<PAGE>
As filed with the Securities and Exchange Commission on February 8, 1995
Registration No. 033-57497
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
__________________
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0449260
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
________________________________
Stanley S. Stroup, Esq.
Executive Vice President and General Counsel Copy to:
Norwest Corporation H. Bernt von Ohlen, Esq.
Norwest Center Norwest Corporation
Sixth and Marquette Norwest Center
Minneapolis, Minnesota 55479-1026 Sixth and Marquette
612-667-8858 Minneapolis, Minnesota 55479-1026
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
__________________
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>
The First National Bank of Bay City
P.O. Box 271
1801 Seventh Street
Bay City, Texas 77404-0271
February 10, 1995
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
The First National Bank of Bay City (the "Bank") to be held at the Bank, 1801
Seventh Street, Bay City, Texas, on Friday, March 31, 1995, at 10:00 a.m.,
local time. At the Special Meeting you will be asked to consider and vote on
the approval of a proposed reorganization whereby a national banking
association which is a wholly owned subsidiary of Norwest Corporation
("Norwest") will be consolidated with the Bank (the "Consolidation") pursuant
to the Agreement and Plan of Reorganization, dated as of September 13, 1994,
between the Bank and Norwest (together with the Agreement and Plan of
Consolidation attached thereto, the "Consolidation Agreement").
Under the terms of the Consolidation Agreement, the Consolidation will
result in the conversion of each share of the Bank's Common Stock outstanding
immediately prior to the time the Consolidation becomes effective into a
number of shares of Norwest Common Stock determined in accordance with the
provisions of the Consolidation Agreement, as described in the accompanying
Proxy Statement-Prospectus for the Special Meeting.
The enclosed Proxy Statement-Prospectus contains a more complete description
of the terms of the Consolidation. You are urged to read the Proxy Statement-
Prospectus carefully.
The Board of Directors has approved the Consolidation Agreement as being in
the best interest of the Bank's shareholders and recommends that you vote in
favor of the Consolidation. In making this recommendation, the Board of
Directors has considered numerous factors including the consideration offered
by Norwest and the structure of the proposed Consolidation, which is designed
to enhance the value of the investment of the Bank's shareholders and to be
tax-free for federal income tax purposes to the Bank's shareholders receiving
Norwest Common Stock. The Bank has received an opinion from Alex Sheshunoff &
Co. Investment Banking, an investment banking firm experienced in the
valuation of banking institutions, that as of the date thereof the
consideration to be received by the Bank's shareholders in the Consolidation
is fair to the Bank's shareholders from a financial point of view. Ford &
Ferraro, L.L.P., counsel for the Bank, is providing its opinion to the Board
of Directors that the Consolidation will be treated as a tax-free
reorganization for federal income tax purposes. HOWEVER, YOU SHOULD CONSULT
YOUR OWN TAX ADVISOR CONCERNING THE FEDERAL, AND ANY APPLICABLE FOREIGN,
STATE, AND LOCAL, INCOME TAX CONSEQUENCES TO YOU OF THE CONSOLIDATION.
In order to ensure that your vote is represented at the Special Meeting,
PLEASE DATE, SIGN, AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE.
If you attend the meeting, you may vote in person if you wish, even though you
have previously returned your proxy.
Frank H. Lewis
Chairman of the Board
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
P.O. BOX 271
1801 SEVENTH STREET
BAY CITY, TEXAS 77404-0271
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON MARCH 31, 1995
---------------------------------------------
A Special Meeting of Shareholders of The First National Bank of Bay City
(the "Bank"), a national banking association, will be held at the Bank, 1801
Seventh Street, Bay City, Texas, on Friday, March 31, 1995, at 10:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization,
dated as of September 13, 1994, (together with the Agreement and Plan of
Consolidation attached thereto, the "Consolidation Agreement") between the
Bank and Norwest Corporation ("Norwest"), a Delaware corporation, a copy
of which is included in the accompanying Proxy Statement-Prospectus as
Appendix A, under the terms of which a wholly owned banking subsidiary of
Norwest would be consolidated with the Bank (the "Consolidation"), under
the charter of the Bank, and each outstanding share of common stock, par
value $25.00 per share, of the Bank ("Bank Common Stock") would be
converted into a number of shares of common stock, par value $1 2/3 per
share, of Norwest determined in accordance with the provisions of the
Consolidation Agreement; and to authorize such further action by the Board
of Directors and proper officers of the Bank as may be necessary or
appropriate to carry out the intent and purposes of the Consolidation.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record on the books of the Bank at the close of
business on February 9, 1995, will be entitled to notice of and to vote at
the Special Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement-Prospectus accompanying
this notice for a more complete statement regarding the matters to be acted
upon at the Special Meeting.
By Order of the Board of Directors
William C. Isaacson
Senior Vice President & Cashier
February 10, 1995
HOLDERS OF BANK COMMON STOCK ARE URGED TO COMPLETE, SIGN, DATE, AND MAIL THE
ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY,
IF YOU WISH, REVOKE YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE REVOKED
AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROXY
STATEMENT-PROSPECTUS.
<PAGE>
PROXY STATEMENT
OF
THE FIRST NATIONAL BANK OF BAY CITY
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 31, 1995
---------------------
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
This Prospectus of Norwest Corporation ("Norwest") relates to up to
932,700 shares of the common stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock") issuable to the shareholders of The First National
Bank of Bay City (the "Bank") upon consummation of the consolidation (the
"Consolidation") of a wholly owned banking subsidiary of Norwest with the
Bank, pursuant to the terms of the Agreement and Plan of Reorganization
between the Bank and Norwest, dated as of September 13, 1994 (together with
the Agreement and Plan of Consolidation attached thereto, the "Consolidation
Agreement"). The Consolidation Agreement is set forth in Appendix A to this
Proxy Statement-Prospectus and is incorporated by reference herein.
This Prospectus also serves as the Proxy Statement of the Bank for a
special meeting of shareholders to be held on March 31, 1995 (the "Special
Meeting").
Upon consummation of the Consolidation, except as described herein, each
outstanding share of common stock, par value $25.00 per share, of the Bank
("Bank Common Stock"), except shares with respect to which statutory
dissenters' rights have been exercised and not forfeited, will be converted
into a number of shares of Norwest Common Stock determined in accordance with
the terms of the Consolidation Agreement. For a more complete description of
the Consolidation Agreement and the terms of the Consolidation, see "THE
CONSOLIDATION."
This Proxy Statement-Prospectus and the form of proxy are first being
mailed to shareholders of the Bank on or about February 10, 1995.
---------------------
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 9, 1995.
<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 and the securities offered hereby.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
NORWEST, EXCLUDING EXHIBITS, UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST TO LAUREL A. HOLSCHUH, SECRETARY,
NORWEST CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE, MINNEAPOLIS,
MINNESOTA 55479-1026, TELEPHONE (612) 667-8655. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 24, 1995.
The following documents filed by Norwest with the Commission are
incorporated by reference in, and made a part of, this Proxy Statement-
Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A dated May 13, 1994; (ii) Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994, June 30, 1994, and
September 30, 1994; and (iii) Current Reports on Form 8-K dated February 15,
1994, July 21, 1994, November 1, 1994, November 15, 1994, January 9, 1995, and
January 27, 1995.
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...................................................................... 6
The Companies............................................................ 6
Terms of the Consolidation............................................... 7
The Special Meeting and Vote Required.................................... 7
Reasons for the Consolidation; Recommendation of the Board of Directors
of the Bank............................................................ 8
Opinion of Financial Advisor............................................. 8
Effective Date and Time of the Consolidation............................. 8
Conditions and Termination............................................... 8
Accounting Treatment..................................................... 9
Regulatory Approvals..................................................... 9
Management and Operations After the Consolidation........................ 9
Interests of Certain Persons in the Consolidation........................ 9
Rights of Dissenting Bank Shareholders................................... 10
Certain Federal Income Tax Consequences.................................. 10
Markets and Market Prices................................................ 10
Certain Differences in Rights of Shareholders............................ 10
Comparative Unaudited Per Share Data..................................... 11
Selected Financial Data.................................................. 13
MEETING INFORMATION.......................................................... 17
General.................................................................. 17
Date, Place, and Time.................................................... 17
Record Date; Vote Required............................................... 17
Principal Shareholders and Security Ownership of Management.............. 17
Voting and Revocation of Proxies......................................... 19
Solicitation of Proxies.................................................. 20
THE CONSOLIDATION............................................................ 21
Background of and Reasons for the Consolidation.......................... 21
Terms of the Consolidation............................................... 21
Opinion of Financial Advisor............................................. 22
Effective Date and Time of the Consolidation............................. 26
Surrender of Certificates................................................ 26
Conditions to the Consolidation.......................................... 27
Regulatory Approvals..................................................... 28
Business Pending the Consolidation....................................... 29
Certain Covenants........................................................ 29
Waiver, Amendment, and Termination....................................... 29
Management and Operations After the Consolidation........................ 30
Interests of Certain Persons in the Consolidation........................ 30
Certain Differences in Rights of Shareholders............................ 30
Rights of Dissenting Bank Shareholders................................... 35
Certain Federal Income Tax Consequences.................................. 36
Resale of Norwest Common Stock........................................... 37
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dividend Reinvestment and Optional Cash Payment Plan..................... 38
Accounting Treatment..................................................... 38
Expenses................................................................. 38
INFORMATION ABOUT THE BANK................................................... 39
Business and Property of the Bank........................................ 39
Environmental Protection Considerations.................................. 39
Market Prices and Dividends.............................................. 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 41
CERTAIN REGULATORY CONSIDERATIONS............................................ 50
General.................................................................. 50
Dividend Restrictions.................................................... 50
Holding Company Structure................................................ 50
Capital Requirements..................................................... 51
Federal Deposit Insurance Corporation Improvement Act of 1991............ 52
FDIC Insurance........................................................... 53
EXPERTS...................................................................... 55
LEGAL OPINION................................................................ 55
MANAGEMENT OF NORWEST AND ADDITIONAL INFORMATION............................. 55
FINANCIAL STATEMENTS OF THE BANK............................................. F-1
</TABLE>
APPENDIX A AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION, AND
AGREEMENT AND PLAN OF CONSOLIDATION
APPENDIX B OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
APPENDIX C UNITED STATES CODE, TITLE 12, SECTION 215
APPENDIX D BANKING CIRCULAR 259
---------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE NORWEST
COMMON STOCK OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF NORWEST OR THE BANK SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS.
5
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in all
respects by the more detailed information included in this Proxy Statement-
Prospectus, the Appendices hereto, and the documents incorporated by reference
herein. As used in this Proxy Statement-Prospectus, the terms "Norwest" and
the "Bank" refer to such entities, respectively, and where the context
requires, such entities and their respective subsidiaries. All information
concerning Norwest included in this Proxy Statement-Prospectus has been
furnished by Norwest, and all information concerning the Bank included in this
Proxy Statement-Prospectus has been furnished by the Bank to Norwest for
incorporation herein.
THE COMPANIES
NORWEST CORPORATION
Norwest Corporation is a regional bank holding company which was
organized under the laws of Delaware in 1929 and is registered under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As a diversified
financial services organization, Norwest operates through subsidiaries engaged
in banking and in related businesses. Norwest provides retail, commercial,
and corporate banking services to its customers through banks located in
Arizona, Colorado, Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, New
Mexico, North Dakota, Ohio, South Dakota, Texas, Wisconsin, and Wyoming.
Norwest provides additional financial services to its customers through
subsidiaries engaged in various businesses related to banking, 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, 1994, Norwest had consolidated total assets of $56.6
billion, total deposits of $34.7 billion, and total stockholders' equity of
$3.8 billion. Based on total assets at September 30, 1994, Norwest was the
13th largest commercial banking organization in the United States.
Norwest regularly explores opportunities for acquisitions of financial
institutions and related businesses. In connection with many of its completed
acquisitions, Norwest has issued its Common Stock to the shareholders of the
acquired entity and can be expected to continue to do so in the future.
Generally, management of Norwest does not make any public announcement about a
potential acquisition until a definitive agreement has been signed. Norwest
has entered into definitive agreements for the acquisition of various
financial institutions, including the Bank, having aggregate total assets at
September 30, 1994, of $5.1 billion. Certain of these acquisitions were
completed subsequent to September 30, 1994, and the others remain subject to
regulatory approval and are expected to be completed before the end of the
second quarter of 1995. None of these acquisitions is significant to the
financial statements of Norwest, either individually or in the aggregate.
Norwest's principal executive offices are located at Norwest Center,
Sixth and Marquette, in Minneapolis, Minnesota, and its telephone number is
612-667-1234.
6
<PAGE>
Additional information concerning Norwest is included in the Norwest
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
THE FIRST NATIONAL BANK OF BAY CITY
The Bank is a national bank headquartered in Bay City, Texas, that
provides retail and commercial banking services to its customers through
banking facilities located at 1801 Seventh Street in Bay City. The Bank's
deposits are insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation (the "FDIC"). At September 30, 1994, the Bank had total
assets of $155.8 million, deposits of $122.8 million, and stockholders' equity
of $19.2 million. The Bank was chartered as a national bank in 1901.
The Bank provides a wide range of banking services for its retail and
commercial customers, including real estate loans, revolving credit
arrangements, inventory and accounts receivable financing, equipment
financing, home improvement and other personal loans, NOW checking, savings
and time accounts, and trust services. The Bank provides 24-hour access to
routine banking services through its automated teller machines.
The Bank's headquarters are located at 1801 Seventh Street in Bay City,
Texas, and the Bank's phone number is 409-245-7331. See "INFORMATION ABOUT
THE BANK."
TERMS OF THE CONSOLIDATION
The Consolidation Agreement provides for the consolidation of a wholly
owned banking subsidiary of Norwest with the Bank, under the charter of the
Bank. Upon consummation of the Consolidation, the outstanding shares of Bank
Common Stock (other than shares as to which statutory dissenters' rights have
been exercised and not forfeited) will be converted into a number of shares of
Norwest Common Stock determined in accordance with the provisions of the
Consolidation Agreement. As provided in the Consolidation Agreement, the
exact number of shares of Norwest Common Stock into which each share of Bank
Common Stock will be converted will be determined using a conversion factor
calculated by dividing 932,700 by the number of shares of Bank Common Stock
outstanding immediately prior to the Consolidation. See "THE CONSOLIDATION--
Terms of the Consolidation."
THE SPECIAL MEETING AND VOTE REQUIRED
THE SPECIAL MEETING
The Special Meeting of Shareholders of the Bank to consider and vote on
the Consolidation will be held on Friday, March 31, 1995, at 10:00 a.m., local
time, at the Bank, 1801 Seventh Street, Bay City, Texas. Only holders of
record of Bank Common Stock at the close of business on February 9, 1995,
will be entitled to notice of and to vote at the Special Meeting. At such
date, there were 80,000 shares of Bank Common Stock outstanding. Each share
of Bank Common Stock is entitled to one vote. For additional information
relating to the Special Meeting, see "MEETING INFORMATION."
7
<PAGE>
VOTE REQUIRED
Approval of the Consolidation Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Bank Common Stock. See
"MEETING INFORMATION--Record Date; Vote Required."
As of the record date for the Special Meeting, directors and officers of
the Bank owned beneficially or controlled the voting of 40,495, or 50.6%, of
the shares of Bank Common Stock outstanding on that date. The Bank's
directors and officers have informed the Bank that they intend to vote all of
their shares in favor of the Consolidation. At the record date, directors and
executive officers of Norwest did not own beneficially any shares of Bank
Common Stock. See "MEETING INFORMATION--Record Date; Vote Required" and
"MEETING INFORMATION--Principal Shareholders and Security Ownership of
Management."
REASONS FOR THE CONSOLIDATION; RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE
BANK
The Board of Directors of the Bank has concluded that the Consolidation is
in the best interest of the holders of Bank Common Stock, who will receive, in
a tax-free exchange, stock of a much larger and more diversified enterprise
that is actively traded on national stock exchanges. In addition to the
greater liquidity provided to the Bank's shareholders, the Consolidation will
provide customers of the Bank with access to a broader range of services and
will provide the Bank with increased financial strength. See "THE
CONSOLIDATION--Background of and Reasons for the Consolidation." THE BOARD OF
DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT THE BANK SHAREHOLDERS VOTE
FOR THE CONSOLIDATION.
FAIRNESS OPINION
Alex Sheshunoff & Co. Investment Banking has delivered its written opinion
to the Bank's Board of Directors that, as of February 6, 1995, the
consideration to be received by the Bank's shareholders is fair to the Bank's
shareholders from a financial point of view. A copy of this opinion is
attached hereto as Appendix B. See "THE CONSOLIDATION--Fairness Opinion."
EFFECTIVE DATE AND TIME OF THE CONSOLIDATION
Subject to the terms and conditions of the Consolidation Agreement, the
Consolidation will be effective at 11:59 p.m., Minneapolis, Minnesota time,
(the "Effective Time of the Consolidation") on the date specified in the
certificate of approval to be issued by the Office of the Comptroller of the
Currency (the "Effective Date of the Consolidation"). See "THE CONSOLIDATION
--Effective Date and Time of the Consolidation" and "THE CONSOLIDATION--
Conditions to the Consolidation."
CONDITIONS AND TERMINATION
The respective obligations of Norwest and the Bank to consummate the
Consolidation are subject to certain conditions, including the receipt of
regulatory approvals without unreasonably burdensome conditions, approval of
the Consolidation Agreement by the
8
<PAGE>
shareholders of the Bank, receipt by the Bank of certain tax opinions,
termination of an agreement among certain shareholders, and certain other
conditions customary in transactions of this nature. See "THE CONSOLIDATION--
Conditions to the Consolidation" and "THE CONSOLIDATION--Regulatory
Approvals."
The Consolidation Agreement may be terminated at any time prior to the
Effective Date of the Consolidation, whether prior to or after approval by the
Bank's shareholders, by either party under specified conditions, including if
the Consolidation shall not have been consummated by August 15, 1995, unless
such failure of consummation shall be due to the failure of the party seeking
termination to perform its respective covenants and agreements under the
Consolidation Agreement. In addition, the Bank may terminate the
Consolidation Agreement if the average price per share of Norwest Common Stock
over a specified period falls below $20.00 and below a benchmark price
computed by reference to the stock prices of a specified group of bank holding
companies. See "THE CONSOLIDATION--Waiver, Amendment, and Termination."
ACCOUNTING TREATMENT
Management of Norwest anticipates that the Consolidation will be accounted
for as a purchase under generally accepted accounting principles. See "THE
CONSOLIDATION--Accounting Treatment."
REGULATORY APPROVALS
The Consolidation is subject to the prior approval of both the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and the
Office of the Comptroller of the Currency (the "OCC"). Both approvals have
been received.
MANAGEMENT AND OPERATIONS AFTER THE CONSOLIDATION
Following the Consolidation, Norwest intends to operate at the Bank's
present location and to offer products and services offered by Norwest
affiliates. See "THE CONSOLIDATION--Management and Operations After the
Consolidation."
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION
Certain officers and directors of the Bank have direct and indirect
interests in the consummation of the Consolidation separate from their
interests as holders of Bank Common Stock. See "THE CONSOLIDATION--Interests
of Certain Persons in the Consolidation."
9
<PAGE>
RIGHTS OF DISSENTING BANK SHAREHOLDERS
Under federal law dissenting shareholders who comply with the requisite
statutory procedures will be entitled to receive an appraised value of their
shares. The value so determined could be more than, the same as, or less than
the value of the consideration to be received by Bank shareholders, pursuant
to the Consolidation Agreement, who do not dissent. See "THE CONSOLIDATION--
Rights of Dissenting Bank Shareholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The consolidation is designed so that no gain or loss (other than with
respect to cash received in lieu of fractional shares or in satisfaction of
dissenters' rights) will be recognized to Bank shareholders upon the exchange
of their Bank Common Stock for Norwest Common Stock. The opinion of Ford &
Ferraro, L.L.P., counsel for the Bank, with respect to the Consolidation
qualifying as a "tax-free" reorganization for federal income tax purposes will
be provided to the Bank. HOWEVER, THE FEDERAL INCOME TAX CONSIDERATIONS
RELATED TO THE CONSOLIDATION MAY BE DIFFERENT TO PARTICULAR TYPES OF BANK
SHAREHOLDERS, OR IN LIGHT OF THE BANK SHAREHOLDERS' PERSONAL INVESTMENT
CIRCUMSTANCES. ACCORDINGLY, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS IN DETERMINING THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO THEM IN
CONNECTION WITH THE CONSOLIDATION UNDER FEDERAL, STATE, LOCAL, AND ANY OTHER
APPLICABLE TAX LAWS.
See "THE CONSOLIDATION--Certain Federal Income Tax Considerations."
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the New York Stock Exchange and the
Chicago Stock Exchange. On September 12, 1994, the last trading day preceding
public announcement of the proposed Consolidation, the closing price per share
of Norwest Common Stock was $26.125 and on February 7, 1995, the price was
$24.75. There is no public market for Bank Common Stock. Shareholders of the
Bank are advised to obtain current market quotations for Norwest Common Stock.
The market price for Norwest Common Stock will fluctuate between the date of
this Proxy Statement-Prospectus and the Effective Date of the Consolidation,
which may be a period of several weeks. As a result, the market value of the
Norwest Common Stock that shareholders of the Bank ultimately receive in the
Consolidation could be more or less than its market value on the date of this
Proxy Statement-Prospectus. No assurance can be given concerning the market
price of Norwest Common Stock before or after the Effective Date of the
Consolidation.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Consolidation, shareholders of the Bank will
become stockholders of Norwest. As a result, such shareholders' rights will
change significantly. See "THE CONSOLIDATION--Certain Differences in Rights
of Shareholders."
10
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for Norwest Common Stock on a historical and pro forma combined basis and for
Bank Common Stock on a historical and a pro forma equivalent basis giving
effect to the Consolidation using the purchase method of accounting. See "THE
CONSOLIDATION--Accounting Treatment." This information is derived from the
consolidated historical financial statements of Norwest, including the related
notes thereto, incorporated by reference into this Proxy Statement-Prospectus
and the historical financial statements of the Bank, including the notes
thereto, appearing elsewhere in this Proxy Statement-Prospectus. This
information should be read in conjunction with such consolidated historical
financial statements and the related notes thereto. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "FINANCIAL STATEMENTS OF THE BANK."
This data is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have
occurred had the Consolidation been consummated prior to the periods
indicated.
11
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
Norwest Common Stock Bay City Common Stock
--------------------- ----------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
September 30, 1994 $11.13 11.16 240.00 130.08
December 31, 1993 11.00 11.03 248.93 128.64
DIVIDENDS DECLARED (2):
Nine Months Ended
September 30, 1994 0.555 0.555 32.650 6.471
Year Ended
December 31, 1993 0.640 0.640 288.570 7.462
NET INCOME (3):
Nine Months Ended
September 30, 1994 1.78 1.78 24.10 20.78
Year Ended
December 31, 1993 1.86 1.86 43.43 21.70
</TABLE>
(1) The pro forma combined book values per share of Norwest Common Stock are
based upon the historical total common equity for Norwest and Bay City divided
by total pro forma common shares of the combined entity assuming conversion of
the outstanding Bay City Common Stock at a consolidation conversion factor of
11.65875. The pro forma equivalent book values per share of Bay City Common
Stock represent the pro forma combined amounts multiplied by the assumed
consolidation conversion factor. The assumed conversion factor used in this
table, would result in the issuance of 932,700 shares of Norwest Common Stock
upon conversion of all outstanding shares of Bay City Common Stock in the
consolidation. See "THE CONSOLIDATION -- Terms of the Consolidation."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Bay City Common Stock represent cash dividends declared
per share of Norwest Common Stock multiplied by 11.65875.
(3) The pro forma combined net income per share (based on fully diluted net
income and weighted average shares outstanding) is based upon the combined
historical net income for Norwest and Bay City divided by the average pro
forma common shares of the combined entities, assuming a consolidation
conversion factor of 11.65875. The pro forma equivalent net income per share
of Bay City Common Stock represents the pro forma combined net income per
share multiplied by 11.65875.
12
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for Norwest and certain selected historical financial
information for the Bank. The income statement and balance sheet data
included in the selected financial data for the five years ended December 31,
1993, are derived from audited consolidated financial statements of Norwest
and from audited consolidated financial statements of the Bank for such five-
year period. The selected financial data for the nine-month periods ended
September 30, 1994 and 1993, are derived from the unaudited historical
financial statements of Norwest and the Bank. All financial information
derived from unaudited financial statements reflects, in the respective
opinions of management of Norwest and the Bank, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
such data. Results for the nine months ended September 30, 1994, are not
necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. This information should be read in
conjunction with the consolidated financial statements of Norwest and the
related notes thereto, included in documents incorporated herein by reference,
and in conjunction with the financial statements of the Bank, including the
notes thereto, appearing elsewhere in this Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "FINANCIAL STATEMENTS OF
THE BANK."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
NORWEST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------- --------------------------------------------------------
1994 1993 1993(1) 1992(2) 1991 1990(3) 1989(4)
--------- -------- ------- ------- ---- ------- -------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 3,197.3 2,924.3 3,946.3 3,806.4 4,025.9 3,885.7 3,624.5
Interest expense 1,128.3 1,073.7 1,442.9 1,610.6 2,150.3 2,320.0 2,210.1
--------- -------- -------- -------- -------- -------- --------
Net interest income 2,069.0 1,850.6 2,503.4 2,195.8 1,875.6 1,565.7 1,414.4
Provision for credit losses 101.6 100.8 158.2 270.8 406.4 433.0 233.5
Non-interest income 1,200.4 1,148.2 1,585.0 1,273.7 1,064.0 896.3 728.5
Non-interest expense 2,288.6 2,181.3 3,050.4 2,553.1 2,041.5 1,744.5 1,525.9
--------- -------- -------- -------- -------- -------- --------
Income before income taxes 879.2 716.7 879.8 645.6 491.7 284.5 383.5
Income tax expense 283.7 214.7 266.7 175.6 73.4 115.1 99.0
--------- -------- -------- -------- -------- -------- --------
Income before cumulative effect
of a change in accounting method 595.5 502.0 613.1 470.0 418.3 169.4 284.5
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- (76.0) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 595.5 502.0 613.1 394.0 418.3 169.4 284.5
========= ======== ======== ======== ======== ======== ========
Net income per share:
Primary:
Before cumulative effect of a
change in accounting method $ 1.82 1.56 1.89 1.44 1.33 0.59 1.00
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- (0.25) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.82 1.56 1.89 1.19 1.33 0.59 1.00
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Before cumulative effect of a
change in accounting method $ 1.78 1.52 1.86 1.42 1.32 0.59 1.00
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- (0.23) -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.78 1.52 1.86 1.19 1.32 0.59 1.00
========= ======== ======== ======== ======== ======== ========
Dividends declared per
common share $ 0.555 0.475 0.640 0.540 0.470 0.423 0.380
At period end:
Total assets $56,565.4 53,855.5 54,665.0 50,037.0 45,974.5 43,523.0 38,322.0
Long-term debt 8,310.1 6,059.5 6,850.9 4,553.2 3,686.6 3,066.0 2,720.0
Total stockholders' equity 3,824.3 3,697.5 3,760.9 3,371.8 3,192.3 2,434.0 2,288.2
</TABLE>
14
<PAGE>
(1) On January 14, 1994, First United Bank Group, Inc. ("First United"), a
$3.9 billion bank holding company headquartered in Albuquerque, New Mexico,
was acquired in a pooling transaction. Norwest's historical results have been
restated to include the historical results of First United. Appropriate
Norwest items reflect an increase in First United's provision for credit
losses of $16.5 million to conform with Norwest's credit loss reserve
practices and methods and $83.2 million in accruals and reserves for merger-
related expenses, including termination costs, systems and operations costs,
and investment banking, legal, and accounting expenses.
(2) On February 9, 1993, Lincoln Financial Corporation ("Lincoln"), a $2.0
billion bank holding company headquartered in Fort Wayne, Indiana, was
acquired in a pooling transaction. Norwest's historical results have been
restated to include the historical results of Lincoln. Appropriate Norwest
items reflect an increase in Lincoln's provision for credit losses of $60.0
million and $33.5 million in Lincoln's provisions and expenditures for costs
related to restructuring activities.
(3) On April 19, 1991, United Banks of Colorado, Inc. ("United"), a $5.5
billion financial institution headquartered in Denver, Colorado, merged with
Norwest in a pooling transaction. Norwest's historical results have been
restated to include the historical results of United. Appropriate Norwest
items reflect United's special provisions for credit losses and writedowns for
other real estate owned, which together totaled $165 million, and $31 million
of accruals for expected reorganization and restructuring costs for the year
ended December 31, 1990. The special provisions were due to deterioration of
several large commercial loan relationships, the anticipated results of the
then recent examination by the Office of the Comptroller of the Currency, and
the anticipated impact of the Resolution Trust Corporation's accelerated
efforts to liquidate foreclosed properties at deep discounts.
(4) On May 1, 1990, First Interstate Corporation of Wisconsin ("FIWI"), a
$2.0 billion financial institution headquartered in Sheboygan, Wisconsin,
merged with Norwest in a pooling transaction. Norwest's historical results
have been restated to include the historical results of FIWI. Appropriate
Norwest items reflect $12.0 million in charges resulting from FIWI's decision
to sell its portfolio of stripped mortgage-backed securities, an increase in
FIWI's provision for credit losses of $16.2 million, and $24.5 million in
FIWI's provisions and expenditures for costs related to restructuring
activities.
15
<PAGE>
SELECTED FINANCIAL DATA
THE FIRST NATIONAL BANK OF BAY CITY
<TABLE>
<CAPTION>
Nine Months
Ended September 30 Year Ended December 31
------------------ ----------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 7.0 8.1 10.6 12.8 13.4 12.0 11.1
Interest expense 2.4 2.4 3.2 4.4 6.6 6.3 5.9
------ ------ ------ ----- ----- ----- -----
Net interest income 4.6 5.7 7.4 8.4 6.8 5.7 5.2
Provision for credit losses -- (0.6) (0.6) -- -- 0.3 0.3
Non-interest income 1.0 0.8 1.3 1.4 1.2 1.3 0.9
Non-interest expenses 2.9 3.0 4.2 4.1 3.9 3.4 3.3
------ ------ ------ ----- ----- ----- -----
Income before income taxes and minority interest 2.7 4.1 5.1 5.7 4.1 3.3 2.5
Income tax expense 0.8 1.3 1.6 1.8 1.3 0.8 0.5
Minority interest -- -- -- -- -- -- --
------ ------ ------ ----- ----- ----- -----
Net income $ 1.9 2.8 3.5 3.9 2.8 2.5 2.0
====== ====== ====== ===== ===== ===== =====
Net income per share:
Primary $24.10 35.55 43.43 49.22 35.41 31.33 24.96
Fully diluted 24.10 35.55 43.43 49.22 35.41 31.33 24.96
Dividends declared per
common share $32.65 288.57 288.57 1.25 1.25 1.25 1.25
At period end:
Total assets $155.8 153.2 158.1 175.3 171.5 162.5 136.1
Long-term debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total stockholders' equity 19.2 19.3 19.9 39.5 35.7 33.0 30.6
</TABLE>
16
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Bank
Common Stock in connection with the solicitation of proxies by the Board of
Directors of the Bank for use at the Special Meeting to be held on Friday,
March 31, 1995, and any adjournments thereof, to consider and take action upon
the approval of the Consolidation Agreement and such other business as may
properly come before the Special Meeting or any adjournments thereof. Each
copy of this Proxy Statement-Prospectus mailed to holders of Bank Common Stock
is accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also furnished by Norwest to
shareholders of the Bank as a prospectus in connection with the issuance by
Norwest of shares of Norwest Common Stock upon consummation of the
Consolidation. This Proxy Statement-Prospectus, the attached Notice of
Special Meeting, and the form of proxy enclosed herewith are first being
mailed to shareholders of the Bank on or about February 10, 1995.
DATE, PLACE, AND TIME
The Special Meeting will be held at the Bank, 1801 Seventh Street, Bay
City, Texas, on Friday, March 31, 1995, at 10:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of the Bank has fixed the close of business on
February 9, 1995, as the record date for the determination of shareholders of
the Bank entitled to receive notice of, and to vote at, the Special Meeting.
On the record date there were 80,000 shares of Bank Common Stock outstanding.
Each share of Bank Common Stock outstanding on the record date is entitled to
one vote. Approval of the Consolidation Agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of Bank Common
Stock. The Consolidation cannot be consummated without shareholder approval
of the Consolidation Agreement.
As of the record date for the Special Meeting, directors and executive
officers of the Bank owned beneficially or controlled the voting of an
aggregate of 40,495 shares, or 50.6%, of the shares of Bank Common Stock
outstanding on that date. The Bank's directors and executive officers have
informed the Bank that they intend to vote all of their shares in favor of the
Consolidation Agreement. Information regarding the shares of Bank Common
Stock beneficially owned by each director and executive officer of the Bank,
and by all directors and executive officers as a group is set forth in the
tables under the heading "Principal Shareholders and Security Ownership of
Management" below.
At the record date, directors and executive officers of Norwest did not
own beneficially any shares of Bank Common Stock.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
Set forth below are the names, and, where appropriate, the addresses, of
and the number of shares held as of the record date for the Special Meeting by
those persons who may be deemed to own beneficially, whether directly or
indirectly, 5% or more of the outstanding shares of Bank Common Stock, by each
director and executive officer of the Bank, and by all
17
<PAGE>
directors and executive officers as a group. Each shareholder named below has
sole voting and investment power over the shares shown in the table, unless
otherwise indicated. The shares shown in the table include all shares the
named parties may be deemed to own beneficially, including shares held by
spouses.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Percent of
Name Owned Class
----------------------- ---------------- ----------
<S> <C> <C>
Olive Allen Hughes (1) 9,052 11.3%
609 Sandlewood
Houston, TX 77024
Margaret Lewis Furse (2) 23,180 (3) 29.0%
1801 Lavaca, 14-D
Austin, TX 78701
Frank H. Lewis (4) 23,163 (3) 29.0%
2305 Sims
Bay City, TX 77414
James M. Allen (5) 160 0.2%
Frank J. Baker, Jr. (6) 60 0.1%
Wayne C. Buss (7) 20 (8)
Jack I. Conner (9) 40 0.1%
R. S. Dicks (10) 80 0.1%
William C. Isaacson (11) 1 (8)
H. Louis McDonald (12) 1,624 2.0%
Valton McDonald (13) 1,082 1.4%
Lonnie E. Meadows (14) 1,221 1.5%
Dolph Beadle Moore (15) 214 0.3%
Joan Thompson Neuhaus (16) 40 0.1%
Sandra Page (17) 20 (8)
Janet Lewis Peden (18) 2,314 2.9%
Ronald G. Presswood, Jr. (19) 866 1.1%
R. B. Trull (20) 160 0.2%
Directors and executive officers 40,495 (3) 50.6%
as a group (18 persons)
</TABLE>
18
<PAGE>
- ---------------------------
(1) Mrs. Hughes is a director of the Bank.
(2) Mrs. Furse is a director of the Bank.
(3) Includes 22,802 shares held by 20 separate trusts for which Mrs. Furse
and Mr. Frank Lewis are co-trustees. Such trust-owned shares are
subject to the joint voting control of such co-trustees but are not
beneficially owned by them.
(4) Mr. Lewis is Chairman of the Board and a director of the Bank.
(5) Mr. Allen is a director of the Bank.
(6) Mr. Baker is Executive Vice President and a director of the Bank.
(7) Mr. Buss is Executive Vice President of the Bank.
(8) Less than 0.1%.
(9) Mr. Conner is President and a director of the Bank.
(10) Mr. Dicks is a director of the Bank.
(11) Mr. Isaacson is Senior Vice President and Cashier of the Bank.
(12) Mr. McDonald is a director of the Bank.
(13) Mr. McDonald is a director of the Bank.
(14) Mr. Meadows is a director of the Bank.
(15) Mr. Moore is a director of the Bank.
(16) Ms. Neuhaus is a director of the Bank.
(17) Ms. Page is Senior Vice President of the Bank.
(18) Ms. Peden is Vice Chairman of the Board of Directors of the Bank.
(19) Mr. Resswood is a director of the Bank.
(20) Mr. Trull is a director of the Bank.
VOTING AND REVOCATION OF PROXIES
Shares of Bank Common Stock represented by a proxy properly signed and
received at, or prior to, the Special Meeting, unless subsequently revoked,
will be voted at the Special Meeting in accordance with the instructions
thereon. If a proxy is signed and returned without indicating any voting
instructions, shares of Bank Common Stock represented by such proxy will be
voted FOR approval of the Consolidation Agreement. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time before
the proxy is voted by filing either an instrument revoking it or a duly
executed proxy bearing a later date with the Secretary of the Bank prior to or
at the Special Meeting or by voting the shares subject to the proxy in person
at the Special Meeting. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy.
19
<PAGE>
A proxy may indicate that all or a portion of the shares represented
thereby are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in
street name on certain proposals in the absence of instructions from the
beneficial owner. Shares that are not voted with respect to a specific
proposal will be considered as not present for such proposal, even though such
shares will be considered present for purposes of determining a quorum and
voting on other proposals. Abstentions on a specific proposal will be
considered as present, but not as voting in favor of such proposal. The
proposal to adopt the Consolidation Agreement must be approved by the holders
of two-thirds of the outstanding Bank Common Stock. Because this proposal
requires the affirmative vote of a specified percentage of outstanding shares,
the nonvoting of shares or abstentions with regard to this proposal will have
the same effect as votes against the proposal.
The Board of Directors of the Bank is not aware of any business to be
acted upon at the Special Meeting other than the business described herein.
If, however, other matters are properly brought before the Special Meeting, or
any adjournments thereof, the persons appointed as proxies will have
discretion to vote or act on such matters according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees
of the Bank may solicit proxies from the shareholders of the Bank, either
personally or by telephone, telegram, or other form of communication. None of
the foregoing persons who solicit proxies will be specifically compensated for
such services. Nominees, fiduciaries, and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed
for their reasonable expenses incurred in sending proxy material to beneficial
owners. The Bank will bear its own expenses in connection with the
solicitation of proxies for the Special Meeting. See "THE CONSOLIDATION--
Expenses."
HOLDERS OF BANK COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO THE BANK IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
20
<PAGE>
THE CONSOLIDATION
This section of the Proxy Statement-Prospectus describes certain aspects
of the Consolidation. The following description does not purport to be
complete and is qualified in its entirety by reference to the Consolidation
Agreement, which is attached as Appendix A to this Proxy Statement-Prospectus
and is incorporated by reference herein. ALL SHAREHOLDERS OF THE BANK ARE
URGED TO READ THE CONSOLIDATION AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF AND REASONS FOR THE CONSOLIDATION
During the early part of 1994, certain of the principal shareholders of
the Bank, being concerned about increasing the liquidity of the investment,
initiated inquiries among third-party financial institutions regarding a
possible sale of their interest in the Bank. These inquiries resulted in an
exchange of information and discussions with Norwest. In July 1994, Norwest
submitted a preliminary acquisition proposal covering all of the Bank's
outstanding stock for consideration by the Bank's Board of Directors. Further
negotiations between the representatives and Norwest then ensued, which
resulted in Norwest submitting a letter of intent to the Bank's Board of
Directors on August 9, 1994, which was unanimously approved by the Board of
Directors on August 12, 1994. During the next few weeks, Norwest completed
its due diligence of the Bank, and the parties negotiated a definitive
agreement which was approved by the Board of Directors of the Bank and
executed by Norwest and the Bank on September 13, 1994.
The management shareholders of the Bank were interested in achieving
liquidity in their investment and also enhancing the Bank's ability to become
a part of a larger and more diverse banking organization, thereby enabling the
Bank to offer a broader range of services to its customers. Management of the
Bank believes that Norwest's continued expansion in the Texas banking market
through its acquisition of the Bank will result in the Bank becoming another
example of a sound and attractive banking operation for Norwest and enable
Norwest to acquire other banking operations in the state. Accordingly, the
shareholders of the Bank will be able to exchange their shares of the Bank for
the stock of Norwest, which is actively traded on the New York and Chicago
Stock Exchanges, and its customers will benefit from the added financial
strength and services that Norwest can bring to the Bank.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF THE BANK VOTE FOR APPROVAL OF THE CONSOLIDATION AGREEMENT.
TERMS OF THE CONSOLIDATION
At the Effective Time of the Consolidation, a wholly owned banking
subsidiary of Norwest will consolidate with the Bank, under the charter of the
Bank. The resulting bank will be a wholly owned subsidiary of Norwest. At
the Effective Time of the Consolidation, each outstanding share of Bank Common
Stock (other than shares as to which statutory dissenters' appraisal rights
have been exercised and not forfeited) will be converted into a number of
shares of Norwest Common Stock determined by dividing 932,700 by the number of
shares of Bank Common Stock then outstanding. Assuming no change in the
number of shares of Bank Common Stock outstanding from the date of this Proxy
Statement-Prospectus through the date on which the closing of the
Consolidation occurs, each outstanding share of Bank Common Stock would be
converted into 11.65875 shares of Norwest Common Stock.
21
<PAGE>
The market price for Norwest Common Stock will fluctuate between the date
of this Proxy Statement-Prospectus and the Effective Date of the
Consolidation, which may be a period of several weeks. As a result, the
market value of the Norwest Common Stock that shareholders of the Bank
ultimately receive in the Consolidation could be more or less than its market
value on the date of this Proxy Statement-Prospectus.
The Consolidation Agreement provides that if, between the date of the
Consolidation Agreement and the Effective Time of the Consolidation, shares of
Norwest Common Stock are changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares, or readjustment, or if a stock dividend thereon is
declared with a record date within the same period, the conversion ratios
provided for in the Consolidation Agreement will be adjusted accordingly.
No fractional shares of Norwest Common Stock will be issued in the
Consolidation. Instead, Norwest will pay to each holder of Bank Common Stock
who would otherwise be entitled to a fractional share an amount of cash equal
to the fraction of a share of Norwest Common Stock to which the Bank
shareholder would otherwise be entitled multiplied by the average of the
closing prices of a share of Norwest Common Stock on the New York Stock
Exchange for each of the five trading days immediately preceding the day on
which the Special Meeting will be held.
Shares of Norwest Common Stock issued and outstanding immediately prior to
the effective date of the Consolidation will remain issued and outstanding.
OPINION OF FINANCIAL ADVISOR
In April 1994, the Lewis family retained Alex Sheshunoff & Co. Investment
Banking ("Sheshunoff"), an investment banking firm based in Austin, Texas, on
the basis of its experience, to prepare an information package and to identify
and contact potential purchasers of the Bank's shares held by Lewis family
members. Subsequently, in July 1994, the Bank retained Sheshunoff for the
purpose of effecting a sale, merger, exchange, or other similar transaction
with respect to all of the common shares of the Bank based on the expression
of interest received by the Lewis family members. Additionally, the Bank
retained Sheshunoff to render a fairness opinion to the Bank board and its
shareholders. Sheshunoff also reviewed the negotiated terms of the
Consolidation Agreement; however, Sheshunoff did not review corporate
governance matters. Sheshunoff has been in the business of consulting for the
banking industry for 20 years, including the appraisal and valuation of
banking institutions and their securities in connection with mergers and
acquisitions and equity offerings. Sheshunoff has a long history of
familiarity and involvement with the banking industry nationwide, as well as
familiarity with the Texas market and recent transactions in that market.
Except as described herein, Sheshunoff is not affiliated in any way with the
Bank or Norwest, or their respective affiliates.
On February 6, 1995, in connection with their consideration of the
Consolidation Agreement, Sheshunoff issued an opinion (the "Opinion") to the
Board of Directors of the Bank that, in its opinion as an investment banking
firm, the terms of the Consolidation as set forth in the Consolidation
Agreement are fair, from a financial perspective, to the Bank and its
shareholders. The Opinion is based upon conditions as they existed on
December 31, 1994. A copy of the Opinion is attached as Appendix B to this
Proxy Statement-Prospectus and should be read in its entirety by the Bank's
shareholders. The Opinion does not constitute an endorsement of the merger or
a recommendation to any shareholder as to how such shareholder should vote at
the Special Meeting.
22
<PAGE>
In preparing the Opinion, Sheshunoff considered many factors and reviewed
certain publicly available information concerning the Bank and Norwest,
including each party's audited financial statements and annual reports.
Sheshunoff also reviewed: (i) the terms of the Consolidation Agreement; (ii)
the most recent external auditor's reports to the Board of Directors of the
Bank and the internal audit function of Norwest; (iii) the December 31, 1994,
Report of Condition and Income for each organization and the audited
December 31, 1993 balance sheet and income statement for each organization;
(iv) each organization's rate sensitivity analysis reports; (v) each
organization's listing of marketable securities showing rate, maturity, and
market value as compared to book value; (vi) each organization's internal loan
classifications; (vii) other real estate owned for each organization; (viii)
the budget and long-range operating plan of each organization; (ix) unfunded
letters of credit and any other off-balance sheet risks for each organization;
(x) the minutes of the Board of Directors' meetings for each organization;
(xi) the most recent Board report for each organization; (xii) significant
real properties for each organization; (xiii) the directors and officers
liability and blanket bond insurance policies for Norwest and the blanket bond
insurance policy for the Bank; and (xiv) market conditions and current trading
levels of outstanding equity securities of both organizations. Sheshunoff
conducted an on-site review of each organization's historical performance, and
current financial condition, and performed a market area analysis.
In addition, Sheshunoff discussed with the management of the Bank and
Norwest the relative operating performance and future prospects of each
organization, primarily with respect to the current level of their earnings
and future expected operating results, giving weight to Sheshunoff's
assessment of the future of the banking industry and each organization's
performance within the industry. Sheshunoff compared the results of operation
of the Bank with those of Texas banks with total assets of $100 to $499
million. Sheshunoff compared the results of operation of Norwest with those
of regional bank holding companies with total assets of $1 billion and over.
Many variables affect the value of banks, not the least of which is the
uncertainty of future events. The relative importance of the valuation
variable differs in different situations with the result that appraisal
theorists argue about which variables are the most appropriate ones on which
to focus. However, most appraisers agree that the primary financial
variables to be considered are earnings, equity, dividends or dividend-paying
capacity, asset quality, and cash flow. In addition, in most instances, if
not all, value is further tempered by non-financial factors such as
marketability, voting rights, or block size, history of past sales of the
banking company's stock, nature and relationship of the other shareholdings in
the bank, and special ownership or management considerations.
Sheshunoff analyzed the total purchase price on a cash equivalent fair
market value basis using the standard evaluation techniques (as discussed
below) including comparable sales multiples, net present value, cash flow
analysis, return on investment and the fair market value to total assets ratio
based on certain assumptions of projected growth, earnings and dividends, and
a range of discount rates from 10% to 15%.
Net asset value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes liquidation on the
date of appraisal with the recognition of securities gains or losses, real
estate appreciation or depreciation, adjustments to the loan loss reserve,
discounts to the loan portfolio, and changes in the net value of other assets.
Net asset value is not the best approach to use when valuing a going concern
because it is based on historical costs and varying accounting methods. Even
if the assets and liabilities are adjusted to reflect prevailing prices and
yields (which is often of limited accuracy because
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readily available data is lacking), it still results in a liquidation value
for the concern. Furthermore, since this method does not take into account the
values attributable to the going concern such as the interrelationship among
the company's assets and liabilities, customer relations, market presence,
image and reputation, and staff expertise and depth, little weight is given by
Sheshunoff to the net asset value method of valuation.
Market value is generally defined as the price, established on an arm's-
length basis, at which knowledgeable, unrelated buyers and sellers would
agree. The market value is frequently used to determine the price of a
minority block of stock when both the quantity and the quality of the
"comparable" data are deemed sufficient. However, the relative thinness of
the specific market for the stock of the banking company being appraised may
result in the need to review alternative markets for comparative pricing
purposes. The "hypothetical" market value for a small bank with a thin market
for its stock is normally determined by comparison to the average price to
earnings, price to equity, and dividend yield of local or regional publicly-
traded bank issues, adjusting for significant differences in financial
performance criteria and for any lack of marketability or liquidity. The
market value in connection with the evaluation of control of a bank is
determined by the previous sales of banks in the state or region. In valuing
a business enterprise, when sufficient comparable trade data is available, the
market value deserves greater weighting than the net asset value and similar
emphasis as the investment value as discussed below.
Sheshunoff maintains substantial files concerning the prices paid for
banking institutions nationwide. Sheshunoff's information includes
transactions involving Texas banking organizations from January 1, 1994,
through December 31, 1994, and banking organizations in the Southwest region
of the United States in 1994 and over the past five years. Sheshunoff's
information provides comparable pricing and financial performance data for
banking organizations sold or acquired. Organized by different peer groups,
the data presents averages of financial performance and purchase price levels,
thereby facilitating a valid comparative purchase price analysis. In
analyzing the transaction value of the Bank, Sheshunoff has considered the
market approach and has evaluated price to equity and price to earnings
multiples of Texas banking organizations.
Sheshunoff calculated an "Adjusted Book Value" of $386.71 per share
based on the Bank's December 31, 1994, equity and the average price to equity
multiple for Texas banking organizations sold from January 1, 1994 through
December 31, 1994. Sheshunoff calculated an "Adjusted Earnings Value" of
$215.48 per share based on the Bank's estimated 1995 earnings and the average
price to earnings multiple for Texas banking organizations sold from
January 1, 1994, through December 31, 1994. The financial performance
characteristics of the state banking organizations vary, sometimes
substantially, from those of the Bank. When the variance is significant for
relevant performance factors, adjustments to the price multiples are
appropriate when comparing them to the transaction value.
Investment value is sometimes referred to as the income value or earnings
value. One investment value method frequently used estimates the present
value of an enterprise's future earnings or cash flow. Another popular
investment value method is to determine the level of current annual benefits
(earnings, cash flow, dividends, etc.) and then capitalize one or more of the
benefit types using an appropriate capitalization rate such as an earnings or
dividend yield. Yet another method of calculating investment value is a cash
flow analysis of the ability of a banking company to service acquisition debt
obligations (at a certain price level) while providing sufficient earnings for
reasonable dividends and capital adequacy requirements. In connection with
the cash flow
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analysis, the return on investment that would accrue to a prospective buyer at
the transaction value is calculated.
The investment or earnings value of any banking organization's stock is an
estimate of the present value of the future benefits, usually earnings, cash
flow, or dividends, which will accrue to the stock. An earnings value is
calculated using an annual future earnings stream over a period of time of not
less than ten years and the residual value of the earnings stream after ten
years, assuming no earnings growth, and an appropriate capitalization rate
(the net present value discount rate). Sheshunoff's computations were based
on an analysis of the banking industry, the economic and competitive
situations in the Bank's market area, and the Bank's current financial
condition and historical levels of growth and earnings. Using a net present
value discount rate of 12%, which is an acceptable discount rate considering
the risk-return relationship most investors would demand for an investment of
this type as of the valuation date, the "Net Present Value of Future Earnings"
equaled $246.56 per share.
The cash flow method assumes the formation of a one-bank holding company
with maximum leverage according to Federal Reserve System guidelines and
analyzes the ability of the bank to retire holding company acquisition debt
within a reasonable period of time while maintaining adequate capital. Using
this method, Sheshunoff arrived at a value of $320.00 per share.
Return on investment analysis (ROI) also assumes the formation of a one-
bank holding company using maximum regulatory leverage and analyzes the ten-
year ROI of a 33.33% equity investment at the transaction value of $279.81 per
share for the Bank compared to a liquidation at book value in the year 2004,
and a sale at ten times projected earnings in the year 2004. This ROI
analysis provides a benchmark for assessing the validity of the fair market
value of a majority block of stock. The ROI analysis is one approach to
valuing a going concern and is directly impacted by the earnings stream,
dividend payout levels, and levels of debt, if any. Other financial and
nonfinancial factors indirectly affect the ROI; however, these factors more
directly influence the level of ROI an investor would demand from an
investment in a majority block of stock of a specific bank at a certain point
in time. The ROI assuming liquidation at book value in 2004 is 11.92%, and
the ROI assuming sale at ten times earnings in 2004 is 15.54%.
Furthermore, a price level indicator, the purchase price to total assets
ratio, may be used to confirm the validity of the transaction value. The
purchase price to total assets ratio reflects a truer price level comparison
with comparable banking organizations, regardless of the differing levels of
equity capital. In this instance, a transaction value of $279.81 per share
results in a purchase price to total assets ratio of 14.69%. The purchase
price to total assets ratio for banking organizations sold in Texas from
January 1, 1994, through December 31, 1994 equaled 13.25%.
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to-transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net
present value analysis. In Sheshunoff's experience with majority block
community bank stock valuations, it has determined that a relationship does
exist between the net present value of an "average" community banking
organization and the transaction value of a majority block of the banking
organization's stock. The net present value-to-transaction ratio equals
88.12% for the Bank, which falls within our expected range. There are many
other factors to consider, when valuing a going concerning, which do not
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directly impact the earnings stream and the net present value but which do
exert a degree of influence over the fair market value of a going concern.
These factors include, but are not limited to, the general condition of the
industry, the economic and competitive situations in the market area, and the
expertise of the management of the organization being valued.
When the net asset value, market value, and investment value methods are
subjectively weighed, using the appraiser's experience and judgment, it is
Sheshunoff's opinion that the proposed transaction is fair.
Sheshunoff considered this transaction as a merger rather than a purchase.
Consideration was given to the levels of book value and earnings per share
appreciation or dilution percentages between the merger partners over the next
three to five years after consummation. To justify the fairness of the
transaction for the Bank shareholders, it is important to project, based upon
realistic projections of future performance, a positive impact for the Bank
shareholders. Sheshunoff projected that the Bank shareholders will have a
higher level of earnings per share and dividends per share after being
acquired by Norwest than on a stand-alone basis.
Neither the Bank nor Norwest imposed any limitations upon the scope of the
investigation to be performed by Sheshunoff in preparing the Opinion. In
rendering the Opinion, Sheshunoff did not independently verify the asset
quality and financial condition of the Bank or Norwest, but instead relied
upon the data provided by or on behalf of the Bank and Norwest to be true and
accurate in all material respects.
For its services as independent financial analyst for the Bank in
connection with the Consolidation, including the rendering of the Opinion, the
Bank will pay Sheshunoff an aggregate fee of 1% of the total purchase price.
Prior to being retained for this assignment, Sheshunoff has provided
professional services and products to the Bank and certain bank affiliates of
Norwest. The revenues derived from such services and products are
insignificant when compared to the firm's total gross revenues.
EFFECTIVE DATE AND TIME OF THE CONSOLIDATION
The Effective Time of the Consolidation will be 11:59 p.m., Bay City,
Texas time, on the Effective Date of the Consolidation, the date specified in
the certificate of approval to be issued by the OCC approving the
Consolidation. Subject to the terms and conditions set forth in the
Consolidation Agreement, the closing of the Consolidation will occur on a date
(the "Closing Date") agreed to by the parties to the Consolidation, but no
later than ten business days following the satisfaction or waiver of all
conditions set forth in the Consolidation Agreement, or on such other date
upon which the parties agree. Norwest and the Bank anticipate that the
Consolidation will close in the second quarter of 1995, although there can be
no assurance as to whether or when the Consolidation will occur. See "Terms
of the Consolidation," "Conditions to the Consolidation," and "Regulatory
Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Consolidation,
Norwest Bank Minnesota, National Association, acting in the capacity of
exchange agent for Norwest (the "Exchange Agent"), will mail to each former
holder of record of shares of Bank Common Stock a form of letter of
transmittal, together with instructions for the exchange of such holder's Bank
Common Stock certificates for a certificate representing Norwest Common Stock.
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SHAREHOLDERS OF THE BANK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of one or more certificates for Bank
Common Stock, together with a properly completed letter of transmittal, there
will be issued and mailed to the holder a certificate representing the number
of whole shares of Norwest Common Stock to which such holder is entitled and,
where applicable, a check for the amount representing any fractional share. A
certificate for Norwest Common Stock may be issued in a name other than the
name in which the surrendered certificate is registered only if (i) the
certificate surrendered is properly endorsed and otherwise in proper form for
transfer and (ii) the person requesting the issuance of such certificate
either pays to the Exchange Agent any transfer or other taxes required by
reason of the issuance of a certificate for such shares in a name other than
the registered holder of the certificate surrendered or establishes to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
All Norwest Common Stock issued pursuant to the Consolidation will be
deemed issued as of the Effective Time of the Consolidation. No dividends on
Norwest Common Stock with a record date after the Effective Date of the
Consolidation will be paid to Bank shareholders entitled to receive
certificates for shares of Norwest Common Stock until such shareholders
surrender their certificates representing shares of Bank 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 Date of the Consolidation and before the date of such surrender.
After such surrender, there shall be paid to the person in whose name the
certificate representing such shares of Norwest Common Stock is issued, on the
appropriate dividend payment date, any dividend on such shares of Norwest
Common Stock which shall have a record date after the Effective Date of the
Consolidation and prior to the date of surrender, but a payment date
subsequent to the surrender. In no event shall the persons entitled to
receive such dividends be entitled to receive interest on amounts payable as
dividends.
CONDITIONS TO THE CONSOLIDATION
The Consolidation will occur only if the Consolidation Agreement is
approved by the requisite vote of shareholders of the Bank. Consummation of
the Consolidation is subject to the satisfaction of certain conditions, most
of which are customary in transactions such as the Consolidation. Such
conditions may be waived by the parties to the extent that waiver is permitted
by applicable law. Conditions to the obligations of both parties to
consummate the Consolidation include, but are not limited to (i) approval of
the Consolidation Agreement by the requisite vote of shareholders of the Bank,
(ii) the receipt of all necessary regulatory approvals, including the approval
of the Consolidation by the Federal Reserve Board and the OCC, and the
expiration of all applicable waiting and appeal periods, and (iii) the absence
of any order of a court or agency of competent jurisdiction restraining,
enjoining, or otherwise prohibiting consummation of the transactions
contemplated by the Consolidation Agreement.
The Bank's obligation to consummate the Consolidation is also subject,
among other things, to the receipt of an opinion of counsel for the Bank to
the effect that for federal income tax purposes the Consolidation will be a
tax-free reorganization.
Norwest's obligation to consummate the Consolidation is also subject,
among other things, to (i) the total number of shares of Bank Common Stock
(including phantom shares and other share equivalents) outstanding and subject
to issuance upon exercise of all warrants,
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options, conversion rights, phantom shares, or other share equivalents not
having exceeded 80,000; (ii) the receipt of a certificate from the Bank's
Chief Executive Officer and the Bank's Chief Financial Officer concerning the
accuracy and completeness of the Bank's financial information presented in
this Proxy Statement-Prospectus and the absence of any material changes in
such information since the date of the Bank's most recent interim financial
statements; (iii) the absence of any reasonable basis for any proceeding,
claim, or action seeking to impose, or that could reasonably be expected to
result in the imposition, on the Bank of any liability arising from the
release of hazardous substances under any local, state, or federal
environmental statute, regulation, or ordinance which has had or could
reasonably be expected to have a material adverse effect upon the Bank; (iv)
the requirement that the Bank shall not have sustained since June 30, 1994,
any material loss or interference with its business from any civil disturbance
or any fire, explosion, flood, or other calamity, whether or not covered by
insurance; (v) the absence, since June 30, 1994, of any change, other than
changes in banking laws or regulations that affect the banking industry
generally or changes in the general level of interest rates, or any
circumstance which has had or might reasonably be expected to have a material
adverse effect on the financial condition, results of operations, business, or
prospects of the Bank; and (vi) the termination of an agreement among certain
shareholders of the Bank not to transfer their shares of Bank Common Stock to
parties other than the other shareholders who are parties to the agreement.
REGULATORY APPROVALS
Transactions such as the Consolidation are subject to prior approval by
the Federal Reserve Board under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), which requires that the Federal Reserve Board take
into consideration the financial and managerial resources and future prospects
of the existing and proposed institutions and the convenience and needs of the
communities to be served. Transactions such as the Consolidation are also
subject to prior approval by the OCC under the National Bank Act. On
January 5, 1995, the Federal Reserve Board informed Norwest that it had
approved the Consolidation, and by letter dated January 25, 1995, the OCC
informed Norwest that it had approved the Consolidation. In addition, as
required by Texas law, by letter dated January 17, 1995, Norwest notified the
Texas Department of Banking of its intent to make an interstate acquisition
and in connection therewith provided certain information and made certain
undertakings to the Texas Department of Banking.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the transaction from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed transactions.
Norwest and the Bank are not aware of any additional governmental
approvals or compliance with banking laws and regulations that would be
required for consummation of the Consolidation other than those described
above. Should any other approval or action be required, it is currently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained and,
if such approvals or actions are obtained, there can be no assurance regarding
the timing thereof.
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BUSINESS PENDING THE CONSOLIDATION
By entering into the Consolidation Agreement, the Bank has agreed to
maintain its corporate existence in good standing and to conduct its business
in the ordinary and usual manner, including the extension of credit in
accordance with existing lending policies, except that the Bank has agreed not
to make, without the prior written consent of Norwest, any new loan or modify,
restructure, or renew any existing loan (except pursuant to commitments made
prior to September 13, 1994) if the amount of the resulting loan, when
aggregated with all other loans or extensions of credit to such person, would
exceed $250,000. In the Consolidation Agreement the Bank has also agreed,
among other things, that it will not, without the prior written consent of
Norwest: (i) 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 September
13, 1994, or make any investments except individual investments made in the
ordinary course of business for terms of up to one year and in amounts of
$100,000 or less; (ii) declare, set aside, make, or pay any dividend or other
distribution with respect to its capital stock; or (iii) sell or otherwise
dispose of any of its assets or properties other than in the ordinary course
of business.
CERTAIN COVENANTS
The Consolidation Agreement includes a number of covenants of the Bank
which are customary in transactions such as the Consolidation. The
Consolidation Agreement provides, among other things, that, prior to the
Closing Date, the Bank will (i) establish such additional accruals and
reserves as may be necessary to conform the Bank's accounting and credit loss
practices to those of Norwest and Norwest's plans with respect to the conduct
of the Bank's business following the Consolidation and to provide for costs
and expenses related to the consummation of the transactions contemplated by
the Consolidation Agreement; (ii) obtain, at its own expense, and deliver
environmental assessment reports on certain properties; and (iii) obtain, at
its own expense, and deliver title commitments and boundary surveys for each
of its bank facilities.
The Consolidation Agreement also includes a number of covenants of Norwest
which are customary in transactions such as the Merger. The Consolidation
Agreement provides, among other things, that, prior to the Closing Date,
Norwest will (i) give the Bank written notice of the receipt of all regulatory
approvals and (ii) permit the Bank and its representatives to examine
Norwest's books, records, and properties, and to interview Norwest's officers,
employees, and agents, for a period of up to 15 days prior to the Closing
Date.
Neither the Bank nor any director, officer, representative, or agent of
the Bank, will solicit, authorize the solicitation of, or enter into any
discussions with any party other than Norwest concerning any offer or possible
offer (i) to purchase any shares of common stock, any option or warrant to
purchase any shares of common stock, any securities convertible into any
shares of common stock, or any other equity security of the Bank; (ii) to make
a tender or exchange offer for any shares of such common stock or other equity
security; (iii) to purchase, lease, or otherwise acquire the assets of the
Bank except in the ordinary course of business; or (iv) to merge, consolidate,
or otherwise combine with the Bank.
WAIVER, AMENDMENT, AND TERMINATION
Either Norwest or the Bank may, in writing, give any consent, terminate
the Consolidation Agreement in accordance with its terms, or waive any
inaccuracies in the
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representations and warranties of the other party or compliance by the other
party with any of the covenants and conditions in the Consolidation Agreement.
At any time before the Closing Date the parties may amend the
Consolidation Agreement by action of their respective Boards of Directors or
pursuant to authority delegated by their respective Boards of Directors;
provided, however, that no such amendment occurring after approval of the
Consolidation by the shareholders of the Bank may adversely affect the
consideration to be received by the shareholders of the Bank.
The Consolidation Agreement may be terminated at any time prior to the
Closing Date (i) by mutual written consent of the parties; (ii) by either
party by written notice to the other if the Consolidation shall not have been
consummated by August 15, 1995, unless such failure of consummation is due to
the failure of the party seeking termination to perform or observe in all
material respects the covenants and agreements to be performed or observed by
it under the Consolidation 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
Consolidation Agreement; or (iv) by the Bank, within 5 days after the end of
the period of 20 trading days ending on the day immediately preceding the day
on which the Special Meeting is held if (A) the Norwest Measurement Price is
less than $20.00 and (B) the quotient obtained by dividing the Norwest
Measurement Price by $26.125 is less than 85% of the quotient obtained by
dividing (x) the weighted average closing prices per share of the common stock
of each company in a group of 23 bank holding companies (the "Index Group")
over such period of 20 trading days by (y) the weighted average closing prices
per share of the common stock of each company in the Index Group on September
12, 1994. The "Norwest Measurement Price" is the average of the closing
prices of Norwest Common Stock on the New York Stock Exchange during the
period of 20 trading days ending on the day immediately preceding the day on
which the Special Meeting is held.
MANAGEMENT AND OPERATIONS AFTER THE CONSOLIDATION
After the Consolidation, the Bank will become a wholly owned subsidiary of
Norwest and will continue to operate at its present location. Products and
services offered by Norwest affiliates will be offered through the Bank.
INTERESTS OF CERTAIN PERSONS IN THE CONSOLIDATION
In considering the recommendation of the Bank's Board of Directors with
respect to the Consolidation, shareholders of the Bank should be aware that
certain officers and directors of the Bank have certain direct or indirect
interests separate from their interests as holders of the Bank Common Stock,
including those referred to below.
After the Effective Time of the Consolidation, certain of the officers and
directors of the Bank will continue to be officers and directors of the Bank
until such time as their successors are elected and will be entitled to
participate in Norwest's benefit plans.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
The Bank is organized as a national banking association under the laws of
the United States, and Norwest is incorporated as a corporation in the State
of Delaware. Shareholders of the Bank, whose rights are governed by the
Bank's Articles of Association and By-Laws and by federal banking law, will,
upon consummation of the Consolidation, become stockholders of
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Norwest. Their rights as Norwest stockholders will then be governed by
Norwest's Certificate of Incorporation and By-Laws and by the Delaware General
Corporation Law. The following is a summary of certain significant differences
between the rights of shareholders of the Bank and the rights of stockholders
of Norwest.
CAPITAL STOCK
THE BANK. The Bank's Articles of Association authorize the issuance of
80,000 shares of common stock, par value $25.00 per share, in such series and
with such rights and preferences as the Board of Directors shall determine.
All shares of Bank Common Stock currently outstanding have equal rights and
preferences with respect to voting, dividends, and distributions upon
liquidation.
NORWEST. Norwest's Certificate of Incorporation authorizes the issuance
of 500,000,000 shares of Common Stock, par value $1 2/3 per share, and
5,000,000 shares of preferred stock, without par value ("Preferred Stock").
At September 30, 1994, 323,084,474 shares of Common Stock were issued, of
which 313,005,575 were outstanding and 10,078,899 were held as treasury
shares, and 2,293,271 shares of Preferred Stock were outstanding consisting of
1,127,125 shares of 10.24% Cumulative Preferred Stock, 1,143,675 shares of
Cumulative Convertible Preferred Stock, Series B, and 22,471 shares of ESOP
Cumulative Convertible Preferred Stock. On December 30, 1994, Norwest issued
980,000 shares of Cumulative Tracking Preferred Stock. In addition,
1,250,000 shares of Preferred Stock are reserved for issuance under the Rights
Agreement dated as of November 22, 1988, between Citibank, N.A. as Rights
Agent, and Norwest (the "Rights Agreement"). Norwest has also authorized for
issuance from time to time and registered with the Commission an additional
1,700,000 shares of Preferred Stock. Norwest has also authorized for issuance
from time to time and registered or filed for registration with the SEC,
pursuant to two universal shelf registration statements, an indeterminate
number of securities (the "Shelf Securities") with an aggregate initial
offering price, as of December 31, 1994, not to exceed $1,825,000,000. The
Shelf Securities may be issued as Preferred Stock or as securities convertible
into shares of Preferred Stock or Common Stock. Based on the current number
of shares of Preferred Stock authorized for issuance under Norwest's
Certificate of Incorporation, the maximum number of shares of Preferred Stock
and Common Stock, respectively, that could be issued pursuant to the effective
shelf registration statements, when added to shares of Preferred Stock and
Common Stock already reserved for issuance, issued, or outstanding, could not
exceed respectively, 5,000,000 shares of Preferred Stock and 500,000,000
shares of Common Stock. All or any portion of the authorized but unissued
Preferred Stock or Shelf Securities issuable as Preferred Stock or convertible
into Preferred Stock or Common Stock, may be issued by the Board of Directors
of Norwest without further action by stockholders. Holders of Preferred Stock
have certain rights and preferences with respect to dividends and upon
liquidation that are superior to those of holders of Common Stock. The
relative rights and preferences of any Preferred Stock issued in the future
may be established by Norwest's Board of Directors without stockholder action.
Although Norwest has no current plans for the issuance of any shares of
Preferred Stock, except as disclosed in this Prospectus, such shares, when and
if issued, could have dividend, liquidation, voting, and other rights superior
to those of the Common Stock.
Subject to any prior rights of any Preferred Stock then outstanding,
holders of Common Stock are entitled to receive such dividends as are declared
by Norwest's Board of Directors out of funds legally available for that
purpose. For information concerning legal limitations on the ability of
Norwest's banking subsidiaries to supply funds to Norwest, see "CERTAIN
REGULATORY CONSIDERATIONS." Subject to the rights, if any, of any Preferred
Stock then outstanding, all voting rights are vested in the holders of Common
Stock, each share being entitled to one vote. Subject to any prior rights of
any Preferred Stock, in the
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event of liquidation, dissolution, or winding up of Norwest, holders of shares
of Common Stock are entitled to receive pro rata any assets distributable to
stockholders in respect of shares held by them. Holders of shares of Common
Stock do not have any preemptive right to subscribe for any additional
securities which may be issued by Norwest. The outstanding shares of Common
Stock, including the Shares offered hereby, are fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A. Each share of Common Stock also includes, and each share
offered hereby will include, a right to purchase certain Preferred Stock. See
"Rights to Purchase Preferred Stock" below.
The foregoing description of the material terms of the Common Stock does
not purport to be complete and is qualified in its entirety by reference to
Article Fourth of Norwest's Certificate of Incorporation.
On November 22, 1988, the Board of Directors of Norwest declared a
dividend of one preferred share purchase right (collectively, the "Rights")
for each outstanding share of Norwest Common Stock. The dividend was paid on
December 9, 1988, to stockholders of record on that date. Holders of shares
of Norwest Common Stock issued subsequent to that date, including those to be
issued in connection with the Consolidation, will receive the Rights with
their shares.
The Rights trade automatically with shares of Norwest Common Stock and
become exercisable only under certain circumstances. The Rights are designed
to protect the interests of Norwest and its stockholders against coercive
takeover tactics. The purpose of the Rights is to encourage potential
acquirors to negotiate with Norwest's Board of Directors prior to attempting a
takeover and to give the Board leverage in negotiating on behalf of all
stockholders the terms of any proposed takeover. The Rights may, but are not
intended to, deter takeover proposals.
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"). Until a Right is exercised, the holder of a Right, as such, will
have no rights with respect to the Junior Preferred Shares including, without
limitation, the right to vote or receive dividends. The stated purchase price
for each one one-hundredth of a Junior Preferred Share is $175.00. The
purchase price is subject to adjustment upon the occurrence of certain events,
including stock dividends on the Junior Preferred Shares or issuance of
warrants for, or securities convertible on certain terms into, Junior
Preferred Shares. The number of Rights outstanding and the number of Junior
Preferred Shares issuable upon exercise of the Rights are subject to
adjustment in the event of a stock split of, or a stock dividend on, Norwest
Common Stock.
The Rights will become exercisable only if a person or group acquires or
announces an offer to acquire 25% or more of the outstanding shares of Norwest
Common Stock. This triggering percentage may be reduced to no less than 15%
by the Board of Directors prior to the time the Rights become exercisable.
The Rights have certain additional features that will be triggered upon the
occurrence of specified events:
(1) If a person or group acquires at least the triggering percentage of
Norwest Common Stock, the Rights permit holders of the Rights, other than
such person or group, to acquire Norwest Common Stock at 50% of market
value. However, this feature will not apply if a person or group which
owns less than the triggering percentage acquires at
32
<PAGE>
least 85% of the outstanding shares of Norwest Common Stock pursuant to a
cash tender offer for 100% of the outstanding Norwest Common Stock.
(2) After a person or group acquires at least the triggering percentage
and before the acquiror owns 50% of the outstanding shares of Norwest
Common Stock, the Board of Directors may exchange each Right, other than
Rights owned by such acquiror, for one share of Norwest Common Stock or
one four-hundredth of a Junior Preferred Share.
(3) In the event of certain business combinations involving Norwest or
the sale of 50% or more of the assets or earning power of Norwest, the
Rights permit holders of the Rights to purchase the stock of the acquiror
at 50% of market value.
The Junior Preferred Shares will not be redeemable. Each Junior Preferred
Share will be entitled to a minimum preferential quarterly dividend payment of
$1.00 per share but will be entitled to an aggregate dividend of 400 times the
dividend declared per share of Norwest Common Stock. In the event of
liquidation, the holders of the Junior Preferred Shares will be entitled to a
minimum preferential liquidation payment of $400.00 per share but will be
entitled to an aggregate payment of 400 times the payment made per share of
Norwest Common Stock. Each Junior Preferred Share will have 400 votes, voting
together with the Norwest Common Stock. Finally, in the event of any merger,
consolidation, or other 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.
PREEMPTIVE RIGHTS
THE BANK. Shareholders of the Bank have the preemptive right to subscribe
for previously unissued shares of the Bank's capital stock.
NORWEST. Stockholders of Norwest have no preemptive rights or other
purchase rights other than the Rights.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
THE BANK. Under federal law the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Bank Common Stock is required to
approve a merger or consolidation.
NORWEST. Under Delaware law the vote of a simple majority of the
outstanding shares of Norwest Common Stock entitled to vote thereon is
required to approve a merger or
33
<PAGE>
consolidation, or the sale, lease, or exchange of substantially all of
Norwest's corporate assets. With respect to a merger, no vote of the
stockholders of Norwest is required if Norwest is the surviving corporation
and (1) the related agreement of merger does not amend Norwest's Certificate
of Incorporation, (2) each share of stock of Norwest outstanding immediately
before the merger is an identical outstanding or treasury share of Norwest
after the merger, and (3) the number of shares of Norwest stock to be issued
in the merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) does not exceed 20% of the shares of
Norwest Common Stock outstanding immediately before the merger.
In addition to being subject to the laws of Delaware, Norwest, as a bank
holding company, is subject to various provisions of federal law with respect
to mergers, consolidations and certain other corporate transactions.
DISSENTERS' RIGHTS
THE BANK. Under federal law any shareholder of the Bank is entitled to
receive payment of the value of such shareholder's shares of the Bank capital
stock if such shareholder dissents from any merger or consolidation for which
a vote of the Bank's shareholders is required. See the more detailed
discussion below under "Rights of Dissenting Bank Shareholders."
NORWEST. Under Delaware law a stockholder is generally entitled to
receive payment of the appraised value of such stockholder's shares if the
stockholder dissents from a merger or consolidation. However, appraisal
rights are not available to holders of (a) shares listed on a national
securities exchange or held of record by more than 2,000 persons or (b) shares
of the corporation surviving a merger, if the merger did not require the
approval of the stockholders of such corporation, unless in either case, the
holders of such stock are required by the terms of the consolidation to accept
anything other than (i) shares of stock of the surviving corporation, (ii)
shares of stock of another corporation which are also listed on a national
securities exchange or held by more than 2,000 holders, or (iii) cash in lieu
of fractional shares of such stock. Appraisal rights are not available for a
sale of assets or an amendment to the Certificate of Incorporation. Because
shares of Norwest Common Stock are listed on both the New York Stock Exchange
and the Chicago Stock Exchange, and Norwest has more than 2,000 stockholders
of record, its stockholders are not, subject to the aforementioned exceptions,
entitled to any rights of appraisal in connection with mergers or
consolidations involving Norwest.
SPECIAL MEETINGS
THE BANK. Under federal law and the Bank's Articles of Association, a
special meeting of the Bank's shareholders may be called by the Bank's Board
of Directors, or by three or more shareholders owning, in the aggregate, not
less than ten percent of all of the outstanding shares of the Bank.
NORWEST. Under Delaware law and the By-Laws of Norwest, a special meeting
of stockholders may be called only by the Chairman of the Board, a Vice
Chairman, the President, or a majority of the Board of Directors.
34
<PAGE>
ANTITAKEOVER STATUTES
THE BANK. National banking associations are not covered by any specific
antitakeover statute. However, the acquisition of more than 5% of the capital
stock of a national bank requires the approval of federal regulatory agencies.
NORWEST. The Delaware antitakeover statute governs "business
combinations" between a publicly held Delaware corporation having certain
numbers of stockholders or listed on certain exchanges and an "interested
stockholder." This statute is designed primarily to regulate the second step
of a two-tiered takeover attempt. Delaware law broadly defines a "business
combination" as including a merger, sale of assets, issuance of voting stock,
and various other types of transactions with an interested stockholder and
other related parties. An "interested stockholder" is defined as any person
who beneficially owns, directly or indirectly, 15% or more of the outstanding
voting stock of a corporation. Delaware law prohibits a corporation from
engaging in a business combination with an interested stockholder for a period
of three years following the date on which the stockholder became an
interested stockholder unless (a) the board of directors approved the business
combination before the stockholder became an interested stockholder, (b) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, such stockholder owned at least 85% of the voting
stock outstanding when the transaction began, excluding in computing such
percentage shares held by certain types of stockholders, or (c) the board of
directors approved the business combination after the stockholder became an
interested stockholder and the business combination was approved by at least
two-thirds of the outstanding voting stock not owned by such stockholder.
RIGHTS OF DISSENTING BANK SHAREHOLDERS
Title 12, Section 215, of the United States Code provides that any
shareholder of either of the parties to a consolidation involving a national
bank who objects to the proposed consolidation has the right to receive
payment in cash of the value of such shareholder's shares as of the effective
date of the consolidation, if and when the consolidation is consummated,
subject to certain conditions. These conditions, in the case of a shareholder
of the Bank, are that: (i) the shareholder must have voted against approval
of the Consolidation at the Special Meeting or given notice in writing at, or
prior to, the Special Meeting to the presiding officer that such shareholder
dissents from the proposed Consolidation; (ii) the shareholder must, within 30
days after the effective date of the Consolidation, make a written request for
payment to the surviving bank; and (iii) the written request must be
accompanied by surrender of the shareholder's stock certificate(s). Any
shareholder of the Bank who votes against the Consolidation at the Special
Meeting, or who gives notice in writing at, or prior to, the Special Meeting
to the presiding officer that such shareholder dissents, will be notified in
writing of the effective date of the Consolidation. Failure to comply with
each of the foregoing conditions will result in the loss of the appraisal
rights described herein.
The value of the shares of any dissenting shareholder shall be determined
by an appraisal made by a committee of three persons, one to be selected by
the majority vote of the dissenting shareholders, one by the Board of
Directors of the surviving bank, and the third by the two so chosen. The
valuation agreed upon by any two of the three appraisers shall govern. If the
value so fixed is not satisfactory to any dissenting shareholder, that
shareholder may, within five days after being notified of the appraised value
of such shareholder's shares, appeal to the Comptroller of the Currency, who
shall cause a reappraisal to be made which shall be final and binding as to
the value of such shares. If a shareholder dissents and, within 90 days from
the date of consummation of the Consolidation, one or more of the appraisers
is not
35
<PAGE>
selected as above provided for any reason, or the appraisers fail to determine
the value of such shares, the Comptroller shall, upon written request of any
interested party, cause an appraisal to be made which shall be final and
binding on all parties. The expenses of the Comptroller in making the
reappraisal or the appraisal, as the case may be, shall be paid by the
surviving bank. The value of the shares ascertained shall be promptly paid to
the dissenting shareholder by the surviving bank.
The foregoing summary does not purport to be a complete statement of the
provisions of Section 215 and is qualified in its entirety by reference to the
relevant provisions of Section 215, the text of which is attached hereto as
Exhibit B. Any shareholder of the Bank who desires to exercise dissenters'
appraisal rights should carefully review and comply with the relevant
provisions of Section 215. DISSENTERS' RIGHTS WILL BE LOST IF THE PROCEDURAL
REQUIREMENTS OF SECTION 215 ARE NOT FULLY AND PRECISELY SATISFIED.
Attached hereto as Appendix C is a copy of Banking Circular 259 regarding
the valuation methods used by the Comptroller to estimate the value of a
bank's shares when the Comptroller is involved in the appraisal of shares held
by dissenting shareholders. The results of appraisals performed by the
Comptroller between January 1, 1985, and September 30, 1991, are also
summarized in Appendix C. EACH SHAREHOLDER OF THE BANK SHOULD FULLY CONSIDER
APPENDIX C BEFORE DECIDING WHETHER TO EXERCISE DISSENTERS' RIGHTS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. Federal income tax
consequences of the Consolidation to holders of Bank Common Stock under the
Internal Revenue Code of 1986, as amended (the "Code").
THIS SUMMARY SHOULD NOT BE REGARDED AS A SUBSTITUTE FOR AN INDIVIDUAL
ANALYSIS OF THE TAX CONSEQUENCES OF THE CONSOLIDATION TO A BANK SHAREHOLDER.
EACH BANK SHAREHOLDER SHOULD CONSULT A TAX ADVISOR REGARDING THE PARTICULAR
TAX CONSEQUENCES OF THE CONSOLIDATION TO SUCH SHAREHOLDER'S OWN SITUATION.
None of Norwest, Norwest Interim Bank, and the Bank has requested a ruling
from the Internal Revenue Service (the "Service") in connection with the
Consolidation. The Bank will receive from its counsel, Ford & Ferraro L.L.P.,
an opinion to the effect that the Consolidation will be treated for U.S.
Federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, that Norwest, Norwest Interim Bank, and the Bank will each
be a party to the reorganization within the meaning of Section 368(b) of the
Code, and that shareholders of the Bank (other than holders of the Bank Common
Stock who exercise dissenters' rights) will not recognize any gain or loss as
a result of the Consolidation, except to the extent they receive cash in lieu
of a fractional share of the Bank Common Stock. Such opinion will be subject
to certain assumptions and based on certain representations of Norwest,
Norwest Interim Bank, and the Bank and affiliates of the Bank. The Bank
shareholders should be aware that such opinion will neither be binding upon
the Service nor will the Service be precluded from adopting a contrary
position.
Assuming the Consolidation qualifies as a reorganization under Section
368(a) of the Code, the following U.S. Federal income tax consequences will
occur:
36
<PAGE>
(a) No gain or loss will be recognized by Norwest, Norwest Interim Bank,
and the Bank in connection with the Consolidation;
(b) No gain or loss will be recognized by a holder of Bank Common Stock
who exchanges all of his shares of Bank Common Stock solely for
shares of Norwest Common Stock in the Consolidation;
(c) The aggregate basis of the shares of Norwest Common Stock to be
received by a Bank shareholder in the Consolidation (including any
fractional share not actually received) will be the same as the
aggregate basis of the shares of Bank Common Stock surrendered in
exchange therefor;
(d) The holding period of the shares of Norwest Common Stock to be
received by a Bank shareholder in the Consolidation will include the
holding period of the shares of Bank Common Stock surrendered in
exchange therefor, provided that such shares of Bank Common Stock are
held as capital assets at the Effective Time of the Consolidation;
(e) Cash payments in lieu of a fractional share will be treated as if a
fractional share of Norwest Common Stock has been received in the
Consolidation and then redeemed by Norwest. Such a redemption should
qualify as a distribution in full payment in exchange for the
fractional share rather than as a distribution of a dividend.
Accordingly, a Bank shareholder receiving cash in lieu of a
fractional share will recognize gain or loss upon such payment equal
to the difference, if any, between such shareholder's basis in the
fractional share (as described in paragraph (c) above) and the amount
of cash received. Such gain or loss will be a capital gain or loss
if the Bank Common Stock is held as a capital asset at the Effective
Time of the Consolidation; and
(f) With respect to a Bank shareholder who perfects his dissenter's
rights under the National Bank Act with regard to the Consolidation
and receives cash for the value of his Bank Common Stock, the Service
should treat such cash as having been received as a distribution from
the Bank in redemption of such Bank Common Stock. Such redemption
would be treated as a distribution in full payment in exchange for
such Bank Common Stock, and thus the dissenting shareholder would
recognize gain or loss measured by the difference between the cash
received and the basis for such Bank Common Stock, if the redemption
does not have the effect of the distribution of a dividend under
Section 302 of the Code (after applying the constructive ownership
rules of Section 318 of the Code).
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of the Bank
upon consummation of the Consolidation have been registered under the
Securities Act of 1933 (the "Securities Act"). Such shares may be traded
freely and without restriction by those shareholders not deemed to be
"affiliates" of the Bank or Norwest as that term is defined in the rules under
the Securities Act. Norwest Common Stock received by those shareholders of
the Bank who are deemed to be "affiliates" of the Bank may be resold without
registration as provided for by Rule 145, or as otherwise permitted under the
Securities Act. In the Consolidation Agreement, the Bank has agreed to use
its best efforts to cause each executive officer, director, or shareholder of
the Bank who may reasonably be deemed to be an affiliate of the Bank to enter
into an agreement with Norwest providing that such affiliate will not sell,
37
<PAGE>
transfer, or otherwise dispose of the shares of Norwest Common Stock to be
received by such person in the Consolidation except in compliance with the
applicable provisions of the Securities Act and the rules and regulations
promulgated thereunder. This Proxy Statement-Prospectus does not cover any
resales of Norwest Common Stock received by affiliates of the Bank.
The Consolidation Agreement provides for the filing by Norwest of listing
applications with the New York Stock Exchange (the "NYSE") and the Chicago
Stock Exchange (the "CHX") covering the shares of Norwest Common Stock
issuable upon consummation of the Consolidation. It is a condition to the
consummation of the Consolidation that such shares of Norwest Common Stock
shall have been authorized for listing on the NYSE and the CHX.
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
For those stockholders who elect to participate in Norwest's Dividend
Reinvestment and Optional Cash Payment Plan, dividends on Norwest Common Stock
will be reinvested in shares of Norwest Common Stock at market price (as
defined in the Plan). The plan also permits participants to invest through
voluntary cash payments, within certain dollar limitations, in additional
shares of Norwest Common Stock at the market price (as defined in the Plan) of
such stock at the time of purchase. It is anticipated that after the
Effective Time of the Consolidation, Norwest will continue to offer its
Dividend Reinvestment and Optional Cash Payment Plan and that shareholders of
the Bank who receive Norwest Common Stock in the Consolidation will have the
right to participate therein.
ACCOUNTING TREATMENT
The Consolidation will be accounted for as a purchase in accordance with
generally accepted accounting principles.
EXPENSES
Norwest and the Bank will each pay their own expenses in connection with
the Consolidation and the transactions contemplated thereby, including fees
and expenses of their respective accountants and counsel.
38
<PAGE>
INFORMATION ABOUT THE BANK
BUSINESS AND PROPERTY OF THE BANK
GENERAL
The Bank is a national bank headquartered in Bay City, Texas, that
provides retail and commercial banking services to its customers through
banking facilities located at 1801 Seventh Street in Bay City. The Bank's
deposits are insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation (the "FDIC"). At September 30, 1994, the Bank had total
assets of $155.8 million, deposits of $122.8 million, and stockholders' equity
of $19.2 million. The Bank was chartered as a national bank in 1901.
The Bank provides a wide range of banking services for its retail and
commercial customers, including real estate loans, revolving credit
arrangements, inventory and accounts receivable financing, equipment
financing, home improvement and other personal loans, NOW checking, savings
and time accounts, and trust services. The Bank provides 24-hour access to
routine banking services through its automated teller machines.
The Bank's business strategy has been to develop long-term customer
relationships, maintain high quality service, and respond quickly to the needs
of its customers. The Bank supports active participation of its personnel in
local charitable, civic, school, and church activities. The Bank has
installed data processing and telecommunications systems and facilities to
adequately service its customers and its growth in the area. The Bank's
customers are located primarily in Matagorda County, Texas.
COMPETITION
The Bank is subject to competition in all aspects of its business from
other banks and financial institutions in its immediate market area as well as
those in surrounding areas. The Bank has been able to compete effectively by
emphasizing customer service, establishing long-term customer relationships,
and building customer loyalty through providing the products and personal
services designed to meet the specific needs of its customers.
EMPLOYEES
At September 30, 1994, the Bank had 55 full-time employees (including 23
officers) and 6 part-time employees.
BANKING LOCATIONS
The main facility of the Bank is located at 1801 Seventh Street in Bay
City, Texas. The main facility is a two-story building and consists of a
walk-in lobby, a loan lobby, executive offices, administrative offices, and
ten drive-in lanes.
ENVIRONMENTAL PROTECTION CONSIDERATIONS
It is a condition to Norwest's obligation to consummate the Consolidation
that there be no reasonable basis for an environmental proceeding, claim, or
action that could reasonably be expected to result in liability which has had
or could reasonably be expected to have a material adverse effect on the Bank.
The Bank is aware of no such potential proceeding, claim, or action.
39
<PAGE>
MARKET PRICES AND DIVIDENDS
A substantial proportion of the Bank's outstanding shares are held by only
a few family-related shareholder groups. There is not an established trading
market for Bank Common Stock. As of the record date for the Special Meeting,
there were 121 holders of record of shares of Bank Common Stock and 80,000
shares outstanding.
After paying annual dividends on its Common Stock amounting to $1.25 per
share in 1991 and 1992, the Bank paid extraordinary dividends in 1993
amounting to $288.57 per share. Through September 30, 1994, the Bank has paid
$32.65 per share in dividends during 1994.
40
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<TABLE>
<CAPTION>
Sept. 30, 1994 December 31
(unaudited) 1993 1992
----------- ---- ----
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 7,327,068 $ 6,028,953 $ 5,792,774
Federal Funds Sold & FNLB deposits 849,148 1,089,368 10,684,735
------------ ------------ ------------
Cash and cash equivalents 8,176,216 7,118,321 16,477,509
Investment Securities held to maturity 115,865,947 126,182,339 135,113,836
Investment Securities available for sale 4,976,200 0 0
------------ ------------ ------------
Total Investment Securities 120,842,147 126,182,339 135,113,836
Loans, net of unearned interest 21,951,624 19,671,236 19,241,186
Less: Allowance for Loan Losses (303,007) (341,101) (913,440)
------------ ------------ ------------
Loans, net 21,648,617 19,330,136 18,327,745
Premises and Equipment, net 2,978,599 3,074,946 2,772,242
Accrued Interest Receivable 1,277,099 1,698,836 1,986,660
Federal Income Tax Refundable 0 144,227 0
Other Assets 868,440 575,343 575,329
------------ ------------ ------------
Total Assets $155,791,117 $158,124,148 $175,253,322
============ ============ ============
LIABILITIES
- -----------
Deposits
Noninterest-bearing $ 21,379,528 $ 23,372,883 $ 20,410,498
Interest bearing 101,454,495 114,103,911 114,593,733
------------ ------------ ------------
Total deposits 122,834,023 137,476,794 135,004,231
Funds Purchased 13,000,000 0 0
Accrued Interest Payable 312,598 298,348 350,132
Current Federal Income Taxes (7,379) 0 74,421
Deferred Federal Income Taxes 337,444 351,585 175,573
Other Liabilities 114,421 82,751 122,919
------------ ------------ ------------
Total Liabilities $136,591,106 $138,209,478 $135,727,276
EQUITY CAPITAL ACCOUNTS
- -----------------------
Common Stock
80,000 shares authorixed, issued and
outstanding, par value $25 $ 2,000,000 $ 2,000,000 $ 2,000,000
Surplus 2,000,000 2,000,000 2,000,000
Undivided Profits 12,730,878 13,414,670 33,026,046
Reserve for Contingencies 2,500,000 2,500,000 2,500,000
Unrealized Gain (Loss) on Securities AFS (30,867) 0 0
------------ ------------ ------------
Total Equity Capital 19,200,011 19,914,670 39,526,046
------------ ------------ ------------
Total Liabilities and Equity Capital $155,791,117 $158,124,148 $175,253,322
============ ============ ============
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30
(unaudited) Years Ended December 31
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Condensed Income Statement:
Interest Income $6,985,639 $8,132,122 $10,572,825 $12,827,299 $13,397,883
Interest Expense 2,377,390 2,427,664 3,180,943 4,394,217 6,563,892
---------- ---------- ----------- ----------- -----------
Net Interest Income 4,608,249 5,704,457 7,391,882 8,433,082 6,833,991
Provision for Loan Losses 0 (587,000) (587,000) 0 0
---------- ---------- ----------- ----------- -----------
Net Interest Income after
Provision for Loan Losses 4,608,249 6,291,457 7,978,882 8,433,082 6,833,991
========== ========== =========== =========== ===========
Noninterest Income 990,127 887,966 1,268,229 1,364,713 1,237,299
Noninterest Expense 2,905,560 3,025,720 4,181,103 4,094,867 3,930,244
---------- ---------- ----------- ----------- -----------
Income before Income Taxes 2,692,816 4,153,704 5,066,008 5,702,927 4,141,045
Income Tax Expense 764,608 1,309,848 1,591,784 1,765,294 1,308,547
---------- ---------- ----------- ----------- -----------
Net Income $1,928,208 $2,843,856 $3,474,224 $3,937,633 $2,832,498
========== ========== =========== =========== ===========
Net Income per share: $24.10 $35.55 $43.43 $49.22 $35.41
Number of Shares Outstanding: 80,000 80,000 80,000 80,000 80,000
Nine Months
Ended Sept. 30
(unaudited) Years Ended December 31
1994 1993 1993 1992 1991
---- ---- ---- ---- ----
Financial Ratios:
Return on Average Assets 1.63% 2.31% 2.14% 2.26% 1.69%
Return on Average Equity 13.21% 15.35% 14.89% 10.44% 8.27%
Net Interest Margin 4.41% 5.11% 5.02% 5.26% 4.45%
2,570,570 3,791,808 3,474,224 3,937,633 2,848,085
Average Balance Sheet Data:
Loans, net 20,981,864 18,392,866 18,474,022 18,138,833 17,168,842
Total Assets 158,034,402 164,407,331 162,545,470 173,806,253 167,809,851
Deposits 130,432,004 135,806,481 135,793,275 135,367,636 132,479,744
Stockholder's Equity 19,459,274 24,702,332 23,332,601 37,716,793 34,438,755
Period-end Balance Sheet Data:
Loans, net 21,648,617 18,263,317 19,330,136 18,327,745 17,652,435
Total Assets 155,791,117 153,220,442 158,124,148 175,253,322 171,487,815
Deposits 122,834,023 133,088,646 137,476,794 135,004,231 134,734,019
Stockholder's Equity 19,200,011 19,284,302 19,914,670 39,526,046 35,688,413
</TABLE>
42
<PAGE>
GENERAL
The following is management's discussion and analysis of the significant factors
affecting the Bank's results of operations and financial condition. This should
be read in conjunction with the audited financial statements and accompanying
footnotes and other selected financial data presented elsewhere herein.
FINANCIAL CONDITION
COMPARISON OF NINE MONTHS ENDING SEPTEMBER 30, 1994 AND 1993
Total assets decreased by $2,333,031 during the first nine months of 1994 to
$155,791,117 at September 30, 1994. The 1994 decrease corresponded to the net
decrease between investment securities and loans. Investment securities
decreased $5,340,192 during the first nine months of 1994 to $120,842,147 while
loans increased $2,318,481 to $21,648,617.
These decreases during the first nine months of 1994 were the offset of a
reduction in deposits of $14,642,771, primarily due to low interest rates and
the outflow of interest-bearing deposits to alternative deposit products. A
large portion of the deposit decrease was made up with funds purchased during
the first nine months of 1994. The balance of these funds was $13,000,000 as of
September 30, 1994.
The Bank's net income decreased 32 percent to $1,928,208 for the nine months
ended September 30, 1994 from $2,843,856 for the nine months ended September 30,
1993. During this period, the Bank's net interest income decreased to
$4,608,249 from $5,704,457. Return on average assets and return on average
equity on an annualized basis were 1.63 percent and 13.21 percent as of
September 30, 1994, compared with 2.31 percent and 15.35 percent, respectively,
for the same period in 1993.
NET INTEREST MARGIN
The Bank's taxable-equivalent net interest margin decreased on an annualized
basis to 4.41 percent for the nine months ended September 30, 1994, from 5.11
percent for the nine months ended September 30, 1993. Taxable-equivalent
interest income decreased 13.3 percent to $7,191,065 from $8,296,159, and
interest expense decreased 2 percent to $2,377,390 from $2,427,664. The
decrease in interest income resulted primarily from high-yielding securities
maturing and being renewed at lower rates. The decrease in interest expense
resulted primarily from a decline in deposits.
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<PAGE>
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $102,161 to $990,127 in the first nine months of
1994 from $887,966 for the first nine months of 1993. The increase mainly
resulted from an increase in service charge income of $70,826 and a gain on
other real estate sold of $29,134. Noninterest expense decreased $120,160 to
$2,905,560 for the first nine months of 1994 compared to $3,025,720 for the same
period in 1993. This decrease resulted primarily from decreases in equipment
depreciation, data processing and other miscellaneous operating costs.
The following table presents a summary of operating expenses and percentage
changes (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months
Ended
Sept. 30 Percentage
------------------- Increase/
1994 1993 (Decrease)
------ ------- ----------
<S> <C> <C> <C>
Salaries and employee benefits $1,591 $1,592 (0.06%)
Net Occupancy 273 260 5.00%
Data Processing 134 162 (17.28%)
Equipment Expense 183 201 (8.96%)
FDIC Assessment 222 226 (1.77%)
Other Expenses 503 585 (14.02%)
------ ------ ------
$2,906 $3,026 (3.97%)
====== ====== ======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
Total assets decreased $17,129,174 to $158,124,148 at December 31, 1993 from
$175,253,322 at December 31, 1992. Funds sold decreased $9,595,367 to
$1,089,368 at December 31, 1993 from $10,684,735 at December 31, 1992. Net
loans increased $1,002,391 and investment securities decreased $8,931,497 in
1993. Deposits increased $2,472,563 in 1993 as the result of an increase of
$2,962,385 in noninterest-bearing deposits and a decrease of $489,822 in
interest-bearing deposits. This overall decrease in earning assets of
$17,524,473 during 1993 resulted primarily from the payment of dividends in the
amount of $23,085,600 from Undivided Profits during 1993.
The Bank's net income decreased to $3,474,224 for the year ended December 31,
1993, compared to $3,937,633 for the year ended December 31, 1992 which was an
increase from $2,832,498 for the year ended December 31, 1991. Return on
average assets and return on average equity were 2.14 percent and 14.89 percent,
respectively, for 1993 as compared to 2.26 percent and 10.44 percent,
respectively, for 1992.
44
<PAGE>
NET INTEREST MARGIN
The Bank's taxable-equivalent net interest income to average earnings assets
decreased to 5.02 percent in 1993 from 5.26 percent in 1992 which was an
increase from 4.45 percent in 1991. Taxable-equivalent interest income was
$10,782,435 for the year ended December 31, 1993, compared to $13,109,506 for
December 31, 1992, and $13,729,014 for December 31, 1991. Interest expense
decreased 28 percent to $3,180,943 for the year ended December 31, 1993,
compared to $4,394,217 for December 31, 1992 and $6,563,892 for December 31,
1991.
Taxable-equivalent yield on interest-bearing assets was 7.12 percent in fiscal
1993 compared to 7.91 percent and 8.57 percent for 1992 and 1991, respectively.
The average cost of interest-bearing liabilities was 2.10 percent in fiscal 1993
compared to 2.65 percent and 4.11 percent for 1992 and 1991, respectively.
ALLOWANCE FOR LOAN LOSSES
A provision for loan losses or a reduction of the allowance for loan losses is
charged (credited) to income as deemed necessary by management to maintain the
allowance for loan losses at an amount considered adequate to absorb known or
possible loan losses in the portfolio. The provision or reduction of the
allowance is determined based on management's evaluation of the loan portfolio,
giving consideration to existing economic conditions, changes in the loan
portfolio, historical loan loss factors and other relevant information.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance or reduce the allowance based on their judgements about information
available to them at the time of their examination.
Loans are charged against the allowance for loan losses when management believes
the collection of principal is unlikely. Recoveries of amounts previously
charged off are credited to the allowance.
The Bank's provision (reversion) for loan losses was ($587,000), $0, and $0 for
the years ended December 31, 1993, 1992 and 1991, respectively. The reversion
in 1993 was made after the bank's primary regulator made an extensive analysis
of the Bank's allowance for loan losses and directed that the bank's allowance
for loan losses be reduced by $587,000. Management believes that the allowance
for loan losses is adequate based on management's evaluation of the loan
portfolio and other factors.
45
<PAGE>
NONINTEREST INCOME AND EXPENSE
Noninterest income, including gains on sales of other real estate, decreased
$96,484 to $1,268,229 for the year ended December 31, 1993, compared to
$1,364,713 and $1,237,299 for the years ended 1992 and 1991, respectively.
Gains on the sales of other real estate owned were $2,398, $70,428 and $13,639
for the years ended December 31, 1993, 1992 and 1991, respectively.
Noninterest expense increased $86,236 to $4,181,103 for the year ended December
31, 1993, compared to $4,094,867 and $3,930,244 for the years ended 1992 and
1991, respectively. The following table presents a summary of operating
expenses and percentage changes (dollars in thousands):
<TABLE>
<CAPTION>
Percentage Increase
(Decrease)
------------------
1993 1992 1991 1992/93 1991/92
------ ------ ------ --------- -------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $2,238 $2,391 $2,147 (6.40%) 11.36%
Net Occupancy 396 281 250 40.93% 12.40%
Data Processing 209 197 181 6.09% 8.84%
Equipment Expense 267 224 198 19.20% 13.13%
FDIC Assessment 301 294 264 2.38% 11.36%
Other Expenses 770 708 890 8.76% (20.45%)
------ ------ ------ ----- ------
$4,181 $4,095 $3,930 2.10% 4.20%
====== ====== ====== ===== ======
</TABLE>
The increase in 1993 is largely attributable to an occupancy expense increase
due to the expansion of the bank's building.
CAPITAL RESOURCES
At December 31, 1993, shareholders' equity was $19,914,670 and represented a
$19,611,376 or 50 percent decrease from the December 31, 1992 balance of
$39,526,046. The decrease was due to the payment of special dividends in the
amount of $23,085,600 during 1993. At September 30, 1994, shareholders' equity
was $19,200,011 and represented a $714,659 or 3.6 percent decrease from December
31, 1993. The decrease was due to the retention of earnings less the payment of
additional dividends of $2,612,000 in 1994.
Bank regulatory agencies measure capital adequacy through standardized risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance-sheet obligations.
Under the rules effective December 31, 1993, all financial institutions are
required to maintain a level of core capital (known as Tier 1 capital) which
must be at least 4 percent of risk-weighted assets, and a minimum level of total
capital of at least 8
46
<PAGE>
percent of risk-weighted assets. Tier 1 capital consists principally of
stockholders' equity less goodwill. Total capital is comprised of Tier 1
capital, certain debt instruments and an allowable portion of the allowance for
loan losses. The Bank's actual risk-based capital, risk-based capital
requirements and excess risk-based capital at September 30, 1994, December 31,
1993 and December 31, 1992 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1994 1993 1992
---------------- ---------------- ---------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital $19,231 42.19% $19,915 42.57% $39,526 78.85%
Allowable Portion of
Allow. for Loan Loss 303 0.66% 341 0.73% 627 1.25%
------- ----- ------- ----- ------- -----
Total Risk-Based Cap. 19,534 42.86% 20,256 43.30% 40,153 80.10%
Risk-Based Cap. Req. 3,647 8.00% 3,743 8.00% 4,010 8.00%
------- ----- ------- ----- ------- -----
Excess Risk-Based Cap. $15,887 34.86% $16,513 35.30% $36,143 72.10%
Risk Weighted Assets $45,581 $46,783 $50,127
</TABLE>
As a supplement to the risk-based capital guidelines, banks must also maintain a
minimum ratio of Tier 1 capital to total assets, known as the Tier 1 leverage
ratio. The principal objective of this measure is to place a constraint on the
maximum degree to which a banking organization can leverage its equity capital
base. This regulation has established a minimum level of Tier 1 capital to
total assets of 3 percent. At September 30, 1994, the Bank's leverage ratio was
12.3 percent, compared to 12.6 percent at December 31, 1993. This decrease from
December 31, 1993 to September 30, 1994 is primarily attributable to the
reduction in capital through the payment of dividends.
FDICIA requires that federal bank regulatory authorities take "prompt corrective
action" with respect to any depository institution which does not meet specified
minimum capital requirements. The applicable regulations establish five capital
levels which require or permit the Federal Reserve Board and other regulatory
authorities to take supervisory action. The relevant classifications range from
"well capitalized" to "critically capitalized". The classifications are
generally determined by applicable ratios of the institution, including Tier 1
capital to risk-weighted assets, total capital to risk-weighted assets and
leverage ratios. Based on capital ratios as of December 31, 1993, The First
National Bank of Bay City was classified as "well capitalized" under the
applicable regulations. As a result, the Bank does not believe that the prompt
corrective action regulations will have any material effect on the activities or
operations of The First National Bank of Bay City.
47
<PAGE>
LIQUIDITY MANAGEMENT
Liquidity management assures that adequate funds are available to meet deposit
withdrawals, loan demand and maturing liabilities. Insufficient liquidity can
result in higher costs of obtaining funds, while excessive liquidity can lead to
a decline in earnings due to the cost of foregoing alternative investments. The
ability to renew and acquire additional deposit liabilities is a major source of
liquidity. The Bank's principal sources of funds are primarily within the local
markets of the Bank and consist of deposits, borrowings and interest and
principal payments on loans and investment securities.
Asset liquidity is provided by cash and assets which are readily marketable, or
which can be pledged, or which will mature in the near future. These include
cash, federal funds sold and U.S. Government-backed securities. At December 31,
1993, the Bank's liquidity ratio, defined as cash, unpledged U.S. Government-
backed securities, and federal funds sold as a percentage of deposits, was 90.4
percent compared to 108.2 percent at December 31, 1992 and 107.2 percent at
December 31, 1991.
Liability liquidity is proven by access to core funding sources, principally
various customers' interest-bearing and noninterest-bearing deposit accounts in
the Bank's trade area. The Bank does not have or solicit brokered deposits.
Federal funds purchased and short-term borrowings are additional sources of
liquidity. These sources of liquidity are short-term in nature and are used as
necessary to fund asset growth and meet short-term liquidity needs.
CURRENT ACCOUNTING ISSUES
In December 1991, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures About
Fair Value of Financial Instruments" (Statement 107). Statement 107 requires
all entities to disclose estimated fair values of financial instruments, both
assets and liabilities recognized and not recognized in the balance sheet, for
which it is practicable to estimate fair value. The statement defines a
financial instrument as cash, evidence of an ownership in any entity, or a
contract that conveys or imposes on an entity the contractual right or
obligation to either receive or deliver cash or another financial instrument.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price if
one exists.
48
<PAGE>
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income Taxes"
(Statement 109). Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Adoption
of Statement 109, effective January 1, 1993, did not have a material impact on
the bank's financial statements.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" (Statement 114). Statement 114 requires that certain
impaired loans be measured based on the present value of expected future cash
flows discounted at the effective interest rate of the loan, observable market
price, or the fair value of the collateral, if the loan is collateral dependent.
The bank will be required to implement this statement for the year ending
December 31, 1995. In October 1994, SFAS No. 114 was amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan Income Recognition and
Disclosure". These pronouncements are effective for fiscal years beginning
after December 15, 1994. Adoption of Statement 114 and 118 is not expected to
have a material adverse impact on the bank's financial statements.
In May 1993, FASB issued SFAS No. 115, "Accounting for Certain Investment in
Debt and Equity Securities" (Statement 115). Statement 115 is effective for
financial statements issued for fiscal years beginning after December 15, 1993.
The new statement requires the classification of securities into three
categories: held-to-maturity, available-for-sale, or trading. Debt securities
classified as held-to-maturity are measured at amortized cost only if the
reporting enterprise has the positive intent and ability to hold those
securities to maturity. Securities that are bought and held principally for the
purpose of selling them in the near term shall be classified as trading
securities and reported at fair market value. Unrealized holding gains and
losses shall be included in earnings. Investments not classified as trading
securities or held-to-maturity securities shall be classified as available-for-
sale and reported at fair market value. Securities that would be sold in
response to (1) changes in market interest rates and securities' prepayment
risk, (2) needs for liquidity or (3) changes in the availability and yield on
alternative investments are classified as available-for-sale. Unrealized
holding gains and losses shall be excluded from earnings and reported as a net
amount in a separate component of stockholders' equity (net of deferred taxes)
until realized. Statement 115 was adopted as of January 1, 1994 and, in
accordance with Statement 115, was not applied retroactively. The adoption of
Statement 115 has not had a material impact on the bank's financial statements.
49
<PAGE>
The First National Bank of Bay City
Selected Statistical Disclosure
Daily Average Balance Sheet and Related Yields and Rates
(Amounts in Thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------- ---------------------------- ----------------------------
Interest Interest Interest
Balance Interest Yield Balance Interest Yield Balance Interest Yield
---------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Funds Sold $ 5,681 $ 168 2.96% $ 8,160 $ 281 3.44% $ 11,691 $ 571 5.74%
Investments:
Taxable Securities 120,355 8,379 6.96% 129,391 10,261 7.93% 122,161 10,275 8.41%
Nontaxable Securities 6,901 410 9.00% 8,596 552 9.73% 7,640 542 10.75%
-------- ------- -------- ------- -------- -------
Total Securities 127,256 8,789 137,987 10,813 129,801 10,817
Loans:
Commercial & R/E 14,567 1,163 7.98% 14,553 1,243 8.55% 13,571 1,400 10.34%
Consumer 4,525 453 10.01% 4,527 491 10.85% 4,602 561 12.19%
-------- ------- -------- ------- -------- -------
Total Loans 19,092 1,616 8.46% 19,080 1,734 9.09% 18,173 1,961 10.79%
Allowance for Loan Losses (618) (941) (1,005)
-------- -------- --------
Net Loans 18,474 18,139 17,168
-------- ------- -------- ------- -------- -------
Total Earning Assets 151,411 10,573 7.12% 154,286 12,828 7.98% 158,660 13,449 8.65%
Cash and Due From Banks 5,818 5,460 5,558
Other Assets 5,316 4,060 3,592
-------- -------- --------
Total Assets $162,545 $173,806 $167,810
======== ======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Deposits:
Noninterest bearing $ 22,156 $ 0 $ 21,651 $ 0 $ 20,318 $ 0
Interest Bearing-
Savings, NOW's & MMA's 57,693 1,242 2.15% 54,508 1,709 3.14% 47,150 2,367 5.02%
Time accounts under $100,000 28,086 962 3.43% 29,089 1,324 4.55% 30,079 1,934 6.43%
Time accounts over $100,000 27,858 957 3.44% 30,110 1,361 4.52% 34,933 2,263 8.49%
-------- ------- -------- ------- -------- -------
Total Interest Bearing Deposits 113,537 3,161 2.78% 113,707 4,394 3.86% 112,162 6,564 5.85%
Funds Purchased 611 20 3.27% 0 0 0.00% 0 0 0.00%
-------- ------- -------- ------- -------- -------
Total Interest-bearing Liabilities $114,248 $ 3,181 2.78% $113,707 $ 4,394 3.86% $112,162 $ 6,564 5.85%
Other Liabilities 2,870 1,077 1,231
Stockholder's Equity 23,271 37,361 34,099
-------- -------- --------
Total Liabilities &
Stockholder's Equity $162,545 $173,806 $167,810
======== ======== ========
Net Interest Income $ 7,392 $ 8,434 $ 6,885
Net Interest Spread 4.34% 4.12% 2.80%
Net Interest Income to earning assets 5.02% 5.31% 4.52%
</TABLE>
50
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
SELECTED STATISTICAL DISCLOSURE
CHANGES IN RATE AND VOLUME ON A TAX-EQUIVALENT BASIS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------
1993 Compared with 1992 1992 Compared With 1991
--------------------------------- ---------------------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN:
Interest income--
Loans $ 1.1 (119.1) (118.0) 97.9 (324.9) (227.0)
Investment securities (840.9) (1,183.1) (2,024.0) 682.2 (686.2) (4.0)
Federal funds sold (85.4) (27.6) (113.0) (202.7) (187.3) (390.0)
------- -------- -------- ------ -------- --------
Total (925.2) (1,329.8) (2,255.0) 577.4 (1,198.4) (621.0)
------- -------- -------- ------ -------- --------
Interest expense--
Deposits (2.7) (1,230.3) (1,233.0) 90.4 (2,260.4) (2,170.0)
Federal funds purchased - 20.0 20.0 - - -
------- -------- -------- ------ -------- --------
Total (2.7) (1,210.3) (1,213.0) 90.4 (2,260.4) (2,170.0)
------- -------- -------- ------ -------- --------
INCREASE (DECREASE) IN
NET INTEREST INCOME $(922.5) (119.5) (1,042.0) 487.0 1,062.0 1,549.0
======= ======== ======== ====== ======== ========
</TABLE>
This table shows the components of the change in net interest income by volume
and rate on a taxable-equivalent basis. The effect of changes in rates on volume
changes is allocated based on the percentage relationship of changes in volume
and changes in rate. This table does not take into account the level of
noninterest-bearing funding nor does it fully reflect changes in the mix of
assets and liabilities.
51
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
SELECTED STATISTICAL DISCLOSURE
LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
================================================ ============================================
Maturing Maturing
Maturing After One Maturing After One
in One Year Maturing in One Year Maturing
Year or Through After Five Year or Through After Five
Less Five Years Years Total Less Five Years Years Total
======== =========== ========== ======= ======== =========== ========== =======
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial / Real Estate $8,452 $5,285 $1,150 $14,887 $8,018 $4,468 $746 $13,232
Consumer 1,392 3,676 18 5,086 1,579 4,772 7 6,358
Other 0 0 0 0 0 0 0 0
-------- ----------- ---------- ------- -------- ----------- ---------- -------
$9,844 $8,961 $1,168 $19,973 $9,597 $9,240 $753 $19,590
======== =========== ========== ======= ======== =========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Due in Due After Due in Due After
One Year One Year Total One Year One Year Total
--------- ---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Loans at fixed interest rates $7,081 $8,433 $15,514 $5,820 $7,887 $13,707
Loans at variable interest rates 2,763 1,696 4,459 3,778 2,107 5,885
--------- ---------- ---------- --------- ---------- ---------
$9,844 $10,129 $19,973 $9,598 $9,994 $19,592
========= ========== ========== ========= ========== =========
</TABLE>
52
<PAGE>
The First National Bank of Bay City
Selected Statistical Disclosure
Nonperforming Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31
------------------
1993 1992
------ ------
<S> <C> <C>
Nonperforming Loans:
Nonaccrual loans $ 82 $ 112
Restructured loans 109 139
------ ------
Total nonperforming loans 191 251
Other real estate owned, net 0 18
------ ------
Total nonperforming assets 191 269
Loans past due 90 days or more 13 0
Allowance for loan losses (341) (913)
Ratio of total nonperforming assets to total assets 0.12% 0.15%
Ratio of total nonperforming loans to total gross loans 0.96% 1.28%
Ratio of allowance for loan losses to total nonperforming loans 178.53% 363.75%
</TABLE>
53
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, Norwest is subject to supervision and
examination by the Federal Reserve Board. Norwest's banking subsidiaries are
subject to supervision and examination by applicable federal and state banking
agencies. The deposits of Norwest's banking subsidiaries are insured by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC"), and
therefore such banking subsidiaries are subject to regulation by the FDIC. In
addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
DIVIDEND RESTRICTIONS
Various federal and state statutes and regulations limit the amount of
dividends the subsidiary banks can pay to Norwest without regulatory approval.
The approval of the OCC is required for any dividend by a national bank if the
total of all dividends declared by the bank in any calendar year would exceed
the total of its net profits, as defined by regulation, for that year combined
with its retained net profits for the preceding two years less any required
transfers to surplus or a fund for the retirement of any preferred stock. In
addition, a national bank may not pay a dividend in an amount greater than its
net profits then on hand after deducting its losses and bad debts. For this
purpose, bad debts are defined to include, generally, loans which have matured
and are in arrears with respect to interest by six months or more, other than
such loans which are well secured and in the process of collection. Under
these provisions Norwest's national bank subsidiaries could have declared, as
of September 30, 1994, aggregate dividends of at least $433.8 million without
obtaining prior regulatory approval and without reducing the capital of the
banks below their respective minimum levels. Norwest also has several state
bank subsidiaries that are subject to state regulations limiting dividends;
however, the amount of dividends payable by Norwest's state bank subsidiaries,
with or without state regulatory approval, would represent an immaterial
contribution to Norwest's revenues.
If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice
and hearing, that such bank cease and desist from such practice. The Federal
Reserve Board, the OCC, and the FDIC have issued policy statements which
provide that FDIC-insured banks and bank holding companies should generally
pay dividends only out of current operating earnings.
HOLDING COMPANY STRUCTURE
Norwest is a legal entity separate and distinct from its banking and
nonbanking subsidiaries. Accordingly, the right of Norwest, and thus the
rights of Norwest's creditors, to participate in any distribution of the
assets or earnings of any subsidiary is necessarily subject to the prior
claims of creditors of such subsidiary, except to the extent that claims of
Norwest in its capacity as a creditor may be recognized. The principal
sources of Norwest's revenues are dividends and fees from its subsidiaries.
Norwest's banking subsidiaries are subject to restrictions under federal
law which limit the transfer of funds by the subsidiary banks to Norwest and
its nonbanking subsidiaries,
54
<PAGE>
whether in the form of loans, extensions of credit, investments, or asset
purchases. Such transfers by any subsidiary bank to Norwest or any nonbanking
subsidiary are limited in amount to 10% of the bank's capital and surplus and,
with respect to Norwest and all such nonbanking subsidiaries, to an aggregate
of 20% of such bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. This support may be required at times when Norwest may not
have the resources to provide it. Any capital loans by Norwest to any of the
subsidiary banks are subordinate in right of payment to deposits and to
certain other indebtedness of such subsidiary bank. In addition, the Crime
Control Act of 1990 provides that in the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC after
August 9, 1989, in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the
FDIC to a commonly controlled FDIC-insured depository institution in danger of
default. "Default" is defined generally as the appointment of a conservator
or receiver and "in danger of default" is defined generally as the existence
of certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance.
Federal law (12 U.S.C. (S)55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any
such pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. Similarly,
the laws of certain states provide for such assessment and sale with respect
to banks chartered by such states. Norwest, as the sole shareholder of
certain of its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as stand-by letters of
credit) is 8%. At least half of the total capital is to be comprised of
common stock, minority interests, and noncumulative perpetual preferred stock
("Tier 1 capital"). The remainder ("Tier 2 capital") may consist of hybrid
capital instruments, perpetual debt, mandatory convertible debt securities, a
limited amount of subordinated debt, other preferred stock, and a limited
amount of loan and lease loss reserves. In addition, the Federal Reserve
Board's final minimum "leverage ratio" (the ratio of Tier 1 capital to
quarterly average total assets) guidelines for bank holding companies provide
for a minimum leverage ratio of 3% for bank holding companies that meet
certain specified criteria, including that they have the highest regulatory
rating. All other bank holding companies are required to maintain a leverage
ratio of 3% plus an additional cushion of 100 to 200 basis points. The
guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above
55
<PAGE>
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,
1994, Norwest's Tier 1 and total capital (the sum of Tier 1 and Tier 2
capital) to risk-adjusted assets ratios were 9.96% and 12.34%, respectively,
and Norwest's leverage ratio for the quarter ended September 30, 1994, was
6.87%. Neither Norwest nor any subsidiary bank has been advised by the
appropriate federal regulatory agency of any specific leverage ratio
applicable to it.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised
the bank regulatory and funding provisions of the Federal Deposit Insurance
Act and makes revisions to several other federal banking statutes. Among
other things, FDICIA requires the federal banking regulators to take "prompt
corrective action" in respect of FDIC-insured depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
significantly undercapitalized," and "critically undercapitalized." Under
applicable regulations, an FDIC-insured depository institution is defined to
be well capitalized if it maintains a leverage ratio of at least 5%, a risk-
adjusted Tier 1 capital ratio of at least 6%, and a risk-adjusted total
capital ratio of at least 10%, and is not subject to a directive, order, or
written agreement to meet and maintain specific capital levels. An insured
depository institution is defined to be adequately capitalized if its meets
all of its minimum capital requirements as described above. An insured
depository institution will be considered undercapitalized if it fails to meet
any minimum required measure, significantly undercapitalized if it has a risk-
adjusted total capital ratio of less than 6%, risk-adjusted Tier 1 capital
ratio of less than 3%, or a leverage ratio of less than 3%, and critically
undercapitalized if it fails to maintain a level of tangible equity equal to
at least 2% of total assets. An insured depository institution may be deemed
to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subject to a wide range of limitations on operations and activities, including
growth limitations, and are required to submit a capital restoration plan.
The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository institution's
capital. In addition, for a capital restoration plan to be acceptable, the
depository institution's parent holding company must guarantee that the
institution will comply with such capital restoration plan. The aggregate
liability of the parent holding company is limited to the lesser of (i) an
amount equal to 5% of the depository institution's total assets at the time it
became undercapitalized and (ii) the amount which is necessary (or would have
been necessary) to bring the institution into compliance with all capital
standards applicable with respect to such institution as of the time it fails
to comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it were significantly undercapitalized.
56
<PAGE>
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the agency deems
appropriate. The FDIC, in consultation with the other federal banking
agencies, has adopted a final rule and guidelines with respect to external and
internal audit procedures and internal controls in order to implement those
provisions of FDICIA intended to facilitate the early identification of
problems in financial management of depository institutions. The FDIC has
also issued proposed rules prescribing standards relating to certain other of
the management and operational standards listed above. The full impact of
such rule and guidelines and proposed standards on Norwest cannot yet be
ascertained.
FDICIA also contains a variety of other provisions that may affect the
operations of Norwest, including new reporting requirements, revised
regulatory standards for real estate lending, "truth in savings" provisions,
and the requirement that a depository institution give 90 days' notice to
customers and regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA a bank cannot accept
brokered deposits (that is, deposits obtained through a person engaged in the
business of placing deposits with insured depository institutions or with
interest rates significantly higher than prevailing market rates) unless (i)
it is "well capitalized" or (ii) it is "adequately capitalized" and receives a
waiver from the FDIC. A bank is defined to be "adequately capitalized" if it
meets all of its minimum capital requirements. A bank that cannot receive
brokered deposits also cannot offer "pass-through" insurance on certain
employee benefit accounts, unless it provides certain notices to affected
depositors. In addition, a bank that is "adequately capitalized" and that has
not received a waiver from the FDIC may not pay an interest rate on any
deposits in excess of 75 basis points over certain prevailing market rates.
There are no such restrictions on a bank that is "well capitalized." At
September 30, 1994, all of Norwest's banking subsidiaries were well
capitalized and therefore were not subject to these restrictions.
FDIC INSURANCE
Effective January 1, 1993, the deposit insurance assessment rate for the
Bank Insurance Fund ("BIF") increased as part of the adoption by the FDIC of a
transitional risk-based assessment system. In June 1993, the FDIC published
final regulations making the transitional system permanent effective January
1, 1994, but left open the possibility that it may consider expanding the
range between the highest and lowest assessment rates at a later date. An
institution's risk category is based upon whether the institution is well
capitalized, adequately capitalized, or less than adequately capitalized.
Each insured depository institution is also to be assigned to one of the
following "supervisory subgroups": Subgroup A, B, or C. Subgroup A
institutions are financially sound institutions with few minor weaknesses;
Subgroup B institutions are institutions that demonstrate weaknesses which, if
not corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability
that the FDIC will suffer a loss in connection with the institution unless
57
<PAGE>
effective action is taken to correct the areas of weakness. Based on its
capital and supervisory subgroups, each BIF member institution will be
assigned an annual FDIC assessment rate ranging from 0.23% per annum (for well
capitalized Subgroup A institutions) to 0.31% (for undercapitalized Subgroup C
institutions). Adequately capitalized institutions will be assigned
assessment rates ranging from 0.26% to 0.30%. Norwest incurred $72.4 million
of FDIC insurance expense in 1993.
58
<PAGE>
EXPERTS
The consolidated financial statements of Norwest Corporation and
subsidiaries as of December 31, 1993 and 1992, and for each of the years in
the three-year period ended December 31, 1993, incorporated by reference
herein, have been incorporated herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by
reference herein and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of The First National Bank of Bay City as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, have been included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, 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 Consolidation Agreement,
will be validly issued and fully paid and nonassessable, has been rendered by
Stanley S. Stroup, Executive Vice President and General Counsel of Norwest.
At September 30, 1994, Mr. Stroup was the beneficial owner of approximately
107,193 shares and held options to acquire 207,410 additional shares of
Norwest Common Stock.
MANAGEMENT OF NORWEST AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and
related transactions, and other related matters concerning Norwest is included
or incorporated by reference in its Annual Report on Form 10-K for the year
ended December 31, 1993, as amended by Form 10-K/A dated May 13, 1994, which
are incorporated in this Proxy Statement-Prospectus by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of the Bank
desiring copies of such documents may contact Norwest at its address or phone
number indicated under "AVAILABLE INFORMATION" above.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
THE FIRST NATIONAL BANK OF BAY CITY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Interim Periods:
Unaudited Balance Sheets as of September 30, 1994 and 1993 F-2
Unaudited Statements of Earnings for the Nine Months Ended F-3
September 30, 1994 and 1993
Statements of Changes in Stockholders' Equity for the F-4
Periods Ended September 30, 1994, (unaudited) and December 31,
1993 and 1992
Unaudited Statements of Cash Flows for the Nine Months Ended F-5
September 30, 1994 and 1993
Notes to Unaudited Financial Statements F-6
Full Fiscal Years (audited):
Independent Auditors' Report F-8
Balance Sheets as of December 31, 1993 and 1992 F-9
Statements of Earnings for Years Ended December 31, 1993 and 1992 F-10
Statements of Changes in Stockholders' Equity for the Years Ended F-11
December 31, 1993 and 1992
Statements of Cash Flows for the Years Ended December 31, F-12
1993 and 1992
Notes to Financial Statements for 1993 and 1992 F-13
Independent Auditors' Report for 1992 and 1991 F-23
Balance Sheets as of December 31, 1992 and 1991 F-24
Statements of Earnings for Years Ended December 31, 1992 and 1991 F-25
Statements of Changes in Stockholders' Equity for the Years Ended F-26
December 31, 1992 and 1991
Statements of Cash Flows for the Years Ended December 31, F-27
1992 and 1991
Notes to Financial Statements for 1992 and 1991 F-28
</TABLE>
F-1
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Unaudited Balance Sheets
<TABLE>
<CAPTION>
As of
September 30
1994 1993
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 7,327,068 $ 5,850,250
Federal Funds Sold & FHLB deposits 849,148 3,562,945
------------ ------------
Cash and cash equivalents 8,176,216 9,413,195
Investment Securities held to maturity 115,865,947 120,027,395
Investment Securities available for sale 4,976,200 0
------------ ------------
Total Investment Securities 120,842,147 120,027,395
Loans, net of unearned interest 21,951,624 18,604,619
Less: Allowance for Loan Losses (303,007) (341,302)
------------ ------------
Loans, net 21,648,617 18,263,317
Premises and Equipment, net 2,978,599 3,263,061
Accrued Interest Receivable 1,277,099 1,571,755
Other Assets 868,440 681,719
------------ ------------
Total Assets $155,791,117 $153,220,442
============ ============
LIABILITIES
- -----------
Deposits
Noninterest-bearing $ 21,379,528 $ 23,174,623
Interest-bearing 101,454,495 109,914,022
------------ ------------
Total deposits 122,834,023 133,088,645
Funds Purchased 13,000,000 0
Accrued Interest Payable 312,598 361,676
Current Federal Income Taxes (7,379) 9,000
Deferred Federal Income Taxes 337,444 151,422
Other Liabilities 114,421 325,397
------------ ------------
Total Liabilities $136,591,106 $133,936,140
EQUITY CAPITAL ACCOUNTS
- -----------------------
Common Stock
80,000 shares authorized, issued and
outstanding, par value $25 $ 2,000,000 $ 2,000,000
Surplus 2,000,000 2,000,000
Undivided Profits 12,730,878 12,784,302
Reserve for Contingencies 2,500,000 2,500,000
Unrealized Gain (Loss) on Securities AFS (30,867) 0
------------ ------------
Total Equity Capital 19,200,011 19,284,302
------------ ------------
Total Liabilities and Equity Capital $155,791,117 $153,220,442
============ ============
</TABLE>
F-2
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Unaudited Statement of Earnings
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30
1994 1993
---- ----
<S> <C> <C>
Interest Income:
Loans, including fees $1,318,612 $1,217,021
Investment securities:
Taxable 5,241,120 6,453,978
Tax-exempt 398,884 318,519
Federal funds sold and other 27,024 142,604
---------- ----------
Total Interest Income 6,985,639 8,132,122
Interest Expense:
Savings, NOW's & MNDA's 812,347 963,201
Certificates of Deposit 1,317,819 1,454,591
Funds Purchased 247,224 9,872
---------- ----------
Total Interest Expense 2,377,390 2,427,664
---------- ----------
Net Interest Income 4,608,249 5,704,457
Provision for Loan Losses (note 2) 0 (587,000)
---------- ----------
Net Interest Income after
provision for loan losses 4,608,249 6,291,457
---------- ----------
Noninterest Income:
Service charges on deposit accounts 844,907 774,081
Trust Fees 40,500 38,000
Other 104,720 75,885
---------- ----------
Total Noninterest Income 990,127 887,966
Noninterest Expense:
Salaries and employee benefits 1,591,341 1,592,259
Occupancy 273,197 260,158
FDIC Assessments 221,672 225,811
Equipment 182,955 201,205
Data processing 133,522 161,638
Other operating 502,874 584,649
---------- ----------
Total noninterest expense 2,905,560 3,025,720
---------- ----------
Earnings before income tax 2,692,816 4,153,704
Income tax expense 764,608 1,309,848
---------- ----------
Net Earnings $1,928,208 $2,843,856
========== ==========
</TABLE>
F-3
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Unaudited Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1994 1993
---- ----
<S> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net Earnings 1,928,208 2,843,856
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 211,500 227,000
Reduction of allowance for loan losses 0 (587,000)
Deferred federal income tax expense (14,141) (24,151)
Increase in federal income tax receivable 136,848 0
Increase in other assets (294,797) (122,980)
Decrease in accrued interest receivable 421,738 414,904
Decrease in accrued interest payable 14,249 11,543
Decrease in other liabilities 31,670 202,478
Decrease in current federal income taxes 0 (65,421)
Net accretion of discount on investment securities (40,812) (13,129)
Loss (gain) on sale of other real estate owned (29,134) (1,065)
----------- -----------
Net cash provided by operating activities 2,365,328 2,886,036
Cash flows from investing activities:
Proceeds from maturities or principal repayments of
investment securities 34,791,532 47,037,872
Purchase of investment securities (29,441,394) (31,938,301)
Net Increase in loans (2,330,122) 632,173
Recoveries on loans charged off 11,641 19,256
Purchases and construction of premises and equipment (115,153) (717,819)
Net proceeds from sales of other real estate owned 30,834 17,655
----------- -----------
Net cash provided by (used in) investing activities 2,947,338 15,050,837
Cash flows from financing activities:
Federal Funds Purchased 13,000,000 0
Dividends paid (2,612,000) (23,085,600)
Net increase (decrease) in deposits (14,642,771) (1,915,585)
----------- -----------
Net cash provided by (used in) financing activities (4,254,771) (25,001,185)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,057,896 (7,064,313)
Cash and cash equivalents at beginning of year 7,118,321 16,477,509
----------- -----------
Cash and cash equivalents at September 30th 8,176,217 9,413,196
=========== ===========
Supplemental schedule of cash flows:
Interest paid 2,115,917 2,406,248
Income taxes paid 626,000 1,325,000
=========== ===========
</TABLE>
F-4
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Statements of Changes in Stockholder's Equity
Periods ended September 30, 1994 and December 31, 1993 and 1992
<TABLE>
<CAPTION>
Unrealized Total
Common Undivided Gain (Loss) on Stockholder's
Stock Surplus Profits Securities AFS Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $2,000,000 $2,000,000 $ 31,683,413 $ 0 $ 35,688,413
Net earnings for 1992 3,937,633 3,937,633
Cash dividend paid (100,000) (100,000)
($1.25 per share)
---------- ---------- ------------ -------- ------------
Balance, December 31, 1992 2,000,000 2,000,000 35,526,046 0 39,526,046
Net earnings for 1993 3,474,224 3,474,224
Cash dividends paid (23,085,600) (23,085,600)
($288.57 per share)(note 3)
---------- ---------- ------------ -------- ------------
Balance, December 31, 1993 2,000,000 2,000,000 15,914,670 0 19,914,670
Net earnings ytd, Sept. 30, 1994 1,928,208 1,928,208
Cash dividends paid (2,612,000) (2,612,000)
($32.65 per share)(note 3)
Introduction of FASB 115(note 4) (30,867) (30,867)
---------- ---------- ------------ -------- ------------
Balance, September 30, 1994 $2,000,000 $2,000,000 $ 15,230,878 ($30,867) $ 19,200,011
(unaudited) ========== ========== ============ ======== ============
</TABLE>
F-5
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Notes to Unaudited Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial information may not contain
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, the information furnished reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods. All such adjustments were
of a normal and recurring nature.
Note 2 - Provision for Loan Losses
During 1993, the Bank's primary regulator directed that the Bank's allowance for
loan losses be reduced by $587,000. Management believes that the allowance for
loan losses is adequate based on management's evaluation of the loan portfolio
and other factors.
Note 3 - Common Stock
In March 1993, the Board of Directors approved cash dividends of $288.57 per
share for a total dividend of $23,085,600.
In January 1994, the Board of Directors approved cash dividends of $20.15 per
share for a total dividend of $1,612,000.
In July 1994, the Board of Directors approved cash dividends of $12.50 per share
for a total dividend of $1,000,000.
Note 4 - Accounting Issues
In May 1993, FASB issued SFAS No. 115, "Accounting for Certain Investment in
Debt and Equity Securities" (Statement 115). Statement 115 is effective for
financial statements issued for fiscal years beginning after December 15, 1993.
The new statement requires the classification of securities into three
categories: held-to-maturity, available-for-sale, or trading. Debt securities
classified as held-to-maturity are measured at amortized cost only if the
reporting enterprise has the positive intent and ability to hold those
securities to maturity. Securities that are bought and held principally for the
purpose of selling them in the near term shall be classified
F-6
<PAGE>
as trading securities and reported at fair market value. Unrealized holding
gains and losses shall be included in earnings. Investments not classified as
trading securities or held-to-maturity securities shall be classified as
available-for-sale and reported at fair market value. Securities that would be
sold in response to (1) changes in market interest rates and securities'
prepayment risk, (2) needs for liquidity or (3) changes in the availability and
yield on alternative investments are classified as available-for-sale.
Unrealized holding gains and losses shall be excluded from earnings and reported
as a net amount in a separate component of stockholders' equity (net of deferred
taxes) until realized.
Statement 115 was adopted as of January 1, 1994 and, in accordance with
Statement 115, was not applied retroactively. The adoption of Statement 115 has
not had a material impact on the bank's financial statements.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", which addresses the accounting by creditors for
impairment of certain loans, as defined. In October 1994, SFAS No. 114 was
amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosure". These pronouncements are effective for fiscal
years beginning after December 15, 1994. The bank will be required to implement
SFAS No. 114 for the year ending December 31, 1995. Implementation of this
pronouncement should have no material adverse effect on the bank's financial
statements.
F-7
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
The First National Bank of Bay City:
We have audited the accompanying balance sheets of The First National Bank of
Bay City as of December 31, 1993 and 1992 and the related statements of
earnings, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First National Bank of Bay
City at December 31, 1993 and 1992 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
As discussed in notes 1 and 7 to the financial statements, the Bank changed its
method of accounting for income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's Statement 109, "Accounting for Income
Taxes."
March 18, 1994
F-8
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Balance Sheets
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992
------ ---- ----
<S> <C> <C>
Cash and due from banks, including interest-bearing
deposits (note 2) $ 7,118,321 8,352,509
Federal funds sold - 8,125,000
------------ ------------
Cash and cash equivalents 7,118,321 16,477,509
Investment securities (note 3) 126,182,339 135,113,836
Loans, net of unearned discount 19,671,237 19,241,186
Less allowance for loan losses 341,101 913,440
------------ ------------
Net loans (note 4) 19,330,136 18,327,746
Premises and equipment, net of accumulated
depreciation (note 5) 3,074,946 2,772,242
Accrued interest receivable 1,698,836 1,986,660
Federal income tax refundable 144,227 -
Other assets (note 8) 575,343 575,329
------------ ------------
$158,124,148 175,253,322
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing 23,372,883 20,410,498
Interest-bearing (note 6) 114,103,911 114,593,733
------------ ------------
Total deposits 137,476,794 135,004,231
Accrued interest payable 298,348 350,132
Current federal income taxes - 74,421
Deferred federal income taxes 351,585 175,573
Other liabilities 82,751 122,919
------------ ------------
Total liabilities 138,209,478 135,727,276
------------ ------------
Stockholders' equity (note 10):
Common stock, par value $25. Authorized,
issued and outstanding 80,000 shares 2,000,000 2,000,000
Surplus 2,000,000 2,000,000
Undivided profits 15,914,670 35,526,046
------------ ------------
Total stockholders' equity 19,914,670 39,526,046
Commitments and contingencies (notes 4, 8 and 11)
------------ ------------
$158,124,148 175,253,322
============ ============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Statements of Earnings
Years ended December 31, 1993 and 1992
1993 1992
---- ----
Interest income:
Loans, including fees (note 4) $ 1,616,863 1,732,960
Investment securities:
Taxable 8,378,073 10,261,310
Tax-exempt 409,942 552,462
Federal funds sold and other 167,947 280,568
---------- ----------
Total interest income 10,572,825 12,827,300
Interest expense on deposits (note 6) 3,180,943 4,394,217
---------- ----------
Net interest income 7,391,882 8,433,083
Reduction of allowance for loan losses
(note 4) (587,000) --
---------- ----------
Net interest income after reduction
of allowance for loan losses 7,978,882 8,433,083
---------- ----------
Noninterest income:
Service charges on deposit accounts 1,087,535 1,067,223
Trust fees 59,734 55,284
Other (note 8) 120,960 242,131
---------- ----------
Total noninterest income 1,268,229 1,364,638
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,238,280 2,391,239
Occupancy 395,793 280,772
Federal insurance premiums 301,111 293,657
Equipment 267,442 224,160
Data processing 208,677 196,534
Other operating 769,800 708,432
---------- ----------
Total noninterest expense 4,181,103 4,094,794
---------- ----------
Earnings before income tax expense 5,066,008 5,702,927
Income tax expense (note 7) 1,591,784 1,765,294
---------- ----------
Net earnings $ 3,474,224 3,937,633
=========== ==========
See accompanying notes to financial statements.
F-10
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Statements of Changes in Stockholders' Equity
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
Total
Common Undivided stockholders'
stock Surplus profits equity
----- ------- ------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 $2,000,000 2,000,000 31,688,413 35,688,413
Net earnings for 1992 -- -- 3,937,633 3,937,633
Cash dividends paid
($1.25 per share) -- -- (100,000) (100,000)
--------- --------- ---------- ----------
Balance, December 31, 1992 $2,000,000 2,000,000 35,526,046 39,526,046
Net earnings for 1993 -- -- 3,474,224 3,474,224
Cash dividends paid
($288.57 per share)
(note 10) -- -- (23,085,600) (23,085,600)
--------- --------- ---------- ----------
Balance, December 31, 1993 2,000,000 2,000,000 15,914,670 19,914,670
========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Statements of Cash Flows
Years ended December 31, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,474,224 3,937,633
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 305,326 223,666
Reduction of allowance for loan losses (587,000) --
Deferred federal income tax expense 176,012 45,348
Increase in federal income tax receivable (144,227) --
Increase in other assets (16,604) (121,190)
Decrease in accrued interest receivable 287,824 206,443
Decrease in accrued interest payable (51,784) (326,657)
Decrease in other liabilities (40,168) (27,018)
Decrease in current federal income taxes (74,421) (34,011)
Net accretion of discount on investment securities (75,540) (65,711)
Loss (gain) on sale of other real estate owned (1,065) 4,859
------------ ------------
Net cash provided by operating activities 3,252,577 3,843,362
------------ ------------
Cash flows from investing activities:
Proceeds from maturities or principal repayments of
investment securities 58,421,588 41,277,064
Purchase of investment securities (49,414,551) (39,917,944)
Net increase in loans (436,634) (711,517)
Recoveries on loans charged off 21,244 36,206
Purchases and construction of premises and equipment (608,030) (1,895,451)
Net proceeds from sales of other real estate owned 17,655 101,376
------------ ------------
Net cash provided by (used in) investing activities 8,001,272 (1,110,266)
------------ ------------
Cash flows from financing activities:
Dividends paid (23,085,600) (100,000)
Net increase in deposits 2,472,563 270,212
------------ ------------
Net cash provided by (used in) financing activities (20,613,037) 170,212
------------ ------------
Net increase (decrease) in cash and cash equivalents (9,359,188) 2,903,308
Cash and cash equivalents at beginning of year 16,477,509 13,574,201
------------ ------------
Cash and cash equivalents at end of year $ 7,118,321 16,477,509
============ ============
Supplemental schedule of cash flows:
Interest paid $ 3,233,000 4,721,000
Income taxes paid 1,634,000 1,754,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
December 31, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of The First National Bank of Bay
City (the Bank) conform to generally accepted accounting principles and
to general practices within the banking industry. The following is a
description of the more significant of these policies.
INVESTMENT SECURITIES
Investment securities are recorded at cost, adjusted for amortization of
premiums and accretion of discounts. Premiums and discounts on
investment securities are amortized or accreted as a yield adjustment
over the life of the securities using the interest method with the
amortization or accretion effect of prepayments related to mortgage-
backed securities being adjusted as prepayments are received. Gains and
losses on the sale of investment securities are recognized on realization
using the specific identification method. Temporary changes in the
market values of the investment securities are not recognized as the Bank
expects to hold these securities to maturity.
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115 (Statement 115),
"Accounting for Certain Investments in Debt and Equity Securities." This
statement provides for the use of the amortized cost method for
investments in debt securities when management has the positive intent
and ability to hold such securities to maturity. Investments in debt
securities that are not expected to be held to maturity and equity
securities that have readily determinable fair values are to be
classified as trading or available for sale and measured at fair value in
the statement of financial position. Unrealized gains and losses on
securities classified as trading securities are to be included in the
statement of operations. Unrealized gains and losses on securities
classified as available for sale are to be reported as a separate
component of stockholders' equity. The statement is effective for fiscal
years beginning after December 15, 1993. Statement 115 was adopted by
the Bank on January 1, 1994. The adoption of Statement 115 did not have
a material effect on the financial statements of the Bank.
LOANS
Unearned interest on loans is recognized as income over the terms of the
related loans using the interest method. Interest on other loans is
accrued using applicable interest rates on the daily balances of
outstanding principal.
Management continually reviews the loan portfolio to identify loans
which, with respect to principal or interest, have or may become
collection problems. When a loan, in management's judgment, becomes
doubtful as to the collection of accrued interest income, it is placed on
a nonaccrual status. Interest payments received on nonaccrual loans are
recognized as income on a cash basis.
(Continued)
F-13
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
ALLOWANCE FOR LOAN LOSSES
A provision for loan losses or a reduction of the allowance for loan losses
is charged (credited) to income as deemed necessary by management to
maintain the allowance for loan losses at an amount considered adequate to
absorb known or possible loan losses in the portfolio. The provision or
reduction of the allowance is determined based on management's evaluation
of the loan portfolio, giving consideration to existing economic
conditions, changes in the loan portfolio, historical loan loss factors and
other relevant information. Management believes that the allowance for
loan losses is adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance or reduce the
allowance based on their judgments about information available to them at
the time of their examination.
Loans are charged against the allowance for loan losses when management
believes the collection of principal is unlikely. Recoveries of amounts
previously charged off are credited to the allowance.
PREMISES AND EQUIPMENT
Premises and equipment are recorded at cost, net of accumulated
depreciation. Expenditures for improvements which extend the service lives
of the assets are capitalized. Repairs and maintenance are charged to
expense as incurred. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Any gain or loss
resulting from disposition of equipment is reflected in earnings.
Other Real Estate Owned
Other real estate owned is recorded at the lower of cost (loan balance plus
accrued interest receivable) or fair value less estimated selling costs at
the date of foreclosure. Fair value is determined by reference to
independent third-party appraisals. Subsequently, fair value less
estimated selling costs is compared to recorded cost and write-downs are
recorded through a charge to expense, if required. Expenses incurred
relating to real estate owned are recognized during the period incurred.
Rental income is recognized in the period earned.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Bank adopted Statement 109 effective January 1, 1993. The effect of
the adoption of Statement 109 was not material.
(Continued)
F-14
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
Pursuant to the deferred method, which was applied in 1992 and prior years,
deferred income taxes were recognized for income and expense items that were
reported in different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes were not adjusted for subsequent
changes in tax rates.
PENSION PLAN
The Bank has a defined benefit pension plan covering substantially all
employees. The Bank makes annual contributions to the plan equal to the
minimum funding requirement under ERISA. Net periodic pension income and
costs are based on the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions."
TRUST ASSETS
Assets held by the trust department of the Bank in fiduciary or agency
capacities are not assets of the Bank and are not included in the balance
sheets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, including
interest-bearing deposits, and federal funds sold. Federal funds sold
generally have one-day maturities.
(2) CASH AND DUE FROM BANKS
The Bank is required to maintain daily reserve balances in accordance with
Federal Reserve Board requirements. The reserve balances maintained in
accordance with such requirements at December 31, 1993 and 1992 were
approximately $1,194,000 and $3,882,000, respectively.
(3) INVESTMENT SECURITIES
Carrying amounts and approximate market values of investment securities at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Carrying unrealized unrealized market
amount gains losses value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,506,122 84,190 -- 8,590,312
U.S. government agencies 57,530,365 1,382,422 (116,563) 58,796,224
Obligations of state and political
subdivisions 8,246,121 199,272 (60,134) 8,385,259
U.S. government agency
mortgage-backed securities 50,048,931 1,118,811 (131,902) 51,035,840
Other 1,850,800 20,000 -- 1,870,800
------------ --------- -------- -----------
$126,182,339 2,804,695 (308,599) 128,678,435
============ ========= ======== ===========
</TABLE>
(Continued)
F-15
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
Carrying amounts and approximate market values of investment securities at
December 31, 1992 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Carrying unrealized unrealized market
amount gains losses value
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,511,997 114,409 -- 8,626,406
U.S. government agencies 60,539,094 1,785,777 (40,072) 62,284,799
Obligations of state and political
subdivisions 7,971,539 189,711 (2,963) 8,158,287
U.S. government agency
mortgage-backed securities 54,270,240 2,146,973 (83,669) 56,333,544
Other 3,820,966 17,203 -- 3,838,169
------------- --------- -------- -----------
$ 135,113,836 4,254,073 (126,704) 139,241,205
============= ========= ======== ===========
</TABLE>
The carrying amount and approximate market value of investment securities at
December 31, 1993, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Carrying market
amount value
------------ -----------
<S> <C> <C>
Due in one year or less $ 22,657,759 22,951,201
Due after one year through five years 46,298,728 47,589,263
Due after five years through ten years 4,948,838 4,899,993
Due after ten years through twenty years 1,377,283 1,351,339
------------ -----------
75,282,608 76,791,796
Mortgage-backed securities and other 50,899,731 51,886,639
------------ -----------
$126,182,339 128,678,435
============ ===========
</TABLE>
Securities with a carrying value of approximately $9,230,000 and $14,610,000
at December 31, 1993 and 1992, respectively, were pledged to secure public
deposits.
(4) LOANS
Loans at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
----------- ----------
<S> <C> <C>
Commercial $ 6,582,710 6,137,871
Real estate 8,526,908 8,544,115
Installment 4,862,256 4,910,148
Other 86,073 47,623
----------- ----------
20,057,947 19,639,757
Less unearned discount 386,710 398,571
----------- ----------
$19,671,237 19,241,186
=========== ==========
</TABLE>
(Continued)
F-16
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
All loans to executive officers and directors and associates of such persons
are, in the opinion of management, made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans of like quality and risk of
collectibility. The outstanding balances of direct and indirect personal
borrowings of directors and executive officers as of December 31, 1993 and 1992
were approximately $342,000 and $398,000, respectively.
Loans on nonaccrual at December 31, 1993 and 1992 totaled approximately $82,000
and $112,000, respectively. The gross interest income that would have been
recorded in 1993 and 1992 had the nonaccrual loans at December 31, 1993 and 1992
been current in accordance with their original terms were approximately $9,000
and $16,000, respectively. There was no interest income actually recorded on
such loans in 1993, and approximately $2,000 was recorded on such loans in 1992.
The following table summarizes the activity in the allowance for loan losses for
the years ended December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
--------- -------
<S> <C> <C>
Balance at beginning of year $ 913,440 946,126
Reduction of allowance (587,000) --
Loans charged off (6,583) (68,892)
Recoveries 21,244 36,206
--------- -------
Balance at end of year $ 341,101 913,440
========= =======
</TABLE>
During 1993, the Bank's primary regulator directed that the Bank's allowance for
loan losses be reduced by $587,000. Management believes that the allowance for
loan losses is adequate based on management's evaluation of the loan portfolio
and other factors.
In the normal course of business, the Bank enters into various transactions
which, in accordance with generally accepted accounting principles, are not
included on the balance sheets. These transactions are referred to as "off-
balance sheet commitments." The Bank enters into these transactions to meet the
financing needs of its customers. These transactions include commitments to
extend credit and letters of credit which involve elements of credit risk in
excess of the amounts recognized in the balance sheets. The Bank minimizes its
exposure to loss under these commitments by subjecting them to credit approval
and monitoring procedures.
The Bank enters into contractual commitments to extend credit, with fixed
expiration dates or termination clauses, at specified rates and for specific
purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially all of the
Bank's commitments to extend credit are contingent upon customers maintaining
specific credit standards at the time of loan funding. Management assesses the
credit risk associated with all commitments to extend credit in determining the
level of the allowance for loan losses.
Letters of credit are written conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The Bank's policies
generally require that letters of credit arrangements contain security and debt
covenants similar to those contained in loan agreements.
(Continued)
F-17
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
Outstanding commitments and letters of credit at December 31, 1993 and 1992 are
approximately as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Commitments to extend credit $4,140,000 2,342,000
Letters of credit 470,000 163,000
========== =========
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment, at cost, and related accumulated depreciation at
December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
Estimated
useful life 1993 1992
------------ ---------- ---------
<S> <C> <C> <C>
Land -- $ 317,876 317,876
Bank premises 5 - 20 years 3,644,275 3,288,795
Furniture, fixtures and
equipment 5 - 20 years 1,492,939 1,313,755
============ ---------- ---------
5,455,090 4,920,426
Less accumulated depreciation 2,380,144 2,148,184
---------- ---------
$3,074,946 2,772,242
========== =========
</TABLE>
In October 1991, the Bank entered into a construction contract for the
expansion of the bank premises. In December 1992, the related assets were
placed into service as the construction was considered to be substantially
complete.
(6) INTEREST-BEARING DEPOSITS
Interest-bearing deposits at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Savings deposits $ 5,635,246 5,330,852
Money market accounts 30,033,204 26,856,806
NOW accounts 22,925,990 25,317,457
Certificates of deposit less than $100,000 27,388,444 28,298,666
Certificates of deposit of $100,000 or more 28,121,027 28,789,952
------------ -----------
$114,103,911 114,593,733
============ ===========
</TABLE>
Interest expense on certificates of deposit of $100,000 or more was
approximately $957,000 and $1,361,000 for the years ended December 31, 1993
and 1992, respectively.
(Continued)
F-18
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
(7) INCOME TAXES
As discussed in note 1, the Bank adopted Statement 109 as of January 1,
1993. The effect of the adoption of Statement 109 was not material. Prior
years' financial statements have not been restated to apply the provisions
of Statement 109. The components of federal income tax expense for the
years ended December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Current $1,415,772 1,719,946
Deferred 176,012 45,348
---------- ---------
$1,591,784 1,765,294
========== =========
</TABLE>
The income tax expense for the years ended December 31, 1993 and 1992 is
less than the amount computed by applying the federal income tax rate of 34%
to earnings before income tax expense. The reasons for these differences
are as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Computed "expected" tax $1,722,443 1,938,995
Increase (reduction) in taxes resulting from:
Tax-exempt interest (138,384) (186,414)
Other, net 7,725 12,713
---------- ---------
$1,591,784 1,765,294
========== =========
</TABLE>
Significant temporary differences that give rise to the deferred tax
liabilities as of December 31, 1993 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Loans, due to the allowance for loan losses $155,875
Bank premises and equipment, due to
depreciation 28,370
Net periodic pension income 169,100
Other (1,760)
--------
Deferred tax liability $351,585
========
</TABLE>
As reported in 1992, deferred federal income tax expense resulted from
timing differences in the recognition of revenue and expense items for
income tax and financial statement purposes. The sources of deferred income
taxes for the year ended December 31, 1992 and their tax effects are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Net periodic pension income $ 76,331
Depreciation expense (37,721)
Other, net 6,738
--------
$ 45,348
========
</TABLE>
(Continued)
F-19
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
(8) Pension Plan
The Bank has a defined benefit pension plan covering substantially all full-
time employees with one or more years of service. The benefits are based on
years of service and average compensation during the last five years of
employment. The general funding policy is to contribute annually the amount
deductible for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but also for
those expected to be earned in the future. No contributions were made in
1993 or 1992 due to the funded status of the plan.
The following table sets forth the plan's funded status and related amounts
that were recognized in the accompanying financial statements in 1993 and
1992:
<TABLE>
<CAPTION>
1993 1992
----------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations - accumulated
benefit obligations, including vested benefits
of $2,486,894 in 1993 and $2,474,759 in 1992 $ 2,501,239 2,503,563
=========== ==========
Plan assets at fair value 4,085,143 3,962,972
Projected benefit obligation for service rendered to date (3,235,105) (3,284,569)
----------- ----------
Plan assets in excess of projected benefit
obligation 850,038 678,403
Unrecognized net gain from past experience different
from that assumed 653,167 860,442
Unrecognized net transitional asset at transition date
being recognized over 15 years (1,005,851) (1,106,436)
----------- ----------
Prepaid pension cost $ 497,354 432,409
=========== ==========
Net pension costs for 1993 and 1992 included the
following components:
Service costs - benefits earned during the period 139,452 106,431
Interest cost on projected benefit obligation 221,095 204,151
Expected return on plan assets (570,638) (341,627)
Net amortization and deferral 145,146 (96,767)
----------- --------
Net periodic pension expense (income) $ (64,945) (127,812)
=========== ========
Assumptions used in accounting for the pension plan as of December 31, 1993
and 1992 were:
1993 1992
---- ----
Weighted average discount rates 6.75% 7.50%
Rates of increase in compensation levels 5.00 5.00
Expected long-term rate of return on assets 9.00 9.00
==== ====
</TABLE>
(Continued)
F-20
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (Statement 107), requires that the Bank
disclose estimated fair values for its financial instruments.
The fair values estimates, methods and assumptions used are set forth below
for the Bank's financial instruments:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
Carrying value Fair value Carrying value Fair value
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,118,321 7,118,321 16,477,509 16,477,509
Investment securities 126,182,339 128,678,435 135,113,836 139,241,205
Loans, net 19,330,136 19,350,000 18,327,746 18,350,000
Financial liabilities:
Deposits 137,476,794 137,673,000 135,004,231 135,305,000
Off-balance sheet instruments:
Commitments to extend
credit -- 4,140,000 -- 2,342,000
Letters of credit -- 470,000 -- 163,000
============== ========== ============== ==========
</TABLE>
CASH AND CASH EQUIVALENTS
Carrying value approximates fair value because of the short maturity of
these instruments and no anticipated credit concerns.
INVESTMENT SECURITIES
The fair values of investment securities are estimated based on quoted
market prices from investment dealers and companies. If a quoted market
price is not available, fair value is estimated using quoted market prices
for similar securities.
LOANS
The fair value of loans is estimated for segregated groupings of loans with
similar financial characteristics. Loans are segregated by type such as
commercial, real estate and consumer. The fair value of loans is estimated
using factors that reflect the credit and interest rate risk in these loans.
DEPOSITS
The fair value of deposits with short-term or no stated maturity, such as
checking, savings, NOW accounts and money market accounts, is equal to the
amounts payable as of December 31, 1993 and 1992. The fair value of
certificates of deposits is based on the discounted value of contractual
cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
(Continued)
F-21
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
COMMITMENTS TO EXTEND CREDIT
AND LETTERS OF CREDIT
The fair value of commitments to extend credit and letters of credit are
estimated using current interest rates and committed rates.
(10) STOCKHOLDERS' EQUITY
During 1993, the Board of Directors, after obtaining appropriate regulatory
approval, declared and paid dividends totaling $288.57 per share of common
stock outstanding.
On January 11, 1994, the Board of Directors declared a dividend of $20.15
per share of common stock outstanding for the stockholders of record on
that date. The dividends totaling $1,612,000 were paid on January 14,
1994.
(11) Contingencies
The Bank is involved in certain claims and litigation occurring in the
normal course of business. Management, after reviewing these claims and
litigation and on the advice of independent legal counsel, believes that
the resulting aggregate liability, if any, will not be material to the
financial position of the Bank.
F-22
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
The First National Bank of Bay City:
We have audited the accompanying balance sheets of The First National Bank of
Bay City as of December 31, 1992 and 1991 and the related statements of
earnings, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First National Bank of Bay
City at December 31, 1992 and 1991 and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
March 19, 1993
F-23
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Balance Sheets
December 31, 1992 and 1991
<TABLE>
<CAPTION>
Assets 1992 1991
------ ---- ----
<S> <C> <C>
Cash and due from banks, including interest-bearing
deposits (note 2) $ 8,352,509 6,124,201
Federal funds sold 8,125,000 7,450,000
------------ -----------
Cash and cash equivalents 16,477,509 13,574,201
Investment securities (note 3) 135,113,836 136,407,245
Loans, net of unearned discount 19,241,186 18,598,561
Less allowance for loan losses 913,440 946,126
------------ -----------
Net loans (note 4) 18,327,746 17,652,435
Premises and equipment, net of accumulated
depreciation (note 5) 2,772,242 1,100,457
Accrued interest receivable 1,986,660 2,193,103
Other assets (note 8) 575,329 560,374
------------ -----------
$175,253,322 171,487,815
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 20,410,498 18,690,857
Interest-bearing (note 6) 114,593,733 116,043,162
------------ -----------
Total deposits 135,004,231 134,734,019
Accrued interest payable 350,132 676,789
Current federal income taxes 74,421 108,432
Deferred federal income taxes 175,573 130,225
Other liabilities 122,919 149,937
------------ -----------
Total liabilities 135,727,276 135,799,402
------------ -----------
Stockholders' equity (note 10):
Common stock, par value $25. Authorized,
issued and outstanding 80,000 shares 2,000,000 2,000,000
Surplus 2,000,000 2,000,000
Undivided profits 35,526,046 31,688,413
------------ -----------
Total stockholders' equity 39,526,046 35,688,413
Commitments and contingencies (notes 4, 5, 8
and 11) ------------ -----------
$175,253,322 171,487,815
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Statements of Earnings
Years ended December 31, 1992 and 1991
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Interest income:
Loans, including fees (note 4) $ 1,732,960 1,961,605
Investment securities:
Taxable 10,261,310 10,223,084
Tax-exempt 552,462 541,724
Federal funds sold and other 280,568 671,469
---------- ----------
Total interest income 12,827,300 13,397,882
Interest expense on deposits (note 6) 4,394,217 6,563,882
---------- ----------
Net interest income 8,433,083 6,833,990
Provision for loan losses (note 4) -- --
---------- ----------
Net interest income after
provision for loan losses 8,433,083 6,833,990
---------- ----------
Noninterest income:
Service charges on deposit accounts 1,067,223 974,524
Trust fees 55,284 61,369
Other (note 8) 242,131 201,406
---------- ----------
Total noninterest income 1,364,638 1,237,299
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,391,239 2,146,775
Occupancy 280,772 249,980
Equipment 224,160 198,091
Data processing 196,534 181,179
Other operating 1,002,089 1,154,219
---------- ----------
Total noninterest expense 4,094,794 3,930,244
---------- ----------
Earnings before income tax expense 5,702,927 4,141,045
Income tax expense (note 7) 1,765,294 1,308,547
---------- ----------
Net earnings $ 3,937,633 2,832,498
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1992 and 1991
<TABLE>
<CAPTION>
Total
Common Undivided stockholders'
stock Surplus profits equity
----- ------- ------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1990 $2,000,000 2,000,000 28,955,915 32,955,915
Net earnings for 1991 -- -- 2,832,498 2,832,498
Cash dividends paid
($1.25 per share) -- -- (100,000) (100,000)
--------- --------- ---------- ----------
Balance, December 31, 1991 2,000,000 2,000,000 31,688,413 35,688,413
Net earnings for 1992 -- -- 3,937,633 3,937,633
Cash dividends paid
($1.25 per share) -- -- (100,000) (100,000)
---------- --------- ---------- ----------
Balance, December 31, 1992 $2,000,000 2,000,000 35,526,046 39,526,046
========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Statements of Cash Flows
Years ended December 31, 1992 and 1991
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 3,937,633 2,832,498
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 223,666 169,185
Deferred federal income tax expense 45,348 16,262
Write-down of other real estate owned -- 57,068
Increase in other assets (121,190) (75,254)
Decrease (increase) in accrued interest receivable 206,443 (34,144)
Decrease in accrued interest payable (326,657) (134,201)
Increase (decrease) in other liabilities (27,018) 92,952
Increase (decrease) in current federal income taxes payable (34,011) 44,126
Net accretion of discount on investment securities (65,711) (76,374)
Loss (gain) on sale of other real estate owned 4,859 (11,966)
----------- -----------
Total adjustments (94,271) 47,654
----------- -----------
Net cash provided by operating activities 3,843,362 2,880,152
----------- -----------
Cash flows from investing activities:
Proceeds from maturities or principal repayments of
investment securities 41,277,064 36,953,510
Purchase of investment securities (39,917,944) (57,262,733)
Net (increase) decrease in loans (711,517) 471,751
Recoveries on loans charged off 36,206 47,441
Purchases and construction of premises and equipment (1,895,451) (220,982)
Net proceeds from sales of other real estate owned 101,376 52,407
----------- -----------
Net cash used in investing activities (1,110,266) (19,958,606)
----------- -----------
Cash flows from financing activities:
Dividends paid (100,000) (100,000)
Net increase in deposits 270,212 6,268,958
----------- -----------
Net cash provided by financing activities 170,212 6,168,958
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,903,308 (10,909,496)
Cash and cash equivalents at beginning of year 13,574,201 24,483,697
----------- -----------
Cash and cash equivalents at end of year $16,477,509 13,574,201
=========== ===========
Supplemental schedule of cash flows:
Interest paid $ 4,721,000 6,698,000
Income taxes paid 1,754,000 1,157,000
=========== ===========
Supplemental schedule of noncash investing and
financing activities - foreclosure and repossession
of collateral in partial satisfaction of debt $ -- 21,900
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
December 31, 1992 and 1991
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of The First National Bank of Bay
City (the Bank) conform to generally accepted accounting principles and to
general practices within the banking industry. The following is a
description of the more significant of these policies.
INVESTMENT SECURITIES
Investment securities are recorded at cost, adjusted for amortization of
premiums and accretion of discounts. Premiums and discounts on investment
securities are amortized or accreted as a yield adjustment over the life of
the securities using the interest method with the amortization or accretion
effect of prepayments related to mortgage-backed securities being adjusted
as prepayments are received. Gains and losses on the sale of investment
securities are recognized on realization using the specific identification
method. Temporary changes in the market values of the investment
securities are not recognized as the Bank expects to hold these securities
to maturity.
LOANS
Unearned interest on loans is recognized as income over the terms of the
related loans on the interest method. Interest on other loans is accrued
using applicable interest rates on the daily balances of outstanding
principal.
Management continually reviews the loan portfolio to identify loans which,
with respect to principal or interest, have or may become collection
problems. When a loan, in management's judgment, becomes doubtful as to
the collection of accrued interest income, it is placed on a nonaccrual
status. Interest payments received on nonaccrual loans are recognized as
income on a cash basis.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
A provision for loan losses is charged to income as deemed necessary by
management to maintain the allowance for loan losses at an amount
considered adequate to absorb known or possible loan losses in the
portfolio. The provision is determined based on management's evaluation of
the loan portfolio, giving consideration to existing economic conditions,
changes in the loan portfolio, historical loan loss factors and other
relevant information. Management believes that the allowance for loan
losses 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.
Loans are charged against the allowance for loan losses when management
believes the collection of principal is unlikely. Recoveries of amounts
previously charged off are credited to the allowance.
(Continued)
F-28
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
PREMISES AND EQUIPMENT
Premises and equipment are recorded at cost, net of accumulated
depreciation. Expenditures for improvements which extend the service lives
of the assets are capitalized. Repairs and maintenance are charged to
expense as incurred. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Any gain or loss
resulting from disposition of equipment is reflected in earnings.
OTHER REAL ESTATE OWNED
Other real estate owned is recorded at the lower of cost (loan balance plus
accrued interest receivable) or fair value less estimated selling costs at
the date of foreclosure. Fair value is determined by reference to
independent third-party appraisals. Subsequently, fair value less estimated
selling costs is compared to recorded cost and write-downs are recorded
through a charge to expense, if required. Expenses incurred relating to
real estate owned are recognized during the period incurred. Rental income
is recognized in the period earned.
INCOME TAXES
Different accounting methods have been used for financial and income tax
reporting purposes, principally related to depreciation of premises and
equipment and provision for loan losses. Deferred income taxes have been
provided on such differences.
The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes," which requires the "asset and liability
method" of income tax accounting which bases the amount of current and
future taxes payable on the events recognized in the financial statements
and on tax laws existing at the balance sheet date. Statement 109 is
effective for fiscal years beginning after December 15, 1992. When adopted,
the statement allows restatement of prior periods or recognition of the
cumulative effect as a line item in the current year's income statement.
The Bank will adopt Statement 109 in 1993 and will report the cumulative
effect of that change of accounting for income taxes in the 1993 statement
of earnings. The effect of the adoption of Statement 109 is not material.
The state of Texas franchise tax owed is, in part, a designated percentage
of adjusted taxable income, payable annually. Although the franchise tax is
paid subsequent to year-end, the portion of the franchise tax attributable
to the Bank's earnings is required to be accrued in the fiscal year the
earnings are recognized.
PENSION PLAN
The Bank has a defined benefit pension plan, covering substantially all
employees. The Bank makes annual contributions to the plan equal to the
minimum funding requirement under ERISA. Net periodic pension income and
costs are based on the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions."
TRUST ASSETS
Assets held by the trust department of the Bank in fiduciary or agency
capacities are not assets of the Bank and are not included in the balance
sheets.
(Continued)
F-29
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, including
interest-bearing deposits, and federal funds sold. Federal funds sold
generally have one-day maturities.
(2) CASH AND DUE FROM BANKS
The Bank is required to maintain daily reserve balances in accordance
with Federal Reserve Board requirements. The reserve balances maintained
in accordance with such requirements at December 31, 1992 and 1991 were
approximately $3,882,000 and $1,673,000, respectively.
(3) INVESTMENT SECURITIES
Carrying amounts and approximate market values of investment securities
at December 31, 1992 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Carrying unrealized unrealized market
amount gains losses value
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,511,997 114,409 -- 8,626,406
U.S. Government agencies 60,539,094 1,785,777 (40,072) 62,284,799
Obligations of state and political
subdivisions 7,971,539 189,711 (2,963) 8,158,287
Mortgage-backed securities 54,270,240 2,146,973 (83,669) 56,333,544
Other 3,820,966 17,203 -- 3,838,169
------------ --------- -------- -----------
$135,113,836 4,254,073 (126,704) 139,241,205
============ ========= ======== ===========
</TABLE>
Carrying amounts and approximate market values of investment securities at
December 31, 1991 are as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Carrying unrealized unrealized market
amount gains losses value
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,008,061 20,376 -- 2,028,437
U.S. Government agencies 55,092,439 2,388,891 (76,978) 57,404,352
Obligations of state and political
subdivisions 9,479,508 175,553 (28,206) 9,626,855
Mortgage-backed securities 64,704,151 3,583,494 (442) 68,287,203
Other 5,123,086 32,314 -- 5,155,400
------------ --------- -------- -----------
$136,407,245 6,200,628 (105,626) 142,502,247
============ ========= ======== ===========
</TABLE>
(Continued)
F-30
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Notes to Financial Statements
The carrying amount and approximate market value of investment securities
at December 31, 1992, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Approximate
Carrying market
amount value
------ -----
<S> <C> <C>
Due in one year or less $ 20,718,941 21,125,732
Due after one year through five years 54,421,641 55,815,585
Due after five years through ten years 4,883,014 5,146,344
------------ -----------
80,023,596 82,087,661
Mortgage-backed securities and other 55,090,240 57,153,544
------------ -----------
$135,113,836 139,241,205
============ ===========
</TABLE>
Securities with a carrying value of approximately $14,610,000 and
$13,302,000 at December 31, 1992 and 1991, respectively, were pledged to
secure public deposits.
(4) LOANS
Loans at December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Commercial $ 6,137,871 6,311,100
Real estate 8,544,115 7,565,111
Installment 4,910,148 5,156,598
Other 47,623 67,635
----------- ----------
19,639,757 19,100,444
Less unearned discount 398,571 501,883
----------- ----------
$19,241,186 18,598,561
=========== ==========
</TABLE>
All loans to executive officers and directors and associates of such
persons are, in the opinion of management, made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable loans of like
quality and risk of collectibility. The outstanding balances of direct and
indirect personal borrowings of directors and officers as of December 31,
1992 and 1991 were approximately $398,000 and $476,000, respectively.
(Continued)
F-31
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Notes to Financial Statements
Loans on nonaccrual at December 31, 1992 and 1991 totaled approximately $112,000
and $88,000, respectively. The gross interest income that would have been
recorded in 1992 and 1991 had the nonaccrual loans at December 31, 1992 and 1991
been current in accordance with their original terms were approximately $16,000
and $19,000, respectively. The amount of interest income actually recorded on
such loans in 1992 and 1991 was approximately $2,000 and $11,000, respectively.
The following table summarizes the activity in the allowance for loan losses for
the years ended December 31, 1992 and 1991:
<TABLE>
<CAPTION>
1992 1991
<S> <C> <C>
Balance at beginning of year $946,126 966,376
Loans charged off (68,892) (67,691)
Recoveries 36,206 47,441
------- -------
Balance at end of year $913,440 946,126
======= =======
</TABLE>
In the normal course of business, the Bank enters into various transactions
which, in accordance with generally accepted accounting principles, are not
included on the balance sheets. These transactions are referred to as "off-
balance sheet commitments." The Bank enters into these transactions to meet the
financing needs of its customers. These transactions include commitments to
extend credit and letters of credit which involve elements of credit risk in
excess of the amounts recognized in the balance sheets. The Bank minimizes its
exposure to loss under these commitments by subjecting them to credit approval
and monitoring procedures.
The Bank enters into contractual commitments to extend credit, with fixed
expiration dates or termination clauses, at specified rates and for specific
purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially all of the
Bank's commitments to extend credit are contingent upon customers maintaining
specific credit standards at the time of loan funding. Management assesses the
credit risk associated with all commitments to extend credit in determining the
level of the allowance for loan losses.
Letters of credit are written conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The Bank's policies
generally require that letters of credit arrangements contain security and debt
covenants similar to those contained in loan agreements.
(Continued)
F-32
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
Outstanding commitments and letters of credit at December 31, 1992 and 1991
are approximately as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Commitments to extend credit $2,342,000 1,846,000
Letters of credit 163,000 155,000
========== =========
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment, at cost, and related accumulated depreciation at
December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
Estimated
useful life 1992 1991
----------- ---- ----
<S> <C> <C> <C>
Land -- $ 317,876 296,875
Bank premises 5 - 20 years 3,288,795 1,648,267
Furniture, fixtures and
equipment 5 - 20 years 1,313,755 1,096,481
Construction in progress -- -- 168,000
============ ---------- ---------
4,920,426 3,209,623
Less accumulated depreciation 2,148,184 2,109,166
---------- ---------
$2,772,242 1,100,457
========== =========
</TABLE>
In October 1991, the Bank entered into a construction contract for the
expansion of the bank premises. In December 1992, the related assets were
placed into service as the construction was considered to be substantially
complete. Commitments remaining under the construction contract at December
31, 1992 totaled approximately $493,000.
(6) INTEREST-BEARING DEPOSITS
Interest-bearing deposits at December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Savings deposits $ 5,330,852 4,256,040
Money market accounts 26,856,806 26,621,735
NOW accounts 25,317,457 23,578,465
Certificates of deposit less
than $100,000 28,298,666 29,686,118
Certificates of deposit of
$100,000 or more 28,789,952 31,900,804
------------ -----------
$114,593,733 116,043,162
============ ===========
</TABLE>
Interest expense on certificates of deposit of $100,000 or more was
approximately $1,361,000 and $2,263,000 for the years ended December 31,
1992 and 1991, respectively.
(Continued)
F-33
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
Notes to Financial Statements
(7) Income Taxes
The components of income tax expense for the years ended December 31, 1992
and 1991 are as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Federal:
Current $1,719,946 1,201,431
Deferred 45,348 16,262
State of Texas earned surplus tax -- 90,854
--------- ---------
$1,765,294 1,308,547
========= =========
</TABLE>
The income tax expense for the years ended December 31, 1992 and 1991 is
less than the amount computed by applying the federal income tax rate of 34%
to earnings before income tax expense. The reasons for these differences are
as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Computed "expected" tax $1,938,995 1,407,955
Increase (reduction) in taxes resulting from:
Tax-exempt interest (186,414) (184,220)
State of Texas earned surplus tax -- 59,964
Other, net 12,713 24,848
--------- ---------
$1,765,294 1,308,547
========= =========
</TABLE>
Deferred income tax expense results from timing differences in the
recognition of revenue and expense items for income tax and financial
statement purposes. The sources of deferred income taxes for the years ended
December 31, 1992 and 1991 and their tax effects are as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Net periodic pension income $ 76,331 25,681
State of Texas earned surplus tax
deductible when paid -- (30,890)
Depreciation expense (37,721) (6,538)
Other, net 6,738 28,009
-------- --------
$ 45,348 16,262
======== ========
</TABLE>
(8) Pension Plan
The Bank has a defined benefit pension plan covering substantially all full-
time employees with one or more years of service. The benefits are based on
years of service and average compensation during the last five years of
employment. The general funding policy is to contribute annually the amount
deductible for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service to date but also for
those expected to be earned in the future. No contributions were made in
1992 or 1991 due to the funded status of the plan.
(Continued)
F-34
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
The following table sets forth the plan's funded status and related amounts that
were recognized in the accompanying financial statements in 1992 and 1991:
<TABLE>
<CAPTION>
1992 1991
----------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations - accumulated
benefit obligations, including vested benefits
of $2,474,759 in 1992 and $2,119,821 in 1991 $ 2,503,563 2,136,485
=========== ==========
Plan assets at fair value 3,962,972 3,804,942
Projected benefit obligation for service rendered to date (3,284,569) (2,731,095)
----------- ----------
Plan assets in excess of projected benefit obligation 678,403 1,073,847
Unrecognized net gain from past experience different
from that assumed 860,442 437,771
Unrecognized net transitional asset at transition date
being recognized over 15 years (1,106,436) (1,207,021)
----------- ----------
Prepaid pension cost $ 432,409 304,597
=========== ==========
Net pension costs for 1992 and 1991 included the
following components:
Service costs - benefits earned during the period $ 106,431 147,174
Interest cost on projected benefit obligation 204,151 185,660
Expected return on plan assets (341,627) (316,978)
Net amortization and deferral (96,767) (91,389)
----------- ----------
Net periodic pension expense (income) $ (127,812) (75,533)
=========== ==========
</TABLE>
Assumptions used in accounting for the pension plan as of December 31, 1992 and
1991 were:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Weighted average discount rates 7.50% 6.75%
Rates of increase in compensation levels 5.00 5.00
Expected long-term rate of return on assets 9.00 9.00
==== ====
</TABLE>
(Continued)
F-35
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement 107), requires that the
Bank disclose estimated fair values for its financial instruments.
The fair values estimates, methods and assumptions used are set forth below
for the Bank's financial instruments:
<TABLE>
<CAPTION>
December 31, 1992
---------------------------
Carrying value Fair value
-------------- ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 16,477,509 16,477,509
Investment securities 135,113,836 139,241,205
Loans, net 18,327,746 18,350,000
Financial liabilities:
Deposits 135,004,231 135,305,000
Off-balance sheet instruments:
Commitments to extend credit -- 2,342,000
Letters of credit -- 163,000
============ ===========
</TABLE>
CASH AND CASH EQUIVALENTS
Carrying value approximates fair value because of the short maturity of these
instruments and no anticipated credit concerns.
LOANS
The fair value of loans is estimated for segregated groupings of loans with
similar financial characteristics. Loans are segregated by type such as
commercial, real estate and consumer. The fair value of loans is estimated
using factors that reflect the credit and interest rate risk in these loans.
INVESTMENT SECURITIES
The fair value of investment securities are estimated based on quoted market
prices from investment dealers and companies. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
DEPOSITS
The fair value of deposits with short-term or no stated maturity, such as
checking, savings, NOW accounts and money market accounts, is equal to the
amounts payable as of December 31, 1992. The fair value of certificates of
deposits is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
(Continued)
F-36
<PAGE>
THE FIRST NATIONAL BANK OF BAY CITY
NOTES TO FINANCIAL STATEMENTS
COMMITMENTS TO EXTEND CREDIT
AND LETTERS OF CREDIT
The fair value of commitments to extend credit and letters of credit are
estimated using current interest rates and committed rates.
(10) Stockholders' Equity
On March 9, 1993, the Board of Directors declared a dividend of $84.82 per
share of common stock outstanding for the stockholders of record on that
date. The dividends totaling $6,785,600 were paid on March 12, 1993.
In addition, on March 9, 1993, a further dividend was approved by the Board
of Directors. The dividend approved is to be in an amount that will reduce
the Bank's total capital to asset ratio to 12%. The dividend is subject to
regulatory approval by the Office of the Comptroller of the Currency.
(11) Contingencies
The Bank is involved in certain claims and litigation occurring in the
normal course of business. Management, after reviewing these claims and
litigation and on the advice of independent legal counsel, believes that
the resulting aggregate liability, if any, will not be material to the
financial position of the Bank.
F-37
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION,
AND
AGREEMENT AND PLAN OF CONSOLIDATION
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 13th day of September, 1994, by and between THE FIRST NATIONAL BANK OF BAY
CITY ("Bay City"), a national banking corporation, and NORWEST CORPORATION
("Norwest"), a Delaware corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned bank subsidiary of Norwest will consolidate with Bay City (the
"Consolidation") pursuant to an agreement and plan of consolidation (the
"Consolidation Agreement") in substantially the form attached hereto as Exhibit
A, which provides, among other things, for the conversion and exchange of the
shares of Common Stock of Bay City of the par value of $25.00 per share ("Bay
City Common Stock") outstanding immediately prior to the time the Consolidation
becomes effective in accordance with the provisions of the Consolidation
Agreement into shares of voting Common Stock of Norwest of the par value of $1
2/3 per share ("Norwest Common Stock"),
NOW, THEREFORE, to effect such reorganization and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLAN OF REORGANIZATION
(a) Consolidation. Subject to the terms and conditions contained herein,
a wholly-owned bank subsidiary of Norwest ("Norwest Bank") will be consolidated
by statutory consolidation with Bay City pursuant to the Consolidation
Agreement, under the charter of Bay City, in which consolidation each share of
Bay City Common Stock outstanding immediately prior to the Effective Time of the
Consolidation (as defined in subparagraph 1(d) below) (other than shares as to
which statutory dissenters' appraisal rights have been exercised) will be
converted into and exchanged for a number of shares of Norwest Common Stock
determined by dividing 932,700 by the total number of shares of Bay City Common
Stock then outstanding.
(b) Norwest Common Stock Adjustments. If, between the date hereof and the
Effective Time of the Consolidation, shares of Norwest Common Stock shall be
changed into a different number of shares or a different class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or if a stock dividend thereon shall be
declared with a record date within such period, then the number of shares of
Norwest Common Stock into which a share of Bay City 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 Bay City Common Stock shall be converted will equal
the number of shares of Norwest Common Stock which holders of shares of Bay City
Common Stock would have received pursuant to such reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
stock dividend had the record date therefor been immediately following the
Effective Time of the Consolidation.
A-1
<PAGE>
(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 ending on the day immediately
preceding the meeting of the shareholders of Bay City held to vote on the
Consolidation.
(d) Mechanics of Closing Consolidation. Subject to the terms and
conditions set forth herein, the closing of the Consolidation shall occur on a
mutually agreeable date, which date shall be not later than ten (10) business
days following the satisfaction or waiver of all conditions precedent set forth
in Sections 6 and 7 of this Agreement or on such other date as may be agreed to
by the parties (the "Closing Date"). Each of the parties agrees to use its best
efforts to cause the Consolidation to be completed as soon as practicable after
the receipt of final regulatory approval of the Consolidation and the expiration
of all required waiting periods. The Consolidation shall be effective at 11:59
p.m. Bay City, Texas time on the date specified in the certificate of approval
to be issued by the Comptroller of the Currency of the United States (the
"Comptroller"), under the seal of his office, approving the Consolidation (the
"Effective Time of the Consolidation").
The closing of the transactions contemplated by this Agreement and the
Consolidation Agreement (the "Closing") shall take place on the Closing Date at
the offices of Norwest, Norwest Center, Sixth and Marquette, Minneapolis,
Minnesota.
2. REPRESENTATIONS AND WARRANTIES OF BAY CITY. Bay City represents and
warrants to Norwest as follows:
(a) Organization and Authority. Bay City is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States, is duly qualified to do business and is in good standing
in all jurisdictions where its ownership or leasing of property or the conduct
of its business requires it to be so qualified and failure to be so qualified
would have a material adverse effect on Bay City and has corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted. Bay City has furnished Norwest true and correct copies of
its articles of association and by-laws, as amended.
(b) Bay City's Subsidiaries. Except as set forth on Schedule 2(b), Bay
City 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 Bay City consists of
80,000 shares of common stock, $25.00 par value, of which as of the close of
business on July 12, 1994, 80,000 shares were outstanding and no shares were
held in the treasury. The maximum number of shares of Bay City Common Stock
(assuming for this purpose that phantom shares and other share-equivalents
constitute Bay City Common Stock) that would be outstanding as of the Effective
Date of the Consolidation if all options, warrants, conversion rights and other
rights with respect thereto were exercised is 80,000. All of the outstanding
shares of capital stock of Bay City 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, preemptive rights or other rights obligating Bay City
or any Bay City Subsidiary to issue, sell or otherwise dispose of, or to
purchase, redeem or otherwise acquire, any shares of capital stock of Bay City.
Since
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December 31, 1993 no shares of Bay City capital stock have been purchased,
redeemed or otherwise acquired, directly or indirectly, by Bay City and since
July 15, 1994, no dividends or other distributions have been declared, set
aside, made or paid to the shareholders of Bay City. The Agreement of
Shareholders, dated as of September 19, 1991, among certain shareholders of Bay
City has been amended to provide that its terms do not apply in any way to the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby and such amendment is in full force and effect and a copy
thereof has been provided to Norwest.
(d) Authorization. Bay City has the corporate power and authority to
enter into this Agreement and the Consolidation Agreement and, subject to any
required approvals of its shareholders, to carry out its obligations hereunder
and thereunder. The execution, delivery and performance of this Agreement and
the Consolidation Agreement by Bay City and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Bay City. Subject to such approvals of shareholders and of
government agencies and other governing boards having regulatory authority over
Bay City as may be required by statute or regulation, this Agreement and the
Consolidation Agreement are valid and binding obligations of Bay City
enforceable against Bay City in accordance with their respective terms.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by Bay City of this Agreement or the Consolidation Agreement, nor
the consummation of the transactions contemplated hereby and thereby, nor
compliance by Bay City 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 Bay City or any Bay City Subsidiary
under any of the terms, conditions or provisions of (x) its articles of
incorporation or by-laws or (y) any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Bay City or any Bay City Subsidiary is a party or by which it may be
bound, or to which Bay City or any Bay City Subsidiary or any of the properties
or assets of Bay City or any Bay City Subsidiary may be subject, or (ii) subject
to compliance with the statutes and regulations referred to in the next
paragraph, to the best knowledge of Bay City, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to Bay
City or any Bay City Subsidiary or any of their respective properties or assets.
Other than in connection or in compliance with the provisions of the
Securities Act of 1933 and the rules and regulations thereunder (the "Securities
Act"), the Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act"), the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act or the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 ("HSR Act"), and filings required to effect the Consolidation under the
National Bank Act, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority is necessary
for the consummation by Bay City of the transactions contemplated by this
Agreement and the Consolidation Agreement.
(e) Bay City Financial Statements. The balance sheets of Bay City as of
December 31, 1993 and 1992 and related statements of earnings, changes in
stockholders' equity and cash flows for the two years ended December 31, 1993,
together with the notes thereto, certified by KPMG Peat Marwick and the
unaudited balance sheets of Bay City as of June 30, 1994 and the related
unaudited statements of earnings, changes in stockholders' equity and cash flows
for the
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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) the financial position of Bay City at the dates and the results of
operations and cash flows of Bay City for the periods stated therein.
(f) Reports. Since December 31, 1988, Bay City 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 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
"Bay City Reports". As of their respective dates, the Bay City Reports complied
in all material respects with all the rules and regulations promulgated by the
SEC, the Federal Reserve Board, the FDIC, the Comptroller and applicable state
securities or banking authorities, as the case may be, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Copies of all
the Bay City Reports have been made available to Norwest by Bay City.
(g) Properties and Leases. Except as may be reflected in the Bay City
Financial Statements and except for any lien for current taxes not yet
delinquent, Bay City 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 Bay City's balance sheet as of June 30, 1994
for the period then ended, and all real and personal property acquired since
such date, except such real and personal property as has been disposed of in the
ordinary course of business. All leases of real property and all other leases
material to Bay City pursuant to which Bay City, as lessee, leases real or
personal property, which leases are described on Schedule 2(g), are valid and
effective in accordance with their respective terms, and there is not, under any
such lease, any material existing default by Bay City or any event which, with
notice or lapse of time or both, would constitute such a material default.
Substantially all Bay City'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. Bay City 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 Bay City for the fiscal year ended December 31, 1990, and for all
fiscal years prior thereto, are for the purposes of routine audit by the
Internal Revenue Service closed because of the statute of limitations, and no
claims for additional taxes for such fiscal years are pending. Except only as
set forth on Schedule 2(h), (i) Bay City is not a party to any pending action or
proceeding, nor is any such action or proceeding threatened by any governmental
authority, for the assessment or collection of taxes, interest, penalties,
assessments or deficiencies and (ii) no issue has been raised by any federal,
state, local or foreign taxing authority in connection with an audit or
examination of the tax returns, business or properties of Bay City which has not
been settled, resolved and fully satisfied. Bay City has paid all taxes owed or
which it is required to withhold from amounts owing to employees, creditors or
other third parties. The balance sheet as of June 30, 1994 referred to in
paragraph 2(e) hereof, includes adequate provision for all accrued but unpaid
federal, state, county, local and foreign
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taxes, interest, penalties, assessments or deficiencies of Bay City with respect
to all periods through the date thereof.
(i) Absence of Certain Changes. Since June 30, 1994, there has been no
change in the business, financial condition or results of operations of Bay City
which has had, or may reasonably be expected to have, a material adverse effect
on the business, financial condition or results of operations of Bay City.
(j) Commitments and Contracts. Except as set forth on Schedule 2(j), Bay
City is not 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 Bay City);
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business
containing covenants which limit the ability of Bay City 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, Bay City may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $25,000 or
more.
(k) Litigation and Other Proceedings. Bay City has furnished Norwest copies
of (i) all attorney responses to the request of the independent auditors for Bay
City with respect to loss contingencies as of December 31, 1993 in connection
with the Bay City financial statements, and (ii) a written list of legal and
regulatory proceedings filed against Bay City since said date. Bay City is not a
party to any pending or, to the best knowledge of Bay City, 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 Bay City.
(l) Insurance. Except as set forth on Schedule 2(l), Bay City is presently
insured, and during each of the past five calendar years 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. Bay City has all permits, licenses,
authorizations, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local or foreign governmental or
regulatory bodies that are required in order to permit it to
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own or lease its properties and assets and to carry on its business as presently
conducted and that are material to the business of Bay City; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best knowledge of Bay City, no suspension or cancellation of
any of them is threatened; and all such filings, applications and registrations
are current. The conduct by Bay City of its business and the condition and use
of its properties does not violate or infringe, in any respect material to any
such business, any applicable domestic (federal, state or local) or foreign law,
statute, ordinance, license or regulation. Bay City is not in default under any
order, license, regulation or demand of any federal, state, municipal or other
governmental agency or with respect to any order, writ, injunction or decree of
any court. Except for statutory or regulatory restrictions of general
application and except as set forth on Schedule 2(m), no federal, state,
municipal or other governmental authority has placed any restriction on the
business or properties of Bay City which reasonably could be expected to have a
material adverse effect on the business or properties of Bay City.
(n) Labor. No work stoppage involving Bay City is pending or, to the best
knowledge of Bay City, threatened. Bay City is not involved in, or threatened
with or affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which could materially and adversely affect the business of Bay City.
Employees of Bay City 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 Bay City, no officer or director of Bay City or
any "associate" (as such term is defined in Rule l4a-1 under the Exchange Act)
of any such officer or director, has any interest in any material contract or
property (real or personal), tangible or intangible, used in or pertaining to
the business of Bay City.
Schedule 2(o) sets forth a correct and complete list of any loan from Bay
City to any present officer, director, employee or any associate or related
interest of any such person which was required under Regulation O of the Federal
Reserve Board to be approved by or reported to Bay City's Board of Directors.
(p) Bay City 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 Bay City 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 Bay City 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), Bay City has 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. Bay
City 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
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been amended to comply with the Tax Reform Act of 1986 (the "TRA") and
other recent legislation and regulations, although each such Plan is within
the remedial amendment period during which retroactive amendment may be
made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year, exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) Except as disclosed in Schedule 2(p), and to the best knowledge
of Bay City, 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 Bay
City, 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 Bay City taken as a whole.
(v) No Plan which is subject to Title IV of ERISA or any trust
created thereunder has been terminated, nor have there been any "reportable
events" as that term is defined in Section 4043 of ERISA, with respect to
any Plan, other than those events which may result from the transactions
contemplated by this Agreement and the Consolidation 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 Consolidation Agreement nor the
consummation of the transactions contemplated hereby and thereby will (i)
result in any material payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to
any director or employee or former employee of Bay City 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 Bay City
supplied or to be supplied by Bay City 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 Bay
City Common Stock pursuant to the provisions of the Consolidation Agreement (the
"Registration Statement"), (ii) the proxy statement to be mailed to Bay City's
shareholders in connection with the meeting to be called to consider the
Consolidation (the "Proxy Statement") and (iii) any other documents to be filed
with the SEC or any regulatory authority in connection with the transactions
contemplated hereby or by the Consolidation Agreement will, at the respective
times such documents are filed with the SEC or any regulatory authority and, in
the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not misleading or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
meeting of shareholders referred to in
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paragraph 4(c), be false or misleading with respect to any material fact, or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for such
meeting. All documents which Bay City is responsible for filing with the SEC and
any other regulatory authority in connection with the Consolidation will comply
as to form in all material respects with the provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(r), Bay
City is not under any obligation, contingent or otherwise, which will survive
the Consolidation by reason of any agreement to register any of its securities
under the Securities Act.
(s) Brokers and Finders. Except for Alex Sheshunoff & Co. Management
Services, Inc., neither Bay City nor any of its 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 Bay City in connection with this
Agreement and the Consolidation Agreement or the transactions contemplated
hereby and thereby.
(t) Administration of Trust Accounts. Bay City has properly administered in
all respects material and which could reasonably be expected to be material to
the financial condition of Bay City all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither Bay City
nor any director, officer or employee of Bay City 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 Bay City,
and the accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
(u) No Defaults. Bay City is not in default, nor has any event occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default, under any material agreement, indenture, loan agreement or
other instrument to which it is a party or by which it or any of its assets is
bound or to which any of its assets is subject, the result of which has had or
could reasonably be expected to have a material adverse effect upon Bay City.
To the best of Bay City's knowledge, all parties with whom Bay City has material
leases, agreements or contracts or who owe to Bay City material obligations
other than with respect to those arising in the ordinary course of the banking
business of the Bay City Subsidiaries are in compliance therewith in all
material respects.
(v) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition of, on Bay City, any
liability arising from the release of hazardous substances under any local,
state or federal environmental statute, regulation or ordinance including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or to the best of Bay City's
knowledge, threatened against Bay City the result of which has had or could
reasonably be expected to have a material adverse effect upon Bay City; to the
best of Bay City's knowledge there is no reasonable basis for any such
proceeding, claim or action; and to the best of Bay City's knowledge Bay City is
not subject to any agreement, order, judgment, or decree by or with any court,
governmental authority or third party imposing any such environmental liability.
Bay City has provided Norwest with copies of all environmental assessments,
reports, studies and other related information in its possession.
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3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Bay City as follows:
(a) Organization and Authority. Norwest is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Norwest and its subsidiaries taken as a whole and has
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted. Norwest is registered as a bank
holding company with the Federal Reserve Board under the BHC Act.
(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
list as of December 31, 1993, of Norwest's Significant Subsidiaries (as defined
in Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary"
and collectively the "Norwest Subsidiaries"), all shares of the outstanding
capital stock of each of which, except as set forth in Schedule 3(b), are owned
directly or indirectly by Norwest. No equity security of any Norwest Subsidiary
is or may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (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 July 31, 1994, 1,127,125 shares of 10.24%
Cumulative Preferred Stock at $100 stated value and 1,143,675 shares of
Cumulative Convertible Preferred Stock, Series B, at $200 stated value and
30,601 shares of ESOP Cumulative Convertible Preferred Stock, at $1,000 stated
value were outstanding, and (ii) 500,000,000 shares of Common Stock, $1-2/3 par
value, of which as of the close of business on July 31, 1994, 315,813,687 shares
were outstanding and 7,270,787 shares were held in the treasury.
(d) Authorization. Norwest has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Norwest and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Norwest. No approval or consent by the stockholders of Norwest is
necessary for the execution and delivery of this Agreement and the Consolidation
Agreement and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory authority over Norwest as may be required by statute or
regulation, this Agreement is a valid and binding obligation of Norwest
enforceable against Norwest in accordance with its terms.
Neither the execution, delivery and performance by Norwest of this
Agreement or the Consolidation Agreement, nor the consummation of the
transactions contemplated hereby and
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thereby, nor compliance by Norwest with any of the provisions hereof or thereof,
will (i) violate, conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any lien, security interest,
charge or encumbrance upon any of the properties or assets of Norwest or any
Norwest Subsidiary under any of the terms, conditions or provisions of (x) its
certificate of incorporation or by-laws or (y) any material note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Norwest or any Norwest Subsidiary is a party
or by which it may be bound, or to which Norwest or any Norwest Subsidiary or
any of the properties or assets of Norwest or any Norwest Subsidiary may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of Norwest, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Norwest or any Norwest Subsidiary or any of their respective
properties or assets.
Other than in connection with or in compliance with the provisions of the
Securities Act, the Exchange Act, the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act or the HSR Act, and filings required to effect the
Consolidation under the National Bank Act, no notice to, filing with, exemption
or review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Norwest of the transactions
contemplated by this Agreement and the Consolidation Agreement.
(e) Norwest Financial Statements. The consolidated balance sheets of
Norwest and Norwest's subsidiaries as of December 31, 1993 and 1992 and related
consolidated statements of income, stockholders' equity and cash flows for the
three years ended December 31, 1993, together with the notes thereto, certified
by KPMG Peat Marwick and included in Norwest's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 as amended by Form 10-K/A dated May 13,
1994 (the "Norwest 10-K") as filed with the SEC, and the unaudited consolidated
balance sheets of Norwest and its subsidiaries as of June 30, 1994 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, 1994, as filed with the SEC (collectively, the
"Norwest Financial Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and present fairly
(subject, in the case of financial statements for interim periods, to normal
recurring adjustments) the consolidated financial position of Norwest and its
subsidiaries at the dates and the consolidated results of operations, changes in
financial position and cash flows of Norwest and its subsidiaries for the
periods stated therein.
(f) Reports. Since December 31, 1988, Norwest and each Norwest Subsidiary
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q and proxy statements, (ii) the
Federal Reserve Board, (iii) the FDIC, (iv) the Comptroller and (v) any
applicable state securities or banking authorities. All such reports and
statements filed with any such regulatory body or authority are collectively
referred to herein as the "Norwest Reports". As of their respective dates, the
Norwest Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and any applicable state 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.
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(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, 1994 included in Norwest's Quarterly
Report on Form 10-Q for the period then ended, and all real and personal
property acquired since such date, except such real and personal property has
been disposed of in the ordinary course of business. All leases of real
property and all other leases material to Norwest or any Norwest Subsidiary
pursuant to which Norwest or such Norwest Subsidiary, as lessee, leases real or
personal property, are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Norwest or such Norwest Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Norwest's and each Norwest Subsidiary's buildings and equipment in regular use
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries has filed all
material federal, state, county, local and foreign tax returns, including
information returns, required to be filed by it, and paid or made adequate
provision for the payment of all taxes owed by it, including those with respect
to income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Norwest and the Norwest Subsidiaries for the
fiscal year ended December 31, 1979, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Except only as set forth on Schedule 3(h), (i)
neither Norwest nor any Norwest Subsidiary is a party to any pending action or
proceeding, nor to Norwest's knowledge is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies which could reasonably
be expected to have any material adverse effect on Norwest and its subsidiaries
taken as a whole, and (ii) no issue has been raised by any federal, state, local
or foreign taxing authority in connection with an audit or examination of the
tax returns, business or properties of Norwest or any Norwest Subsidiary which
has not been settled, resolved and fully satisfied, or adequately reserved for.
Each of Norwest and the Norwest Subsidiaries has paid all taxes owed or which it
is required to withhold from amounts owing to employees, creditors or other
third parties.
(i) Absence of Certain Changes. Since June 30, 1994, there has been no
change in the business, financial condition or results of operations of Norwest
or any Norwest Subsidiary which has had, or may reasonably be expected to have,
a material adverse effect on the business, financial condition or results of
operations of Norwest and its subsidiaries taken as a whole.
(j) Commitments and Contracts. Except as set forth on Schedule 3(j), as of
April 1, 1994, neither Norwest nor any Norwest Subsidiary is a party or subject
to any of the following (whether written or oral, express or implied):
(i) any labor contract or agreement with any labor union;
(ii) any contract not made in the ordinary course of business
containing covenants which materially limit the ability of Norwest or any
Norwest Subsidiary to compete in any line of business or with any person or
which involve any material restriction of the geographical area in which,
or method by which, Norwest or any
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Norwest Subsidiary may carry on its business (other than as may be required
by law or applicable regulatory authorities);
(iii) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K.
(k) Litigation and Other Proceedings. Neither Norwest nor any Norwest
Subsidiary is a party to any pending or, to the best knowledge of Norwest,
threatened, claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or cannot reasonably be expected to have, a material adverse effect on
the business, financial condition or results of operations of Norwest and its
subsidiaries taken as a whole.
(l) Insurance. Norwest and each Norwest Subsidiary is presently insured or
self insured, and during each of the past five calendar years (or during such
lesser period of time as Norwest has owned such Norwest Subsidiary) has been
insured or self-insured, for reasonable amounts with financially sound and
reputable insurance companies against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable law and
regulation.
(m) Compliance with Laws. Norwest and each Norwest Subsidiary has all
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to own
or lease its properties or assets and to carry on its business as presently
conducted and that are material to the business of Norwest or such Subsidiary;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect, and to the best knowledge of Norwest, no suspension or
cancellation of any of them is threatened; and all such filings, applications
and registrations are current. The conduct by Norwest and each Norwest
Subsidiary of its business and the condition and use of its properties does not
violate or infringe, in any respect material to any such business, any
applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license or regulation. Neither Norwest nor any Norwest Subsidiary is
in default under any order, license, regulation or demand of any federal, state,
municipal or other governmental agency or with respect to any order, writ,
injunction or decree of any court. Except for statutory or regulatory
restrictions of general application, no federal, state, municipal or other
governmental authority has placed any restrictions on the business or properties
of Norwest or any Norwest Subsidiary which reasonably could be expected to have
a material adverse effect on the business or properties of Norwest and its
subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Norwest or any Norwest Subsidiary is
pending or, to the best knowledge of Norwest, threatened. Neither Norwest nor
any Norwest Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding which could
materially and adversely affect the business of Norwest or such Norwest
Subsidiary. Except as set forth on Schedule 3(j), employees of Norwest and the
Norwest Subsidiaries are not represented by any labor union nor are any
collective bargaining agreements otherwise in effect with respect to such
employees.
(o) Norwest Benefit Plans.
(i) As of April 30, 1994, the only "employee benefit plans" within
the meaning of Section 3(3) of ERISA for which Norwest or any Norwest
Subsidiary acts as plan sponsor as defined in ERISA Section 3(16)(B) with
respect to which any
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liability under ERISA or otherwise exists or may be incurred by Norwest or
any Norwest Subsidiary are those set forth on Schedule 3(o) (the "Norwest
Plans"). No Norwest Plan is a "multi-employer plan" within the meaning of
Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable
law. Except as set forth on Schedule 3(o), Norwest or the Norwest
Subsidiaries have received favorable determination letters from the
Internal Revenue Service under the provisions of the Tax Equity and Fiscal
Responsibility Act ("TEFRA"), the Deficit Reduction Act ("DEFRA") and the
Retirement Equity Act ("REA") for each of the Norwest Plans to which the
qualification requirements of Section 401(a) of the Code apply. Norwest
knows of no reason that any Norwest Plan which is subject to the
qualification provisions of Section 401(a) of the Code is not "qualified"
within the meaning of Section 401(a) of the Code and that each related
trust is not exempt from taxation under Section 501(a) of the Code, except
that any such Norwest Plan may not have been amended to comply with TRA and
other recent legislation and regulations, although each such Norwest Plan
is within the remedial amendment period during which retroactive amendment
may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Norwest Plan which is subject to Title IV of ERISA did
not, in each case, as determined for purposes of reporting on Schedule B to
the Annual Report on Form 5500 of each such Norwest Plan as of the end of
the most recent Plan year, exceed the value of the assets of the Norwest
Plans allocable to such vested or accrued benefits.
(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 Consolidation Agreement.
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), 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
Consolidation Agreement nor the consummation of the transactions
contemplated hereby and thereby will (i) result in any material payment
(including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or employee or
former employee of Norwest under any Norwest Plan or otherwise, (ii)
materially increase any benefits otherwise payable
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under any Norwest Plan or (iii) result in the acceleration of the time of
payment or vesting of any such benefits to any material extent.
(p) Registration Statement, etc. None of the information regarding Norwest
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Consolidation Agreement
will, at the respective times such documents are filed with the SEC or any
regulatory authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of shareholders referred to in paragraph
4(c), be false or misleading with respect to any material fact, or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for such meeting.
All documents which Norwest and the Norwest Subsidiaries are responsible for
filing with the SEC and any other regulatory authority in connection with the
Consolidation will comply as to form in all material respects with the
provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Consolidation Agreement or the transactions contemplated
hereby and thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole. To the best
of Norwest's knowledge, all parties with whom Norwest or any Norwest Subsidiary
has material leases, agreements or contracts or who owe to Norwest or any
Norwest Subsidiary material obligations other than with respect to those arising
in the ordinary course of the banking business of the Norwest Subsidiaries are
in compliance therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition, on Norwest or any Norwest
Subsidiary of any liability arising from the release of hazardous substances
under any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, pending or to the best of
Norwest's knowledge, threatened against Norwest or any Norwest Subsidiary, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole; to the best
of Norwest's knowledge there is no reasonable basis for any such proceeding,
claim or action; and to the best of Norwest's knowledge neither Norwest nor any
Norwest Subsidiary is subject to any agreement, order, judgment, or decree by or
with any court, governmental authority or third party imposing any such
environmental liability.
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(t) Norwest Bank As of the Closing Date, Norwest Bank will be a bank duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of United States, and will have corporate power and authority to
own or lease its properties and assets and to carry on its business.
4. COVENANTS OF BAY CITY. Bay City covenants and agrees with Norwest as
follows:
(a) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Consolidation, Bay City will:
maintain its corporate existence in good standing; maintain the general
character of its business and conduct its business in its ordinary and usual
manner; extend credit in accordance with existing lending policies, except that
it shall not, without the prior written consent of Norwest, make any new loan or
modify, restructure or renew any existing loan (except pursuant to commitments
made prior to the date of this Agreement) to any borrower if the amount of the
resulting loan, when aggregated with all other loans or extensions of credit to
such person, would be in excess of $250,000; maintain proper business and
accounting records in accordance with generally accepted principles; maintain
its properties in good repair and condition, ordinary wear and tear excepted;
maintain in all material respects presently existing insurance coverage; use its
best efforts to preserve its business organization intact, to keep the services
of its present principal employees and to preserve its good will and the good
will of its suppliers, customers and others having business relationships with
it; use its best efforts to obtain any approvals or consents required to
maintain existing leases and other contracts in effect following the
Consolidation; comply in all material respects with all laws, regulations,
ordinances, codes, orders, licenses and permits applicable to the properties and
operations of Bay City the non-compliance with which reasonably could be
expected to have a material adverse effect on Bay City; and permit Norwest and
its representatives (including KPMG Peat Marwick) to examine its and its
subsidiaries books, records and properties and to interview officers, employees
and agents at all reasonable times when it is open for business. No such
examination by Norwest or its representatives either before or after the date of
this Agreement shall in any way affect, diminish or terminate any of the
representations, warranties or covenants of Bay City herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from
the date hereof until the Effective Time of the Consolidation, Bay City will not
(without the prior written consent of Norwest): amend or otherwise change its
articles of association or by-laws; issue or sell or authorize for issuance or
sale, or grant any options or make other agreements with respect to the issuance
or sale or conversion of, any shares of its capital stock, phantom shares or
other share-equivalents, or any other of its securities; authorize or incur any
long-term debt (other than deposit liabilities); mortgage, pledge or subject to
lien or other encumbrance any of its properties, except in the ordinary course
of business; enter into any material agreement, contract or commitment in excess
of $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 in the ordinary course of business for terms
of up to one year and in amounts of $100,000 or less; amend or terminate any
Plan except as required by law; make any contributions to any Plan except as
required by the terms of such Plan in effect as of the date hereof; declare, set
aside, make or pay any dividend or other distribution with respect to its
capital stock; redeem, purchase or otherwise acquire, directly or indirectly,
any of the capital stock of Bay City; increase the compensation of any officers,
directors or executive employees, except pursuant to existing compensation plans
and practices; sell or otherwise dispose of any shares of the capital stock of
any Bay City Subsidiary; or sell or otherwise dispose of any of its assets or
properties other than in the ordinary course of business.
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(c) The Board of Directors of Bay City will duly call, and will cause to
be held not later than twenty-three (23) business days following the effective
date of the Registration Statement referred to in paragraph 5(c) hereof, a
meeting of its shareholders and will direct that this Agreement and the
Consolidation Agreement be submitted to a vote at such meeting. The Board of
Directors of Bay City will (i) cause proper notice of such meeting to be given
to its shareholders in compliance with the National Bank 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
Consolidation Agreement, and (iii) use its best efforts to solicit from its
shareholders proxies in favor thereof.
(d) Bay City will furnish or cause to be furnished to Norwest all the
information concerning Bay City required for inclusion in the Registration
Statement referred to in paragraph 5(c) hereof, or any statement or application
made by Norwest to any governmental body in connection with the transactions
contemplated by this Agreement. Any financial statement for any fiscal year
provided under this paragraph must include the audit opinion and the consent of
KPMG Peat Marwick to use such opinion in such Registration Statement. Any
interim quarterly financial information provided under this paragraph must have
been reviewed by KPMG Peat Marwick in accordance with generally accepted
auditing standards and Bay City must provide Norwest with a copy of such review
report.
(e) Bay City will take all necessary corporate and other action and use
its best efforts to obtain all approvals of regulatory authorities, consents and
other approvals required of Bay City 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) Bay City 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) Bay City will hold in confidence all documents and information
concerning Norwest and its subsidiaries furnished to Bay City 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 Bay City'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 Bay City, in the public
domain, or later acquired by Bay City 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 Bay City, nor any director, officer, representative or agent
thereof, will, directly or indirectly, solicit, authorize the solicitation of or
enter into any discussions with any corporation, partnership, person or other
entity or group (other than Norwest) concerning any offer or possible offer (i)
to purchase any shares of common stock, any option or warrant to purchase any
shares of common stock, any securities convertible into any shares of such
common stock, or any other equity security of Bay City, (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 Bay City except in
the ordinary course of business, or (iv) to merge, consolidate or otherwise
combine with Bay City. If any corporation, partnership, person or other entity
or group makes an offer or inquiry to Bay City concerning any of the foregoing,
Bay City will promptly disclose such offer or inquiry, including the terms
thereof, to Norwest.
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(i) Bay City 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) Bay City 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 Consolidation, (ii) to amend the Plans to comply with
the provisions of the TRA and regulations thereunder and other applicable law,
and (iii) to submit application to the Internal Revenue Service for a favorable
determination letter for each of the Plans which is subject to the qualification
requirements of Section 401(a) of the Code prior to the Effective Date of the
Consolidation.
(k) Bay City shall use its best efforts to obtain and deliver prior to the
Effective Date of the Consolidation signed representations substantially in the
form attached hereto as Exhibit B to Norwest by each executive officer, director
or shareholder of Bay City who may reasonably be deemed an "affiliate" of Bay
City within the meaning of such term as used in Rule 145 under the Securities
Act.
(l) Bay City shall establish such additional accruals and reserves as may
be necessary to conform Bay City's accounting and credit loss reserve practices
and methods to those of Norwest and Norwest's plans with respect to the conduct
of Bay City's business following the Consolidation and to provide for the costs
and expenses relating to the consummation by Bay City of the Consolidation and
the other transactions contemplated by this Agreement.
(m) Bay City shall obtain, at its sole expense, Phase I environmental
assessments for each bank facility and each non-residential OREO property. Oral
reports of such environmental assessments shall be delivered to Norwest no later
than October 1, 1994 and written reports shall be delivered to Norwest no later
than October 15, 1994. Bay City shall obtain, at its sole expense, Phase II
environmental assessments for properties identified by Norwest on the basis of
the results of such Phase I environmental assessments.
(n) Bay City 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 October 15, 1994.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Bay City as
follows:
(a) From the date hereof until the Effective Time of the Consolidation,
Norwest will maintain its corporate existence in good standing; conduct, and
cause the Norwest Subsidiaries to conduct, their respective businesses in
compliance with all material obligations and duties imposed on them by all laws,
governmental regulations, rules and ordinances, and judicial orders, judgments
and decrees applicable to Norwest or the Norwest Subsidiaries, their businesses
or their properties; maintain all books and records of it and the Norwest
Subsidiaries, including all financial statements, in accordance with the
accounting principles and practices 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 Bay City all the information concerning
Norwest required for inclusion in a proxy statement or statements to be sent to
the shareholders of Bay City, or in any statement or application made by Bay
City to any governmental body in connection with the transactions contemplated
by this Agreement.
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(c) As promptly as practicable after the execution of this Agreement,
Norwest will file with the SEC a registration statement on Form S-4 (the
"Registration Statement") under the Securities Act and any other applicable
documents, relating to the shares of Norwest Common Stock to be delivered to the
shareholders of Bay City pursuant to the Consolidation Agreement, and will use
its best efforts to cause the Registration Statement to become effective. At the
time the Registration Statement becomes effective, the Registration Statement
will comply in all material respects with the provisions of the Securities Act
and the published rules and regulations thereunder, and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not false or
misleading, and at the time of mailing thereof to the Bay City shareholders, at
the time of the Bay City shareholders' meeting referred to in paragraph 4(c)
hereof and at the Effective Time of the Consolidation the prospectus included as
part of the Registration Statement, as amended or supplemented by any amendment
or supplement filed by Norwest (hereinafter the "Prospectus"), will not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not false or misleading; provided,
however, that none of the provisions of this subparagraph shall apply to
statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information furnished by Bay City
or any Bay City subsidiary for use in the Registration Statement or the
Prospectus.
(d) Norwest will file all documents required to be filed to list the
Norwest Common Stock to be issued pursuant to the Consolidation Agreement on the
New York Stock Exchange and the Chicago Stock Exchange and use its best efforts
to effect said listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Bay City pursuant to this Agreement and the Consolidation
Agreement will, upon such issuance and delivery to said shareholders pursuant to
the Consolidation Agreement, be duly authorized, validly issued, fully paid and
nonassessable. The shares of Norwest Common Stock to be delivered to the
shareholders of Bay City pursuant to the Consolidation Agreement are and will be
free of any preemptive rights of the stockholders of Norwest.
(f) Norwest will file all documents required to obtain, prior to the
Effective Time of the Consolidation, all necessary Blue Sky permits and
approvals, if any, required to carry out the transactions contemplated by this
Agreement, will pay all expenses incident thereto and will use its best efforts
to obtain such permits and approvals.
(g) Norwest will take all necessary corporate and other action and file
all documents required to obtain and will use its best efforts to obtain all
approvals of regulatory authorities, consents and approvals required of it to
carry out the transactions contemplated by this Agreement and will cooperate
with Bay City to obtain all such approvals and consents required by Bay City.
(h) Norwest will hold in confidence all documents and information
concerning Bay City 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 Bay
City (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 Bay City.
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(i) Norwest will file any documents or agreements required to be filed in
connection with the Consolidation under the National Bank Act.
(j) Norwest will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(k) Norwest shall consult with Bay City as to the form and substance of
any proposed press release or other proposed public disclosure of matters
related to this Agreement or any of the transactions contemplated hereby.
(l) Norwest shall give Bay City written notice of receipt of the
regulatory approvals referred to in paragraph 7(e) and of requests by regulatory
authorities for further information and of rejections by regulatory authorities;
provided, however, that the foregoing shall not require Norwest to disclose
confidential information.
(m) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit Bay City 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
Bay City or its representatives shall in any way affect, diminish or terminate
any of the representations, warranties or covenants of Norwest herein expressed.
6. CONDITIONS PRECEDENT TO OBLIGATION OF BAY CITY. The obligation of Bay
City to effect the Consolidation shall be subject to the satisfaction on or
before the Closing Date of the following further conditions, which may be waived
in writing by Bay City:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
after the date of this Agreement made in the ordinary course of business and not
expressly prohibited by this Agreement, the representations and warranties
contained in paragraph 3 hereof shall be true and correct in all respects
material to Norwest and its subsidiaries taken as a whole as if made as of the
Closing Date.
(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 Norwest Bank on or before the Closing Date.
(c) Bay City shall have received a favorable certificate, dated as of the
Effective Date of the Consolidation, signed by the Chairman, the President or
any Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs (a)
and (b) of this paragraph 6.
(d) This Agreement and the Consolidation Agreement shall have been
approved by the affirmative vote of the holders of the percentage of the
outstanding shares of Bay City required for approval of a plan of consolidation
in accordance with the provisions of Bay City's Articles of Association and the
National Bank Act.
(e) Norwest shall have received approval by the Federal Reserve Board and
by such other governmental agencies as may be required by law of the
transactions contemplated by this Agreement and the Consolidation Agreement and
all waiting and appeal periods prescribed by applicable law or regulation shall
have expired.
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(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 Bay City pursuant to this Agreement and the Consolidation Agreement shall
have been authorized for listing on the New York Stock Exchange and the Chicago
Stock Exchange.
(h) Bay City shall have received an opinion, dated the Closing Date, of
counsel to Bay City, substantially to the effect that, for federal income tax
purposes: (i) the Consolidation will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; (ii) no gain or
loss will be recognized by the holders of Bay City 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 Bay
City will be the same as the basis of Bay City Common Stock exchanged therefor;
and (iv) the holding period of the shares of Norwest Common Stock received by
the shareholders of Bay City will include the holding period of the Bay City
Common Stock, provided such shares of Bay City Common Stock were held as a
capital asset as of the Effective Time of the Consolidation.
(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of Norwest
to effect the Consolidation shall be subject to the satisfaction on or before
the Closing Date of the following conditions, which may be waived in writing by
Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
or events occurring after the date of this Agreement made in the ordinary course
of business and not expressly prohibited by this Agreement, the representations
and warranties contained in paragraph 2 hereof shall be true and correct in all
respects material to Bay City as if made as of the Closing Date.
(b) Bay City 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 on or before the Closing Date.
(c) This Agreement and the Consolidation Agreement shall have been
approved by the affirmative vote of the holders of the percentage of the
outstanding shares of Bay City required for approval of a plan of consolidation
in accordance with the provisions of Bay City's Articles of Association and the
National Bank Act.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Consolidation signed by the Chairman or President and by
the Secretary or Assistant Secretary of Bay City, as to the matters set forth in
subparagraphs (a) through (c) of this paragraph 7.
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(e) Norwest shall have received approval by all governmental agencies as
may be required by law of the transactions contemplated by this Agreement and
the Consolidation Agreement and all waiting and appeal periods prescribed by
applicable law or regulation shall have expired. No approvals, licenses or
consents granted by any regulatory authority shall contain any condition or
requirement relating to Bay City that, in the good faith judgment of Norwest, is
unreasonably burdensome to Norwest.
(f) Bay City shall have obtained any and all material consents or waivers
from other parties to loan agreements, leases or other contracts material to Bay
City's business required for the consummation of the Consolidation, and Bay City
shall have obtained any and all material permits, authorizations, consents,
waivers and approvals required for the lawful consummation by it of the
Consolidation.
(g) No court or governmental authority of competent jurisdiction shall
have issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(h) At any time since the date hereof the total number of shares of Bay
City Common Stock outstanding and subject to issuance upon exercise (assuming
for this purpose that phantom shares and other share-equivalents constitute Bay
City Common Stock) of all warrants, options, conversion rights, phantom shares
or other share-equivalents, other than any option held by Norwest, shall not
have exceeded 80,000.
(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened or be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) Norwest shall have received from the Chief Executive Officer and Chief
Financial Officer of Bay City a letter, dated as of the effective date of the
Registration Statement and updated through the date of Closing, in form and
substance satisfactory to Norwest, to the effect that:
(i) the interim quarterly financial statements of Bay City included
or incorporated by reference in the Registration Statement are prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the audited financial statements of Bay City;
(ii) the amounts reported in the interim quarterly financial
statements of Bay City agree with the general ledger of Bay City;
(iii) the annual and quarterly financial statements of Bay City
included in, or incorporated by reference in, the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the published rules and regulations
thereunder;
(iv) from June 30, 1994 (or, if later, since the date of the most
recent unaudited financial statements of Bay City as may be included in the
Registration Statement) to a date 5 days prior to the effective date of the
Registration Statement or 5 days prior to the Closing, there are no
increases in long-term debt, changes in the capital stock or decreases in
stockholders' equity of Bay City, except in each case for
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changes, increases or decreases which the Registration Statement discloses
have occurred or may occur or which are described in such letters. For the
same period, there have been no decreases in consolidated net interest
income, consolidated net interest income after provision for credit losses,
consolidated income before income taxes, consolidated net income and net
income per share amounts of Bay City, or in income before equity in
undistributed income of subsidiaries, in each case as compared with the
comparable period of the preceding year, except in each case for changes,
increases or decreases which the Registration Statement discloses have
occurred or may occur or which are described in such letters;
(v) they have reviewed certain amounts, percentages, numbers of
shares and financial information which are derived from the general
accounting records of Bay City, 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 Bay City and have found them to be in
agreement with financial records and analyses prepared by Bay City included
in the annual and quarterly financial statements, except as disclosed in
such letters.
(k) Bay City shall not have sustained since June 30, 1994 any material
loss or interference with its business from any civil disturbance or any fire,
explosion, flood or other calamity, whether or not covered by insurance.
(l) There shall be no reasonable basis for any proceeding, claim or action
of any nature seeking to impose, or that could reasonably be expected to result
in the imposition on Bay City of, any liability arising from the release of
hazardous substances under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended, which
has had or could reasonably be expected to have a material adverse effect upon
Bay City.
(m) Since June 30, 1994, no change shall have occurred and no
circumstances shall exist which has had or might reasonably be expected to have
a material adverse effect on the financial condition, results of operations,
business or prospects of Bay City (other than changes in banking laws or
regulations, or interpretations thereof, that affect the banking industry
generally or changes in the general level of interest rates).
(n) The Agreement of Shareholders, dated September 19, 1991, among certain
of the shareholders of Bay City shall have been terminated and shall be of no
further force and effect.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Bay City as
of the Effective Date of the Consolidation ("Bay City Employees") shall be
eligible for participation in the employee welfare and retirement plans of
Norwest, as in effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each Bay City employee shall be
eligible for participation in the employee welfare benefit plans of Norwest
listed below subject to any eligibility requirements applicable to such plans
and shall enter each plan not later than the first day of the calendar quarter
which begins at least 32 days after the Effective Date of the Consolidation (the
"Entry Date"):
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Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
Until the Entry Date for a given Norwest welfare benefit plan, Norwest agrees to
continue for the benefit of the Bay City Employees the Bay City long term
disability, medical, group life and AD&D insurance listed in Schedule 2(p)(i).
For the purpose of determining each Bay City Employee's benefit for the year in
which the Consolidation occurs under the Norwest vacation program, vacation
taken by a Bay City Employee in the year in which the Consolidation occurs will
be deducted from the total Norwest benefit. Each Bay City Employee shall
receive full credit for years of past service to Bay City for the purpose of
determining what benefits are due to such employee under the Short-Term
Disability, Severance and Vacation Programs.
(b) Employee Retirement Benefit Plans.
Each Bay City Employee shall be eligible for participation in the Norwest
Savings-Investment Plan (the "SIP"), as a new employee, subject to any
eligibility requirements applicable to the SIP.
Each Bay City Employee shall be eligible for participation, in the Norwest
Pension Plan (with full credit for years of past service to Bay City for the
purpose of satisfying any eligibility and vesting periods applicable to the
Norwest Pension Plan) under the terms thereof, and shall enter the Norwest
Pension Plan not later than the first day of the calendar quarter which begins
at least 32 days after the Effective Date of the Consolidation.
Until the Entry Date for a the Norwest Pension Plan, Norwest agrees to continue
for the benefit of the Bay City Employees the Bay City retirement plan listed in
Schedule 2(p)(i).
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Closing Date:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Consolidation shall not have been consummated by August 15,
1995 unless such failure of consummation shall be due to the failure of the
party seeking to terminate to perform or observe in all material respects
the covenants and agreements hereof to be performed or observed by such
party;
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(iii) by Bay City or Norwest upon written notice to the other party
if any court or governmental authority of competent jurisdiction shall have
issued a final order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement; or
(iv) by Bay City, within five business days after the end of the Index
Measurement Period (as defined in subparagraph (c)(ii) below), if both of
the following conditions are satisfied:
(A) the Norwest Measurement Price (as defined in subparagraph (c)
below) is less than $20; and
(B) the number obtained by dividing the Norwest Measurement Price
by the closing price of Norwest Common Stock on the trading day
immediately preceding the date of this Agreement is less than the
number obtained by dividing the Final Index Price (as defined in
subparagraph (c) below) by the Initial Index Price (as defined in
subparagraph (c) below) and subtracting .15 from such quotient.
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any liability
or damage to the other party hereto arising out of the breaching party's willful
and material breach of the warranties and representations made by, or willful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraph 4(g), 5(h)
and 10 shall survive such termination.
(c) For purposes of this paragraph 9:
(i) The "Company Market Capitalization" shall mean (a) the price of
one share of the common stock of a given company at the close of the
trading day immediately preceding the date of this Agreement multiplied by
(b) the number of shares of common stock of such company outstanding as of
June 30, 1994 (adjusted for any stock dividend, reclassification,
recapitalization, exchange of shares or similar transaction between June
30, 1994 and the close of the trading day immediately preceding the date of
this Agreement).
(ii) The "Index Group" shall mean all of those companies listed on
Exhibit C the common stock of which is publicly traded and as to which
there is, during the period of 20 trading days ending on the day
immediately preceding the meeting of the shareholders of Bay City held to
vote on this Agreement and the Consolidation Agreement (the "Index
Measurement Period"), no pending publicly announced proposal for such
company to be acquired, nor has there been any proposal by such company
publicly announced subsequent to the day before the date of this Agreement
to acquire another company in exchange for stock where, if the company to
be acquired were to become a subsidiary of the acquiring company, the
company to be acquired would be a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X promulgated by the SEC nor has there been any
program publicly announced subsequent to the day before the date of this
Agreement to repurchase 5% or more of the outstanding shares of such
company's common stock.
(iii) The "Initial Index Price" shall mean the sum of the following,
calculated for each of the companies in the Index Group: (a) the closing
price per share of
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common stock of each such company on the trading day immediately preceding
the date of this Agreement multiplied by (b) the Weighting Factor (as
defined below) for each such company.
(iv) The "Final Index Price" shall mean the sum of the following,
calculated for each of the companies in the Index Group: (a) the Final
Price for each such company multiplied by (b) the Weighting Factor (as
defined below) for each such company.
(v) The "Final Price" of any company in the Index Group shall mean
the average of the daily closing prices of a share of common stock of such
company, as reported on the consolidated transaction reporting system for
the market or exchange on which such common stock is principally traded,
during the Index Measurement Period.
(vi) The "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 20
trading days ending on the day immediately preceding the meeting of the
shareholders of Bay City held to vote on this Agreement and Consolidation
Agreement.
(vii) The "Total Market Capitalization" shall mean the sum of the
Company Market Capitalization for each of the companies in the Index Group.
(viii) The "Weighting Factor" for any given company shall mean the
Company Market Capitalization for such company divided by the Total Market
Capitalization.
If, between the date of this Agreement and the Bay City shareholder meeting
date, shares of common stock of Norwest or any company in the Index Group are
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, the closing prices for the common stock of such company shall be
appropriately and proportionately adjusted for the purposes of the definitions
above so as to be comparable to what the price would have been if the record
date of such common stock adjustment had been immediately following the
Effective Time of the Consolidation.
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any liability
or damage to the other party hereto arising out of the breaching party's wilful
and material breach of the warranties and representations made by it, or wilful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by Bay City shall be borne by Bay City, 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.
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12. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
13. NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be delivered in
person or shall be mailed by first class registered or certified mail, postage
prepaid, addressed as follows:
If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to Bay City:
The First National Bank of Bay City
1801 Seventh Street
Bay City, Texas 77414
Attention: Frank H. Lewis, Chairman
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Consolidation Agreement
contain the complete agreement between the parties hereto with respect to the
Consolidation and other transactions contemplated hereby and supersede all prior
agreements and understandings between the parties hereto with respect thereto.
15. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement.
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 Closing Date, 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 Bay
City shall be made which changes in a manner adverse to such shareholders the
consideration to be provided to said shareholders pursuant to this Agreement and
the Consolidation Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Consolidation Agreement shall survive
the Consolidation of Norwest Bank with Bay City or except as set forth in
paragraph 9(b), the termination of this Agreement. Paragraph 10 shall survive
the Consolidation.
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20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION THE FIRST NATIONAL BANK
OF BAY CITY
By: /s/ Kenneth R. Murray By: /s/ Janet Lewis Peden
------------------------------ ---------------------------
Its: Executive Vice President Its: Vice Chairman
------------------------------ ---------------------------
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EXHIBIT A
TO AGREEMENT AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF CONSOLIDATION
This Agreement and Plan of Consolidation (the "Consolidation
Agreement") is dated as of _________, 1995, between NORWEST INTERIM BANK BAY
CITY, NATIONAL ASSOCIATION, a national banking association ("Interim Bank") and
THE FIRST NATIONAL BANK OF BAY CITY, a national banking association ("Bay
City"). Interim Bank and Bay City are sometimes referred to herein as the
"Consolidating Banks".
PREAMBLE
Interim Bank and Bay City acknowledge and confirm the following:
(a) Interim Bank is a national banking association having its
principal office and place of business at ______________, Bay City, Texas. As
of _________, 19__, Interim Bank had capital of $________, divided into _______
shares of common stock, par value $___ per share ("Interim Bank Common Stock"),
and surplus of $________.
(b) Bay City is a national banking association having its principal
office and place of business at __________, Bay City, Texas. As of ________,
19__, Bay City had capital of $2,000,000, divided into 80,000 shares of common
stock, par value $25 per share ("Bay City Common Stock"), surplus of $________,
and retained earnings of $__________.
(c) Bay City and Norwest Corporation ("Norwest") have entered into an
Agreement dated as of September __, 1994 as amended (the "Reorganization
Agreement"), a copy of which is attached hereto as Appendix A, which
Reorganization Agreement contemplates the transactions to be effected by this
Consolidation Agreement.
(d) A majority of the Boards of Directors of Interim Bank and of Bay
City have duly approved this Consolidation Agreement and authorized its
execution.
(e) It is the intent of the parties hereto to effect a corporate
reorganization which qualifies as a tax-free reorganization pursuant to Sections
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code.
AGREEMENTS
IN CONSIDERATION OF THE PREMISES, Interim Bank and Bay City make this
Consolidation Agreement and fix the terms and conditions of the Consolidation of
Interim Bank and Bay City (the "Consolidation") as follows:
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SECTION 1
1.1 Pursuant to the authority of and in accordance with the
provisions of 12 U.S.C. 215, Interim Bank shall be consolidated with Bay City,
under the charter of Bay City (the "Consolidated Bank") .
1.2 The name of the Consolidated Bank shall be "The First National
Bank of Bay City"
1.3 The Consolidation shall be effective as of 11:59 p.m. on the date
specified in the certificate of approval to be issued by the Comptroller of the
Currency of the United States, under the seal of his office, approving the
Consolidation (the "Effective Date").
1.4 The business of the Consolidated Bank shall be that of a national
banking association and shall be conducted at the main office of the
Consolidated Bank, which shall be located at ____________, Bay City, Texas, and
at its legally established branches.
1.5 As of the Effective Date, the Articles of Association of the
Consolidated Bank shall read in their entirety as set forth in Appendix B
attached hereto, and the Consolidated Bank shall be authorized under such
Articles of Association to issue __________ shares of common stock, par value
$___ per share.
SECTION 2
As of the Effective Date:
2.1 The corporate existences of the Consolidating Banks shall be
consolidated into the Consolidated Bank.
2.2 All rights, franchises, and interests of the Consolidating Banks
in and to every type of property (real, personal and mixed) and choses in action
shall be transferred to and vested in the Consolidated Bank by virtue of the
Consolidation without any deed or other transfer. The Consolidated Bank, upon
the Consolidation and without any order or other action on the part of any court
or otherwise, shall hold and enjoy all rights of property, franchises, and
interests, including appointments, designations, and nominations, and all other
rights and interests as trustee, executor, administrator, registrar of stocks
and bonds, guardian of estates, assignee, receiver, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by either of the Consolidating Banks at the
time of Consolidation.
2.3 The Consolidated Bank shall be liable for all liabilities of
every kind and description, including liabilities arising out of the operation
of a trust department, of each of the Consolidating Banks existing as of the
Effective Date.
2.4 The amount of capital stock of the Consolidated Bank shall be
$__________, divided into _______ shares of common stock, each of $___ par
value, and at the time the Consolidation shall become effective, the
Consolidated Bank shall have a surplus of $__________ and retained earnings
which, when combined with the capital and surplus, will be equal to the combined
capital structures of the Consolidating Banks as stated in the preamble of this
Consolidation Agreement, adjusted, however, for the results of operations, and
the payment of dividends, if any, between ______, 19__, and the Effective Date.
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SECTION 3
As of the Effective Date:
3.1 Each share of Bay City Common Stock outstanding immediately prior
to the Effective Time of the Consolidation (other than shares as to which
statutory dissenters' appraisal rights have been exercised) will be converted
into and exchanged for a number of shares of Norwest Common Stock determined by
dividing 932,700 by the total number of shares of Bay City Common Stock then
outstanding.
(a) As soon as practicable after the consolidation becomes effective,
each holder of a certificate for shares of Bay City Common Stock
outstanding immediately prior to the time of consolidation shall be
entitled, upon surrender of such certificate for cancellation to Norwest
Bank Minnesota, National Association, as the designated agent of the
Consolidated Bank (the "Agent"), to receive a new certificate for the
number of whole shares of Norwest Common Stock to which such holder shall
be entitled on the basis above set forth. Until so surrendered each
certificate which, immediately prior to the time of consolidation,
represented shares of Bay City Common Stock shall not be transferable on
the books of the Consolidated Bank but shall be deemed (except for the
payment of dividends as provided below) to evidence ownership of the number
of whole shares of Norwest Common Stock into which such shares of Bay City
Common Stock have been converted on the basis above set forth; provided,
however, that, until the holder of such certificate shall have surrendered
the same for exchange as above set forth, no dividend payable to holders of
record of Norwest Common Stock as of any date subsequent to the effective
date of consolidation shall be paid to such holder with respect to the
Norwest Common Stock represented by such certificate, but, upon surrender
and exchange thereof as herein provided, there shall be paid by the
Consolidated Bank or the Agent to the record holder of such certificate for
Norwest Common Stock issued in exchange therefor an amount with respect to
such shares of Norwest Common Stock equal to all dividends that shall have
been paid or become payable to holders of record of Norwest Common Stock
between the effective date of consolidation and the date of such exchange.
(b) If between the date of the Reorganization Agreement and the
Effective Time of the Consolidation (as defined in the Reorganization
Agreement), shares of Norwest Common Stock shall be changed into a
different number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared
with a record date within such period, then the number of shares of Norwest
Common Stock into which a share of Bay City Common Stock shall be converted
on the basis above set forth, will be appropriately and proportionately
adjusted so that the number of such shares of Norwest Common Stock into
which a share of Bay City Common Stock shall be converted will equal the
number of shares of Norwest Common Stock which the holders of shares of Bay
City Common Stock would have received pursuant to such reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or stock dividend had the record date therefor been
immediately following the Effective Time of the Consolidation.
(c) 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
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the average of the closing prices of a share of Norwest Common Stock as
reported by the consolidated tape of the New York Stock Exchange for each
of the five (5) trading days immediately preceding the Effective Date of
the Consolidation (as defined in the Reorganization Agreement).
3.2 The shares of Interim Bank outstanding immediately prior to the time
of Consolidation shall be converted into and exchanged for ________ shares of
the Consolidated Bank, plus cash in the amount of $______.
3.3 From and after the Effective Date, there shall be no transfers on the
stock transfer books of Consolidated Banks of the shares of Bay City Common
Stock or Interim Bank Common Stock which were issued and outstanding immediately
prior to the Effective Date.
SECTION 4
4.1 The by-laws of Bay City as they exist at the Effective Date shall
continue in full force as the by-laws of the Consolidated Bank until altered,
amended, or repealed as provided therein or as provided by law.
4.2 As of the Effective Date, the following named persons shall serve as
the Board of Directors of the Consolidated Bank until the next annual meeting of
the shareholders or until such time as their successors have been elected and
have qualified:
______________________________
______________________________
______________________________
4.3 The officers of Bay City and Interim Bank holding office at the
Effective Date shall continue as the officers of the Consolidated Bank for the
term prescribed in the by-laws or until the Board of Directors otherwise shall
determine except that the following persons shall hold the offices set forth
below next to their names:
______________________________
______________________________
______________________________
SECTION 5
5.1 This Consolidation Agreement shall be submitted to the shareholders of
Bay City and Interim Bank, respectively, for approval at meetings to be called
and held in accordance with the articles of association of Bay City and the
articles of association of Interim Bank and in accordance with applicable
provisions of law. Such approval by the shareholders shall require the
affirmative vote of the shareholders of each of the Consolidating Banks owning
at least two-thirds of its capital stock outstanding.
SECTION 6
6.1 The Consolidation shall be subject to and conditioned upon the
following:
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(a) approval of this Consolidation Agreement by the shareholders of Bay
City and Interim Bank as required by law;
(b) approval of the Consolidation by all appropriate banking and regulatory
authorities and the satisfaction of all other requirements prescribed by
law necessary for consummation of the Consolidation; and
(c) satisfaction of the conditions precedent set forth in paragraphs 6 and
7 of the Reorganization Agreement.
6.2 At any time before the Effective Date, if any of the following
circumstances obtain, this Consolidation Agreement may be terminated, at the
election of Bay City or Interim Bank, by written notice from the party so
electing to the other, or the consummation of the Consolidation may be postponed
for such period, and subject to such further rights of Bay City and Interim
Bank, or either of them, to terminate this Consolidation Agreement as Bay City
and Interim Bank may agree in writing:
(a) by mutual consent of the Boards of Directors of the Consolidating Banks
if consummation of the Consolidation would be inadvisable in the opinion of
said Boards; or
(b) by action of the Board of Directors of any party hereto if the
Reorganization Agreement is terminated.
SECTION 7
7.1 Bay City and Interim Bank, by mutual consent of their respective
Boards of Directors, may amend this Consolidation Agreement before the Effective
Date; provided, however, that after this Consolidation Agreement has been
approved by the shareholders of Bay City, no such amendment shall affect the
rights of such shareholders of Bay City in a manner which is materially adverse
to such shareholders.
7.2 This Consolidation Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Bay City and Interim Bank have caused this
Consolidation Agreement to be executed by their respective duly authorized
officers and their corporate seals to be hereunto affixed as of the date first
above written, pursuant to a resolution of each Consolidating Bank's Board of
Directors, acting by a majority thereof, and witness the signatures hereto of a
majority of each of said Consolidating Bank's Board of Directors.
(SEAL) NORWEST INTERIM BANK BAY CITY,
NATIONAL ASSOCIATION
ATTEST:
By: _______________________________
_______________________ Its: ______________________________
Secretary
A-32
<PAGE>
STATE OF TEXAS )
) ss
COUNTY OF ____________)
On this _____ day of __________, 19__, before me, a Notary Public for
the State and County aforesaid, personally came ____________________ , as
_________________ , and ____________________ , as __________________ , of
NORWEST INTERIM BANK BAY CITY, NATIONAL ASSOCIATION, and each in his or her said
capacity acknowledged the foregoing instrument to be the act and deed of said
bank and the seal affixed thereto to be its seal.
WITNESS my official seal and signature this day and year aforesaid.
____________________________
(Seal of Notary) Notary Public, __________ County
My Commission Expires ________
A-33
<PAGE>
(SEAL) THE FIRST NATIONAL BANK OF BAY CITY
ATTEST:
By: ________________________________
_______________________ Its: _______________________________
Secretary
STATE OF TEXAS )
) ss
COUNTY OF ____________)
On this _____ day of __________, 19__, before me, a Notary Public for
the State and County aforesaid, personally came ____________________ , as
_________________ , and ____________________ , as __________________ , of THE
FIRST NATIONAL BANK OF BAY CITY, and each in his or her said capacity
acknowledged the foregoing instrument to be the act and deed of said bank and
the seal affixed thereto to be its seal.
WITNESS my official seal and signature this day and year aforesaid.
____________________________
(Seal of Notary) Notary Public, __________ County
My Commission Expires ________
A-34
<PAGE>
APPENDIX B
OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
<PAGE>
February 6, 1995
Board of Directors
The First National Bank of Bay City
1801 7th Street
Bay City, Texas 77414
Board Members:
You have requested our opinion, as an independent financial analyst to the
common shareholders of The First National Bank of Bay City, Bay City, Texas
("Bay City"), as to the fairness, from a financial point of view to the common
shareholders of Bay City, of the terms of the proposed acquisition of Bay City
by Norwest Corporation, Minneapolis, Minnesota ("Norwest"). Subject to the
terms and conditions contained in the Agreement and Plan of Reorganization, a
wholly-owned bank subsidiary of Norwest ("Norwest Bank") will be consolidated
by statutory consolidation with Bay City pursuant to the Consolidation
Agreement, under the charter of Bay City, in which consolidation each share of
Bay City Common Stock outstanding immediately prior to the Effective Time of the
Consolidation (other than shares as to which statutory dissenters' appraisal
rights have been exercised) will be converted into and exchanged for a number of
shares of Norwest Common Stock determined by dividing 932,700 by the total
number of shares of Bay City Common Stock then outstanding.
As part of its banking analysis business, Alex Sheshunoff & Co. Investment
Banking is continually engaged in the valuation of bank, bank holding company
and thrifts securities in connection with mergers and acquisitions nationwide.
Prior to being retained for this assignment, Alex Sheshunoff & Co. Investment
Banking has provided professional services and products to Bay City and Norwest.
The revenues derived from such services and products are insignificant when
compared to the firm's total gross revenues.
In connection with this assignment, we reviewed: (i) the terms of the Agreement
and Plan of Reorganization between Norwest and Bay City; (ii) the most recent
external auditor's reports to the Board of Directors of Bay City and the
internal audit function of Norwest; (iii) the December 31, 1994 Report of
Condition and Income for each organization and the audited December 31, 1993
Balance Sheet and Income Statement for each organization; (iv) each
B-1
<PAGE>
Board of Directors
The First National Bank of Bay City
February 6, 1995
Page 2
organization's Rate Sensitivity Analysis reports; (v) each organization's
listing of marketable securities showing rate, maturity and market value as
compared to book value; (vi) each organization's internal loan classifications;
(vii) other real estate owned for each organization; (viii) the budget and long
range operating plan of each organization; (ix) unfunded letters of credit and
any other off-balance sheet risks for each organization; (x) the Minutes of the
Board of Directors meetings for each organization; (xi) the most recent Board
report for each organization; (xii) significant real properties for each
organization; (xiii) the directors and officers liability and blanket bond
insurance policies for Norwest and the blanket bond insurance policy for Bay
City; and (xiv) market conditions and current trading levels of outstanding
equity securities of both organizations.
We have also had discussions with the management of Bay City and Norwest
regarding their respective financial results and have analyzed the most current
financial data available on Bay City and Norwest. We also considered such other
information, financial studies, analyses and investigations, and economic and
market criteria which we deemed relevant. We have met with the management of
Bay City and Norwest to discuss the foregoing information with them.
We have considered certain financial data of Bay City and Norwest, and have
compared that data with similar data for other banks and bank holding companies
which have recently merged or been acquired; furthermore, we have considered the
financial terms of these business combinations involving said banks and bank
holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of Bay City
or Norwest.
In reaching our opinion we took into consideration the financial benefits of the
proposed transaction to all Bay City shareholders. Based on all factors that we
deem relevant and assuming the accuracy and completeness of the information and
data provided to us by Bay City and Norwest, it is our opinion as of February
XX, 1995, that the proposed transaction is fair and equitable to all Bay City
shareholders from a financial point of view.
B-2
<PAGE>
Board of Directors
The First National Bank of Bay City
February 6, 1995
Page 3
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
/s/ Wade Schuessler
By: ____________________________
Wade Schuessler
Vice President
WS/KH
B-3
<PAGE>
APPENDIX C
UNITED STATES CODE
TITLE 12, SECTION 215
<PAGE>
* * * * *
(B) LIABILITY OF CONSOLIDATED ASSOCIATION; CAPITAL STOCK; DISSENTING
SHAREHOLDERS
The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located:
Provided, That if such consolidation shall be voted for at such meetings by the
necessary majorities of the shareholders of each association and State bank
proposing to consolidate, and thereafter the consolidation shall be approved by
the Comptroller, any shareholder of any of the associations or State banks so
consolidated who has voted against such consolidation at the meeting of the
association or bank of which he is a stockholder or who has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of consolidation, shall be entitled to receive the value of the
shares so held by him when such consolidation is approved by the Comptroller
upon written request made to the consolidated association at any time before
thirty days after the date of consummation of the consolidation, accompanied by
the surrender of his stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the consolidation, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the consolidated banking
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(D) APPRAISAL BY COMPTROLLER; EXPENSES OF CONSOLIDATED ASSOCIATION; SALE AND
RESALE OF SHARES; STATE APPRAISAL AND CONSOLIDATION LAW
If, within ninety days from the date of consummation of the consolidation,
for any reason one or more of the appraisers is not selected as herein provided,
or the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the consolidated banking association. The value of the shares
ascertained shall be promptly paid to the dissenting shareholders by the
consolidated banking association. Within thirty days after payment has been
made to all dissenting shareholders as provided for in this section the shares
of stock of the consolidated banking association which would have been delivered
to such dissenting shreholders had they not requested payment shall be sold by
the consolidated banking association at an advertised public auction, unless
some other method of sale is approved by the Comptroller, and the consolidated
banking association shall have the
C-1
<PAGE>
rights to purchase any of such shares at such public auction, if it is the
highest bidder therefor, for the purpose of reselling such shares within thirty
days thereafter to such person or persons and at such price not less than par as
its board of directors by resolution may determine. If the shares are sold at
public auction at a price greater than the amount paid to the dissenting
shareholder the excess in such sale price shall be determined in the manner
prescribed by the law of the State in such cases, rather than as provided in
this section, if such provision is made in the State law; and no such
consolidation shall be in contravention of the law of the State under which such
bank is incorporated.
C-2
<PAGE>
APPENDIX D
BANKING CIRCULAR 259
<PAGE>
BC-259
BANKING ISSUANCE
- -------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- -------------------------------------------------------------------------------
Type: Banking Circular Subject: Stock Appraisals
- -------------------------------------------------------------------------------
TO: Chief Executive Officers of National Banks, Deputy
Comptrollers (District), Department and Division Heads, and
Examining Personnel
PURPOSE
- -------
This banking circular informs all national banks of the valuation methods used
by the Office of the Comptroller of the Currency (OCC) to estimate the value of
a bank's shares when requested to do so by a shareholder dissenting to the
conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985 and September 30, 1991 are also
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
- ----------
Under 12 U.S.C. Sections 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the Office of the
Comptroller of the Currency (OCC). 12 U.S.C. Section 215 provides these
appraisal rights to any shareholder dissenting to a consolidation. Any
dissenting shareholder of a target bank in a merger is also entitled to these
appraisal rights pursuant to 12 U.S.C. Section 215a.
- -------------------------------------------------------------------------------
Date: March 5, 1992
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
D-1
<PAGE>
METHODS OF VALUATION USED
- -------------------------
Through its appraisal process, the OCC attempts to arrive at a fair estimate of
the value of a bank's shares. After reviewing the particular facts in each case
and the available information on a bank's shares, the OCC selects an appropriate
valuation method, or combination of methods, to determine a reasonable estimate
of the shares' value.
MARKET VALUE
- ------------
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value is not well established, other
methods of estimating market value can be used, such as the investment value and
adjusted book value methods.
INVESTMENT VALUE
- ----------------
Investment value requires an assessment of the value to investors of a share in
the future earnings of the target bank. Investment value is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns. If
the state in which the subject bank is located provides a sufficient number of
comparable banks using location, size and earnings patterns as the criteria for
selection, the price/earnings ratios assigned to the banks are applied to the
earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
ADJUSTED BOOK VALUE
- -------------------
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since the value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
D-2
<PAGE>
OVERALL VALUATION
- -----------------
The OCC may use more than one of the above-described methods in deriving the
value of shares of stock. If more than one method is used, varying weights may
be applied in reaching an overall valuation. The weight given to the value by a
particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
PURCHASE PREMIUMS
- -----------------
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payment are not regular
or predictable elements of market value. Consequently, the OCC's valuation
methods do not include consideration of purchase premiums in arriving at the
value of shares.
STATISTICAL DATA
- ----------------
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590 (Item
2), banks may provide shareholders a copy of this banking circular or disclose
the information contained herein, including the past results of OCC appraisals.
If the bank discloses the past results of the OCC appraisals, it should advise
shareholders that: (1) the OCC did not rely on all the information set forth in
the chart in performing each appraisal; and (2) the OCC's past appraisals are
not necessarily determinative of its future appraisals of a particular bank's
shares.
D-3
<PAGE>
<TABLE>
<CAPTION>
APPRAISAL RESULTS
- -----------------
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE* VALUE OFFERED VALUE OF PEER GROUP
<S> <C> <C> <C> <C>
1/1/85 107.25 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
8/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
5/1/87 186.42 NA 360.05 5.1
6/11/87 50.46 70.00 92.35 4.5
6/11/87 38.53 55.00 77.75 4.5
7/31/87 13.10 NA 20.04 6.7
8/26/87 55.92 57.52 70.88 NC
8/31/87 19.55 23.75 30.64 5.0
8/31/87 10.98 NA 17.01 4.2
10/6/87 56.48 60.00 73.11 5.6
3/15/88 297.63 NA 414.95 6.1
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 NA 215.36 6.0
8/30/88 768.62 677.00 1,090.55 10.7
3/31/89 773.62 NA 557.30 7.9
5/26/89 136.47 180.00 250.42 4.5
5/29/90 9.87 NA 11.04 9.9
</TABLE>
- -------------------------------------------------------------------------------
* The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA - Not Available
NC - Not Computed
- -------------------------------------------------------------------------------
D-4
<PAGE>
For more information regarding the OCC's stock appraisal process, contact the
Office of the Comptroller of the Currency, 490 L'Enfant Plaza East, S.W.,
Washington, D.C. 20219, Director for Corporate Activity, Bank Organization and
Structure.
/s/ Frank McGuire
- -----------------------------------------
Frank McGuire
Acting Corporate Policy and Economic Analysis
D-5
