to
indemnify, defend and hold BMS harmless from any and all claims, causes of
actions, losses, liabilities, liens, demands, costs, expenses or damages
(including attorneys' fees and court costs) caused by Norwest or its
environmental consultants and arising in connection with Norwest's environmental
investigation. Norwest's obligations pursuant to the immediately preceding
sentence shall survive any termination or cancellation of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATION OF BMS. The obligation of BMS
to effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following further conditions, which may be waived in writing by
BMS:
(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 as if made
at the Time of Filing except where the failure to be true and correct would not
have or would not reasonably be expected to have a material adverse effect on
Norwest and its subsidiaries, taken as a whole.
(b) Norwest shall have, or shall have caused to be, performed and
observed in all material respects all covenants, agreements and conditions
hereof to be performed or observed by it and Merger Co. at or before the Time of
Filing.
(c) BMS shall have received a favorable certificate, dated as of the
Effective Date of the Merger, signed by the Chairman, the President or any
Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs (a)
and (b) of this paragraph 6.
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(d) This Agreement and the Merger Agreement shall have been approved
by the affirmative vote of the holders of the percentage of the outstanding
shares of BMS required for approval of a plan of merger in accordance with the
provisions of BMS's Articles of Incorporation and the Montana Business
Corporation Act.
(e) Norwest shall have received approval by the Federal Reserve
Board, each of BMS and Norwest shall have received approval by such other
governmental agencies as may be required by law of the transactions contemplated
by this Agreement and the Merger Agreement, all waiting and appeal periods
prescribed by applicable law or regulation shall have expired and all conditions
or requirements of such approvals shall have been satisfied.
(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 BMS pursuant to this Agreement and the Merger Agreement shall
have been authorized for listing on the New York Stock Exchange and the Chicago
Stock Exchange upon official notice of issuance.
(h) BMS shall have received an opinion, dated the Closing Date, of
counsel to BMS, substantially to the effect that, for federal income tax
purposes: (i) the Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) and 368(a)(2)(E) of the Code; (ii) no gain or loss will be
recognized by the holders of BMS 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 BMS will be the same as
the basis of BMS Common Stock exchanged therefor; and (iv) the holding period of
the shares of Norwest Common Stock received by the shareholders of BMS will
include the holding period of the BMS Common Stock, provided such shares of BMS
Common Stock were held as a capital asset as of the Effective Time of the
Merger.
(i) The Registration Statement (as amended or supplemented) shall
have become effective under the Securities Act and shall not be subject to any
stop order, and no action, suit, proceeding or investigation by the SEC to
suspend the effectiveness of the Registration Statement shall have been
initiated and be continuing, or have been threatened and be unresolved. Norwest
shall have received all state securities law or blue sky authorizations
necessary to carry out the transactions contemplated by this Agreement.
(j) BMS shall have received from KPMG Peat Marwick 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 BMS, to the effect that:
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(i) they are independent public accountants with respect to Norwest and
its consolidated subsidiaries within the meaning of the Securities Act and
the applicable published rules and regulations thereunder;
(ii) in their opinion the financial statements of Norwest and its
consolidated subsidiaries examined by them and included 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;
(iii) on the basis of limited procedures, not constituting an audit,
including a reading of the unaudited financial statements referred to
below, a reading of the latest available interim financial statements of
Norwest and its consolidated subsidiaries, inspection of the minute books
of Norwest and its consolidated subsidiaries since June 30, 1993 (or, if
later, since the date of the most recent unaudited consolidated financial
statements of Norwest and its consolidated subsidiaries as may be included
in the Registration Statement), inquiries of officials of Norwest and its
consolidated subsidiaries responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited consolidated financial statements of Norwest and
its consolidated subsidiaries at June 30, 1993, and for the
three-month periods ended June 30, 1993 and June 30, 1992, included in
the Registration Statement (or the unaudited consolidated financial
statements of Norwest and its consolidated subsidiaries at such later
date and for such other periods as may be included in the Registration
Statement) do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
published rules and regulations thereunder, or such unaudited
financial statements are not fairly presented in accordance with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements
of Norwest and its consolidated subsidiaries included in the
Registration Statement;
(B) as of a specified date not more than five days prior to the date
of such letters, there have been any changes in the capital stock of
Norwest and its consolidated subsidiaries or any increases in the
long-term debt of Norwest and its consolidated subsidiaries or any
decreases in consolidated net assets or stockholders' equity of
Norwest and its consolidated subsidiaries as of June 30, 1993 (or such
later date) included in the Registration Statement, except in each
case for changes, increases or decreases which the Registration
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Statement discloses have occurred or may occur or which are described
in such letters;
(C) for the period from June 30, 1993 (or such later date) to such
specified date there were any decreases in consolidated net interest
income, consolidated net interest income after provision for credit
losses, consolidated income before income taxes, and consolidated net
income and net income per share amounts of Norwest and its
consolidated 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;
(iv) In addition to the examination referred to in their report or
reports included in the Registration Statement and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numbers of shares and financial information which are derived from the
general accounting records of Norwest and its consolidated subsidiaries,
which appear in the Registration Statement under the certain captions to be
specified by BMS, and have compared certain of such amounts, percentages,
numbers and financial information with the accounting records of Norwest
and its consolidated subsidiaries and have found them to be in agreement
except as disclosed in such letters.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of Norwest
to effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following conditions, which may be waived in writing by
Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
or events occurring after the date of this Agreement made in the ordinary course
of business and not expressly prohibited by this Agreement and except for
activities or transactions or events expressly authorized by paragraphs 4(b) and
4(bb) of this Agreement, the representations and warranties contained in
paragraph 2 hereof, shall be true and correct as if made at the Time of Filing,
except where the failure to be true and correct would not have or would not
reasonably be expected to have a material adverse effect on BMS and the BMS
Subsidiaries, taken as a whole.
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(b) BMS shall have, or shall have caused to be, performed and observed in all
material respects all covenants, agreements and conditions hereof to be
performed or observed by it at or before the Time of Filing.
(c) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
BMS required for approval of a plan of merger in accordance with the provisions
of BMS's Articles of Incorporation and the Montana Business Corporation Act.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Merger signed by the Chairman or President and by the
Secretary or Assistant Secretary of BMS, as to the matters set forth in
subparagraphs (a) through (c) of this paragraph 7.
(e) Norwest shall have received approval by all governmental agencies as may
be required by law of the transactions contemplated by this Agreement and the
Merger Agreement, all waiting and appeal periods prescribed by applicable law or
regulation shall have expired and any condition or requirement referred to in
the proviso to the next sentence shall have been satisfied. No approvals,
licenses or consents granted by any regulatory authority shall contain any
condition or requirement relating to BMS or any BMS Subsidiary that is unduly
burdensome to Norwest; provided, however, that a condition or requirement of the
Federal Reserve Board approval that Norwest sell one or more of (i) the Bank of
Montana branch bank located in Lewistown, Montana, (ii) the Bank of Montana
branch bank located in Anaconda, Montana and (iii) one, but not both of, the
Montana Bank and Bank of Montana branch banks located in Butte, Montana shall
not in and of itself be deemed unduly burdensome to Norwest provided that the
terms and conditions of such sales shall be acceptable to Norwest in its sole
discretion.
(f) BMS and each BMS Subsidiary shall have obtained any and all material
consents or waivers from other parties to loan agreements, leases or other
contracts material to BMS's or such BMS Subsidiary's business required for the
consummation of the Merger, and BMS and each BMS Subsidiary shall have obtained
any and all material permits, authorizations, consents, waivers and approvals
required for the lawful consummation by it of the Merger.
(g) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement.
(h) From and after June 22, 1993, neither BMS nor any BMS Subsidiary shall
have taken any action which, with respect to BMS, would disqualify the Merger as
a "pooling of interests" for accounting purposes; provided, however, any action
taken by BMS or any BMS Subsidiary pursuant to any request by Norwest, including
but not limited to under paragraph 4(j), or pursuant to a
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specific requirement of this Agreement shall not constitute a failure to satisfy
the conditions contained in this paragraph 7(h). Norwest acknowledges that
except as set forth in the immediately preceding sentence, any other
disqualification of the Merger as a "pooling of interests" shall not constitute
a breach of paragraph 4(k) of this Agreement or a failure to satisfy the
condition to Norwest's obligations under this paragraph 7(h).
(i) At any time since the date hereof the total number of shares of BMS
Common Stock outstanding and subject to issuance upon exercise (assuming for
this purpose that phantom shares and other share-equivalents constitute BMS
Common Stock) of all warrants, options, conversion rights, phantom shares or
other share-equivalents shall not have exceeded 2,014,676.
(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 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 KPMG Peat Marwick 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) they are independent public accountants with respect to BMS and the
BMS Subsidiaries within the meaning of the Securities Act and the
applicable published rules and regulations thereunder;
(ii) in their opinion the financial statements of BMS and the BMS
Subsidiaries examined by them and included 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;
(iii) on the basis of limited procedures, not constituting an audit,
including a reading of the unaudited financial statements referred to
below, a reading of the latest available interim financial statements of
BMS and the BMS Subsidiaries, inspection of the minute books of BMS and the
BMS Subsidiaries since June 30, 1993; (or, if later, since the date of the
most recent unaudited consolidated financial statements of BMS and the BMS
Subsidiaries as may be included in the Registration Statement), inquiries
of officials of BMS and the BMS Subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may be
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specified in such letter, nothing came to their attention that caused them
to believe that:
(A) the unaudited consolidated financial statements of BMS and the
BMS Subsidiaries at June 30, 1993 and for the three month periods
ended June 30, 1993 and June 30, 1992, included in the Registration
Statement (or the unaudited consolidated financial statements of BMS
and the BMS Subsidiaries at such later date and for such other periods
as may be included in the Registration Statement) do not comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act and the published rules and
regulations thereunder, or such unaudited financial statements are not
fairly presented in accordance with generally accepted accounting
principles applied on a basis substantially consistent with that of
the audited financial statements of BMS and the BMS Subsidiaries
included in the Registration Statement;
(B) as of a specified date not more than five days prior to the date
of such letters, there have been any changes in the capital stock of
BMS and the BMS Subsidiaries or any increases in the long-term debt of
BMS and the BMS Subsidiaries or any decreases in consolidated net
assets or stockholders' equity of BMS and the BMS Subsidiaries, in
each case as compared with amounts shown in the balance sheet of BMS
and the BMS Subsidiaries as of June 30, 1993 (or such later date)
included in the Registration Statement, 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;
(C) for the period from June 30, 1993 (or such later date) to such
specified date there were any decreases in consolidated net income,
consolidated net income after provision for credit losses,
consolidated income before income taxes, and consolidated net income
and net income per share amounts of BMS and the BMS 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;
(iv) in addition to the examination referred to in their report or
reports included in the Registration Statement and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numbers
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of shares and financial information which are derived from the general
accounting records of BMS and the BMS 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 BMS and the BMS
Subsidiaries and have found them to be in agreement except as disclosed in
such letters.
(l) BMS and the BMS Subsidiaries, considered as a whole, shall not have
sustained since June 30, 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) Except to the extent set forth on Schedule 2(v) and except for the
remediation described in paragraph 4(aa), 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 BMS or any BMS
Subsidiary of, any liability arising from any violation of or obligation 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
BMS and the BMS Subsidiaries taken as a whole. All Remediation required
pursuant to paragraph 4(aa) shall have been completed prior to the Effective
Date; provided however, that if it is not practicable to complete such
Remediation using due diligence prior to the Effective Date, Remediation Plans
acceptable to Norwest shall have been developed and implemented. In the event
that the Net Cost of the Remediation and the Remediation Plans exceeds $100,000,
Norwest shall not be obligated to close; provided, however, that if BMS elects
to reduce the purchase price as provided in paragraph 1(a)(v) by the full amount
of the Net Cost (including the amount by which the Net Cost exceeds $100,000),
then Norwest shall be obligated to close assuming that all other conditions to
closing have been satisfied or waived. In the event that BMS does not elect to
reduce the purchase price as described in the immediately preceding sentence,
Norwest may, but shall not be obligated to, waive the condition to closing
contained in this paragraph 7(m), and in such event, BMS shall be obligated to
close assuming that all other conditions to closing have been satisfied or
waived (but shall not be obligated to reduce the purchase price by the amount
that the Net Cost exceeds $100,000). Norwest shall have received written
reports containing the conclusions of Phase I and Phase II environmental
assessments and studies pursuant to paragraph 5(u).
(n) No change shall have occurred and no circumstances shall exist which
might reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business or prospects of BMS and the BMS
Subsidiaries taken as a whole (other than changes in banking laws or
regulations, changes in generally accepted accounting principles or
interpretations thereof that affect the banking industry generally or changes in
general economic conditions
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that uniformly affect the banking industry on a nationwide basis, including
changes in the general level of interest rates).
(o) BMS shall have delivered to Norwest, at least 32 days prior to the
Effective Date of the Merger, signed representations substantially in the form
attached hereto as Exhibit B by each executive officer, director or shareholders
of BMS who may reasonably be deemed an "affiliate" of BMS within the meaning of
such term as used in Rule 145 under the Securities Act.
(p) BMS shall have provided to Norwest its net tax basis (and the
calculations supporting such basis) in its properties and the tax basis (and the
calculations supporting such basis) in the stock of its subsidiaries.
(q) The agreements and leases described in paragraphs 4(q), 4(r), 4(y), and
4(z) shall have been terminated or assigned as provided in such paragraphs.
(r) Except for 808 shares of common stock of Montana Bank not owned by MBI,
at the Effective Time of the Merger, BMS shall own, directly or indirectly, and
shall deliver to Norwest at the closing stock certificates evidencing all of the
outstanding capital stock of the BMS Subsidiaries free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto.
(s) The operations and data processing functions of BMS and the BMS
Subsidiaries, including without limitation those located at the Helena, Montana
Operations Center, shall be operating in a manner satisfactory to Norwest.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of BMS or any BMS
Subsidiary as of the Effective Date of the Merger ("BMS 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 BMS employee shall be eligible for
participation in the employee welfare benefit plans of Norwest listed below
subject to any eligibility requirements (with full credit for years of past
service to BMS or any BMS Subsidiary, or to any predecessor-in-interest of BMS
or any BMS Subsidiary to the extent such service is presently given credit under
the Plans of BMS or any BMS Subsidiary described in paragraph 2(p) hereof, for
the purpose of satisfying any eligibility and vesting periods) applicable to
such plans (but not subject to any pre-existing condition exclusions) and shall
enter each plan not later than the first day of the calendar quarter which
begins at least 32 days after the Effective Date of the Merger:
Medical Plan
Dental Plan
Long Term Disability Plan
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Flexible Benefits Plan
Group Basic Life Insurance Plan
Group Optional and Dependent Life Insurance Plan
Business Travel Accident Insurance Plan
Short-term Disability Program
Severance Program
Vacation Program
For the purpose of determining each BMS Employee's benefit for the year in which
the Merger occurs under the Norwest vacation program, vacation taken by a BMS
Employee in the year in which the Merger occurs will be deducted from the total
Norwest benefit.
(b) Employee Pension Benefit Plans.
Each BMS 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 BMS or any BMS
Subsidiary, or to any predecessor-in-interest of BMS or any BMS Subsidiary to
the extent such service is presently given credit under the Plans of BMS or any
BMS Subsidiary described in paragraph 2(p) hereof, for the purpose of satisfying
any eligibility and vesting periods), and shall enter the SIP not later than the
first day of the calendar quarter which begins at least 32 days after the
Effective Date of the Merger.
Each BMS Employee shall be eligible for participation, as a new employee, in the
Norwest Pension Plan under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of
Filing:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Merger shall not have been consummated by April 15, 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;
(iii) by BMS 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;
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(iv) by BMS upon written notice to Norwest given no later than 5:00
p.m. Minneapolis time on the first business day immediately preceding the
scheduled Closing Date in the event that the Norwest Measurement Price is
less than $23.50 per share.
(b) Termination of this Agreement under clauses (a)(ii) or (a)(iii) of
this paragraph 9 shall not release, or be construed as so releasing, either
party hereto from any liability or damage to the other party hereto arising out
of the breaching party's willful and material breach of the warranties and
representations made by it, or willful and material failure in performance of
any of its covenants, agreements, duties or obligations arising hereunder. The
obligations under paragraphs 4(g), 5(h), 5(u) and 10 shall survive termination
of this Agreement under any of clauses (a)(i) through (a)(iv) of this paragraph
9.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by BMS and the BMS Subsidiaries shall be borne by BMS,
and all such expenses incurred by Norwest shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Except as provided in paragraph 5(p) and
in the following sentence, 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. Paragraphs 3(u) and 5(t) are intended for the
benefit of the BMS shareholders of record as of immediately prior to the
Effective Time and Norwest shall be liable to such shareholders for damages
caused by the breach of such paragraphs.
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
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If to BMS:
Bank of Montana System
c/o Central Financial Services, Inc.
5500 Wayzata Boulevard
Golden Valley, Minnesota 55416
Attention: Chairman and Chief Executive Officer
with a copy to:
Dorsey & Whitney
2200 Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: J. Andrew Herring
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Merger Agreement contain
the complete agreement between the parties hereto with respect to the Merger and
other transactions contemplated hereby and supersede all prior agreements and
understandings between the parties hereto with respect thereto.
15. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by a signed
writing, give any consent, take any action pursuant to paragraph 9 hereof or
otherwise, or waive any inaccuracies in the representations and warranties by
the other party and compliance by the other party with any of the covenants and
conditions herein.
17. AMENDMENT. At any time before the Time of Filing, the parties hereto,
by action taken by their respective Boards of Directors or pursuant to authority
delegated by their respective Boards of Directors, may amend this Agreement;
provided, however, that no amendment after approval by the shareholders of BMS
shall be made which changes in a manner adverse to such shareholders the
consideration to be provided to said shareholders pursuant to this Agreement and
the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota without regard to the
conflict of laws provisions.
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19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreement shall survive the
Merger of Merger Co. with and into BMS or, except as set forth in paragraph
9(b), the termination of this Agreement. Paragraphs 3(u), 5(t), 5(p) and 12
shall survive the Merger.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION BANK OF MONTANA SYSTEM
By: /s/ Ken Murray By: /s/ J.M. Morrison
-------------------------------- ------------------------------------
Its: Executive Vice President Its: Chairman
--------------------------------- ----------------------------------
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
BANK OF MONTANA SYSTEM
a Montana corporation
(the surviving corporation)
AND
NORWEST MERGER CO.
a Montana corporation
(the merged corporation)
This Agreement and Plan of Merger dated as of __________, 1994, between
BANK OF MONTANA SYSTEM, a Montana corporation (hereinafter sometimes called
"BMS" and sometimes called the "surviving corporation") and NORWEST MERGER CO.,
a Montana corporation ("Merger Co.")(said corporations being hereinafter
sometimes referred to as the "constituent corporations"),
WHEREAS, Merger Co., a wholly-owned subsidiary of Norwest Corporation, was
incorporated by Articles of Incorporation filed in the office of the Secretary
of State of the State of Montana on _______, 19__, and said corporation is now a
corporation subject to and governed by the provisions of the Montana Business
Corporation Act. Merger Co. has authorized capital stock of 1,000 shares of
common stock having a par value of $1.00 per share ("Merger Co. Common Stock"),
of which 1,000 shares were outstanding and no shares were held in the treasury
as of the date hereof; and
WHEREAS, BMS was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Montana on ________, 1954 and
said corporation is now a corporation subject to and governed by the provisions
of the Montana Business Corporation Act. BMS has authorized capital stock of
4,000,000 shares of Capital Stock, par value $2.50 per share ("BMS Common
Stock") of which _________ shares were outstanding and no shares were held in
the treasury as of the date hereof; and
WHEREAS, Norwest Corporation and BMS are parties to an Agreement and Plan
of Reorganization dated as of September 13, 1993 (the "Reorganization
Agreement"), setting forth certain representations, warranties and covenants in
connection with the merger provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the constituent
corporations respectively deem it advisable for the welfare and advantage of
said corporations and for the best interests of the respective shareholders of
said
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corporations that said corporations merge and that Merger Co. be merged
with and into BMS, with BMS continuing as the surviving corporation, on the
terms and conditions hereinafter set forth in accordance with the provisions of
the Montana Business Corporation Act, which statute permits such merger; and
WHEREAS, it is the intent of the parties to effect a merger which qualifies
as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E);
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of BMS and of Merger Co., in consideration of the premises and of
the mutual covenants and agreements contained herein and of the benefits to
accrue to the parties hereto, have agreed and do hereby agree that Merger Co.
shall be merged with and into BMS pursuant to the laws of the State of Montana
and do hereby agree upon, prescribe and set forth the terms and conditions of
the merger of Merger Co. with and into BMS, the mode of carrying said merger
into effect, the manner and basis of converting the shares of BMS Common Stock
into shares of common stock of Norwest of the par value of $1-2/3 per share
("Norwest Common Stock"), and such other provisions with respect to said merger
as are deemed necessary or desirable, as follows:
FIRST: At the time of merger Merger Co. shall be merged with and into BMS,
one of the constituent corporations, which shall be the surviving corporation,
and the separate existence of Merger Co. shall cease and the name of the
surviving corporation shall continue to be Bank of Montana System.
SECOND: The Articles of Incorporation of BMS at the time of merger shall
be and remain the Articles of Incorporation of the surviving corporation until
further amended according to law.
THIRD: The By-Laws of BMS at the time of merger shall be and remain the
By-Laws of the surviving corporation until amended according to the provisions
of the Articles of Incorporation of the surviving corporation or of said By-
Laws.
FOURTH: The directors of Merger Co. at the time of merger shall be and
remain the directors of the surviving corporation and shall hold office from the
time of merger until their respective successors are elected and qualify.
FIFTH: The officers of Merger Co. at the time of merger shall be and
remain the officers of the surviving corporation and shall hold office from the
time of merger until their respective successors are elected or appointed and
qualify.
SIXTH: The manner and basis of converting the shares of BMS Common Stock
into shares of Norwest Common Stock shall be as follows:
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1. Each of the shares of BMS Common Stock outstanding immediately prior to the
time of merger (other than shares as to which statutory dissenters' appraisal
rights have been exercised) shall at the time of merger, by virtue of the merger
and without any action on the part of the holder or holders thereof, be
converted into and exchanged for the number of shares of Norwest Common Stock
determined by dividing the Adjusted Norwest Shares (as defined below) by the
number of shares of BMS Common Stock then outstanding. "Adjusted Norwest
Shares" shall mean 4,200,000; provided, however, that
(i) with respect to any severance or bonus agreements, the Adjusted
Norwest Shares shall be reduced by a number equal to (A) $385,000 divided
by (B) the Norwest Measurement Price (as defined below);
(ii) with respect to any shares of BMS Common Stock that are redeemed,
purchased or otherwise acquired pursuant to and as required by BMS's
employee stock ownership plan from and including June 22, 1993 to and
including the Effective Date, the Adjusted Norwest Shares shall be reduced
by a number equal to (A) the number of shares so redeemed, purchased or
otherwise acquired multiplied by (B) the Adjusted Norwest Shares after all
adjustments described in subparagraphs 1(i) and 1(iii) through 1(v) are
made divided by (C) 2,014,676;
(iii) with respect to the contracting by BMS of certain of Norwest's
services, the Adjusted Norwest Shares shall be reduced by a number equal to
(A) the amount BMS owes Norwest with respect to such services divided by
(B) the Norwest Measurement Price (as defined below);
(iv) if Norwest reasonably determines that (A) any Losses (as defined
below) exist as of 30 days prior to the Effective Date or (B) any Losses
have been charged off in the financial statements of BMS during the period
from but excluding June 30, 1993 to immediately prior to the Effective
Time, then the Adjusted Norwest Shares shall be reduced by a number equal
to (y) the Losses (without duplication) described in clauses (A) and (B)
above divided by (z) the Norwest Measurement Price (as defined below);
(v) with respect to the environmental investigation and remediation
and the development and implementation of remediation plans of certain BMS
properties (other than the costs of any Phase I or II environmental
assessments), the Adjusted Norwest Shares shall be reduced by a number
equal to (A) the lesser of the Net Cost and $100,000 divided by (B) the
Norwest Measurement Price (as defined below); and
(vi) the Adjusted Norwest Shares shall be adjusted as provided in
paragraph (2) below.
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The "Norwest Measurement Price" shall mean 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 twenty (20) trading days
ending at the end of the third trading day immediately preceding the Closing
Date (as appropriately and proportionately adjusted in the event that, between
the date hereof and the termination of such twenty trading day period, 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 stock dividend).
"Losses" shall mean those amounts that the general ledger balancing and
account reconciliation process identifies as 1) reconciling items that do not
represent valid timing differences and with respect to which, as of the date of
determination described in paragraph 1(iv), 45 days has elapsed since the date
of origination of the related individual general ledger account entries, or 2)
out of balance conditions including situations in which the entries in the
general ledger and the subsidiary ledgers do not correspond or situations in
which entries or balances in the general ledger or the subsidiary ledgers are
not supported by valid original source documents or by certifiable systems
applications balances.
2. If between the date hereof and the time of the merger, shares of Norwest
Common Stock shall be changed into a different number of shares or a
different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or 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 BMS Common Stock shall be converted pursuant to
paragraph 1, above, will be appropriately and proportionately adjusted so
that the number of such shares of Norwest Common Stock into which a share
of BMS Common Stock shall be converted will equal the number of shares of
Norwest Common Stock which holders of shares of BMS 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 time of the merger.
3. As soon as practicable after the merger becomes effective, each holder
of a certificate for shares of BMS Common Stock outstanding immediately
prior to the time of merger shall be entitled, upon surrender of such
certificate for cancellation to the surviving corporation or to Norwest
Bank Minnesota, National Association, as the designated agent of the
surviving corporation (the "Agent"), to receive a new certificate for the
number of whole shares of Norwest Common Stock to which such holder shall
be entitled on the basis set forth in paragraphs 1 and 2 above. Until so
surrendered each certificate which,
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immediately prior to the time of merger, represented shares of BMS Common
Stock shall not be transferable on the books of the surviving corporation
but shall be deemed to evidence the right to receive cash (with respect to
shares as to which statutory dissenters' rights have been exercised) or
(except for the payment of dividends as provided below) ownership of
(including, but not limited to, the right to vote) the number of whole
shares of Norwest Common Stock into which such shares of BMS Common Stock
have been converted on the basis above set forth; provided, however, until
the holder of such certificate for BMS Common Stock shall have surrendered
the same for exchange as above set forth, no dividend payable to holders of
record of Norwest Common Stock as of any date subsequent to the effective
date of merger shall be paid to such holder with respect to the Norwest
Common Stock, if any, represented by such certificate, but, upon surrender
and exchange thereof as herein provided, there shall be paid by the
surviving corporation or the Agent to the record holder of such certificate
for Norwest Common Stock issued in exchange therefor an amount with respect
to such shares of Norwest Common Stock equal to all dividends that shall
have been paid or become payable to holders of record of Norwest Common
Stock between the effective date of merger and the date of such exchange.
On any matters relating to such certificates, Norwest may rely conclusively
upon the record of shareholders maintained by BMS containing the names and
addresses of the holders of record of BMS Common Stock on the effective
date of the merger.
4. No fractional shares of Norwest Common Stock and no certificates or
scrip certificates therefor shall be issued to represent any such
fractional interest, and any holder 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 time of merger.
5. All shares of Norwest Common Stock and cash for any fractional shares
issued and paid upon the surrender for exchange of BMS Common Stock in
accordance with the above terms and conditions shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of BMS
Common Stock.
6. Each share of Merger Co. Common Stock issued and outstanding at the
time of merger shall be converted into and exchanged for one share of the
surviving corporation after the time of merger.
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
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1. The effective date of merger shall be the date on which Articles of
Merger (as described in subparagraph 1(b) of this Article Seventh) shall be
delivered to and filed with the Secretary of State of the State of Montana;
provided, however, that all of the following actions shall have been taken
in the following order:
a. This Agreement shall be approved and adopted on behalf of Merger
Co. and BMS in accordance with the Montana Business Corporation Act;
and
b. Articles of Merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by
the Montana Business Corporation Act, shall be executed by the
President or a Vice President of Merger Co. and by the Secretary or an
Assistant Secretary of Merger Co., and by the President or a Vice
President of BMS and by the Secretary or an Assistant Secretary of
BMS, and shall be filed in the office of the Secretary of State of the
State of Montana in accordance with the Montana Business Corporation
Act.
2. The merger shall become effective as of 11:59 p.m. (the "time of
merger") on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Merger Co. shall cease, and the corporate
existence and identity of BMS shall continue as the surviving corporation.
2. The merger shall have the other effects prescribed by Section 35-1-817
of the Montana Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
1. If at any time the surviving corporation shall consider or be advised
that any further assignment or assurance in law or other action is
necessary or desirable to vest, perfect or confirm in the surviving
corporation the title to any property or rights of Merger Co. acquired or
to be acquired as a result of the merger provided for herein, the proper
officers and directors of BMS and Merger Co. may execute and deliver such
deeds, assignments and assurances in law and take such other action as may
be necessary or proper to vest, perfect or confirm title to such property
or right in the surviving corporation and otherwise carry out the purposes
of this Agreement.
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2. For the convenience of the parties and to facilitate the filing of this
Agreement, any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument.
3. This Agreement and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Montana.
4. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
5. At any time prior to the filing of Articles of Merger with the
Secretary of State of the State of Montana, subject to the provisions of
the Reorganization Agreement, this Agreement may be terminated upon
approval by the Board of Directors of either of the constituent
corporations notwithstanding the approval of the shareholders of either
constituent corporation.
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IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan
of Merger to be signed in their respective corporate names by the undersigned
officers and their respective corporate seals to be affixed hereto, pursuant to
authority duly given by their respective Boards of Directors, all as of the day
and year first above written.
BANK OF MONTANA SYSTEM
By: _________________________________
Its: _________________________________
Attest:
__________________________
Secretary
NORWEST MERGER CO.
By: ________________________________
Its: ________________________________
Attest:
___________________________
Secretary
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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 BANK OF
MONTANA SYSTEM, a Montana corporation ("BMS").
Pursuant to an Agreement and Plan of Reorganization, dated as of July __,
1993, (the "Reorganization Agreement"), between BMS and Norwest Corporation, a
Delaware corporation ("Norwest") it is contemplated that a wholly-owned
subsidiary of Norwest will merge with and into BMS (the "Merger") and as a
result, I will receive in exchange for each share of Capital Stock, par value
$2.50 per share, of BMS ("BMS Common Stock") owned by me immediately prior to
the Effective Time of the Merger (as defined in the Reorganization Agreement), a
number of shares of Common Stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock"), as more specifically set forth in the Reorganization
Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Norwest Common Stock held by me during the 30 days prior to the
Effective Time of the Merger.
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Norwest Common Stock issued to me pursuant to the Merger (the "Stock")
except (a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or (c) in an offering registered under the Securities Act.
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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
Merger until such time as financial results covering at least 30 days of post-
Merger combined operations of BMS and Norwest have been published.
I consent to the endorsement of the Stock issued to me pursuant to the
Merger with a restrictive legend which will read substantially as follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933,
as amended (the "Act"), applies, and may be sold or otherwise transferred
only in compliance with the limitations of such Rule 145, or upon receipt
by 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 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-Merger 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
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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 BMS.
Sincerely,
_________________________
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APPENDIX B
MONTANA BUSINESS CORPORATION ACT
SECTIONS 35-1-826 THROUGH 35-1-839
<PAGE>
MONTANA BUSINESS CORPORATION ACT
35-1-826. DEFINITIONS.
As used in 35-1-826 through 35-1-839, the following definitions apply:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" includes the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under 35-1-827 and who exercises that right when and in the
manner required by 35-1-829 through 35-1-837.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment at the average rate currently paid by the
corporation on its principal bank loans or, if the corporation has no loans, at
a rate that is fair and equitable under all the circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial shareholder to the
extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
35-1-827. RIGHT TO DISSENT.
(1) A shareholder is entitled to dissent from
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a party
if:
(i) shareholder approval is required for the merger by 35-1-815 or
the articles of incorporation and the shareholder is entitled to
vote on the merger; or
(ii) the corporation is a subsidiary that is merged with its parent
corporation under 35-1-818;
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(b) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired if the
shareholder is entitled to vote on the plan;
(c) consummation of a sale or exchange of all or substantially all of the
property of the corporation other than in the usual and regular course
of business if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within 1 year after the date of sale;
(d) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because
it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of redemption,
including a provision with respect to a sinking fund for the
redemption or repurchase of the shares;
(iii) alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to be voted on any
matter or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar
voting rights; or
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share created is to be
acquired for cash under 35-1-621; or
(e) any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and to obtain payment for their shares.
(2) A shareholder entitled to dissent and to obtain payment for shares
under 35-1-826 through 35-1-839 may not challenge the corporate action creating
the shareholder's entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
35-1-828. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
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(a) he submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(b) he does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
35-1-829. NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under 35-1-
827 is submitted to a vote at a shareholders' meeting, the meeting notice must
state that shareholders are or may be entitled to assert dissenters' rights
under 35-1-826 through 35-1-839 and must be accompanied by a copy of 35-1-826
through 35-1-839.
(2) If a corporate action creating dissenters' rights under 35-1-827 is
taken without a vote of shareholders, the corporation shall give written
notification to all shareholders entitled to assert dissenters' rights that the
action was taken and shall send them the dissenters' notice described in 35-1-
831.
35-1-830. NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under 35-1-
827 is submitted to a vote at a shareholders' meeting, a shareholder who wishes
to assert dissenters' rights:
(a) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) may not vote his shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1)(a) is not entitled to payment for his shares under 35-1-826 through 35-1-
839.
35-1-831. DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under 35-1-
827 is authorized at a shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders who satisfied the requirements of
35-1-830.
(2) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken and must:
(a) state where the payment demand must be sent and where and when
certificates for certified shares must be deposited;
(b) inform shareholders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment is received;
(c) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of
the proposed corporate action and that requires the person asserting
dissenters' rights to certify whether or not he acquired beneficial
ownership of the shares before that date;
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(d) set a date by which the corporation must receive the payment demand,
which may not be fewer than 30 nor more than 60 days after the date
the required notice under subsection (1) is delivered; and
(e) be accompanied by a copy of 35-1-826 through 35-1-839.
35-1-832. DUTY TO DEMAND PAYMENT.
(1) A shareholder sent a dissenters' notice described in 35-1-831 shall
demand payment, certify whether the shareholder acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters' notice
pursuant to 35-1-831(2)(c), and deposit his certificates in accordance with the
terms of the notice.
(2) The shareholder who demands payment and deposits his certificates
under subsection (1) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(3) A shareholder who does not demand payment or deposit his certificates
where required, each by the date set in the dissenters' notice, is not entitled
to payment for his shares under 35-1-826 through 35-1-839.
35-1-833. SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions are released under 35-1-835.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
35-1-834. PAYMENT.
(1) Except as provided in 35-1-836, as soon as the proposed corporate
action is taken or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with 35-1-832 the amount the corporation estimates
to be the fair value of the dissenter's shares plus accrued interest.
(2) The payment must be accompanied by:
(a) the corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
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(b) a statement of the corporation's estimate of the fair value of the
shares;
(c) an explanation of how the interest was calculated;
(d) a statement of the dissenter's right to demand payment under 35-1-837;
and
(e) a copy of 35-1-826 through 35-1-839.
35-1-835. FAILURE TO TAKE ACTION.
(1) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under 35-1-831 and repeat the payment demand procedure.
35-1-836. AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by 35-1-834 from
a dissenter unless the dissenter was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1), after taking the proposed corporate action, the corporation
shall estimate the fair value of the shares plus accrued interest and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under 35-
1-837.
35-1-837. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and the amount of
interest due and may demand payment of the dissenter's estimate, less any
payment under 35-1-834, or reject the corporation's offer under 35-1-836 and
demand payment of the fair value of the dissenter's shares and the interest due
if:
(a) the dissenter believes that the amount paid under 35-1-834 or offered
under 35-1-836 is less than the fair value of the dissenter's shares
or that the interest due is incorrectly calculated;
(b) the corporation fails to make payment under 35-1-834 within 60 days
after the date set for demanding payment; or
(c) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on
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uncertificated shares within 60 days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (1)
within 30 days after the corporation made or offered payment for his shares.
35-1-838. COURT ACTION.
(1) If a demand for payment under 35-1-837 remains unsettled, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand and shall petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if its principal office is
not located in this state, where its registered office is located. If the
corporation is a foreign corporation without a registered office in this state,
it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters whose demands remain
unsettled, whether or not residents of this state, parties to the proceeding as
in an action against their shares, and all parties must be served with a copy of
the petition. Nonresidents may be served by certified mail or by publication as
provided by law.
(4) The jurisdiction of the district court in which the proceeding is
commenced under subsection (2) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding is entitled to judgment:
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares plus interest exceeds the amount paid by the
corporation; or
(b) for the fair value plus accrued interest of his after-acquired shares
for which the corporation elected to withhold payment under 35-1-836.
35-1-839. COURT COSTS AND ATTORNEY FEES.
(1) The court in an appraisal proceeding commenced under 35-1-838 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses
B-6
<PAGE>
of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under 35-1-837.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of 35-1-829 through 35-1-837; or
(b) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by 35-1-826 through 35-1-
839.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award the counsel reasonable attorney fees to be paid out of the amounts awarded
the dissenters who were benefited.
B-7
<PAGE>
APPENDIX C
OPINION OF D.A. DAVIDSON & CO.
<PAGE>
[Letterhead of D.A. Davidson & Co.]
February 10, 1994
Board of Directors
Bank of Montana System
c/o Central Financial Services
The Colonnade
5500 Wayzata Boulevard
Golden Valley, MN 55416
Gentlemen and Ms. Forster:
In connection with the proposed merger transaction ("Merger") whereby a
wholly-owned subsidiary of Norwest Corporation ("Purchaser") will merge with
and into Bank of Montana System ("BMS"), you have requested our opinion as to
the fairness, from a financial point of view, to the holders of shares of BMS
common stock ("BMS Shareholders") of the 4,200,000 shares of common stock of
Norwest Corporation (the "Consideration") to be received by BMS Shareholders
as a result of the Merger.
D.A. Davidson & Co. is engaged in the valuation of businesses and their
securities in the course of its business as an investment firm. For our
services in connection with the Merger, D.A. Davidson & Co. was paid a fee
upon delivery of this opinion, and BMS will indemnify D.A. Davidson & Co.
against certain liabilities.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances.
Among other things, we have reviewed a draft of the Agreement setting forth
the proposed terms of the Merger; audited financial statements of BMS for the
years ended December 31, 1988-1992; consolidated reports of condition and
income ("call reports") for BMS, Bank of Montana Butte and Montana Bank of
Billings as of March 31, 1993; the Application to the Board of Governors of
the Federal Reserve System (as amended) by BMS to acquire Montana Bancsystem,
Inc. ("MBI") including certain financial projections contained therein;
unaudited financial statements of BMS and MBI at and for the six months ended
June 30, 1993; budgeted financial results for BMS and MBI for the year ending
December 31, 1993; various internally-prepared financial reports and schedules
regarding BMS and MBI; securities data of publicly traded financial
institutions; financial terms, to the extent publicly available, of certain
merger and acquisition transactions; and, certain financial and common stock
performance information with respect to Norwest Corporation. Additionally, we
have held discussions with members of BMS management concerning the financial
condition, operating results and business prospects for BMS.
C-1
<PAGE>
Page Two
Board of Directors
February 10, 1994
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided by BMS or otherwise made
available to us and we have not attempted independently to verify such
information. We have further relied upon the assurances of BMS management
that they are not aware of any information or facts that would make the
information provided to us incomplete or misleading. In arriving at our
opinion, we have not performed any appraisal or valuation of specific assets
or liabilities of BMS. We have not been authorized to solicit, and did not
solicit, any indications of interest with respect to the purchase of BMS by
other parties. Our opinion necessarily is based upon market, economic,
financial and other conditions as they exist and can be evaluated on the date
hereof.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the Consideration to be received
by BMS Shareholders in connection with the Merger is fair, from a financial
point of view, to such BMS Shareholders as of the date hereof.
Very truly yours,
/s/ D.A. DAVIDSON & CO.
D.A. DAVIDSON & CO.
C-2
<PAGE>
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
------------------------------------------
Exhibits:
--------
2(a) -- Agreement and Plan of Reorganization, dated as of September 13,
1993, between Bank of Montana System and Norwest Corporation
(included in Proxy Statement-Prospectus as Appendix A).
2(b) -- Form of Agreement and Plan of Merger between Bank of Montana System
and Norwest Corporation (included in Proxy Statement-Prospectus as
part of Appendix A).
4(a) -- Restated Certificate of Incorporation of the registrant
(incorporated herein by reference to Exhibit 3(a) to the
registrant's Annual Report on Form 10-K for the year ended December
31, 1988 (File No. 1-2979)) and the Certificate of Correction filed
to correct a certain error in the Restated Certificate of
Incorporation (incorporated by reference to Exhibit 4(a) to the
registrant's Registration Statement No. 33-38806).
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 filed on August 9, 1991 (File No. 1-2979)).
4(d) -- By-Laws of the registrant, 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(e) -- 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 filed on December 6, 1988
(File No. 1-
II-1
<PAGE>
2979)) and Certificate of Adjustment pursuant to Section 12 of the
Rights Agreement (incorporated herein by reference to Exhibit 3 to
Form 8 filed on September 21, 1989 (File No. 1-2979)).
5 -- Opinion of General Counsel of Norwest Corporation.
8 -- Form of Opinion of Dorsey & Whitney.
23(a) -- Consent of General Counsel of Norwest Corporation (included as part
of Exhibit 5 filed herewith).
23(b) -- Consent of Dorsey & Whitney.
23(c) -- Consent of KPMG Peat Marwick (concerning financial statements of
Norwest Corporation).
23(d) -- Consent of KPMG Peat Marwick (concerning financial statements of
Bank of Montana System).
23(e) -- Consent of D.A. Davidson & Co.
24 -- Powers of Attorney.
99(a) -- Opinion of D.A. Davidson & Co. (included in Proxy
Statement-Prospectus as Appendix C).
99(b) -- Form of proxy for Special Meeting of Shareholders of Bank of
Montana System.
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.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (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-3
<PAGE>
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 9th day of February, 1994.
NORWEST CORPORATION
By /s/ Richard M. Kovacevich
-------------------------------
Richard M. Kovacevich
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed on the 9th day of
February, 1994, by the following persons in the capacities indicated:
/s/ Richard M. Kovacevich President and Chief Executive
------------------------------ Officer
Richard M. Kovacevich (Principal Executive Officer)
/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
Michael A. Graf (Principal Accounting Officer)
DAVID A. CHRISTENSEN )
PIERSON M. GRIEVE )
CHARLES M. HARPER )
N. BERNE HART ) A majority of the
WILLIAM A. HODDER ) Board of Directors*
GEORGE C. HOWE )
LLOYD P. JOHNSON )
REATHA CLARK KING )
RICHARD M. KOVACEVICH )
RICHARD S. LEVITT )
RICHARD D. McCORMICK )
CYNTHIA H. MILLIGAN )
JOHN E. PEARSON )
IAN M. ROLLAND )
STEPHEN E. WATSON )
MICHAEL W. WRIGHT )
- --------------------
*Richard M. Kovacevich, by signing his name hereto, does hereby sign this
document on behalf of himself and on behalf of each of the other directors
named above pursuant to powers of attorney duly executed by such other
persons.
/s/ Richard M. Kovacevich
-----------------------------
Richard M. Kovacevich
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Form of Filing
- ------- ----------- --------------
<S> <C> <C>
2(a) Agreement and Plan of Reorganization, dated as of
September 13, 1993, between Bank of Montana System
and Norwest Corporation (included in Proxy
Statement-Prospectus as Appendix A).
2(b) Form of Agreement and Agreement and Plan of Merger
between Bank of Montana System and Norwest
Corporation (included in Proxy Statement-
Prospectus as part of Appendix A).
4(a) Restated Certificate of Incorporation of the
registrant (incorporated herein by reference to
Exhibit 3(a) to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1988
(File No. 1-2979)) and the Certificate of
Correction filed to correct a certain error in the
Restated Certificate of Incorporation
(incorporated by reference to Exhibit 4(a) to the
registrant's Registration Statement No. 33-38806).
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 filed on
August 9, 1991 (File No. 1-2979)).
4(d) By-Laws of the registrant, 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)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Form of Filing
- ------- ----------- --------------
<S> <C> <C>
4(e) 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 filed on December 6, 1988
(File No. 1-2979)) and Certificate of Adjustment
pursuant to Section 12 of the Rights Agreement
(incorporated herein by reference to Exhibit 3 to
Form 8 filed on September 21, 1989 (File No.
1-2979)).
5 Opinion of General Counsel of Norwest Corporation.
8 Form of Opinion of Dorsey & Whitney.
23(a) Consent of General Counsel of Norwest
Corporation (included as part of Exhibit 5 filed
herewith).
23(b) Consent of Dorsey & Whitney.
23(c) Consent of KPMG Peat Marwick (concerning financial
statements of Norwest Corporation).
23(d) Consent of KPMG Peat Marwick (concerning financial
statements of Bank of Montana System).
23(e) Consent of D.A. Davidson & Co. Electronic
Transmission
24 Powers of Attorney.
99(a) Opinion of D.A. Davidson & Co. (included in
Proxy Statement-Prospectus as Appendix C).
99(b) Form of proxy for Special Meeting of Shareholders of Electronic
Bank of Montana System. Transmission
</TABLE>
<PAGE>
EXHIBIT 23(e)
Consent of D.A. Davidson & Co.
We hereby consent to the use of our opinion letter dated February 10, 1994 to
the Board of Directors of Bank of Montana System included as Exhibit C to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of a wholly-owned subsidiary of
Norwest Corporation with and into Bank of Montana System and to the references
to such opinion and to our opinion letter dated September 13, 1993 to the
Board of Directors of Bank of Montana System in such Proxy
Statement/Prospectus. In giving such consent, we do not admit and we disclaim
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
D.A. DAVIDSON & CO.
By: /s/ Mark J. Semmens
_____________________
Mark J. Semmens
Vice President
February 10, 1994
<PAGE>
EXHIBIT 99(b)
BANK OF MONTANA SYSTEM
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Michael J. Pint and John M. Morrison, 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 Bank of Montana System ("BMS") to be held at 5500 Wayzata
Boulevard, Suite 145, Golden Valley, Minnesota, at 9:00 a.m. on Monday,
March 14, 1994, or at any adjournment thereof, as follows, hereby revoking
any proxy previously given:
(1) The adoption of the Agreement and Plan of Reorganization between BMS
and Norwest Corporation ("Norwest"), dated as of September 13, 1993, pursuant
to which Norwest Merger Co., a wholly owned subsidiary of Norwest, will be
merged into BMS, with BMS as the surviving corporation, and each oustanding
share of the common stock of BMS 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.)
[AFFIX LABEL HERE]
--------------------------------
(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.
