<PAGE>
As filed with the Securities and Exchange Commission on January 30, 1995
Registration No. 033-
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0449260
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
Stanley S. Stroup, Esq. Copy to :
Executive Vice President and General Counsel Mary E. Schaffner, Esq.
Norwest Corporation Norwest Corporation
Norwest Center Norwest Center
Sixth and Marquette Sixth and Marquette
Minneapolis, Minnesota 55479-1026 Minneapolis, Minnesota 55479-1026
612-667-8858
(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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
Title of Securities Amount Proposed Maximum Proposed Maximum Amount of
to Be to Be Offering Price Aggregate Registration
Registered Registered Per Share Offering Price Fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 276,000 N/A $7,503,650 (3) $2,587.50
Shares (2)
(par value $1 2/3 per share) (1)
==================================================================================================
</TABLE>
(1) Each share of the registrant's common stock includes one preferred stock
purchase right.
(2) Based upon the maximum number of shares that may be issued in the
transaction described herein.
(3) Estimated solely for purpose of computing the registration fee, in
accordance with Rule 457(f), based upon the book value, as of September
30, 1994, of all shares of common stock to be acquired by the registrant
in the transaction described herein.
__________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
_______________________________________________________________________________
<PAGE>
NORWEST CORPORATION
-------------------
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Heading
------------- ------------------
<S> <C> <C>
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Available Information;
Pages of Prospectus Incorporation of Certain
Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary Information
Charges, and Other Information
4. Terms of the Reorganization The Reorganization
5. Pro Forma Financial Information *
6. Material Contracts with the Company The Reorganization
Being Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Opinion
9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Summary Information--
Registrants Comparative Unaudited Per
Share Data; Summary
Information--Selected Financial
Data; Certain Regulatory
Considerations
11. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference;
Management and Additional
Information
</TABLE>
<PAGE>
NORWEST CORPORATION
-------------------
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Heading
------------- ------------------
<S> <C> <C>
12. Information with Respect to S-2 or *
S-3 Registrants
13. Incorporation of Certain Documents *
by Reference
14. Information with Respect to *
Registrants Other Than S-2 or S-3
Registrants
15. Information with Respect to S-3 *
Companies
16. Information with Respect to *
S-2 or S-3 Companies
17. Information with Respect to Companies Summary Information--
Other Than S-2 or S-3 Companies Comparative Unaudited Per Share
Data; Summary Information--
Selected Financial Data;
Information About the Selling
Entities
18. Information If Proxies, Consents, Meeting Information; The
or Authorizations Are to Be Solicited Reorganization--Interests of
Certain Persons in the
Reorganization; The
Reorganization--Rights of Dissenting
Shareholders
19. Information If Proxies, Consents, or *
Authorizations Are Not to Be Solicited
in an Exchange Offer
</TABLE>
- ---------------------------
*Item is omitted because answer is negative or item is inapplicable.
<PAGE>
BABBSCHA COMPANY
6315 UNIVERSITY AVENUE N.E.
FRIDLEY, MINNESOTA 55432
__________, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Babbscha Company ("Babbscha") to be held at the ________________________,
_____________, ________, _________, on ________, ________________, at _________,
local time. At the Special Meeting you will be asked to consider and vote upon
the Agreement and Plan of Reorganization, dated as of September 9, 1994, among
Babbscha, Fridley State Bank (the "Bank"), Banrein, Inc. ("Banrein") and Norwest
Corporation ("Norwest"), and the related Agreement and Plan of Merger (together,
the "Reorganization Agreement"), providing for (a) the merger of a wholly owned
subsidiary of Norwest into Babbscha (the "Babbscha Merger"), (b) the merger of
Banrein with and into a wholly-owned subsidiary of Norwest (the "Banrein
Merger") (collectively, the "Mergers") and (c) subsequent to the Mergers, the
merger of the Bank with and into a wholly owned banking subsidiary of Norwest
(the "Bank Merger," and together with the Mergers, the "Reorganization").
Under the terms of the Reorganization Agreement, the Babbscha Merger will
result in the conversion of each share of Babbscha Common Stock outstanding
immediately prior to the time the Babbscha Merger becomes effective into a
number of shares of Norwest Common Stock determined in accordance with the
provisions of the Reorganization Agreement, which are described in the
accompanying Proxy Statement-Prospectus for the Special Meeting.
The enclosed Proxy Statement-Prospectus contains a more complete description
of the terms of the Reorganization. You are urged to read the Proxy Statement-
Prospectus carefully.
The Board of Directors has approved the Reorganization Agreement as being in
the best interest of Babbscha's shareholders and recommends that you vote in
favor of the Babbscha Merger. In making this recommendation, the Board of
Directors has considered numerous factors including the consideration offered by
Norwest and the structure of the proposed Reorganization, which is designed to
enhance the value of the Babbscha shareholders' investment and to be tax-free
for federal income tax purposes to Babbscha shareholders receiving Norwest
Common Stock. Briggs & Morgan, P.A., special tax counsel, is providing its
opinion to the Board of Directors that the Babbscha Merger will be treated as a
tax-free reorganization for federal income tax purposes. YOU SHOULD CONSULT YOUR
OWN TAX ADVISOR CONCERNING THE FEDERAL, AND ANY APPLICABLE FOREIGN, STATE, AND
LOCAL INCOME TAX CONSEQUENCES OF THE MERGER.
In order to ensure that your vote is represented at the Special Meeting,
PLEASE DATE, SIGN, AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If
you attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy.
[Name]
President
<PAGE>
BABBSCHA COMPANY
6315 UNIVERSITY AVENUE N.E.
FRIDLEY, MINNESOTA 55432
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON __________, 1995
---------------------
A special meeting of shareholders (the "Special Meeting") of Babbscha Company
("Babbscha"), a Minnesota corporation, will be held at the
____________________________, _____________, ________, _________, on ________,
__________, ____, at _________, local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization,
dated as of September 9, 1994, (including the Agreement and Plan of Merger
attached thereto) by and among Babbscha, Banrein, Inc., Fridley State Bank
(the "Bank"), a Minnesota state 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) a wholly
owned subsidiary of Norwest would be merged with Babbscha, with Babbscha as
the surviving corporation, and each outstanding share of common stock, no par
value of Babbscha, would be converted into shares of common stock, par value
$1 2/3 per share, of Norwest, (b) Banrein, Inc. would be merged with and into
a wholly-owned subsidiary of Norwest (collectively, the Mergers"), and (c)
subsequent to the consummation of the Merger, the Bank would be merged with a
wholly owned banking subsidiary of Norwest (the "Bank Merger," and together
with the Mergers, the "Reorganization"); and to authorize such further action
by the Board of Directors and proper officers of Babbscha as may be necessary
or appropriate to carry out the intent and purposes of the Reorganization.
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 Babbscha at the close of business
on __________, 1995, will be entitled to receive 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
[Name]
[Title]
__________, 1995
HOLDERS OF BABBSCHA 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>
BANREIN, INC.
6315 UNIVERSITY AVENUE N.E.
FRIDLEY, MINNESOTA 55432
__________, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Banrein, Inc. ("Banrein") to be held at the ________________________,
_____________, ________, _________, on ________, ________________, at _________,
local time. At the Special Meeting you will be asked to consider and vote upon
the Agreement and Plan of Reorganization, dated as of September 9, 1994, among
Babbscha Company, Fridley State Bank (the "Bank"), Banrein and Norwest
Corporation ("Norwest"), and the related Agreement and Plan of Merger (together,
the "Reorganization Agreement"), providing for (a) the merger of Banrein with
and into a wholly-owned subsidiary of Norwest (the "Banrein Merger"), (b) the
merger of a wholly owned subsidiary of Norwest into Babbscha Company (the
"Babbscha Merger") (collectively, the "Mergers") and (c) subsequent to the
Mergers, the merger of the Bank with a wholly owned banking subsidiary of
Norwest (the "Bank Merger," and together with the Mergers, the
"Reorganization").
Under the terms of the Reorganization Agreement, the Banrein Merger will
result in the conversion of each share of Banrein Common Stock outstanding
immediately prior to the time the Babbscha Merger becomes effective other than
shares owned by Babbscha into a number of shares of Norwest Common Stock
determined in accordance with the provisions of the Reorganization Agreement,
which are described in the accompanying Proxy Statement-Prospectus for the
Special Meeting.
The enclosed Proxy Statement-Prospectus contains a more complete description
of the terms of the Reorganization. You are urged to read the Proxy Statement-
Prospectus carefully.
The Board of Directors has approved the Reorganization Agreement as being in
the best interest of Banrein's shareholders and recommends that you vote in
favor of the Banrein Merger. In making this recommendation, the Board of
Directors has considered numerous factors including the consideration offered by
Norwest and the structure of the proposed Reorganization, which is designed to
enhance the value of the Banrein shareholders' investment and to be tax-free for
federal income tax purposes to Banrein shareholders receiving Norwest Common
Stock. Briggs & Morgan, P.A., special tax counsel, is providing its opinion to
the Board of Directors that the Banrein Merger will be treated as a tax-free
reorganization for federal income tax purposes. YOU SHOULD CONSULT YOUR OWN TAX
ADVISOR CONCERNING THE FEDERAL, AND ANY APPLICABLE FOREIGN, STATE, AND LOCAL
INCOME TAX CONSEQUENCES OF THE BANREIN MERGER.
In order to ensure that your vote is represented at the Special Meeting,
PLEASE DATE, SIGN, AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If
you attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy.
[Name]
President
<PAGE>
BANREIN, INC.
6315 UNIVERSITY AVENUE N.E.
FRIDLEY, MINNESOTA 55432
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON __________, 1995
---------------------
A special meeting of shareholders (the "Special Meeting") of Banrein, Inc.
("Banrein"), a Minnesota corporation, will be held at the
____________________________, _____________, ________, _________, on ________,
__________, ____, at _________, local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization,
dated as of September 9, 1994, by and among Babbscha Company ("Babbscha"),
Banrein, Fridley State Bank (the "Bank"), a Minnesota state bank, and Norwest
Corporation ("Norwest"), a Delaware corporation, (including the Agreement and
Plan of Merger between Banrein and a wholly-owned subsidiary of Norwest,
attached thereto), copies of which are included in the accompanying Proxy
Statement-Prospectus as, respectively, Appendices A and B, under the terms of
which (a) Banrein would be merged with and into a wholly-owned subsidiary of
Norwest, (b) a wholly owned subsidiary of Norwest would be merged with
Babbscha, with Babbscha as the surviving corporation, and each outstanding
share of common stock, no par value of respectively, Banrein and Babbscha,
would be converted into shares of common stock, par value $1 2/3 per share,
of Norwest (collectively, the Mergers"), and (c) subsequent to the
consummation of the Merger, the Bank would be merged with a wholly owned
banking subsidiary of Norwest (the "Bank Merger," and together with the
Mergers, the "Reorganization"); and to authorize such further action by the
Board of Directors and proper officers of Banrein as may be necessary or
appropriate to carry out the intent and purposes of the Reorganization.
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 Banrein at the close of business
on __________, 1995, will be entitled to receive 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
[Name]
[Title]
__________, 1995
HOLDERS OF BANREIN 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>
FRIDLEY STATE BANK
6315 UNIVERSITY AVENUE N.E.
FRIDLEY, MINNESOTA 55432
__________, 19__
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Fridley State Bank (the "Bank") to be held at the
________________________, _____________, ________, _________, on ________,
________________, at _________, local time. At the Special Meeting you will be
asked to consider and vote upon the merger (the "Bank Merger") of the Bank with
Norwest Interim Bank Fridley, N.A. ("Norwest Bank"), a wholly owned subsidiary
of Norwest Corporation ("Norwest"), pursuant to the terms of an Agreement and
Plan of Merger (the "Bank Merger Agreement") to be entered into by the Bank and
Norwest Bank and the related Agreement and Plan of Reorganization, dated as of
September 9, 1994, among Babbscha Company ("Babbscha"), Banrein, Inc., the Bank,
and Norwest (the "Reorganization Agreement").
Pursuant to the terms of the Bank Merger Agreement and the Reorganization
Agreement, the Bank Merger will result in the conversion of each share of Bank
Common Stock outstanding prior to the Bank Merger, other than shares owned by
Babbscha, into a number of shares of Norwest Common Stock determined in
accordance with the provisions of the Reorganization Agreement, which are
described in the enclosed Proxy Statement-Prospectus.
Please read the enclosed Proxy Statement-Prospectus carefully for more
complete information concerning the Bank Merger and related transactions, and
the parties involved.
The Board of Directors has approved the Bank Merger as being in the best
interest of the Bank's shareholders and recommends that you vote in favor of the
Bank Merger. In making this recommendation, the Board of Directors has
considered numerous factors including the consideration offered by Norwest and
the structure of the proposed Bank Merger, which is designed to enhance the
value of the Bank's shareholders' investment and to be tax-free for federal
income tax purposes to Bank shareholders receiving Norwest Common Stock. Briggs
& Morgan, P.A., special tax counsel, is providing its opinion to the Board of
Directors that the Bank Merger will be treated as a tax-free reorganization for
federal income tax purposes. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING
THE FEDERAL, AND ANY APPLICABLE FOREIGN, STATE, AND LOCAL INCOME TAX
CONSEQUENCES OF THE BANK MERGER.
Approval of the Bank Merger requires the affirmative vote of at least two-
thirds of the outstanding shares of Bank Common Stock. 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.
[Name]
[Title]
<PAGE>
FRIDLEY STATE BANK
6315 UNIVERSITY AVENUE N.E.
FRIDLEY, MINNESOTA 55432
----------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
ON ________________
----------------------
A special meeting of stockholders (the "Special Meeting") of Fridley State
Bank (the "Bank"), a Minnesota state bank, will be held at the
________________________, _____________, ________, _________, on ________,
________________, at _________, local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization
dated as of September 9, 1994, by and among Babbscha Company, Banrein, Inc.,
the Bank and Norwest Corporation (the "Reorganization Agreement"), a copy of
which is included as Appendix A in the accompanying Proxy Statement-
Prospectus, including the merger (the "Bank Merger") of the Bank with Norwest
Interim Bank Fridley, N.A. ("Norwest Bank"), a wholly owned subsidiary of
Norwest Corporation, a Delaware corporation, pursuant to the terms of an
Agreement and Plan of Merger (the "Bank Merger Agreement") to be entered into
by the Bank and Norwest Bank (the form of which is attached to and made part
of the Reorganization Agreement and included as Appendix C in the Proxy
Statement-Prospectus), under the laws of the Minnesota, and to vote upon any
other matters incidental to the Bank Merger.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record on the books of the Bank at the close of business
on __________, 1995, will be entitled to receive 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
[Name]
[Title]
____________, 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
BABBSCHA COMPANY
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________________, 1995
----------
PROXY STATEMENT OF
BANREIN, INC.
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 1995
__________
PROXY STATEMENT OF
FRIDLEY STATE BANK
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________, 1995
__________
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
This Prospectus of Norwest Corporation ("Norwest") relates to up to 276,000
shares of the common stock, par value $1 2/3 per share, of Norwest ("Norwest
Common Stock") issuable to (i) the shareholders of Babbscha Company ("Babbscha")
upon consummation of the proposed merger (the "Babbscha Merger") of a wholly
owned subsidiary of Norwest ("Merger Co.") with Babbscha, with Babbscha as the
surviving corporation, (ii) the stockholders, other than Babbscha, of Banrein,
Inc. ("Banrein") upon the consummation of the proposed merger (the "Banrein
Merger") of Banrein with and into a wholly-owned subsidiary of Norwest ("Banrein
Merger Co."), with Banrein as the surviving corporation (the Babbscha Merger and
Banrein Merger are collectively referred to as the "Mergers"), pursuant to the
terms of the Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of September 9, 1994, by and among Babbscha, Banrein, and
Fridley State Bank (the "Bank"), and Norwest and each related Agreement and Plan
of Merger attached thereto (collectively, the "Merger Agreements"), and (iii)
the stockholders, other than Babbscha, of the Bank upon consummation of the
proposed merger (the "Bank Merger") of the Bank with and into Norwest Interim
Bank Fridley, N.A. ("Norwest Bank"), a wholly owned national bank subsidiary of
Norwest, pursuant to the terms of the Reorganization Agreement and an Agreement
and Plan of Merger to be entered into by the Bank and Norwest Bank attached
thereto (the "Bank Merger Agreement"). As used in this Prospectus, Babbscha,
Banrein and the Bank are sometimes collectively referred to as the "Selling
Entities".
The Reorganization Agreement, together with the Merger Agreements and the Bank
Merger Agreement, are referred to in this Proxy Statement-Prospectus as the
"Reorganization Agreement." The Mergers and the Bank Merger are sometimes
hereinafter referred to collectively as the "Reorganization." The
Reorganization Agreement including the forms of each of the Merger Agreements
and the Bank Merger Agreement are set forth in Appendix A, Appendix B, and
Appendix C, respectively, to this Proxy Statement-Prospectus and are
incorporated by reference herein.
This Prospectus also serves as the Proxy Statement of Babbscha for a special
meeting of its shareholders to be held on __________, 1995 (the "Babbscha
Special Meeting"), the Proxy Statement of Banrein for a special meeting of its
shareholders to be held on ___________, 1995 (the "Banrein Special Meeting");
and the Proxy Statement of the Bank for a special meeting of its stockholders to
be held on __________, 1995 (the "Bank Special Meeting," together with the
Babbscha Special Meeting, and the Banrein Special Meeting are collectively
referred to as the "Special Meetings").
Except as described herein, upon consummation of the Mergers, each outstanding
share of common stock of Babbscha ("Babbscha Common Stock") and each outstanding
share of the common stock of Banrein other than shares owned by Babbscha and,
upon consummation of the Bank Merger, each outstanding share of common stock of
the Bank ("Bank Common Stock"), other than shares owned by Babbscha, will be
converted into shares of common stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock"). At the "Effective Time of the Mergers" (as defined in
this Proxy Statement), (i) each share of Babbscha Common Stock (other than
shares as to which statutory dissenters' rights have been exercised) will be
converted into and exchanged for that number of shares of Norwest Common Stock
determined by dividing 152,140 by the number of shares of Babbscha Common Stock
then outstanding; and (ii) each share of Banrein Common Stock owned by
shareholders other than Babbscha will be converted into and exchanged for the
number of shares of Norwest Common Stock determined by dividing 15,653 by the
number of shares of Banrein Common Stock (other than those owned by Babbscha)
then outstanding. Following the Effective Time of the Mergers, the Bank will
merge with and into Norwest Bank, under the charter of Norwest Bank. Each share
of Bank Common Stock owned by shareholders other than Babbscha will be converted
into and exchanged for that number of shares of Norwest Common Stock determined
by dividing 108,207 by the number of shares of Bank Common Stock (other than
those owned by Babbscha) then outstanding.
For a more complete description of the Reorganization Agreement, the Merger
Agreements, the Bank Merger Agreement and the terms of the Reorganization, see
"THE REORGANIZATION."
This Proxy Statement-Prospectus and the forms of proxy for the Babbscha
Special Meeting, the Banrein Special Meeting and the Bank Special Meeting are
first being mailed to shareholders of Babbscha, Banrein, and the Bank on or
about __________, 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 ___, 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 also may be inspected at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005 and at the offices of the
Chicago Stock Exchange at One Financial Place, 440 South LaSalle Street,
Chicago, Illinois 60605.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and the exhibits thereto (the
"Registration Statement") covering the securities offered hereby that Norwest
has filed with the Commission. Certain portions of the Registration Statement
have been omitted pursuant to the rules and regulations of the Commission.
Reference is hereby made to such omitted portions for further information with
respect to Norwest, Babbscha, and the securities offered hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO NORWEST,
EXCLUDING EXHIBITS, UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO LAUREL A. HOLSCHUH, SECRETARY,
NORWEST CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE, MINNEAPOLIS, MINNESOTA
55479-1026, TELEPHONE (612) 667-8655. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY __________, 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 Amendment No. 1 on 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 Meetings shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of such filing. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes hereof to the
extent that a statement contained herein or in any other subsequently filed
document which also is, or is deemed to be, incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part hereof.
2
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TABLE OF CONTENTS
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AVAILABLE INFORMATION........................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................. 2
SUMMARY......................................................................... 5
The Companies............................................................... 5
Terms of the Reorganization................................................. 6
Special Meetings and Vote Required.......................................... 7
Reasons for the Reorganization.............................................. 8
Recommendation of the Boards of Directors................................... 9
Effective Date and Time of the Mergers and of the Bank Merger............... 9
Conditions and Termination.................................................. 9
Accounting Treatment........................................................ 10
Regulatory Approvals........................................................ 10
Management and Operations After the Reorganization.......................... 10
Interests of Certain Persons in the Reorganization.......................... 10
Rights of Dissenting Shareholders........................................... 10
Certain Federal Income Tax Considerations................................... 11
Markets and Market Prices 11
Certain Differences in Rights of Shareholders............................... 11
Comparative Unaudited Per Share Data........................................ 12
Selected Financial Data..................................................... 14
MEETING INFORMATION............................................................. 19
General..................................................................... 19
Date, Place, and Time....................................................... 19
Record Date; Vote Required.................................................. 20
Principal Shareholders and Security Ownership of Management of the Selling
Entities................................................................... 21
Voting and Revocation of Proxies............................................ 23
Solicitation of Proxies..................................................... 24
THE REORGANIZATION.............................................................. 25
Background of and Reasons for the Reorganization............................ 25
Terms of the Mergers and the Bank Merger.................................... 26
Effective Date and Time of the Mergers and of the Bank Merger............... 27
Surrender of Certificates................................................... 27
Conditions to the Mergers and to the Bank Merger............................ 28
Regulatory Approvals........................................................ 29
Business Pending the Reorganization......................................... 30
Waiver, Amendment, and Termination.......................................... 31
Management and Operations After the Reorganization.......................... 32
Interests of Certain Persons in the Reorganization.......................... 32
Certain Differences in Rights of Shareholders............................... 32
Rights of Dissenting Shareholders........................................... 38
Certain Federal Income Tax Considerations................................... 41
Resale of Norwest Common Stock.............................................. 44
Dividend Reinvestment and Optional Cash Payment Plan........................ 45
Accounting Treatment........................................................ 45
Expenses.................................................................... 45
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3
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INFORMATION ABOUT THE SELLING ENTITIES.......................................... 46
General..................................................................... 46
Market Area and Competition................................................. 46
Properties.................................................................. 47
Employees................................................................... 47
Market Price of and Dividends on Common
Stock of Selling Entities.................................................. 47
Supervision and Regulation.................................................. 47
Legal Proceedings........................................................... 48
Management's Discussion and Analysis of
Financial Condition and Results
of Operations of Babbscha................................................. 49
Management's Discussion and Analysis of
Financial Condition and Results
of Operations of the Bank................................................. 75
Management's Discussion and Analysis of
Financial Condition and Results
of Operations of the Banrein.............................................. 101
CERTAIN REGULATORY CONSIDERATIONS............................................... 103
General..................................................................... 103
Dividend Restrictions....................................................... 103
Holding Company Structure................................................... 103
Capital Requirements........................................................ 104
Federal Deposit Insurance Corporation
Improvement Act of 1991.................................................... 105
FDIC Insurance.............................................................. 106
EXPERTS......................................................................... 107
LEGAL OPINION................................................................... 107
MANAGEMENT AND ADDITIONAL INFORMATION........................................... 107
FINANCIAL STATEMENTS............................................................ F-1
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION, AND AGREEMENT
AND PLAN OF MERGER FOR BABBSCHA
APPENDIX B FORM OF AGREEMENT AND PLAN OF MERGER FOR BANREIN
APPENDIX C FORM OF AGREEMENT AND PLAN OF MERGER FOR THE BANK
APPENDIX D MINNESOTA STATUTES, SECTIONS 302A.471 AND 302A.473
APPENDIX E MINNESOTA STATUTES, SECTION 49.41
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--------------------
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, BABBSCHA, BANREIN, OR THE BANK SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS.
4
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in all
respects by the more detailed information included in this Proxy Statement-
Prospectus, the Appendices hereto, and the documents incorporated by reference
herein. As used in this Proxy Statement-Prospectus, the terms "Norwest,"
"Babbscha," "Banrein," and the "Bank" refer to such entities, respectively, and
where the context requires, such entities and their respective subsidiaries. As
used herein, the term the "Selling Entities" refers collectively to Babbscha,
Banrein, and the Bank. All information concerning Norwest included in this
Proxy Statement-Prospectus has been furnished by Norwest, and all information
concerning Babbscha, Banrein, and the Bank included in this Proxy Statement-
Prospectus has been furnished by each of the foregoing entities to Norwest for
incorporation herein.
THE COMPANIES
NORWEST CORPORATION
Norwest Corporation is a regional bank holding company organized under the
laws of Delaware in 1929 and registered under the Bank Holding Company Act of
1956, as amended (the "BHC Act"). As a diversified financial services
organization, Norwest operates through subsidiaries engaged in banking and in
related businesses. Norwest provides retail, commercial, and corporate banking
services to its customers through banks located in Arizona, Colorado, Illinois,
Indiana, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Ohio,
South Dakota, Texas, Wisconsin, and Wyoming. Norwest provides additional
financial services to its customers through subsidiaries engaged in various
businesses, principally mortgage banking, consumer finance, equipment leasing,
agricultural finance, commercial finance, securities brokerage and investment
banking, insurance, computer and data processing services, trust services, and
venture capital investments.
At September 30, 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. Generally, management of Norwest does not
make a public announcement about an acquisition until a definitive agreement has
been signed. Norwest has entered into definitive agreements for the acquisition
of various financial institutions, including Babbscha, Banrein, and the Bank,
having aggregate total assets at September 30, 1994, of approximately $5.1
billion. Certain of these acquisitions were consummated subsequent to September
30, 1994, and the others remain subject to regulatory approval and are expected
to be completed by 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, Minneapolis, Minnesota 55479-1000, and its telephone number is 612-
667-1234.
Additional information concerning Norwest is included in the Norwest documents
incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
5
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BABBSCHA COMPANY, BANREIN, INC. AND FRIDLEY STATE BANK
Babbscha is a Minnesota corporation with its corporate headquarters in
Fridley, Minnesota. Babbscha is a bank holding company, holding stock in two
subsidiaries, the Bank and Banrein. Through the Bank's sole location in
Fridley, Babbscha provides loans of various types and obtains deposits.
Babbscha is registered under the Bank Holding Company Act. Babbscha owns 55.5%
of the issued and outstanding shares of Bank Common Stock and 52.7% of the
issued and outstanding shares of Banrein Common Stock. At September 30, 1994,
Babbscha had consolidated total assets of $53,069,995, consolidated deposits of
$47,517,479 and shareholders' equity of $2,710,610. An additional 24.9% of the
issued and outstanding shares of Bank Common Stock and 27.5% of the issued and
outstanding shares of Banrein Common Stock are held by the Fridley State Bank
Employee Stock Ownership Plan and Trust (the "ESOP").
Banrein is a Minnesota corporation with its office in Fridley, Minnesota. The
sole business of Banrein is the ownership and lease to the Bank of the
facilities of the Bank located in Fridley, Minnesota.
The Bank is a Minnesota banking corporation with its sole location at the
offices of Babbscha in Fridley, Minnesota. The Bank serves a wide range of
commercial and consumer borrowing needs within its market. The Bank extends
various types of loans, including short- and long-term residential and
commercial real estate mortgage loans to individuals and businesses. The
targeted commercial customers are closely-held businesses with annual sales
between $1 million and $10 million. Commercial lending products include lines
and letters of credit, receivable and inventory financing and equipment
financing. In addition, the Bank provides various types of secured and
unsecured consumer loans, indirect installment loans and loans secured by
personal reserve accounts, second mortgages and equity lines.
Babbscha, the Bank and Banrein are each located at 6315 University Avenue
N.E., Fridley, Minnesota 55432. This building, the underlying land and the
related facilities are owned by Banrein and are leased to the Bank.
TERMS OF THE REORGANIZATION
The Reorganization Agreement provides for:
(i) the merger of Merger Co., a wholly owned subsidiary of Norwest, with and
into Babbscha, with Babbscha as the surviving corporation;
(ii) the merger of Banrein with and into Banrein Merger Co., a wholly-owned
subsidiary of Norwest, with Banrein as the surviving corporation; and
(iii) the merger of the Bank with and into Norwest Bank, a wholly-owned
national bank subsidiary of Norwest, under the charter of Norwest Bank.
Upon consummation of the Reorganization,
(i) the outstanding shares of Babbscha 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 by
dividing 152,140 by such outstanding shares of Babbscha Common Stock;
6
<PAGE>
(ii) the outstanding shares of Banrein Common Stock (other than shares owned
by Babbscha and 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 by dividing 15,653 by such outstanding shares
of Banrein Common Stock (other than those owned by Babbscha); and
(iii) the outstanding shares of Bank Common Stock (other than shares owned
by Babbscha and shares as to which statutory dissenters' rights have been
exercised and not forfeited) will be converted into that number of shares of
Norwest Common Stock, determined by dividing 108,207 by such outstanding shares
of Bank Common Stock (other than those ownd by Babbscha).
SPECIAL MEETINGS AND VOTE REQUIRED
BABBSCHA SPECIAL MEETING
The special meeting of Babbscha shareholders to consider and vote on the
Babbscha Merger will be held on ________, __________, 1995, at ________., local
time, at the ______________, _______________________, Fridley, Minnesota. Only
holders of record of Babbscha Common Stock at the close of business on
__________, 1995, will be entitled to vote at the Babbscha Special Meeting. At
such date, there were 10,000 shares of Babbscha Common Stock outstanding. Each
share of Babbscha Common Stock is entitled to one vote. For additional
information relating to the Babbscha Special Meeting, see "MEETING INFORMATION."
Approval of the Reorganization Agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of Babbscha Common Stock.
As of the record date for the Babbscha Special Meeting, directors and officers
of Babbscha and their affiliates owned beneficially or controlled the voting of
100% of the shares of Babbscha Common Stock outstanding on that date.
Babbscha's directors and officers have informed Babbscha that they intend to
vote all of their shares in favor of the Reorganization Agreement. At the
record date, directors and executive officers of Norwest did not own
beneficially any shares of Babbscha Common Stock. See "MEETING INFORMATION--
Record Date; Vote Required" and "MEETING INFORMATION--Principal Shareholders and
Security Ownership of Management of Babbscha."
BANREIN SPECIAL MEETING
The special meeting of Banrein shareholders to consider and vote on the
Banrein Merger will be held on _________, ___________, 1995 at ______ a.m./p.m.,
local time, at ________, __________, Fridley, Minnesota. At such date, there
were 4,000 shares of Banrein Common Stock outstanding. Each share of Banrein
Common Stock is entitled to one vote. For additional information relating to
the Banrein Special Meeting, See "MEETING INFORMATION."
Approval of the Reorganization Agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of Banrein Common Stock. As
of the record date for the Banrein Special Meeting, Babbscha and directors and
officers of Banrein and their affiliates owned beneficially or controlled the
voting of an aggregate of 56.7% of the shares of Banrein Common Stock
outstanding on that date. Banrein's directors and officers have informed
Banrein that they intend to vote all of their shares in favor of the
Reorganization Agreement. At the record date, directors and executive officers
of Norwest did not own beneficially any shares of Banrein Common Stock. In
addition, the ESOP beneficially owns or controls 27.5% of the shares of Banrein
Common Stock outstanding on that date. See "MEETING INFORMATION--Record Date;
Vote Required" and "MEETING INFORMATION--Principal Shareholders and Security
Ownership of Management of Banrein."
7
<PAGE>
BANK SPECIAL MEETING
The special meeting of Bank stockholders to consider and vote on the Bank
Merger will be held on ________, ______________, at _________, local time, at
the _____________ _________________________, Fridley, Minnesota. Only holders
of record of Bank Common Stock at the close of business on __________, 1995,
will be entitled to vote at the Bank Special Meeting. At such date, there were
5,000 shares of Bank Common Stock outstanding. Each share of Bank Common Stock
is entitled to one vote. For additional information relating to the Bank
Special Meeting, see "MEETING INFORMATION."
Approval of the Reorganization Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Bank Common Stock. As of
the record date for the Bank Special Meeting, Babbscha and directors and
officers of the Bank and their affiliates beneficially owned or controlled the
voting of an aggregate of 58.7% of the shares of Bank Common Stock. In
addition, the ESOP beneficially owns or controls 24.9% of the shares of Bank
Common Stock on the record date. 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 Stockholders and Security Ownership of Management of the Bank."
REASONS FOR THE REORGANIZATION
The Boards of Directors of each of the Selling Entities believe that the
Reorganization represents an opportunity for the holders of the common stock of
each of the respective Selling Entities to exchange their shares at a favorable
exchange rate for a security with a greater market liquidity than the common
stock of the Selling Entities. Among the factors considered by the Boards of
Directors of each of the Selling Entities in deciding to approve and recommend
the execution of the Merger Agreements were the terms and conditions of the
Reorganization, earnings and dividend records, financial condition, business,
assets and liabilities, and management of each of the Selling Entities and
Norwest; recent market prices for Norwest Common Stock; the lack of a public
trading market for the common stock of each of the Selling Entities; the nature
of the banking businesses of each of the Selling Entities and Norwest; the
outlook for the Bank in a changing banking and financial services industry,
including the advent of interstate banking; the consideration to be received by
the shareholders of each of the Selling Entities in the Reorganization; and the
price ranges of comparable transactions.
While the Boards of Directors did not give greater weight to any one of the
factors listed above, the Boards of Directors of the respective Selling Entities
considered the proposed exchange of Norwest Common Stock for the common stock of
each of the Selling Entities to be advantageous to the shareholders, because the
shareholders will receive a security which has a greater market liquidity than
the common stock of each of the Selling Entities. In addition, the
Reorganization will provide customers of the Bank with access to a broader range
of services and will provide the Bank with increased financial strength. This
should allow the Bank to compete more effectively with its competitors in the
northern Minneapolis-St. Paul metropolitan market area, several of which are
part of larger, multibank holding companies. Finally, based on Management's
discussions with another banking institution acquired by Norwest, the Boards of
Directors believe that Norwest will handle in a reasonable manner transitional
matters affecting the Selling Entities and their respective employees.
See "THE REORGANIZATION--Background of and Reasons for the Reorganization;
Recommendation of the Board of Directors."
8
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RECOMMENDATION OF THE BOARDS OF DIRECTORS
THE BOARD OF DIRECTORS OF BABBSCHA UNANIMOUSLY RECOMMENDS THAT BABBSCHA
SHAREHOLDERS VOTE FOR THE MERGER. For information concerning the interests of
---
certain members of the Babbscha Board of Directors and management in the
Reorganization, see "THE REORGANIZATION--Interests of Certain Persons in the
Reorganization."
THE BOARD OF DIRECTORS OF BANREIN UNANIMOUSLY RECOMMENDS THAT BANREIN
SHAREHOLDERS VOTE FOR THE MERGER. For information concerning the interests of
---
certain members of the Banrein Board of Directors and management in the
Reorganization, see "THE REORGANIZATION--Interests of Certain Persons in the
Reorganization."
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT THE BANK
STOCKHOLDERS VOTE FOR THE BANK MERGER. For information concerning the interests
---
of certain members of the Bank Board of Directors and management in the
Reorganization, see "THE REORGANIZATION--Interests of Certain Persons in the
Reorganization."
EFFECTIVE DATE AND TIME OF THE MERGERS AND OF THE BANK MERGER
Subject to the terms and conditions of the Reorganization Agreement, the
Mergers will be effective on the date on which the appropriate filings are made
with the Secretary of State of the State of Minnesota (the "Effective Date of
the Mergers") at 11:59 p.m., Minneapolis, Minnesota time (the "Effective Time of
the Mergers"). That filing will be made within ten business days following the
satisfaction or waiver of all conditions set forth in Reorganization Agreement
or on such other date upon which the parties may agree. The closing of the
Mergers and the Bank Merger will occur on the Effective Date of the Merger (the
"Closing Date"). The parties expect the Reorganization to become effective in
the first quarter of 1995. The Bank Merger will be effective as of 12:01 a.m.
on the date specified in the Bank Merger Agreement (the "Effective Date of the
Bank Merger"). See "THE REORGANIZATION--Effective Date and Time of the Mergers
and of the Bank Merger" and "THE REORGANIZATION--Conditions to the Mergers and
to the Bank Merger."
CONDITIONS AND TERMINATION
The respective obligations of Norwest, and each of the Selling Entities to
consummate the Reorganization are subject to certain conditions, including the
receipt of regulatory approvals without unduly burdensome conditions; approval
of the Reorganization Agreement including the related Merger Agreements and Bank
Merger Agreement by the shareholders of each of the Selling Entities,
respectively; receipt by each of the Selling Entities of certain tax opinions;
and certain other conditions customary in transactions of this nature. See "THE
REORGANIZATION--Conditions to the Mergers and to the Bank Merger" and "THE
REORGANIZATION--Regulatory Approvals."
The Reorganization Agreement may be terminated at any time prior to the
Effective Date of the Mergers, whether prior to or after approval by each of the
Selling Entities' shareholders, by either party under specified conditions,
including if the Merger and the Bank Merger shall not have
9
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been consummated by May 31, 1995, unless such failure of consummation shall be
due to the failure of the party seeking termination to perform its respective
covenants and agreements underthe Reorganization Agreement. See "THE
REORGANIZATION--Waiver, Amendment, and Termination."
ACCOUNTING TREATMENT
Management of Norwest anticipates that the Reorganization will be accounted
for as a purchase under generally accepted accounting principles. See "THE
REORGANIZATION--Accounting Treatment."
REGULATORY APPROVALS
The Mergers are subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and receipt of such
approval is a condition to the consummation of the Reorganization. On October
25, 1994, Norwest filed an application for approval of the Mergers with the
Federal Reserve Board, which approval was subsequently received on January 18,
1995.
The Bank Merger is also subject to the approval of the Office of the
Comptroller of the Currency (the "OCC"), and receipt of such approval is a
condition to consummation of the Reorganization. On October 26, 1994, Norwest
filed an application for approval with the OCC. See "THE REORGANIZATION--
Regulatory Approvals."
MANAGEMENT AND OPERATIONS AFTER THE REORGANIZATION
Following the Reorganization, the Bank will continue to operate at its
present locations and will offer products and services offered by Norwest
affiliates. See "THE REORGANIZATION--Management and Operations After the
Reorganization."
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
All of the current directors and executive officers of Babbscha, Banrein,
and the Bank and certain of their affiliates are each shareholders of Babbscha,
Banrein, and the Bank and can be expected, upon consummation of the Mergers and
the Bank Merger, to receive shares of Norwest Common Stock in exchange for their
shares of Babbscha Common Stock, Banrein Common Stock, and Bank Common Stock.
See "THE REORGANIZATION--Interests of Certain Persons in the Reorganization."
RIGHTS OF DISSENTING SHAREHOLDERS
Under Minnesota law, Babbscha and Banrein shareholders who dissent from the
Merger are entitled to obtain payment of the fair value of their shares instead
of receiving Norwest Common Stock in the Mergers. Bank stockholders who dissent
from the Bank Merger will have the right under Minnesota law to receive an
appraised value of their shares. With respect to both shareholders of Babbscha
and Banrein and stockholders of the Bank, failure to comply with statutory
procedures in the exercise of dissenters' rights may nullify such rights. See
"THE REORGANIZATION--Rights of Dissenting Shareholders."
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The consummation of the Reorganization is conditioned upon, among other
things, the opinion of Briggs and Morgan, P.A., special tax counsel to Babbscha,
Banrein, and the Bank, that the Mergers and the Bank Merger will each qualify as
a "tax free" reorganization for federal income tax purposes. Accordingly, no
gain or loss (other than with respect to cash received in lieu of fractional
shares or in satisfaction of dissenters' rights) generally will be recognized by
Babbscha or Banrein shareholders or stockholders of the Bank upon the exchange
of their Babbscha Common Stock, Banrein Common Stock, and Bank Common Stock,
respectively, for Norwest Common Stock. However, the federal income tax
considerations related to the Reorganization may be different to particular
types of shareholders of Babbscha, Banrein, and the Bank, respectively, or in
light of each such shareholder's personal investment circumstances.
CONSEQUENTLY, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS
CONCERNING THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE RELEVANT TO THEM IN
CONNECTION WITH THE REORGANIZATION, AS WELL AS THE APPLICATION TO THEM OF ANY
STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS. See "THE REORGANIZATION--Certain
Federal Income Tax Considerations."
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the New York Stock Exchange (the "NYSE") and
the Chicago Stock Exchange (the "CHX"). On September 16, 1994, the last trading
day preceding public announcement of the proposed Reorganization, the closing
price per share of Norwest Common Stock was $26.125 and on February __, 1995,
the price was $_____. There is no public market for Babbscha Common Stock,
Banrein Common Stock, or Bank Common Stock. Shareholders of Babbscha and
Banrein and stockholders 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
Closing Date, which may be a period in excess of four weeks. As a result, the
market value of the Norwest Common Stock that shareholders of Babbscha and
Banrein and stockholders of the Bank ultimately receive in the Reorganization
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 Closing.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Reorganization, shareholders of Babbscha and
Banrein and stockholders of the Bank will become stockholders of Norwest. As a
result, such shareholders' rights will change significantly. See "THE
REORGANIZATION--Certain Differences in Rights of Shareholders."
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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
Babbscha Common Stock, Banrein Common Stock and Bank Common Stock on a
historical and a pro forma equivalent basis giving effect to the Reorganization
using the purchase method of accounting. See "THE REORGANIZATION--Accounting
Treatment." This information is derived from the consolidated historical
financial statements of Norwest, including the related notes thereto,
incorporated by reference into this Proxy Statement-Prospectus and the
consolidated historical financial statements of Babbscha, Banrein and the Bank,
including the notes thereto, appearing elsewhere in this Proxy Statement-
Prospectus. This information should be read in conjunction with such historical
financial statements and the related notes thereto. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and "INFORMATION ABOUT THE SELLING ENTITIES."
This data is not necessarily indicative of the results of the future
operations of the combined entities or the actual results that would have
occurred had the Reorganization been consummated prior to the periods indicated.
12
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COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
Norwest Common Stock Babbscha Common Stock Bank Common Stock Banrein Common Stock
-------------------- --------------------- ----------------- ---------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Stock Historical Combined Historical Equivalent Historical Equivalent Historical Equivalent
- ----- ---------- --------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOOK VALUE (1):
September 30, 1994 $11.13 11.13 271.06 169.30 932.57 240.83 32.55 43.55
December 31, 1993 11.00 11.00 266.36 167.37 916.08 238.08 21.89 43.05
DIVIDENDS DECLARED (2):
Nine Months Ended
September 30, 1994 0.555 0.555 15.500 8.444 60.000 12.011 2.250 2.172
Year Ended
December 31, 1993 0.640 0.640 23.200 9.737 60.000 13.850 7.500 2.504
NET INCOME (3):
Nine Months Ended
September 30, 1994 1.78 1.78 20.20 27.09 47.15 38.54 12.91 6.97
Year Ended
December 31, 1993 1.86 1.86 41.04 28.23 120.56 40.15 9.25 7.26
</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 Babbscha divided
by total pro forma common shares of the combined entities assuming (i)
conversion of the outstanding Babbscha Common Stock at a merger conversion
factor of 15.214, (ii) conversion of the outstanding Bank Common Stock (other
than shares owned indirectly by Norwest as a result of the Bank Merger) at a
merger conversion factor of 21.6414 and (iii) conversion of the outstanding
Banrein Common Stock (other than shares owned indirectly by Norwest as a result
of the Banrein Merger) at a merger conversion factor of 3.9133. The pro forma
equivalent book values per share of Babbscha Common Stock, Bank Common Stock,
and Banrein Common Stock represent the pro forma combined amounts multiplied by
the respective assumed merger conversion factors. The assumed conversion
factors used in this table, which are based on an assumed aggregate number of
shares of Norwest Common Stock to be issued in the Reorganization of 276,000
would result in the issuance of 152,140 shares of Norwest Common Stock upon
conversion of all outstanding shares of Babbscha Common Stock in the Merger, of
108,207 shares upon conversion of all outstanding shares of Bank Common Stock
(other than shares owned indirectly by Norwest as a result of the Bank Merger)
in the Bank Merger, and 15,653 shares upon conversion of all outstanding shares
of Banrein Common Stock (other than shares owned indirectly by Norwest as a
result of the Banrein merger) in the Banrein merger. See "THE REORGANIZATION--
Terms of the Reorganization."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Babbscha Common Stock, per share of Bank Common Stock and
per share of Banrein Common Stock represent cash dividends declared per share of
Norwest Common Stock multiplied by 15.214, 21.6414 and 3.9133, respectively.
(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 Babbscha divided by the average pro forma
common shares of the combined entities, assuming a merger conversion factor of
15.214, 21.6414 and 3.9133 for Babbscha, the Bank and Banrein, respectively.
The pro forma equivalent net income per share of Babbscha Common Stock, Bank
Common Stock, and Banrein Common Stock represents the pro forma combined net
income per share multiplied by 15.214, 21.6414 and 3.9133, respectively.
13
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for Norwest, Babbscha, Banrein, and the Bank. The
income statement and balance sheet data included in the selected financial
data for the five years ended December 31, 1993, are derived from audited
consolidated financial statements of Norwest for such five-year period, the
audited consolidated financial statements of Babbscha and the unaudited
financial statements of Banrein and the Bank for the year ended December 31,
1993, and the unaudited financial statements of Babbscha, Banrein, and the Bank
for the four years ended December 31, 1992. The financial data for the nine-
month periods ended September 30, 1994 and 1993, are derived from the unaudited
financial statements of Norwest, Babbscha, Banrein, and the Bank. All financial
information derived from unaudited financial statements reflects, in the
respective opinions of management of Norwest, Babbscha, Banrein, 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 financial statements of Babbscha, Banrein,
and the Bank, including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"INFORMATION ABOUT THE SELLING ENTITIES."
14
<PAGE>
SELECTED FINANCIAL DATA
<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>
NORWEST:
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 6,059.9 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>
15
<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 headquarted 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.
16
<PAGE>
<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>
BABBSCHA COMPANY:
Interest income $ 2.7 2.8 3.8 4.2 4.5 4.1 3.7
Interest expense 0.9 1.0 1.4 1.7 2.3 2.0 1.8
------ ----- ------ ------ ----- ----- -----
Net interest income 1.8 1.8 2.4 2.5 2.2 2.1 1.9
Provision for credit
losses -- -- -- 0.1 -- 0.1 --
Non-interest income 0.2 0.3 0.4 0.4 0.4 0.4 0.4
Non-interest expenses 1.5 1.4 1.9 1.9 1.9 1.7 1.6
------ ----- ------ ------ ----- ----- -----
Income before
income taxes and
minority interest 0.5 0.7 0.9 0.9 0.7 0.7 0.7
Income tax expense 0.2 0.2 0.2 0.3 0.2 0.2 0.2
Minority interest 0.1 0.2 0.3 0.2 0.1 0.1 0.1
------ ----- ------ ------ ----- ----- -----
Net income $ 0.2 0.3 0.4 0.4 0.4 0.4 0.4
====== ===== ====== ====== ===== ===== =====
Net income per share:
Primary $20.20 33.66 41.04 42.86 38.28 38.41 44.58
Fully diluted 20.20 33.66 41.04 42.86 38.28 38.41 44.58
Dividends declared per
common share $15.50 14.80 23.20 109.06 57.84 19.20 24.12
At period end:
Total assets $ 53.1 53.2 53.9 53.4 52.2 46.1 40.7
Long-term debt 0.4 0.2 0.6 0.8 0.3 0.2 0.4
Total stockholders'
equity 2.7 2.6 2.7 2.5 3.1 3.3 3.0
FRIDLEY STATE BANK:
Interest income $ 2.7 2.9 3.7 4.2 4.5 4.1 3.7
Interest expense 0.9 1.0 1.3 1.7 2.3 2.0 1.7
------ ----- ------ ------ ----- ----- -----
Net interest income 1.8 1.9 2.4 2.5 2.2 2.1 2.0
Provision for credit
losses -- -- -- 0.1 -- 0.1 --
Non-interest income 0.2 0.2 0.4 0.4 0.4 0.4 0.3
Non-interest expense 1.6 1.5 2.0 2.0 2.0 1.8 1.7
------ ----- ------ ------ ----- ----- -----
Income before income
taxes 0.4 0.6 0.8 0.8 0.6 0.6 0.6
Income tax expense 0.2 0.2 0.2 0.2 0.2 0.2 0.1
------ ----- ------ ------ ----- ----- -----
Net income $ 0.2 0.4 0.6 0.6 0.4 0.4 0.5
====== ===== ====== ====== ===== ===== =====
Net income per share:
Primary $47.15 84.99 120.56 112.60 81.90 92.81 93.13
Fully diluted 47.15 84.99 120.56 112.60 81.90 92.81 93.13
Dividends declared per
common share $60.00 60.00 60.00 60.00 60.00 36.00 36.00
At period end:
Total assets $ 52.8 53.0 53.6 53.1 51.9 45.8 40.4
Long-term debt 0.3 0.4 0.4 0.6 0.1 0.0 0.0
Total stockholders'
equity 4.7 4.8 4.6 4.1 4.4 4.3 4.2
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------- ---------------------------------
1994 1993 1993 1992 1991 1990 1989
------ ------- ----- ----- ----- ----- -----
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
BANREIN:
Rental income $117.3 105.4 144.6 140.6 140.0 141.3 145.4
Operating expense 57.1 59.4 96.2 95.5 93.9 92.8 99.1
------ ----- ----- ----- ----- ----- -----
Income before income
taxes 60.2 46.0 48.4 45.1 46.1 48.5 46.3
Income tax expense 8.6 7.7 11.4 10.6 10.8 11.4 10.7
------ ----- ----- ----- ----- ----- -----
Net income $ 51.6 38.3 37.0 34.5 35.3 37.1 35.6
====== ===== ===== ===== ===== ===== =====
Net income per share
Primary $12.91 9.58 9.25 8.63 8.81 9.29 8.90
Fully diluted 12.91 9.58 9.25 8.63 8.81 9.29 8.90
Dividends declared per
common share $ 2.25 2.25 7.50 7.50 7.25 8.00 8.00
At period end:
Total assets $268.8 277.8 249.0 269.0 289.7 307.3 323.7
Long-term debt 137.6 166.8 159.7 187.1 212.3 235.4 256.6
Total stockholders'
equity 130.2 109.8 87.5 80.5 75.9 69.7 64.5
</TABLE>
18
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Babbscha
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Babbscha for use at the Babbscha Special Meeting to be held on
________, __________, 1995, and any adjournments thereof, to consider and take
action upon a proposal to approve the Reorganization Agreement and the related
Babbscha Merger Agreement and such other business as may properly come before
the Babbscha Special Meeting or any adjournments thereof. Each copy of this
Proxy Statement-Prospectus mailed to holders of Babbscha Common Stock is
accompanied by a form of proxy for use at the Babbscha Special Meeting.
This Proxy Statement-Prospectus is being furnished to holders of Banrein
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Babbscha for use at the Banrein Special Meeting to be held on
________, __________, 1995, and any adjournments thereof, to consider and take
action upon a proposal to approve the Reorganization Agreement and the related
Babbscha Merger Agreement and such other business as may properly come before
the Banrein Special Meeting or any adjournments thereof. Each copy of this
Proxy Statement-Prospectus mailed to holders of Banrein Common Stock is
accompanied by a form of proxy for use at the Banrein Special Meeting.
This Proxy Statement-Prospectus is also 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 Bank Special Meeting to be held on
________, __________, 1995, and any adjournments thereof, to consider and take
action upon a proposal to approve the Reorganization Agreement and the Bank
Merger Agreement and such other business as may properly come before the Bank
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 Bank Special Meeting.
This Proxy Statement-Prospectus is also being furnished by Norwest to the
shareholders of Babbscha and Banrein and the stockholders of the Bank as a
prospectus in connection with the issuance by Norwest of shares of Norwest
Common Stock upon consummation of the Reorganization.
This Proxy Statement-Prospectus, the attached Notices of Special Meeting,
and the forms of proxy for the shareholders of Babbscha and Banrein and for the
stockholders of the Bank enclosed herewith are first being mailed to
shareholders of Babbscha and stockholders of the Bank on or about February ___,
1995.
DATE, PLACE, AND TIME
The Babbscha Special Meeting will be held at ________________________,
_____________, Fridley, Minnesota, on ________, ___________, 1995, at _________,
local time. The Banrein Special Meeting will be held at
________________________, _____________, Fridley, Minnesota, on ________,
___________, 1995, at _________, local time. The Bank Special Meeting will be
held at ________________________, _____________, Fridley, Minnesota, on
________, __________, 1995, at _________, local time.
19
<PAGE>
RECORD DATE; VOTE REQUIRED
BABBSCHA SPECIAL MEETING
The Board of Directors of Babbscha has fixed the close of business on
__________, 1995, as the record date for the determination of shareholders of
Babbscha entitled to receive notice of and to vote at the Babbscha Special
Meeting. On the record date there were 10,000 shares of Babbscha Common Stock
outstanding. Approval of the Reorganization Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Babbscha Common
Stock. The Reorganization cannot be consummated without shareholder approval of
the Reorganization Agreement.
As of the record date for the Babbscha Special Meeting, directors and
officers of Babbscha and their affiliates owned beneficially or controlled the
voting of an aggregate of 100% of the shares of Babbscha Common Stock
outstanding on that date. Babbscha's directors and officers have informed
Babbscha that they intend to vote all of their shares in favor of the
Reorganization Agreement. Information regarding the shares of Babbscha Common
Stock beneficially owned, directly or indirectly, by certain shareholders, by
each director and executive officer of Babbscha, and by all directors and
officers as a group is set forth in the table under the heading "Principal
Shareholders and Security Ownership of Management of the Selling Entities--
Babbscha" below.
BANREIN SPECIAL MEETING
The Board of Directors of Banrein has fixed the close of business on
__________, 1995, as the record date for the determination of shareholders of
Banrein entitled to receive notice of and to vote at the Banrein Special
Meeting. On the record date there were 4,000 shares of Banrein Common Stock
outstanding. Approval of the Reorganization Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of Banrein Common
Stock. The Reorganization cannot be consummated without shareholder approval of
the Reorganization Agreement.
As of the record date for the Banrein Special Meeting, Babbscha and
directors and officers of Banrein and their affiliates owned beneficially or
controlled the voting of an aggregate of 56.7% of the shares of Banrein Common
Stock outstanding on that date. Banrein's directors and officers have informed
Banrein that they intend to vote all of their shares in favor of the
Reorganization Agreement. Information regarding the shares of Banrein Common
Stock beneficially owned, directly or indirectly, by certain shareholders,
including Babbscha, by each director and executive officer of Banrein, and by
all directors and officers as a group is set forth in the table under the
heading "Principal Shareholders and Security Ownership of Management of the
Selling Entities--Banrein" below.
BANK SPECIAL MEETING
The Board of Directors of the Bank has fixed the close of business on
__________, 1995, as the record date for the determination of stockholders of
the Bank entitled to receive notice of and to vote at the Bank Special Meeting.
On the record date there were 5,000 shares of Bank Common Stock outstanding.
Approval of the Reorganization Agreement and the Bank Merger requires the
affirmative vote of the holders of two-thirds of the outstanding shares of Bank
Common Stock. The Reorganization cannot be consummated without stockholder
approval of the Reorganization Agreement and the Bank Merger.
20
<PAGE>
As of the record date for the Bank Special Meeting, Babbscha and directors
and officers of the Bank and their affiliates owned beneficially or controlled
the voting of an aggregate of 58.7% of the outstanding shares of Bank Common
Stock outstanding on that date. Information regarding the shares of Bank Common
Stock beneficially owned, directly or indirectly, by certain stockholders,
including Babbscha, by each director and executive officer of the Bank, and by
all directors and officers as a group is set forth in the table under the
heading "Principal Stockholders and Security Ownership of Management of the
Bank" below.
At the record date, directors and executive officers of Norwest did not own
beneficially any shares of Babbscha Common Stock, Banrein Common Stock or Bank
Common Stock.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF THE SELLING
ENTITIES
BABBSCHA
Set forth below are the names and addresses of and the number of shares held
as of the record date for the Babbscha Special Meeting by those persons who may
be deemed to own beneficially, either directly or indirectly, five percent or
more of the outstanding shares of Babbscha Common Stock, by each director and
executive officer of Babbscha, and by all directors and executive officers as a
group. Each shareholder named below has sole voting and investment power over
the shares shown in the table, unless otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS (1) BENEFICIALLY OWNED SHARES
<S> <C> <C>
Herbert Bacon (2) 1,145 11.5%
William H. Beery (2)(3) 857 8.6%
B. G. Black (2)(3) 2,491 24.9%
Ramon C. Carlson (2) 525 5.3%
Donald W. Harstad (2)(3) 2,491 24.9%
Donald C. Savelkoul (2)(3) 2,491 24.9%
Directors and executive officers as a
group (6 persons) 10,000 100.0%
</TABLE>
- -----------------
(1) The address of each shareholder named above is c/o Babbscha Company, 6315
University Avenue, Fridley, Minnesota 55432
(2) Each such individual is a director of Babbscha.
(3) Each such individual is an executive officer of Babbscha.
21
<PAGE>
BANREIN
Set forth below are the names and addresses of and the number of shares held
as of the record date for the Banrein Special Meeting by those persons who may
be deemed to own beneficially, either directly or indirectly, five percent or
more of the outstanding shares of Banrein Common Stock, by each director and
executive officer of Banrein, and by all directors and executive officers as a
group. Each shareholder named below has sole voting and investment power over
the shares shown in the table, unless otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF TOTAL
NAME AND ADDRESS (1) BENEFICIALLY OWNED SHARES
<S> <C> <C>
Babbscha Company 2,106 52.6%
Fridley State Bank Employee Stock
Ownership Plan and Trust (the 1,099 27.5%
"ESOP") (2)
Herbert Bacon (3) 27 *
William H. Beery (3)(4) 27 *
B. G. Black (3)(4) 27 *
Ramon C. Carlson (3) 27 *
Donald W. Harstad (3)(4) 27 *
Donald C. Savelkoul (3)(4) 27 *
Directors and executive officers as a
group 162 4.0%
(6 persons)
- --------------------
</TABLE>
* Indicates less than 1%.
(1) The address of each shareholder named above is c/o Babbscha Company, 6315
University Avenue, Fridley, Minnesota 55432.
(2) The number of shares shown above include ___ shares of Banrein Common Stock
that have not yet been allocated to participants' ESOP accounts.
Participants in the ESOP have the power to direct the voting of the shares
of Banrein Common Stock that have been allocated to the participants' ESOP
accounts. All such shares held in trust in the ESOP on the record date
will be voted by the individual trustees of the Trust, and with respect to
allocated shares only, in accordance with the voting instructions of those
ESOP participants who give such instructions. Except for their interests
in the ESOP as participants, the individual trustees, all of whom are
employees of the Bank, hold the ESOP shares in a fidiciary capacity and
disclaim any beneficial interest in such shares.
(3) Each such individual is a director of Banrein.
(4) Each such individual is an executive officer of Banrein.
22
<PAGE>
THE BANK
Set forth below are the names and addresses of and the number of shares
held as of the record date for the Bank Special Meeting by those persons who may
be deemed to own beneficially, either directly or indirectly, five percent or
more of the outstanding shares of Bank Common Stock, by each director and
executive officer of the Bank and by all directors and executive officers as a
group. Each stockholder named below has sole voting and investment power over
the shares shown in the table, unless otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF TOTAL
NAME AND ADDRESS(1) OWNED SHARES
<S> <C> <C>
Babbscha Company 2,773 55.5%
Fridley State Bank ESOP(2) 1,249 24.9%
Sharon Meerschaert 313 6.3%
Herbert Bacon (3) 27 *
William H. Beery (3) (4) 27 *
B. G. Black (3) 27 *
Ramon C. Carlson (3) 27 *
Donald W. Harstad (3) 27 *
Donald C. Savelkoul (3) 27 *
Marcia J. Etlicher(4) __ *
Mary T. Ingaldson (4) __ *
Directors and executive officers as a 286(5) 5.7%
group
(8 persons)
- ---------------------
</TABLE>
* Indicates less than 1%.
(1) The address of each shareholder named above is c/o Babbscha Company, 6315
University Avenue, Fridley, Minnesota 55432.
(2) The number of shares shown above include ___ shares of Bank Common Stock
that have not yet been allocated to participants' ESOP accounts.
Participants in the ESOP have the power to direct the voting of the shares
of Bank Common Stock that have been allocated to the participants' ESOP
accounts. All such shares held in trust in the ESOP on the record date
will be voted by the individual trustees of the Trust, and with respect to
allocated shares only, in accordance with the voting instructions of those
ESOP participants who give such instructions. Except for their interests
in the ESOP as participants, the individual trustees, all of whom are
employees of the Bank, hold the ESOP shares in a fidiciary capacity and
disclaim any beneficial interest in such shares.
(3) Each such individual is a director of the Bank.
(4) Mr. Beery, Ms. Etlicher, and Ms. Ingaldson are, respectively, the
president, the vice president and cashier, and a vice president of the
Bank.
(5) Includes ___ shares beneficially owned by those of the Bank by virtue of
their participation in directors and executive who are also employees
the ESOP.
VOTING AND REVOCATION OF PROXIES
Shares of Babbscha Common Stock, Banrein Common Stock and Bank Common
Stock, represented by a proxy properly signed and received at, or prior to,
respectively, the Babbscha Special Meeting from Babbscha shareholders, the
Banrein Special Meeting from Banrein shareholders, and the Bank Special Meeting
from Bank stockholders will be voted at such Special Meeting, in accordance with
the instructions thereon. If a proxy is signed and returned without indicating
any voting instructions, shares of Babbscha Common Stock, Banrein Common Stock,
or Bank Common Stock (as the case may be) represented by such proxy will be
voted FOR approval of the Reorganization 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
23
<PAGE>
or a duly executed proxy bearing a later date with the Secretary of Babbscha
(for Babbscha shareholders), the Secretary of Banrein (for Banrein
shareholders), or the Secretary of the Bank (for Bank stockholders) prior to or
at the Babbscha Special Meeting (for Babbscha shareholders), the Banrein Special
Meeting (for Banrein shareholders), or the Bank Special Meeting (for Bank
stockholders) or by voting the shares subject to the proxy in person at the
Babbscha Special Meeting (for Babbscha shareholders), at the Banrein Special
Meeting (for Banrein shareholders), or the Bank Special Meeting (for Bank
stockholders). Attendance at the Babbscha Special Meeting (for Babbscha
shareholders), the Banrein Special Meeting (for Banrein shareholders), or the
Bank Special Meeting (for Bank stockholders) will not in and of itself
constitute a revocation of a proxy.
A proxy may indicate that all or a portion of the shares represented
thereby are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in street
name on certain proposals in the absence of instructions from the beneficial
owner. Shares that are not voted with respect to a specific proposal will be
considered as not present for such proposal, even though such shares will be
considered present for purposes of determining a quorum and voting on other
proposals. Abstentions on a specific proposal will be considered as present,
but not as voting in favor of such proposal. The proposal to adopt the
Reorganization Agreement must be approved by the holders of a majority of the
outstanding Babbscha Common Stock and a majority of the Banrein Common Stock.
Approval of the Reorganization Agreement and the Bank Merger Agreement requires
the affirmative vote of the holders of not less than 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 Boards of Directors of, respectively, Babbscha, Banrein and the Bank
are not aware of any business to be acted upon at the Babbscha Special Meeting,
the Banrein Special Meeting, and the Bank Special Meeting other than the
business described herein. If, however, other matters are properly brought
before the Babbscha Special Meeting, the Banrein Special Meeting, and the Bank
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
Babbscha, Banrein, and the Bank may each solicit proxies from the shareholders
of, respectively, Babbscha and Banrein, and from the stockholders 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. Babbscha, Banrein, and the Bank will each bear its own
expenses in connection with any solicitation of proxies for its respective
Special Meeting. See "THE REORGANIZATION--Expenses."
HOLDERS OF BABBSCHA COMMON STOCK, BANREIN COMMON STOCK AND THE BANK COMMON STOCK
ARE REQUESTED TO COMPLETE, DATE, AND SIGN THEIR RESPECTIVE ACCOMPANYING PROXY
AND RETURN IT PROMPTLY TO BABBSCHA, BANREIN, AND THE BANK IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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THE REORGANIZATION
This section of the Proxy Statement-Prospectus describes certain aspects
of the Reorganization. The following description does not purport to be
complete and is qualified in its entirety by reference to the Reorganization
Agreement and the forms of the Merger Agreements and the Bank Merger Agreement,
which are attached as Appendix A, Appendix B, and Appendix C, respectively, to
this Proxy Statement-Prospectus and are incorporated by reference herein. ALL
SHAREHOLDERS ARE URGED TO READ THE REORGANIZATION AGREEMENT AND THE ATTACHED
MERGER AGREEMENTS AND THE BANK MERGER AGREEMENT IN THEIR ENTIRETY.
BACKGROUND OF AND REASONS FOR THE REORGANIZATION; RECOMMENDATION OF BOARD OF
DIRECTORS
During the first quarter of 1994 the Boards of Directors of each of the
Selling Entities considered the desirability of entering into a business
combination with other financial institutions and ultimately determined it was
in the best interests of each of the Selling Entities and their respective
shareholders to explore the possibilities of entering into such a transaction.
Following such determination the Boards of Directors contacted representatives
of approximately six financial institutions to ascertain whether there was any
interest in a business combination with the Selling Entities. Each of the
financial institutions which the Selling Entities contacted had, in the judgment
of the Boards of Directors, the financial and other capacity to consummate a
business combination with the Selling Entities and had acquired other financial
institutions in recent years. These institutions included large multi-state
financial institutions and local banking institutions. In June and July, 1994
the Boards of Directors of the Selling Entities met with the representatives of
these financial institutions, including Norwest, to explore the potential terms
of a business combination. In August, 1994 the Boards of Directors considered
each business combination proposal presented to the Selling Entities, including
the proposal from Norwest, and decided to enter into a letter of intent with
Norwest. Upon execution of this letter of intent Norwest commenced a "due
diligence" investigation of the Selling Entities while representatives of the
Selling Entities and Norwest and their respective counsel negotiated the form of
the Merger Agreements. On August 25, 1994 the Boards of Directors of the
Selling Entities met to consider the Merger Agreements. Based on a variety of
factors, the Boards of Directors of the Selling Entities approved the Merger
Agreements at such meeting. Following delivery of the Merger Agreements on
September 9, 1994, the Selling Entities and Norwest announced the execution of
the Merger Agreements.
The Boards of Directors of the Selling Entities, after careful study and
evaluation of economic, financial, legal and market factors, believes the Merger
Agreements are in the best interest of each of the Selling Entities and their
respective shareholders.
The Boards of Directors believe that the Reorganization represents an
opportunity for the holders of the common stock of each of the respective
Selling Entities to exchange their shares at a favorable exchange rate for a
security with a greater market liquidity than the common stock of each of the
Selling Entities. Among the factors considered by the Boards of Directors of
the Selling Entities in deciding to approve and recommend the execution of the
Merger Agreements were the terms and conditions of the Reorganization, earnings
and dividend records, financial condition, business, assets and liabilities, and
management of each of the Selling Entities and Norwest; recent market prices for
Norwest Common Stock; the lack of a public trading market for the common stock
of each of the Selling Entities; the nature of the banking businesses of the
Selling Entities and Norwest; the outlook for the Bank in a changing banking and
financial services industry, including the advent of interstate banking; the
consideration to be received by the shareholders of the Selling Entities in the
Reorganization; and the price ranges of comparable transactions.
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While the Boards of Directors did not give greater weight to any one of
the factors listed above, the Boards of Directors of the respective Selling
Entities considered the proposed exchange of Norwest Common Stock for the common
stock of the Selling Entities to be advantageous to the shareholders, because
the shareholders will receive a security which has a greater market liquidity
than the common stock of the Selling Entities. In addition, the Reorganization
will provide customers of the Bank with access to a broader range of services
and will provide the Bank with increased financial strength. This should allow
the Bank to compete more effectively with its competitors in the northern
Minneapolis-St. Paul metropolitan market area, several of which are part of
larger, multibank holding companies. Finally, based on management's discussions
with another banking institution acquired by Norwest, the Boards of Directors
believe that Norwest will handle in a reasonable manner transitional matters
affecting the Selling Entities and their employees.
The Boards of Directors of the respective Selling Entities recommends
approval of the Merger Agreements. The Boards of Directors believe the terms of
the Merger Agreements are fair and that the Reorganization is in the best
interest of the Selling Entities and their respective shareholders. In making
their recommendations, the Boards of Directors have not sought the advice of an
independent financial advisor. The directors and officers of each of the Selling
Entities have unanimously indicated that they intend to vote the common stock of
each of the Selling Entities that they hold in favor of the Merger Agreements.
THE BOARDS OF DIRECTORS OF THE RESPECTIVE SELLING ENTITIES EACH UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
---
AGREEMENTS.
TERMS OF THE MERGERS AND OF THE BANK MERGER
THE MERGERS AND BANK MERGER
At the Effective Time of the Mergers, Merger Co., a wholly-owned subsidiary
of Norwest, will merge with Babbscha, with Babbscha as the surviving corporation
and Banrein will merge with and into Banrein Merger Co., also a wholly-owned
subsidiary of Norwest, with Banrein as the surviving corporation, pursuant to
the terms of the Reorganization Agreement. Upon consummation of the Merger, (i)
the outstanding shares of Babbscha 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 by dividing
152,140 by such outstanding shares of Babbscha Common Stock; and (ii) the
outstanding shares of Banrein Common Stock (other than shares owned by Babbscha
and 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 by dividing 15,653 by such outstanding shares of Banrein Common Stock
(other than those owned by Babbscha).
The Reorganization Agreement also provides that, following the Effective
Time of the Mergers and subject to the terms and conditions of the
Reorganization Agreement and the Bank Merger Agreement, the Bank will merge with
Norwest Bank, which is a wholly owned national bank subsidiary of Norwest
organized under the laws of the United States, under the charter of Norwest
Bank. The resulting bank will change its name to "Fridley Bank, National
Association." The Articles of Incorporation of the resulting bank are attached
as an appendix to the Bank Merger Agreement. A vote in favor of the proposal to
approve the Reorganization Agreement and the Bank Merger will constitute a vote
in favor of the Articles of Incorporation of the resulting bank. Under
applicable law, consummation of the Bank Merger requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Bank Common Stock. Upon
consummation of the Babbscha Merger, Norwest will own 100% of the outstanding
Babbscha Common Stock and
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accordingly will own indirectly 100% of the outstanding Bank Common Stock. Upon
consummation of the Bank Merger, the outstanding shares of Bank Common Stock
(other than shares owned by Babbscha and shares as to which statutory
dissenters' rights have been exercised and not forfeited) will be converted into
that number of shares of Norwest Common Stock, determined by dividing 108,207 by
such outstanding shares of Bank Common Stock (other than those owned by
Babbscha).
The market price for Norwest Common Stock will fluctuate between the date of
this Proxy Statement-Prospectus and the Effective Date of the Mergers, which may
be a period of several weeks. As a result, the market value of the Norwest
Common Stock that shareholders of Babbscha and Banrein and stockholders of the
Bank ultimately receive in the Reorganization could be more or less than its
market value on the date of this Proxy Statement-Prospectus.
The Reorganization Agreement and the related Merger Agreements and Bank
Merger Agreement provide that if, between the date of the Reorganization
Agreement and the Effective Time of the Merger, shares of Norwest Common Stock
are changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares,
or readjustment, or if a stock dividend thereon is declared with a record date
within the same period, the number of shares of Norwest Common Stock to be
issued in the Reorganization will be adjusted accordingly.
No fractional shares of Norwest Common Stock will be issued in the Mergers
or the Bank Merger. Instead, Norwest will pay to each holder of Babbscha Common
Stock, Banrein Common Stock, or 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 shareholders of Babbscha or Banrein
or stockholders of the Bank would otherwise be entitled multiplied by the
average of the closing prices of a share of Norwest Common Stock on the NYSE for
the five trading days immediately preceding the Effective Date of the Mergers.
Shares of Norwest Common Stock issued and outstanding immediately prior to
the Effective Time of the Mergers will remain issued and outstanding.
EFFECTIVE DATE AND TIME OF THE MERGERS AND OF THE BANK MERGER
Subject to the terms and conditions of the Reorganization Agreement, the
Effective Date of the Merger will be the date on which Articles of Merger are
filed with the Secretary of State of the State of Minnesota. That filing will be
made within ten business days following the satisfaction or waiver of all
conditions of the Reorganization Agreement or on such other date upon which the
parties agree, and the time at which such filing will be made is hereinafter
referred to as the "Time of Filing." The "Effective Time of the Mergers" will be
11:59 p.m., Minneapolis, Minnesota time, on the Effective Date of the Mergers.
The "Effective Time of the Bank Merger" will be 12:01 a.m. on the date specified
in the Bank Merger Agreement. Norwest, Babbscha, Banrein and the Bank anticipate
that the closing of the Reorganization will occur in the first quarter of 1995.
See "Conditions to the Mergers and to the Bank Merger" and "Regulatory
Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Mergers or the
Effective Time of the Bank Merger, as the case may be, 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
Babbscha Common Stock, Banrein Common Stock, or Bank Common Stock
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a form of letter of transmittal, together with instructions for the exchange of
such holder's stock certificates for a certificate representing Norwest Common
Stock.
SHAREHOLDERS OF BABBSCHA AND BANREIN AND STOCKHOLDERS 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
Babbscha Common Stock, Banrein Common Stock, or 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 Reorganization will be
deemed issued as of the Effective Time of the Mergers or the Effective Time of
the Bank Merger, as the case may be. No dividends with a record date after the
Effective Time of the Mergers or the Effective Time of the Bank Merger, as the
case may be, will be paid to shareholders of Babbscha or Banrein or stockholders
of the Bank entitled to receive certificates for shares of Norwest Common Stock
until such shareholders surrender their certificates representing shares of
Babbscha Common Stock, Banrein Common Stock or Bank Common Stock. Upon such
surrender, there shall be paid to the holder in whose name the certificates
representing such shares of Norwest Common Stock are issued any dividends the
record and payment dates of which shall have been after the Effective Time of
the Mergers or the Effective Time of the Bank Merger, as the case may be, and
before the date of such surrender. After such surrender, there shall be paid to
the person in whose name the certificate representing such shares of Norwest
Common Stock is issued, on the appropriate dividend payment date, any dividend
on such shares of Norwest Common Stock which shall have a record date after the
Effective Time of the Mergers or Effective Time of the Bank Merger, as the case
may be, and prior to the date of surrender, but a payment date subsequent to the
surrender. In no event shall the persons entitled to receive such dividends be
entitled to receive interest on amounts payable as dividends.
CONDITIONS TO THE MERGERS AND TO THE BANK MERGER
THE MERGERS
The Reorganization will occur only if the Reorganization Agreement and the
Bank Merger Agreement are approved by the requisite vote of the shareholders of
Babbscha and Banrein and the stockholders of the Bank, respectively.
Consummation of the Mergers is subject to the satisfaction of certain other
conditions, any of which may be waived to the extent waiver is permitted by
applicable law. Such conditions to the obligations of both parties to consummate
the Mergers and the Bank Merger include, but are not limited to, (i) the receipt
of all necessary regulatory approvals, including the approval of the Mergers by
the Federal Reserve Board and the approval of the Bank Merger by the OCC, and
the expiration of all applicable waiting and approval periods, (ii) the
continued effectiveness of the Registration Statement of which this Proxy
Statement-Prospectus is a part and receipt by Norwest of all state securities
law or blue sky authorizations necessary for the Reorganization, (iii) the
absence of any order of a court or agency of competent
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jurisdiction restraining, enjoining, or otherwise prohibiting consummation of
the Mergers or the Bank Merger, (iv) the continued accuracy of representations
and warranties by the other party, (v) the performance by the other party of its
obligations under the Reorganization Agreement, and (vi) the receipt of certain
certificates from the other party.
The obligations of Babbscha, Banrein and the Bank to consummate the
Reorganization is also subject to (i) authorization for listing on the NYSE and
CHX upon official notice of issuance of the shares of Norwest Common Stock
issuable pursuant to the Reorganization and (ii) the receipt of an opinion of
special tax counsel to Babbscha, Banrein and the Bank to the effect that for
federal income tax purposes the Mergers and the Bank Merger will be a tax-free
reorganization.
Norwest's obligation to consummate the Reorganization is also subject to (i)
the receipt by Babbscha, Banrein, and/or the Bank of any and all material
consents or waivers from third parties to loan agreements, leases, or other
material contracts required for the consummation of the Reorganization, and the
receipt by Babbscha, Banrein, and/or the Bank of any and all material permits,
authorizations, consents, waivers, and approvals required for the consummation
of the Reorganization; (ii) the receipt of a certificate signed by the Chief
Executive Officer and Chief Financial Officer of each of Babbscha, Banrein,
and/or the Bank concerning the accuracy and completeness of certain of
Babbscha's financial statements and related information as of a date subsequent
to the date of such financial statements; (iii) the absence since December 31,
1993, of any material loss or interference with the business of Babbscha and its
subsidiaries considered as a whole from any civil disturbance or any fire,
explosion, flood, or other calamity, whether or not covered by insurance; (iv)
the absence of any reasonable basis for the imposition on Babbscha, Banrein,
and/or 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 Babbscha, Banrein, and/or the Bank taken as a whole; (v) the
absence of any change which might reasonably be expected to have a material
adverse effect on the financial condition, results of operations, business, or
prospects of Babbscha, Banrein, and/or the Bank taken as a whole, other than
changes in banking laws or regulations, or interpretations thereof, that affect
the banking industry generally or changes in the general level of interest
rates; and (vi) the establishment of such additional accruals and reserves as
may be necessary to conform the accounting and credit loss reserve practices and
methods of Babbscha, Banrein, and/or the Bank to those of Norwest and Norwest's
plans for the conduct of the business of Babbscha, Banrein, and/or the Bank
after the Reorganization and to provide for the costs and expenses of
consummating the Reorganization contemplated by the Reorganization Agreement.
THE BANK MERGER
The Bank Merger will occur only if (i) the Reorganization Agreement and the
Bank Merger Agreement are approved by the requisite vote of the stockholders of
the Bank; (ii) the Bank Merger is approved by all appropriate banking and
regulatory authorities, and all conditions prescribed by law for the
consummation of the Bank Merger have been satisfied; and (iii) the Mergers have
been consummated.
REGULATORY APPROVALS
Transactions such as the Mergers 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
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needs of the communities to be served. On October 25, 1994, Norwest filed an
application for such approval with the Federal Reserve Board.
The Bank Merger is also subject to the approval of the OCC, and receipt of
such approval is a condition to consummation of the Reorganization. On October
26, 1994, Norwest submitted an application for approval to the OCC.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which does not include review of the Reorganization 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 Reorganizations.
Neither Norwest, nor Babbscha, Banrein, or the Bank is aware of any
governmental approvals or compliance with banking laws and regulations that are
required for consummation of the Reorganization other than those described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained and, if
such approvals or actions are obtained, there can be no assurance as to the
timing thereof. Neither the Mergers nor the Bank Merger can proceed in the
absence of all requisite regulatory approvals. See "Conditions to the Mergers
and to the Bank Merger," "Effective Date and Time of the Mergers and to the Bank
Merger," and "Waiver, Amendment, and Termination."
BUSINESS PENDING THE REORGANIZATION
Under the Reorganization Agreement, each of Babbscha, Banrein, and the Bank
is generally obligated to maintain its corporate existence in good standing; to
maintain the general character of its business and conduct its business in the
ordinary and usual manner; extend credit in accordance with existing lending
policies; maintain proper business and accounting records in accordance with
generally accepted principles; maintain its properties in good repair and
condition, ordinary wear and tear excepted; maintain in all material respects
presently existing insurance coverage; use its best efforts to preserve its
business organization intact, to keep the services of its present principal
employees, and to preserve its goodwill and the goodwill of its suppliers,
customers, and others having business relationships with it; use its best
efforts to obtain any approvals or consents required to maintain existing leases
and other contracts in effect following the Reorganization; comply in all
material respects with all laws, regulations, ordinances, codes, orders,
licenses, and permits applicable to the properties and operations of Babbscha,
Banrein, and the Bank, the noncompliance with which reasonably could be expected
to have a material adverse effect on Babbscha, Banrein, and the Bank taken as a
whole; and permit Norwest and its representatives to examine its and its
subsidiaries' books, records, and properties, and to interview officers,
employees, and agents at all reasonable times when it is open for business. The
Reorganization Agreement also provides that, prior to the Closing Date, neither
Babbscha, Banrein, nor the Bank may, without the prior written consent of
Norwest, among other things: (i) make any new loan or modify, restructure, or
renew any existing loan (except pursuant to commitments made prior to the date
of the Reorganization 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 exceed $200,000; (ii) amend or otherwise change its articles of
incorporation or association or bylaws; (iii) 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; (iv)
authorize or incur any long-term debt (other than deposit liabilities); (v)
mortgage, pledge, or subject to lien or other encumbrance any of its properties,
except in the ordinary course of business; (vi) enter into any material
agreement, contract, or commitment in excess of $25,000 except banking
transactions in the ordinary course
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of business and in accordance with policies and procedures in effect on the date
of the Reorganization Agreement; (vii) make any investments except investments
made by bank subsidiaries in the ordinary course of business for terms of up to
one year and in amounts of $100,000 or less; (viii) amend or terminate any
"employee benefit plan" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended, except as required by law; (ix) make any
contributions to any such plan except as required by the terms of such plan in
effect as of the date of the Reorganization Agreement, subject to certain
enumerated exceptions; (x) declare, set aside, make, or pay any dividend or
other distribution with respect to its capital stock, except any dividend by
Banrein or Bank in accordance with applicable laws and regulations; (xi) redeem,
purchase, or otherwise acquire, directly or indirectly, any of the capital stock
of Babbscha, Banrein, or the Bank; (xii) increase the compensation of any
officers, directors, or executive employees, except pursuant to existing
compensation plans and practices; (xiii) sell or otherwise dispose of any shares
of the capital stock of any subsidiary; or (xiv) sell or otherwise dispose of
any of its assets or properties other than in the ordinary course of business.
Neither Babbscha, Banrein, or the Bank, nor any director, officer, or
representative thereof, will, directly or indirectly, solicit, authorize the
solicitation of, or enter into any discussions with any party or group (other
than Norwest) concerning any offer or possible offer (i) to purchase any shares
of Babbscha Common Stock, Banrein Common Stock or Bank Common Stock, any option
or warrant to purchase any shares of Babbscha Common Stock, Banrein Common
Stock, or Bank Common Stock, any securities convertible into any shares of
Babbscha Common Stock, Banrein Common Stock or Bank Common Stock, or any other
equity security of Babbscha, Banrein, or the Bank; (ii) to make a tender or
exchange offer for any shares of Babbscha Common Stock, Banrein Common Stock or
Bank Common Stock or other equity security; (iii) to purchase, lease, or
otherwise acquire the assets of Babbscha, Banrein, or the Bank, except in the
ordinary course of business; or (iv) to merge, consolidate, or otherwise combine
with Babbscha, Banrein, or the Bank. Any offer or inquiry to Babbscha, Banrein,
or the Bank concerning any of the foregoing must be promptly disclosed, along
with the terms thereof, to Norwest.
WAIVER, AMENDMENT, AND TERMINATION
The parties may, in writing, waive any inaccuracies in the representations
and warranties of the other party or compliance by the other party with any of
the covenants and conditions in the Reorganization Agreement.
At any time before the Time of Filing the parties may amend the
Reorganization 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
Mergers by the Babbscha shareholders or Banrein shareholders or of the Bank
Merger by the Bank stockholders may adversely affect the consideration to be
received by the Babbscha shareholders, Banrein shareholders or Bank
stockholders, as the case may be.
The Reorganization Agreement provides that it may be terminated at any time
prior to the Time of Filing (i) by mutual written consent of the parties; (ii)
by either party by written notice to the other if the Reorganization shall not
have been consummated by May 31, 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 Reorganization Agreement; or (iii) by either party by written notice
to the other if any court or governmental authority of competent jurisdiction
shall have issued a final order restraining, enjoining, or otherwise prohibiting
the consummation of the transactions contemplated by the Reorganization
Agreement.
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The Bank Merger Agreement provides that it may be terminated at any time
prior to the Effective Date of the Bank Merger by mutual written consent of the
parties or by action of the Board of Directors of either party if the
Reorganization Agreement is terminated.
MANAGEMENT AND OPERATIONS AFTER THE REORGANIZATION
As of the Effective Time of the Reorganization, the Bank will become an
indirect subsidiary of Norwest. As a result of the Bank Merger, subsequent to
the Mergers, the Bank will be merged with another subsidiary of Norwest, Norwest
Bank, under the charter of Norwest Bank, and will cease to exist as a separate
entity. Norwest Bank will operate at the Bank's present locations, providing
products and services offered by Norwest affiliates. See "Terms of the Mergers
and of the Bank Merger."
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Certain directors and executive officers of the Selling Entities also own
shares of the Selling Entities. No such director or executive officer will
receive any extra or special benefit not shared on a pro rata basis by all other
shareholders or stockholders of the Selling Entities.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Babbscha and Banrein are incorporated as corporations in the State of
Minnesota, and the Bank is chartered as a state bank under the laws of the State
of Minnesota. Norwest is incorporated as a corporation in the State of Delaware.
Shareholders of Babbscha and Banrein, whose rights are governed by the Articles
of Incorporation and Bylaws of Babbscha and Banrein and by the Minnesota
Business Corporation Act, will, upon consummation of the Mergers, become
stockholders of Norwest. Stockholders of the Bank, whose rights are governed by
the Bank's Certificate of Incorporation and Bylaws and by Minnesota banking
statutes, will, upon consummation of the Bank Merger, also become stockholders
of Norwest. The rights of former shareholders of Babbscha and Banrein and former
stockholders of the Bank 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 Babbscha and Banrein, stockholders of the
Bank, and stockholders of Norwest.
CAPITAL STOCK
BABBSCHA. Babbscha's Articles of Incorporation authorize the issuance of
25,000 shares of common stock, no par value per share, of which 10,000 were
outstanding as of the date of this Proxy Statement-Prospectus. Accordingly, all
of Babbscha shareholders have equal rights and preferences with respect to
dividends and distributions upon liquidation.
BANREIN. Banrein's Articles of Incorporation authorize the issuance of
4,000 shares of common stock, no par value per share, of which 4,000 were
outstanding as of the date of this Proxy Statement-Prospectus. Accordingly, all
of Banrein shareholders have equal rights and preferences with respect to
dividends and distributions upon liquidation.
THE BANK. The Bank's Certificate of Incorporation authorizes the issuance
of 5,000 shares of capital stock, par value $37.50 per share, all of which were
outstanding as of the date of this Proxy Statement-Prospectus. Under Minnesota
banking law, with the approval of the Minnesota Commissioner of Commerce and a
majority vote of its stockholders, the Bank may issue one or more classes of
preferred stock, with such rights and privileges as determined by the Board of
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Directors, provided that the amount of such preferred stock may not exceed 50%
of the Bank's common stock and surplus.
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, 1,000,000 shares of Preferred
Stock are reserved for issuance under the Rights Agreement dated as of November
22, 1988, between Citibank, N.A. as Rights Agent, and Norwest (the "Rights
Agreement"). Norwest has also authorized for issuance from time to time and
registered with the Commission an additional 1,700,000 shares of Preferred
Stock. Norwest has also authorized for issuance from time to time and registered
or filed for registration with the SEC, pursuant to two universal shelf
registration statements, an indeterminate number of securities (the "Shelf
Securities") with an aggregate initial offering price, as of November 4, 1994,
not to exceed $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 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 Norwest Preferred Stock" below.
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The foregoing description of the material terms of the Common Stock does not
purport to be complete and is qualified in its entirety by reference to Article
Fourth of Norwest's Certificate of Incorporation.
RIGHTS TO PURCHASE NORWEST PREFERRED STOCK. On November 22, 1988, the Board
of Directors of Norwest declared a dividend of one preferred share purchase
right (collectively, the "Rights") for each outstanding share of Norwest Common
Stock. The dividend was paid on December 9, 1988, to stockholders of record on
that date. Holders of shares of Norwest Common Stock issued subsequent to that
date, including those to be issued in connection with the Reorganization, 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 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.
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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
Reorganization, Bank Merger, or other Reorganization in which Norwest Common
Stock is exchanged, each Junior Preferred Share will be entitled to receive 400
times the amount received per share of Norwest Common Stock. These rights are
protected by customary antidilution provisions.
At any time prior to the acquisition by a person or group of the triggering
percentage or more of the outstanding shares of Norwest Common Stock, the Board
of Directors may redeem the Rights in whole, but not in part, at a price of
$.0025 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis, and with such conditions as the
Board of Directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only remaining right of the holders of Rights will be to receive the
Redemption Price.
The Rights will expire on November 23, 1998, unless extended or earlier
redeemed by Norwest. Generally, the terms of the Rights may be amended by the
Board of Directors without the consent of the holders of the Rights.
PREEMPTIVE RIGHTS
BABBSCHA. Babbscha shareholders have preemptive rights to acquire
previously authorized but unissued shares of Babbscha Common Stock. There are
no such authorized but unissued shares of Babbscha Common Stock currently
existing.
BANREIN. Banrein shareholders have preemptive rights to acquire previously
authorized but unissued shares of Banrein Common Stock. There are no such
authorized but unissued shares of Banrein Common Stock currently existing.
THE BANK. Bank shareholders have preemptive rights to acquire previously
authorized but unissued shares of Bank Common Stock. There are no such
authorized but unissued shares of Bank Common Stock currently existing.
NORWEST. Norwest stockholders have no preemptive rights or other purchase
rights other than the Rights.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
BABBSCHA AND BANREIN. Under Minnesota law the affirmative vote of the
holders of a majority of the voting power of all shares entitled to vote is
required to approve a merger or consolidation. However, with respect to a
merger, no vote of the shareholders of Babbscha or Banrein is required if (1)
Babbscha is the surviving corporation, (2) each holder of Babbscha or Banrein
shares outstanding before the effective date of the merger will hold the same
number of shares with identical rights after the merger, and (3) the shares of
Babbscha or Banrein entitled to vote or entitled to
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participate without limitation in distributions to be issued or delivered in
such merger do not exceed 20% of the shares of Babbscha or Banrein entitled to
vote or entitled to participate without limitation in distributions,
respectively, outstanding immediately prior to the merger.
THE BANK. Under Minnesota law, the affirmative vote of the holders of at
least a majority of the outstanding stock is required to approve a merger or
consolidation with another Minnesota state bank. The Bank may convert into a
national banking association or merge or consolidate with one or more national
banking associations upon the affirmative vote of not less than two-thirds of
the voting power of all stockholders entitled to vote.
NORWEST. Under Delaware law the vote of a simple majority of the
outstanding shares of Norwest Common Stock entitled to vote thereon is required
to approve a merger or consolidation, or the sale, lease, or exchange of
substantially all of Norwest's corporate assets. With respect to a merger, no
vote of the stockholders of Norwest is required if Norwest is the surviving
corporation and (1) the related agreement of merger does not amend Norwest's
Certificate of Incorporation, (2) each share of stock of Norwest outstanding
immediately before the merger is an identical outstanding or treasury share of
Norwest after the merger, and (3) the number of shares of Norwest stock to be
issued in the merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) does not exceed 20% of the shares of
Norwest Common Stock outstanding immediately before the merger.
AMENDMENT OF CORPORATE CHARTER
BABBSCHA AND BANREIN. Under Minnesota law, amendment of the Articles of
Babbscha or Banrein requires the affirmative vote of the holders of a majority
of the voting power of the shares present and entitled to vote at a meeting of
shareholders, unless the articles require a larger proportion or number to
transact a specified type of business at a meeting. The affirmative vote of
that larger proportion or number is required to decrease that proportion or
number.
THE BANK. Under Minnesota law, amendment of the Bank's Certificate requires
the affirmative vote of a majority of its voting capital stock and the approval
of the Minnesota Department of Commerce.
NORWEST. Delaware law requires the vote of a simple majority of the
outstanding shares of Norwest Common Stock in order to amend Norwest's
Certificate.
APPRAISAL RIGHTS
BABBSCHA AND BANREIN. Under Minnesota law a shareholder of Babbscha or
Banrein is generally entitled to exercise dissenters' rights and be paid the
fair value of such shareholder's shares. See the more detailed discussion below
under "Rights of Dissenting Shareholders."
THE BANK. Under Minnesota law a stockholder of the Bank who dissents from a
conversion, merger, or consolidation is entitled to receive the par value or the
book value of such stockholder's stock, whichever is greater, or, under certain
circumstances, an appraised value of such stockholder's stock. In certain
circumstances, a stockholder may also have rights under federal law. See the
more detailed discussion below under "Rights of Dissenting 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
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such corporation, unless in either case, the holders of such stock are required
by the terms of the merger to accept anything other than (i) shares of stock of
the surviving corporation, (ii) shares of stock of another corporation which are
also listed on a national securities exchange or held by more than 2,000
holders, or (iii) cash in lieu of fractional shares of such stock. Appraisal
rights are not available for a sale of assets or an amendment to the Certificate
of Incorporation. Because shares of Norwest Common Stock are listed on both the
NYSE and the CHX, and Norwest has more than 2,000 stockholders of record, its
stockholders are not, subject to the aforementioned exceptions, entitled to any
rights of appraisal in connection with mergers or consolidations involving
Norwest.
SPECIAL MEETINGS
BABBSCHA. The By-Laws of Babbscha provide that a special meeting of
shareholders may be called (i) by Babbscha's President, (ii) by Babbscha's
President or Secretary at the written request of a majority of the Board of
Directors, or (iii) by Babbscha's President or Secretary at the written request
of the holders of 10% or more of the capital stock of Babbscha.
BANREIN. The By-Laws of Banrein provide that a special meeting of
shareholders may be called (i) by Banrein's President, (ii) by Banrein's
President or Secretary at the written request of a majority of the Board of
Directors, or (iii) by Banrein's President or Secretary at the written request
of the holders of 10% or more of the capital stock of Banrein.
THE BANK. Under the Bank's By-Laws a special meeting of stockholders may be
called by the President or the Cashier and must be called on the majority vote
of the Board of Directors, or on the written request of any three or more
stockholders owning in the aggregate not less than 10% of the capital stock of
the Bank.
NORWEST. Under Delaware law and the By-Laws of Norwest, a special meeting
of stockholders may be called only by the Chairman of the Board, a Vice
Chairman, the President, or a majority of the Board of Directors.
ANTITAKEOVER STATUTES
BABBSCHA AND BANREIN. Minnesota has in force both a control share
acquisition statute, which regulates the accumulation of shares of voting stock
of Minnesota corporations, and a business combination statute, which restricts
business combinations with Minnesota corporations. The control share
acquisition statute precludes an acquiror of the voting shares of a Minnesota
corporation who crosses one of three thresholds (20%, 33 1/3%, or 50% of the
voting power) from obtaining voting control with respect to such shares unless
both a majority of all voting shares and a majority of all disinterested voting
shares vote to accord voting power to the control shares. The statute further
provides that the corporation may redeem the control shares if the acquiror has
not complied with certain procedural requirements or if the control shares are
not accorded full voting rights by the shareholders. The business combination
statute regulates business combinations such as mergers, consolidations, and
asset purchases with public corporations where the acquiror became an interested
shareholder of the public corporation before either the purchase resulting in
such acquiror becoming an interested shareholder or the business combination
received the prior approval of a majority of the disinterested directors of the
public corporation. An "interested shareholder" is any person that is either
the beneficial owner, directly or indirectly, of ten percent or more of the
voting stock of the public corporation or an affiliate or associate of the
public corporation and was at any time within the preceding four years the
beneficial owner, directly or indirectly, of ten percent or more of the voting
stock of the public corporation. A "disinterested" director is a person who is
not currently nor has been within five years an officer or employee of the
public corporation or a related corporation. The statute prohibits business
combinations with
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an unapproved interested shareholder for a period of four years after the date
of the interested shareholder's share acquisition. The business combination
statute is designed to inhibit unfriendly acquisitions, but is does not apply to
corporations whose articles of incorporation or bylaws contain a provision
electing not to be covered by such law. Neither the articles of incorporation
nor its bylaws of Babbscha or Banrein contain such a provision.
THE BANK. The merger or consolidation of the Bank is subject to the
approval of the Minnesota Commissioner of Commerce. The Minnesota Reciprocal
Interstate Banking Act permits the acquisition of the Bank by a bank holding
company whose principal operations are conducted in one of 16 enumerated states.
Any such acquisition must be approved by the Minnesota Commissioner of Commerce.
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 merger began,
excluding in computing such percentage shares held by certain types of
stockholders, or (c) the board of directors approved the business combination
after the stockholder became an interested stockholder and the business
combination was approved by at least two-thirds of the outstanding voting stock
not owned by such stockholder.
In addition to being subject to the laws of Minnesota and Delaware,
respectively, both Babbscha and Norwest, as bank holding companies, are subject
to various provisions of federal law with respect to mergers, consolidations,
and certain other corporate transactions.
RIGHTS OF DISSENTING SHAREHOLDERS
BABBSCHA AND BANREIN
All shareholders of Babbscha and Banrein are entitled to exercise
dissenters' rights pursuant to the provisions of Sections 302A.471 and 302A.473
of the Minnesota Business Corporation Act. In accordance with these sections,
such shareholders have the right to dissent from the Mergers and to be paid the
fair value of their shares. The term "fair value" means the value of a
shareholder's stock immediately before the Effective Date of the Reorganization.
Under Section 302A.473, where a transaction is to be submitted for approval at a
meeting of shareholders, the corporation must notify each of its shareholders of
the right to dissent and include in such notice a copy of Sections 302A.471 and
302A.473. This Proxy Statement-Prospectus shall constitute such notice to the
shareholders of Babbscha and Banrein.
The following discussion is not a complete statement of the laws pertaining
to a dissenting shareholder's rights under Minnesota law and is qualified in its
entirety by the full text of Sections 302A.471 and 302A.473 attached as Appendix
D to this Proxy Statement-Prospectus. Any shareholder who wishes to exercise
the right to dissent and demand the fair value of such
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shareholder's shares, or who wishes to preserve the right to do so, should
review the following discussion and Appendix D carefully. DISSENTERS' RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS ARE NOT FULLY AND PRECISELY
SATISFIED.
A holder of Babbscha Common Stock or Banrein Common Stock wishing to
exercise the right to demand the fair value of such shareholder's shares must
first file, BEFORE the vote of shareholders is taken at their respective Special
Meeting, a written notice of intent to demand the fair value of such
shareholder's shares and must, in addition, not vote in favor of the
Reorganization Agreement. Because a proxy which does not contain voting
instructions will, unless revoked, be voted FOR approval of the Reorganization
Agreement, a shareholder of Babbscha or Banrein who votes by proxy and who
wishes to exercise dissenters' rights must (i) vote AGAINST approval of the
Reorganization Agreement or (ii) ABSTAIN from voting on approval of the
Reorganization Agreement. A vote against the Reorganization Agreement, whether
in person or by proxy, will not in and of itself satisfy the requirement of a
written notice of intent to demand the fair value of a shareholder's common
stock.
A demand for fair value must be executed by or for the shareholder of
record, fully and correctly, as such shareholder's name appears on the
certificate or certificates representing such shareholder's shares. If the
common stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian, or custodian, such demand must be executed by the fiduciary. If the
common stock is owned of record by more than one person, as in a joint tenancy
or tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for a shareholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in making the demand, the
agent is acting as agent for the record owner.
A record owner who holds shares as a nominee for others, such as a broker,
may demand fair value of the shares held for all, or fewer than all, of the
beneficial owners of such shares. In such a case, the written demand should set
forth the number of shares to which it relates. When no number of shares is
expressly mentioned, the demand will be presumed to cover all shares standing in
the name of the record owner. Beneficial owners of common stock who are not
record owners and who intend to exercise dissenters' rights should instruct the
record owner to comply with the statutory requirements with respect to the
exercise of dissenters' rights before the date of the Special Meeting.
Shareholders of Babbscha who elect to exercise dissenters' rights and demand
fair value should mail or deliver their written demand to Babbscha Company, 6315
University Avenue, N.E., Fridley, Minnesota 55432. The written demand should
specify the shareholder's name and mailing address, the number of shares owned,
and that the shareholder is thereby demanding the fair value of such
shareholder's shares.
After the Effective Date of the Mergers, Norwest, as the surviving entity,
will cause to be mailed to each of the shareholders of Babbscha or Banrein who
has properly asserted dissenters' rights a notice that contains (i) the address
to which a demand for payment and stock certificates must be sent in order to
receive payment and the date by which they must be received; (ii) a form to be
used to certify the date on which the shareholder, or the beneficial owner on
whose behalf the shareholder dissents, acquired the shares or an interest in
them, and to demand payment; and (iii) another copy of Sections 302A.471 and
302A.473, together with a brief description of these sections. To receive the
fair value of common stock a dissenting shareholder must demand payment and
deposit the certificates representing such shares within 30 days after the
notice is given.
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After Norwest receives a valid demand for payment, it will cause to be
remitted to each dissenting shareholder who has properly asserted dissenters'
rights the fair value of the shares of Babbscha Common Stock or Banrein Common
Stock (as applicable) with interest at the judgment rate computed from the
Effective Date of the Reorganization. Such payment will be accompanied by (i)
the audited financial statements of Norwest for its most recently completed
fiscal year, together with the latest available interim financial statements;
(ii) an estimate of the fair value of the shares with respect to which
dissenters' rights have been exercised and a brief description of the method
used to reach the estimate; and (iii) additional copies of Sections 302A.471 and
302A.473 along with a brief description of the procedures to be followed to
demand the supplemental payment discussed below. If Norwest fails to remit
payment within 60 days after receiving shares from a dissenting shareholder, it
is obligated to return any certificates for such shares to the dissenting
shareholder.
If a dissenting shareholder believes that the amount remitted by Norwest is
less than the fair value of the shares plus interest, such dissenting
shareholder may give written notice to Norwest of such shareholder's own
estimate of the fair value for the shares plus interest and demand a
supplemental payment for the difference. Any written demand for supplemental
payment must be made within 30 days after Norwest has mailed its original
remittance.
Within 60 days after receiving a demand for supplemental payment, Norwest,
as the surviving entity, must either pay the amount of the supplemental payment
demanded (or agreed to between the dissenting shareholder and Norwest) or file a
petition in the state courts of Minnesota requesting that the court determine
the fair value of the shares plus interest. Any petition so filed must name as
parties all dissenting shareholders who have demanded supplemental payments and
who have been unable to reach an agreement with Norwest concerning the fair
value of their shares. The court may appoint appraisers, with such power and
authority as the court deems proper, to receive evidence on and recommend the
amount of fair value of the shares. The jurisdiction of the court is plenary
and exclusive, and the fair value as determined by the court it binding on all
shareholders, wherever located. A dissenting shareholder, if successful, is
entitled to a judgment for the amount by which the fair value of such
shareholder's shares as determined by the court exceeds the amount originally
remitted by Norwest.
Generally, the costs and expenses associated with a court proceeding to
determine the fair value of the shares will be borne by the surviving entity,
unless the court finds that a dissenting shareholder has demanded supplemental
payment in a manner which is arbitrary, vexatious, or not in good faith.
Similar costs and expenses may also be assessed in instances where Norwest has
failed to comply with the procedures in Section 302A.473 pertaining to
dissenters' rights discussed above. The court may, in its discretion, award
attorneys' fees to an attorney representing dissenting shareholders out of any
amount awarded to such dissenters.
Failure to follow the steps required by Section 302A.473 for asserting
dissenters' rights may result in the loss of a shareholder's rights to demand
the fair value of such shareholder's shares of common stock. Shareholders
considering seeking appraisal should realize that the fair value of their
shares, as determined under Section 302A.473 in the manner outlined above, could
be more than, the same as, or less than the value of the Norwest Common Stock
they would be entitled to as a result of the Reorganization if they did not seek
appraisal of their shares.
THE BANK
Stockholders of the Bank have dissenters' appraisal rights under Minnesota
law. Section 49.41 of the Minnesota Statutes entitles any stockholder of the
Bank who objects to the proposed Bank Merger to receive payment of an appraised
value of such stockholder's Bank Common Stock
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if the stockholder (i) does not vote in favor of the Bank Merger at the Bank
Special Meeting and (ii) objects to the Bank Merger at the Bank Special Meeting
or within 20 days thereafter and demands payment for such stockholder's stock.
If the Bank Merger becomes effective after such a demand, the dissenting
stockholder may, at any time within 60 days thereafter, apply to the district
court in Anoka County, Minnesota, for the appointment of three persons to
appraise the value of such stockholder's stock. The court shall appoint three
appraisers and designate the time and place of their first meeting, with such
directions in regard to their proceedings as shall be deemed proper, and shall
direct the time and manner in which payment to the stockholder shall be made of
the value of such stockholder's stock. The three appraisers shall meet at the
time and place designated by the court, shall make and certify an estimate of
the value of the stock at the time of the appraisal, and shall deliver a copy of
the appraisal to Norwest Bank and a copy to the stockholder. The charges and
expenses of the appraisers shall be paid one-half by the stockholder and one-
half by Norwest Bank. Upon payment by Norwest Bank of the appraised value of
the stock, the stock shall be canceled, the dissenting stockholder shall cease
to have any interest in the stock, the Bank or Norwest Bank, or in Norwest
Bank's property. The canceled stock may be held and disposed of by Norwest Bank
for its own benefit.
The foregoing summary does not purport to be a complete statement of Section
49.41 and is qualified in its entirety by reference to the provisions of Section
49.41, the text of which is attached to this Proxy Statement-Prospectus as
Appendix E. Any stockholder who desires to exercise dissenters' rights should
review carefully the relevant provisions of Section 49.41. DISSENTERS' RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTION 49.41 ARE NOT FULLY AND
PRECISELY SATISFIED.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is intended that the Babbscha Merger will be treated as a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code, the Banrein Merger and the Bank Merger will be treated as tax-free
reorganizations within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code, and that for federal income tax purposes no gain or loss will be
recognized by any shareholder of Babbscha, shareholder of Banrein or stockholder
of the Bank upon receipt of Norwest Common Stock pursuant to the Reorganization,
except upon the receipt of cash in lieu of fractional shares of Norwest Common
Stock. The Internal Revenue Service (the "Service") has not been and will not
be asked to rule upon the tax consequences of the Reorganization. Instead,
Babbscha, Banrein and the Bank will each rely upon the separate opinions of
Briggs and Morgan, P.A., its special tax counsel, as to certain federal income
tax consequences of the Reorganization to the shareholders of Babbscha, the
shareholders of Banrein and the stockholders of the Bank. It is a condition to
the consummations of the Reorganization that each of Babbscha, Banrein and the
Bank receive such an opinion from Briggs and Morgan. The opinions of Briggs and
Morgan will be based upon the facts which are described herein and upon certain
representations made by Babbscha, Banrein and the Bank, Norwest, and certain of
the principal shareholders of Babbscha, Banrein and the Bank. The opinions of
Briggs and Morgan will also be based upon the Code, regulations now in effect
thereunder, current administrative rulings and practice, and judicial authority,
all of which are subject to change. An opinion of counsel is not binding on the
Service and there can be no assurance, and none is hereby given, that the
Service will not take a position contrary to one or more positions reflected
herein or that the opinion will be upheld by the courts if challenged by the
Service. EACH HOLDER OF BABBSCHA COMMON STOCK, BANREIN COMMON STOCK OR THE BANK
COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISORS AS TO
THE EFFECT OF SUCH FEDERAL INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR
FACTS AND CIRCUMSTANCES AND ALSO AS TO ANY STATE, LOCAL, FOREIGN, OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE REORGANIZATION.
41
<PAGE>
Based upon the facts and representations provided to it, and subject to
various assumptions and qualifications, it is anticipated that Briggs and Morgan
will opine that the following federal income tax consequences to the
shareholders of Babbscha, the shareholders of Banrein and the stockholders of
the Bank will result from the Reorganization:
BABBSCHA MERGER
(1) Provided that the merger of Merger Co. with and into Babbscha
qualifies as a statutory merger under applicable law, the Babbscha Merger
will qualify as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code, and Babbscha, Norwest and Merger
Co. will each be a party to the reorganization within the meaning of
Section 368(b) of the Code.
(2) No gain or loss will be recognized by the shareholders of
Babbscha Common Stock upon the exchange of Babbscha Common Stock solely for
Norwest Common Stock pursuant to the Babbscha Merger.
(3) If a shareholder of Babbscha Common Stock receives only Norwest
Common Stock in the Babbscha Merger, the Babbscha shareholder's basis in
the Norwest Common Stock received in the exchange (including any fractional
share interest to which he or she may be entitled) will be the same as the
basis of the Babbscha Common Stock surrendered.
(4) The holding period of the Norwest Common Stock received by a
shareholder of Babbscha pursuant to the Babbscha Merger will include the
period during which the Babbscha Common Stock surrendered was held,
provided that the Babbscha Common Stock surrendered was a capital asset on
the date of the Babbscha Merger.
(5) A Babbscha shareholder receiving cash in lieu of fractional share
interests of Babbscha Common Stock in the Babbscha Merger will be treated
as if he or she actually received such fractional share interests which
were subsequently redeemed by Norwest. The cash a Babbscha shareholder
receives will be treated as having been received as full payment in
exchange for stock redeemed as provided in Section 302(a) of the Code.
BANREIN MERGER
(1) Provided that the merger of Banrein with and into Banrein Merger
Co. qualifies as a statutory merger under applicable law, the Banrein
Merger will qualify as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code, and Banrein, Norwest and Banrein
Merger Co. will each be a party to the reorganization within the meaning of
Section 368(b) of the Code.
(2) No gain or loss will be recognized by the shareholders of Banrein
Common Stock upon the exchange of Banrein Common Stock solely for Norwest
Common Stock pursuant to the Banrein Merger.
(3) If a shareholder of Banrein Common Stock receives only Norwest
Common Stock in the Banrein Merger, the Banrein shareholder's basis in the
Norwest Common Stock received in the exchange (including any fractional
share interest to which he or she may be entitled) will be the same as the
basis of the Banrein Common Stock surrendered.
42
<PAGE>
(4) The holding period of the Norwest Common Stock received by a
shareholder of Banrein pursuant to the Banrein Merger will include the
period during which the Banrein Common Stock surrendered was held, provided
that the Banrein Common Stock surrendered was a capital asset on the date
of the Banrein Merger.
(5) A Banrein shareholder receiving cash in lieu of fractional share
interests of Banrein Common Stock in the Banrein Merger will be treated as
if he or she actually received such fractional share interests which were
subsequently redeemed by Norwest. The cash a Banrein shareholder receives
will be treated as having been received as full payment in exchange for
stock redeemed as provided in Section 302(a) of the Code.
THE BANK MERGER
(1) Provided that the merger of the Bank with and into Norwest Bank
qualifies as a statutory consolidation under applicable law, the Bank
Merger will qualify as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code, and the Bank, Norwest and
Norwest Bank will each be a party to the reorganization within the meaning
of Section 368(b) of the Code.
(2) No gain or loss will be recognized by the holders of Bank Common
Stock upon the exchange of the Bank Common Stock solely for Norwest Common
Stock pursuant to the Bank Merger.
(3) If a stockholder of the Bank Common Stock receives only Norwest
Common Stock in the Bank Merger, the Bank stockholder's basis in the
Norwest Common Stock received in the exchange (including any fractional
share interest to which he or she may be entitled) will be the same as the
basis of the Bank Common Stock surrendered.
(4) The holding period of the Norwest Common Stock received by a
stockholder of the Bank pursuant to the Bank Merger will include the period
during which the Bank Common Stock surrendered was held, provided that the
Bank Common Stock surrendered was a capital asset on the date of the Bank
Merger.
(5) A Bank stockholder receiving cash in lieu of fractional share
interests of Bank Common Stock in the Bank Merger will be treated as if he
or she actually received such fractional share interests which were
subsequently redeemed by Norwest. The cash a Bank stockholder receives
will be treated as having been received as full payment in exchange for
stock redeemed as provided in Section 302(a) of the Code.
The opinions described above will be based upon certain assumptions,
including the assumption that the shareholders of Babbscha and Banrein and the
stockholders of the Bank do not have any plan or intention to dispose of more
than 50% of the Norwest Common Stock received pursuant to the Reorganization;
the assumption that, after the Reorganization, Babbscha will hold assets
representing at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by Babbscha
immediately prior to the Babbscha Merger; the assumption that, after the Banrein
Merger and the Bank Merger, Banrein Merger Co. and Norwest Bank will
respectively hold assets representing at least 90% of the fair market value of
the net assets and at least 70% of the fair market value of the gross assets
held by Banrein and the Bank immediately prior to the Banrein Merger and the
Bank Merger; the assumption that no
43
<PAGE>
shareholders of Babbscha will exercise statutory dissenters' rights, and the
assumption that the shareholders of Babbscha and Banrein and the stockholders of
the Bank do not directly or indirectly receive any consideration for their
shares of Babbscha Common Stock, Banrein Common Stock or the Bank Common Stock
other than Norwest Common Stock. For purposes of such assumptions, amounts paid
to dissenting shareholders and amounts paid for reorganization expenses of
Babbscha, Banrein and the Bank will be considered as assets held by Babbscha,
Banrein and the Bank immediately prior to the Reorganization.
The foregoing is only a general description of certain anticipated federal
income tax consequences of the Reorganization without regard to the particular
facts and circumstances of the tax situation of each shareholder of Babbscha or
Banrein or of each stockholder of the Bank. It does not discuss all of the
consequences that may be relevant to shareholders of babbscha or Banrein or the
stockholders of the Bank entitled to special treatment under the Code (such as
insurance companies, dealers in securities, exempt organizations, or foreign
persons) or to shareholders of Babbscha or Banrein or stockholders of the Bank
who acquired their Banrein or Bank Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. The summary set forth
above does not purport to be a complete analysis of all potential tax effects of
the transactions contemplated by the Reorganizations Agreements or the
Reorganization themselves. No information is provided herein with respect to
the tax consequences, if any, of the Reorganization under state, local, foreign,
or other tax laws.
SHAREHOLDERS OF BABBSCHA, BANREIN AND THE BANK ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS IN DETERMINING THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO
THEM IN CONNECTION WITH THE BABBSCHA MERGER, THE BANREIN MERGER, AND THE BANK
MERGER, INCLUDING THE APPLICATION TO THEIR PARTICULAR SITUATION OF THE RECEIPT
OF CASH IN LIEU OF FRACTIONAL SHARES OR THE EXERCISE OF DISSENTERS' RIGHTS, AS
WELL AS THE OTHER TAX CONSIDERATIONS DISCUSSED ABOVE, AND THE APPLICATION OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of Babbscha and
Banrein and to stockholders of the Bank upon consummation of the Reorganization
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 Babbscha or Norwest as that term is defined in
the rules under the Securities Act. Norwest Common Stock received by those
shareholders of Babbscha who are deemed to be "affiliates" of Babbscha may be
resold without registration as provided for by Rule 145, or as otherwise
permitted under the Securities Act. In the Reorganization Agreement, Babbscha
has agreed to use its best efforts to cause each Babbscha shareholder who is an
executive officer or director of Babbscha or who may otherwise reasonably be
deemed to be an affiliate of Babbscha to enter into an agreement with Norwest
providing that such affiliate will not sell, transfer, or otherwise dispose of
the shares of Norwest Common Stock to be received by such person in the Merger
except in compliance with the applicable provisions of the Securities Act and
the rules and regulations promulgated thereunder. This Proxy Statement-
Prospectus does not cover any resales of Norwest Common Stock received by
affiliates of Babbscha.
The Reorganization Agreement provides for the filing by Norwest of listing
applications with the NYSE and the CHX covering the shares of Norwest Common
Stock issuable upon consummation of the Reorganization. It is a condition to
the consummation of the Reorganization
44
<PAGE>
that such shares of Norwest Common Stock shall have been authorized for listing
on the NYSE and the CHX effective upon official notice of issuance.
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
Norwest currently has an automatic Dividend Reinvestment and Optional Cash
Payment Plan which provides in substance, for those stockholders who elect to
participate, that dividends on Norwest Common Stock will be reinvested in shares
of Norwest Common Stock at market price (as defined). The plan also permits
participants to invest through voluntary cash payments, within certain dollar
limitations, in additional shares of Norwest Common Stock at the market price
(as defined) of such stock at the time of purchase. It is anticipated that
after the Effective Time of the Reorganization, Norwest will continue to offer
its Dividend Reinvestment and Optional Cash Payment Plan and that shareholders
of Babbscha who receive Norwest Common Stock in the Reorganization will have the
right to participate therein.
ACCOUNTING TREATMENT
Notwithstanding any provision in the Reorganization Agreement to the
contrary, management of Norwest anticipates that the Reorganization will be
accounted for as a "purchase" in accordance with generally accepted accounting
principles.
EXPENSES
Each party to the Reorganization Agreement will pay their own expenses in
connection with the Reorganization, including fees and expenses of their
respective accountants and counsel.
45
<PAGE>
INFORMATION ABOUT THE SELLING ENTITIES
GENERAL
Babbscha is a Minnesota corporation with its corporate headquarters in
Fridley, Minnesota. Babbscha is a bank holding company, holding stock in two
subsidiaries, the Bank and Banrein. Through the Bank's sole location in
Fridley, Babbscha provides loans of various types and obtains deposits.
Babbscha is registered under the Bank Holding Company Act. Babbscha owns 55.5%
of the issued and outstanding Shares of Bank Common Stock and 52.7% of the
issued and outstanding shares of Banrein Common Stock. At September 30, 1994,
Babbscha had consolidated total assets of $53,069,995, consolidated deposits of
$47,517,479 and shareholders' equity of $2,710,610.
Babbscha derives a substantial portion of its revenues from cash dividends
paid by the Bank and also derives income from dividends paid by Banrein.
Dividend payments by the Bank are determined after considering the Bank's
earnings, deposit growth and capital requirements. It has been Babbscha's
practice to increase the capital of the Bank primarily through retention of
earnings.
Banrein is a Minnesota corporation with its office in Fridley, Minnesota.
The sole business of Banrein is the ownership and lease to the Bank of the
facilities of the Bank located in Fridley, Minnesota.
The Bank is a Minnesota banking corporation with its sole location at the
offices of Babbscha in Fridley, Minnesota. The Bank serves a wide range of
commercial and consumer borrowing needs within its market. The Bank extends
various types of loans, including short- and long-term residential and
commercial real estate mortgage loans to individuals and businesses. The
targeted commercial customers are closely-held businesses with annual sales
between $1 million and $10 million. Commercial lending products include lines
and letters of credit, receivable and inventory financing and equipment
financing. In addition, the Bank provides various types of secured and
unsecured consumer loans, indirect installment loans and loans secured by
personal reserve accounts, second mortgages and equity lines.
The Bank provides a full range of deposit products, including checking
accounts, savings accounts, certificates of deposit and money market
instruments. The Bank has been successful in attracting stable core deposits in
the consumer segment of its market. By emphasizing quality and personal
service, Babbscha and the Bank have enhanced their market identity and presence
in its market.
MARKET AREA AND COMPETITION
Babbscha, through the Bank, competes primarily in the northern Minneapolis-
St. Paul metropolitan market area. Babbscha competes with numerous financial
institutions in its market area, including commercial banks, savings and loan
associations, saving banks, mortgage companies, commercial bank loan production
offices, insurance companies, consumer finance companies and credit unions.
46
<PAGE>
PROPERTIES
Babbscha, the Bank and Banrein are each located at 6315 University Avenue
N.E., Fridley, Minnesota 55432. This building, the underlying land and the
related facilities are owned by Banrein and are leased to the Bank.
EMPLOYEES
As of December 31, 1994, the Selling Entities collectively employed
approximately 29 people on a full-time basis and six people on a part time
basis. Management considers its relationship with its employees to be good.
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK OF SELLING ENTITIES
There is no established trading market for any of the common stock of the
Selling Entities. As of the record date for the Special Meetings, there are six
shareholders of record of Babbscha Common Stock, 82 shareholders of record of
Bank Common Stock and 77 shareholders of record of Banrein Common Stock. The
table below sets forth the cash dividends paid during each of the last three
years on Babbscha Common Stock, Banrein Common Stock and Bank Common Stock:
<TABLE>
<CAPTION>
Dividends Paid
--------------
1991 1992 1993
------ ------- ------
<S> <C> <C> <C>
Babbscha Common Stock $57.84 $109.06 $23.20
Banrein Common Stock $7.25 $7.50 $7.50
Bank Common Stock $60.00 $60.00 $60.00
</TABLE>
For a discussion of dividends that have been or may be paid between execution of
the Merger Agreements and the Closing Date, see "THE PROPOSED MERGER--Conduct of
Business Until the Merger."
SUPERVISION AND REGULATION
To the extent the information below consists of summaries of certain
statutory provisions, it is qualified in its entirety by reference to the
statutory provisions so described.
Babbscha is subject to the provisions of the BHCA, which requires a bank
holding company to register under the BHCA, and to be subject to supervision by
the Federal Reserve Board. The BHCA requires prior approval by the Federal
Reserve Board of the acquisition by a bank holding company of more than 5% of
the voting stock or substantially all the assets of any bank, but does not
require prior approval before acquisition of additional shares in banks, the
majority of the shares of which are already controlled by such bank holding
company. A bank holding company is prohibited, with limited exceptions, from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in activities other
than those of banking or of managing or controlling banks and other authorized
subsidiaries and providing services to its subsidiaries. One of the exceptions
to this prohibition permits ownership of the shares of a company, the activities
of which the Federal Reserve Board determines to be so closely related to the
business of banking or of managing or
47
<PAGE>
controlling banks as to be a proper incident thereto. The Federal Reserve Board
has published regulations regarding these matters, which in the opinion of
management of Babbscha, enable Babbscha to engage in its present operations. In
addition, bank holding companies are subject to certain restrictions on their
ability to own banks in more than one state.
Babbscha is required to file periodic reports with the Federal Reserve Board
and such other information as may be required to keep the Federal Reserve Board
informed regarding Babbscha's compliance with the provisions of the Bank Holding
Company Act and the rules, regulations and orders issued thereunder; and the
Federal Reserve Board examines Babbscha and its subsidiary banks from time to
time.
The Bank, as a state chartered bank, is subject to the supervision and
regulation of, and is regularly examined by, the Minnesota Commissioner of
Banking and the Federal Deposit Insurance Corporation (the "FDIC"). See also
generally the information under the heading "CERTAIN REGULATORY CONSIDERATIONS"
for a discussion of the laws and regulations applicable to a FDIC-insured state
banking institution such as the Bank.
The Federal Reserve Board has broad powers to expand and contract the supply
of money and credit. The supply of money and credit is also affected by the
fiscal practices of the interest rates charged on loans and paid for deposits
and may affect the operations of the Bank.
LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine
litigation to which Babbscha, Banrein or the Bank are or may be considered a
party. There are no material pending legal proceedings to which any director,
officer, or affiliate of the Selling Entities is or may be a party adverse to
the Selling Entities or has or may have a material interest adverse to the
Selling Entities.
48
<PAGE>
MANAGEMENT,S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BABBSCHA
FINANCIAL REVIEW
GENERAL
The following is management,s discussion and analysis of the significant factors
affecting Babbscha's results of operations and financial condition. This should
be read in conjunction with Babbscha,s audited and unaudited consolidated
financial statements and accompanying footnotes and other selected financial
data presented elsewhere herein.
Babbscha is a one-bank holding company, which owns 55.46% of the common stock of
Fridley State Bank and 52.65% of Banrein Inc.
FINANCIAL CONDITION
Total assets decreased by $792,000 during the first nine months of 1994 to
$53,070,000 at September 30, 1994 following an increase of $490,000 during 1993
to $53,862,000 at December 31, 1993. The first nine months of 1994 decrease was
primarily due to decreases in federal funds sold and investments which are
offset by increases in loans.
Federal funds sold increased from $1,420,000 at December 31, 1992 to $1,675,000
at December 31, 1993. At September 30, 1994, federal funds sold had decreased
to $265,000.
Loans increased $1,868,000 during the first nine months of 1994 to $26,958,000
at September 30, 1994 and increased $486,000 during 1993 to $25,090,000 at
December 31, 1993. The increases were primarily due to new commercial real
estate loans and a decrease in early payoffs on residential mortgages.
Securities increased from $22,103,000 at December 31, 1992 to $22,737,000 at
December 31, 1993 and decreased to $21,213,000 at September 30, 1994. The 1993
increase was financed by growth in deposits and a decrease in cash and cash
equivalents. The 1994 decrease was due to a decrease in deposits.
COMPARISONS OF THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
EARNINGS PERFORMANCE
Babbscha earned net income of $58,000 and $110,000 for the three months ended
September 30, 1994 and 1993, respectively. The decrease in earnings of $52,000
was primarily due to a $22,000 decrease in net interest income and a $48,000
increase in professional fees. The consolidated annualized return on average
assets was .44% for the third quarter of 1994 compared to .81% for the third
quarter of 1993. Annualized return on average stockholders, equity was 8.43% for
the third quarter of 1994 compared to 15.79% for the third quarter of 1993. On a
per share basis, net income for the third quarter of 1994 and 1993 were $5.79
and $11.00, respectively.
49
<PAGE>
The following is a condensed summary of the consolidated statements of
operations (dollars in thousands):
<TABLE>
<CAPTION>
Three months
ended
September 30,
-------------
1994 1993
- ------------------------------------------------
<S> <C> <C>
Net interest income $601 623
Provision for loan losses 1 0
Operating income 90 96
Operating expense 535 469
Net income 58 110
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Three months
ended
September 30,
(dollars in
thousands) Percentage
------------- increase
1994 1993 (decrease)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $589 597 (1.3)%
Investment securities 292 334 (12.6)
Interest-bearing deposits with banks 12 16 (25.0)
Federal funds sold 3 7 (57.1)
- --------------------------------------------------------------------------
Total interest income 896 954 (6.1)
- --------------------------------------------------------------------------
Interest expense:
Deposits 286 320 (10.6)
Notes payable 9 11 (18.2)
- --------------------------------------------------------------------------
Total interest expense 295 331 (10.9)
- --------------------------------------------------------------------------
Net interest income $601 623 (3.6)%
==========================================================================
</TABLE>
50
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest
earning-assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Three months ended
September 30, 1994-1993
------------------------------------
Total Attributable to change
--------------------------
Interest-earning Assets change in volume in rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ (7,364) 27,097 (34,461)
Investment securities (41,816) (14,279) (27,535)
Interest-bearing deposits with banks (4,281) (3,536) (745)
Federal funds sold (4,324) (7,101) 2,777
- -----------------------------------------------------------------------------------
Total interest income $(57,785) 2,179 (59,964)
===================================================================================
Interest-bearing Liabilities
- -----------------------------------------------------------------------------------
Interest-bearing demand deposits (7,286) (3,784) (3,502)
Savings Deposits 945 (940) 1,885
Time Deposits (27,493) (15,700) (11,793)
Notes payable (2,328) (4,184) 1,856
- -----------------------------------------------------------------------------------
Total interest expense $(36,162) (24,608) (11,554)
===================================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated to
the change due to rate and the change due to volume on the basis of the
percentage of the total change excluding the combined rate/volume component.
<TABLE>
<CAPTION>
The following table presents average asset and liability balances and percentage
changes.
Three months
ended September 30, Percentage
(dollars in increase
thousands) (decrease)
-----------------------------------
1994 1993 1994/93
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $26,850 25,654 4.7%
Investment securities 21,860 22,867 (4.4)
Interest-bearing deposits with banks 1,049 1,358 (22.8)
Federal funds sold 235 959 (75.5)
- -----------------------------------------------------------------------------------
Total average interest-earnings assets $49,994 50,838 (1.7)
===================================================================================
Deposits:
Non-interest-bearing demand 9,458 8,506 11.2
Interest-bearing demand 5,855 6,673 (12.3)
Savings 17,357 17,508 (0.9)
Time 14,324 15,768 (9.2)
- -----------------------------------------------------------------------------------
Total average interest-bearing deposits 37,536 39,949 (6.0)
Notes payable 456 683 (33.2)
- -----------------------------------------------------------------------------------
Total average interest-bearing liabilities $37,992 40,632 (6.5)%
===================================================================================
</TABLE>
51
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Three months
ended September 30,
--------------------
1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 8.78% 9.31%
Investment securities 5.35 5.84
Interest-bearing deposits with banks 4.54 4.76
Federal funds sold 4.68 2.95
- ----------------------------------------------------------------
Total interest-earning assets 7.17 7.51
- ----------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 1.74 1.96
Savings deposits 2.52 2.47
Time deposits 4.22 4.53
Notes payable 7.83 6.59
- ----------------------------------------------------------------
Total interest-bearing liabilities 3.11 3.26
- ----------------------------------------------------------------
Interest rate spread 4.06% 4.25%
================================================================
</TABLE>
The following table shows the annualized net yield on interest-earning assets
for the three months ended September 30:
<TABLE>
<CAPTION>
1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Average yield earned 7.17% 7.51%
Interest expense to average earning assets 2.36 2.61
- ----------------------------------------------------------------
Net yield on interest-earning assets 4.81% 4.90%
================================================================
</TABLE>
Net interest income was $602,000 for the third quarter of 1994, compared with
$623,000 for the third quarter of 1993. The decrease is due primarily to lower
yields on loans and investment securities.
Total interest income decreased 6.1% to $896,000 for the third quarter of 1994
as compared to $954,000 for the third quarter of 1993. Average interest-earning
assets decreased to $49,994,000 for the three months ended September 30, 1994
from $50,838,000 for the three months ended September 30, 1993. Earning asset
yields declined to 7.17% in 1994 as compared to 7.51% in 1993.
Total interest expense for the third quarter of 1994 of $295,000 declined from
$331,000 for the third quarter of 1993. Average interest-bearing liabilities
decreased to $37,992,000 for the third quarter of 1994 from $40,632,000 for the
third quarter of 1993. Rates on interest-bearing liabilities declined to 3.11%
in 1994 from 3.26% in 1993.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. Babbscha's provision for loan losses was $910 and $0 for the
third quarter of 1994 and 1993, respectively.
Net recoveries were $251 and $15,000 for the third quarter of 1994 and 1993,
respectively. The loan loss reserve as a percentage of loans was 0.6% and 0.6%
at September 30, 1994 and 1993, respectively.
52
<PAGE>
OPERATING INCOME
The following table presents a summary of operating income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges and fees $ 64 75 (14.7)%
Other 25 21 19.0
- --------------------------------------------------------------------------------
$ 89 96 (6.7)%
================================================================================
</TABLE>
The decrease in other operating income reflects lower service charges on
checking accounts.
OPERATING EXPENSES
The following table presents a summary of operating expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 281 280 0.4%
Net occupancy expense and depreciation 68 55 23.6
FDIC insurance assessment 27 27 0.0
Professional fees 61 13 369.2
Other expenses 98 93 5.4
- --------------------------------------------------------------------------------
$ 535 469 14.1%
================================================================================
</TABLE>
Total operating expenses increased to $535,000 for the third quarter of 1994,
compared to $469,000 for the third quarter of 1993. The increase is due to an
increase in professional fees related to the merger.
The increase in net occupancy expense and depreciation was due to major furnace
repairs and a new maintenance contract on the heating and air conditioning
systems.
COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
EARNINGS PERFORMANCE
Babbscha earned net income of $202,000 and $337,000 for the nine months ended
September 30, 1994 and 1993, respectively. The decrease in earnings of $135,000
was primarily due to a $64,000 decrease in net interest income and a $18,000
decrease in other operating income. The consolidated annualized return on
average assets was 0.50% for the first nine months of 1994 compared to 0.84% for
the first nine months of 1993. Annualized return on average stockholders' equity
was 10.02% for the first nine months of 1994 compared to 17.12% for the first
nine months of 1993. On a per share basis, net income for the nine months of
1994 and 1993 were $20.20 and $33.66, respectively.
53
<PAGE>
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
Nine months
ended
September 30,
---------------
1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C>
Net interest income $1,783 1,847
Provision for loan losses 20 7
Operating income 270 288
Operating expense 1,512 1,445
Net income 202 337
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Nine months
ended
September 30,
(dollars in
thousands) Percentage
-------------- increase
1994 1993 (decrease)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $1,695 1,756 (3.5)%
Investment securities 913 1,027 (11.2)
Interest-bearing deposits with banks 40 58 (31.0)
Federal funds sold 13 22 (40.9)
- -------------------------------------------------------------------------------
Total interest income 2,661 2,863 (7.1)
- -------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand deposits 76 103 (26.2)
Savings deposits 307 335 (8.4)
Time deposits 467 541 (13.7)
Notes payable 28 37 (24.3)
- -------------------------------------------------------------------------------
Total interest expense 878 1,016 (13.6)
- -------------------------------------------------------------------------------
Net interest income $1,783 1,847 (3.5)%
===============================================================================
</TABLE>
54
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1994-1993
---------------------------------
Total Attributable to change
----------------------
Interest-earning Assets change in volume in rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ (61,526) 93,439 (154,965)
Investment securities (114,201) 7,175 (121,376)
Interest-bearing deposits with banks (17,909) (17,042) (867)
Federal funds sold (8,393) (12,269) 3,876
- -----------------------------------------------------------------------------------
Total interest income $(202,029) 71,303 (273,332)
===================================================================================
Interest-bearing Liabilities
- -----------------------------------------------------------------------------------
Interest-bearing demand deposits (26,276) (6,699) (19,577)
Savings deposits (28,521) 12,799 (41,320)
Time deposits (73,271) (47,030) (26,241)
Notes payable (9,615) (11,101) 1,486
- -----------------------------------------------------------------------------------
Total interest expense $(137,683) (52,031) (85,652)
===================================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated to
the change due to rate and the change due to volume on the basis of the
percentage of the total change excluding the combined rate/volume component.
<TABLE>
<CAPTION>
The following table presents average asset and liability balances and percentage
changes.
Nine months
ended September 30, Percentage
(dollars in increase
thousands) (decrease)
- ------------------------------------------------------------------------------------
1994 1993 1994/93
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 26,101 24,739 5.5%
Investment securities 22,915 22,755 1.0
Interest-bearing deposits with banks 1,146 1,604 (28.6)
Federal funds sold 516 1,007 (48.8)
- ------------------------------------------------------------------------------------
Total average interest-earnings assets $ 50,678 50,105 1.1
====================================================================================
Deposits:
Non-interest-bearing demand 9,312 8,138 14.4
Interest-bearing demand 5,973 6,415 (6.9)
Savings 17,717 17,046 3.9
Time 14,630 16,044 (8.8)
- ------------------------------------------------------------------------------------
Total average interest-bearing deposits 38,320 39,505 (3.0)
Notes payable 506 708 (28.5)
- ------------------------------------------------------------------------------------
Total average interest-bearing liabilities $ 38,826 40,213 (3.4)%
====================================================================================
</TABLE>
55
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Nine months
ended September 30,
---------------------
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 8.66% 9.47%
Investment securities 5.31 6.02
Interest-bearing deposits with banks 4.66 4.82
Federal funds sold 3.51 2.91
- --------------------------------------------------------------------------------
Total interest-earning assets 7.00 7.62
- --------------------------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 1.70 2.13
Savings deposits 2.31 2.62
Time deposits 4.26 4.49
Notes payable 7.37 7.08
- ------------------------------------------------------------------------------
Total interest-bearing liabilities 3.02 3.37
- ------------------------------------------------------------------------------
Interest rate spread 3.98% 4.25%
==============================================================================
The following table shows the annualized net yield on interest-earning assets
for the nine months ended September 30:
1994 1993
- ------------------------------------------------------------------------------
Average yield earned 7.00% 7.62%
Interest expense to average earning assets 2.31 2.70
- ------------------------------------------------------------------------------
Net yield on interest-earning assets 4.69% 4.92%
==============================================================================
</TABLE>
Net interest income was $1,783,000 for the first nine months of 1994, compared
with $1,847,000 for the first nine months of 1993. The decrease is due primarily
to lower yields on loans and investment securities.
Total interest income decreased 7.1% to $2,661,000 for the first nine months of
1994 as compared to $2,863,000 for the first nine months of 1993. Average
interest-earning assets increased to $50,678,000 for the nine months ended
September 30, 1994 from $50,105,000 for the nine months ended September 30,
1993. Earning asset yields declined to 7.00% in 1994 as compared to 7.62% in
1993.
Total interest expense for the first nine months of 1994 of $878,000 declined
from $1,016,000 for the first nine months of 1993. Average interest-bearing
liabilities decreased to $38,826,000 for the nine months ended September 30,
1994 from $40,213,000 for the nine months of 1993. Rates on interest-bearing
liabilities declined to 3.02% in 1994 from 3.37% in 1993.
56
<PAGE>
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. Babbscha,s provision for loan losses was $20,000 and $7,000
for the first nine months of 1994 and 1993, respectively.
Net charge-offs were $20,000 for the first nine months of 1994 and net
recoveries were $2,000 for the same period in 1993. The loan loss reserve as a
percentage of loans was 0.6% and 0.6% at September 30, 1994 and 1993,
respectively.
OPERATING INCOME
The following table presents a summary of operating income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
1994 1993 (decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges and fees $ 217 224 (3.1)%
Investment security gains (losses) (0) 5 NM
Other 53 59 (10.2)
- --------------------------------------------------------------------------------
$ 270 288 (6.3)%
================================================================================
</TABLE>
NM = not meaningful
The decrease in other operating income reflects lower service charges on
checking accounts.
OPERATING EXPENSES
The following table presents a summary of operating expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
1994 1993 (decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 859 849 1.2%
Net occupancy expense and depreciation 192 167 15.0
FDIC insurance assessment 80 79 1.3
Professional fees 96 55 74.5
Other expenses 285 295 (3.4)
- --------------------------------------------------------------------------------
$1,512 1,445 4.6%
================================================================================
</TABLE>
Total operating expenses increased to $1,512,000 for the first nine months of
1994, compared to $1,445,000 for the first nine months of 1993. The increase is
due to an increase in professional fees related to the merger and increased
depreciation expense resulting from 1994 equipment purchases.
The increase in net occupancy expense and depreciation was due to increased
depreciation and major furnace repairs and a new maintenance contract on the
heating and air conditioning systems.
57
<PAGE>
COMPARISONS OF YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
EARNINGS PERFORMANCE
Babbscha earned net income of $410,000 in 1993, $429,000 in 1992 and $383,000 in
1991. The decrease in earnings from 1992 to 1993 was primarily due to a $46,000
decrease in net interest income and a $43,000 increase in operating expenses
offset by an $80,000 decrease in the provision for loan losses. The increase in
earnings from 1991 to 1992 was primarily due to an increase of $322,000 in net
interest income offset by an increase of $85,000 in the provision for loan
losses. The consolidated return on average assets was .77% in 1993 compared to
0.81% in 1992 and 0.76% in 1991. Return on average stockholders' equity was
14.92% in 1993 compared to 14.63% and 11.72% in 1992 and 1991, respectively. On
a per share basis, net income for the years 1993, 1992 and 1991 were $41.04,
$42.86 and $38.28, respectively.
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $2,464 2,510 2,187
Provision for loan losses 24 104 19
Operating income 414 417 410
Operating expense 1,929 1,886 1,882
Net income 410 429 383
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the
volume of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Percentage increase
Dollars (in thousands) (decrease)
---------------------- -------------------
1993 1992 1991 1993/92 1992/91
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $2,332 2,488 2,767 (6.3)% (10.1)%
Investment securities 1,359 1,564 1,409 (13.1) 11.0
Interest-bearing deposits with banks 71 75 154 (5.3) (51.3)
Federal funds sold 30 60 145 (50.0) (58.6)
- -----------------------------------------------------------------------------------
Total interest income 3,792 4,187 4,475 (9.4) (6.4)
- -----------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand deposits 130 176 247 (26.1) (28.7)
Saving deposits 441 544 730 (18.9) (25.5)
Time deposits 710 916 1,286 (22.5) (28.8)
Notes payable 47 41 24 14.6 70.8
- -----------------------------------------------------------------------------------
Total interest expense 1,328 1,678 2,288 (20.9) (26.7)
- -----------------------------------------------------------------------------------
Net interest income $2,464 2,510 2,187 (1.8)% 14.8%
===================================================================================
</TABLE>
58
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1993-1992
-----------------------------------
Total Attributable to change
------------------------
Interest-earning Assets change in volume in rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(156,469) 64,290 (220,759)
Investment securities (204,353) 4,230 (208,583)
Interest-bearing deposits with banks (4,653) 15,577 (20,230)
Federal funds sold (29,520) (22,311) (7,209)
- -----------------------------------------------------------------------------
Total interest income $(394,995) 61,786 (456,781)
=============================================================================
Interest-bearing Liabilities
- -----------------------------------------------------------------------------
Interest-bearing demand deposits (45,972) 14,031 (60,003)
Saving deposits (102,698) 36,432 (139,130)
Time deposits (206,629) (97,950) (108,679)
Notes payable 5,924 11,104 (5,180)
=============================================================================
Total interest expense $(349,375) (36,383) (312,992)
=============================================================================
1992-1991
-----------------------------------
Total Attributable to change
-----------------------
Interest-earning Assets change in volume in rate
- -----------------------------------------------------------------------------
Loans $(279,066) (105,500) (173,566)
Investment securities 154,591 357,579 (202,988)
Interest-bearing deposits with banks (77,618) (60,993) (16,625)
Federal funds sold (85,625) (36,790) (48,835)
- -----------------------------------------------------------------------------
Total interest income $(287,718) 154,296 (442,014)
=============================================================================
Interest-bearing Liabilities
- -----------------------------------------------------------------------------
Interest-bearing demand deposits (71,249) 30,978 (102,227)
Saving deposits (186,883) 98,144 (285,027)
Time deposits (368,979) (47,264) (321,715)
Notes payable 17,247 20,169 (2,922)
=============================================================================
Total interest expense $(609,864) 102,027 (711,891)
=============================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior year's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior year's volume.
The change due to combined rate/volume variance is allocated to the change due
to rate and the change due to volume on the basis of the percentage of the total
change excluding the combined rate/volume component.
59
<PAGE>
The following table presents average asset and liability balances and percentage
changes.
<TABLE>
<CAPTION>
Percentage increase
Dollars (in thousands) (decrease)
---------------------- -------------------
1993 1992 1991 1993/92 1992/91
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $ 24,915 24,254 25,234 2.7% (3.9)%
Investment securities 22,869 22,807 17,872 0.3 27.6
Interest-bearing deposits with banks 1,494 1,212 1,858 23.3 (34.8)
Federal funds sold 1,035 1,776 2,564 (41.7) (30.7)
- ------------------------------------------------------------------------------------------------
Total average interest-
earning assets $ 50,313 50,049 47,528 (0.5) 5.3
================================================================================================
Deposits:
Non-interest-bearing demand 8,327 7,595 7,024 9.6 8.1
Interest-bearing demand 6,352 5,851 5,135 8.6 13.9
Savings 17,337 16,178 14,073 7.2 15.0
Time 15,854 17,864 18,576 (11.3) (3.8)
- ------------------------------------------------------------------------------------------------
Total average interest- 39,543 39,893 37,784 (0.9) 5.6
bearing deposits
================================================================================================
Notes payable 704 545 284 29.2 91.9
- ------------------------------------------------------------------------------------------------
Total average interest-
bearing liabilities 40,247 40,438 38,068 (0.5) 6.2
==================================================================================================
</TABLE>
The following table shows the average interest yield on interest-earning assets
and the average interest rate paid on interest-bearing liabilities:
<TABLE>
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned:
Loans 9.36% 10.26% 10.97%
Investment securities 5.95 6.86 7.89
Interest-bearing deposits with banks 4.76 6.25 8.25
Federal funds sold 2.90 3.35 5.66
- ------------------------------------------------------------------------------
Total interest-earning assets 7.54 8.37 9.42
- ------------------------------------------------------------------------------
Average rates paid:
Interest-bearing demand deposits 2.05 3.01 4.81
Savings deposits 2.54 3.35 5.19
Time deposits 4.48 5.13 6.92
Notes payable 6.74 7.52 8.56
- ------------------------------------------------------------------------------
Total interest-bearing liabilities 3.30 4.15 6.01
- ------------------------------------------------------------------------------
Interest rate spread 4.24% 4.22% 3.41%
==============================================================================
</TABLE>
60
<PAGE>
The following table shows the net yield on interest-earning assets:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned 7.54% 8.37 9.42
Interest expense to average earning assets 2.64 3.35 4.82
- -------------------------------------------------------------------------------
Net yield on interest-earning assets 4.90% 5.02 4.60
===============================================================================
</TABLE>
Net interest income was $2,464,000 in 1993, compared with $2,510,000 in 1992 and
$2,187,000 in 1991. During 1991 interest rates in the United States began a
general decline with short-term interest falling faster than long-term rates.
This trend continued throughout 1992 and 1993.
Total interest income decreased 9.4% to $3,792,000 in 1993 as compared to
$4,187,000 in 1992, which was down from $4,475,000 in 1991. Average interest-
earning assets increased to $50,313,000 in 1993 from $50,049,000 in 1992 and
$47,528,000 in 1991. Earning asset yields declined to 7.54% in 1993 as compared
to 8.37% and 9.42% in 1992 and 1991, respectively.
Total interest expense in 1993 of $1,328,000 declined from $1,678,000 in 1992.
This decline was attributed primarily to rates on interest-bearing liabilities
declining to 3.30% in 1993, from 4.15% in 1992. The 85 basis point decline from
1992 to 1993 was caused by the general economic and market conditions which
moved interest rates lower in 1993. Total interest expense in 1992 of $1,678,000
decreased from $2,288,000 in 1991.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. Babbscha's provision for loan losses was $24,000, $104,000
and $19,000 in 1993, 1992 and 1991, respectively.
Net charge-offs in 1993 decreased to $15,000 from $93,000 in 1992. Net charge-
offs in 1992 of $93,000 increased from $19,000 in 1991. The ratio of net
charge-offs to average loans in 1993 was .06% which was down from the 1992 ratio
of .07%. The loan loss reserve as a percentage of loans was .6%, .6% and .6% at
December 31, 1993, 1992 and 1991, respectively.
OPERATING INCOME
The following table presents a summary of operating income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
(decrease)
------------------
1993 1992 1991 1993/92 1992/91
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges and fees $335 327 273 (2.4)% 19.8%
Investment security gains (losses) 5 1 (3) 400.0 NM
Other 74 88 139 (15.9) (36.7)
- ------------------------------------------------------------------------------
$414 417 410 (.7)% 1.7%
==============================================================================
</TABLE>
NM = not meaningful
In 1993 operating income decreased $3,000 or .7% in comparison to 1992. In 1992
operating income increased $7,000 or 1.7% in comparison to 1991.
61
<PAGE>
OPERATING EXPENSES
The following table presents a summary of operating expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage increase
(decrease)
-------------------
1993 1992 1991 1993/92 1992/91
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $1,131 1,109 1,073 2.0% 3.4%
Net occupancy expense and depreciation 218 172 159 26.7 8.2
FDIC insurance assessment 107 106 88 0.9 20.5
Professional fees 79 73 78 8.2 (6.4)
Other expenses 394 426 484 (7.5) (12.0)
- ------------------------------------------------------------------------------------
$1,929 1,886 1,882 2.3% 0.2%
====================================================================================
</TABLE>
Total operating expenses increased to $1,929,000 in 1993, compared to $1,886,000
in 1992 and $1,882,000 in 1991. The increase in 1993 is largely attributable to
an increase in depreciation due primarily to the purchase of a new computer
system. Depreciation on the computer system in 1992 was for half of the year;
the 1993 depreciation was for the entire year.
62
<PAGE>
INCOME TAXES
In February 1992 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Babbscha adopted SFAS No. 109 during 1993 and has elected to apply the
provisions on a prospective basis.
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 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 SFAS No. 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 change resulted in no impact on the
financial statements.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1993, the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, which was amended by SFAS No. 118, Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures. SFAS No. 114, as
amended, requires that certain impaired loans be measured to reflect the time
value of money. SFAS No. 114, as amended, is required to be adopted for fiscal
years beginning after December 15, 1994. The impact of adoption of the new
accounting standards on the Babbscha's financial statements has not yet been
determined.
In June 1993, the FASB issued SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. This statement addressed the accounting and
reporting for investments by classifying into three categories--securities held
to maturity, trading securities, and available for sale. Babbscha adopted SFAS
No. 115 during 1994. The change resulted in no impact on the financial
statements.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
Babbscha relies primarily on Fridley State Bank for its source of cash needs.
The cash flow from the Bank to Babbscha comes in the form of dividends. Fridley
State Bank is restricted in paying dividends due to the general regulatory
capital requirements that apply to all banks. See "Capital Management of Fridley
State Bank."
The assets of Fridley State Bank are primarily funded through the use of
borrowings in the form of deposits and short-term borrowings. The maintenance of
an adequate level of liquidity is necessary to ensure that sufficient funds are
available to meet customers, loan demand and deposit withdrawals. The sources
of asset liquidity consist of federal funds, maturing loans and investment
securities.
Fridley State Bank,s investment committee is charged with the responsibility of
maintaining an adequate level of liquidity and managing the risks associated
with interest rate changes while sustaining stable growth in net interest
income. Fridley State Bank,s basic strategy is to minimize interest rate risk
through matching the repricing periods of earning assets and interest-bearing
liabilities.
63
<PAGE>
CAPITAL MANAGEMENT OF FRIDLEY STATE BANK
Bank regulatory agencies measure capital adequacy through standardized risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance sheet obligations.
Under the rules effective December 31, 1993, all financial institutions are
required to maintain a level of core capital (known as tier 1 capital) which
must be at least 4.0% of risk-weighted assets, and a minimum level of total
capital of at least 8.0% of risk-weighted assets. Tier 1 capital consists
principally of stockholders, equity less goodwill. Total capital is comprised of
tier 1 capital, certain debt instruments and a portion of the allowance for loan
losses. Fridley State Bank,s actual risk-based capital, risk-based capital
requirement and excess risk-based capital at September 30, 1994 and December 31,
1993 (dollars in thousands) are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
------------------------ --------------------------
Amount Percent (1) Amount Percent (1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $4,663 $4,580
Allowable portion of allowance
for loan losses 159 159
- -----------------------------------------------------------------------------------------------------
Total risk-based capital $4,822 8.99% $4,739 8.86%
=====================================================================================================
Risk-based capital requirement $4,291 8.00% 4,281 8.00%
=====================================================================================================
Excess risk-based capital $531 0.99% $458 0.86%
=====================================================================================================
(1) Percentage based on risk-weighted assets of $53,633,400 and $53,516,000 at September 30, 1994
and December 31, 1993, respectively.
</TABLE>
As a supplement to the risk-based capital guidelines, the Federal Reserve Board
has also adopted a minimum ratio of tier 1 capital to total assets known as the
tier 1 leverage ratio. The principal objective of this measure is to place a
constraint on the maximum degree to which a banking organization can leverage
its equity capital base. This regulation has established a minimum level of tier
1 capital to total assets of 3.0%. Fridley State Bank,s actual tier 1 leverage
ratio was 10.1% and 9.1% at September 30, 1994 and December 31, 1993,
respectively.
64
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
Babbscha Company, Fridley State Bank and Banrein, Inc. (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $26,850 $589 8.78% $25,654 $597 9.31%
Investment securities 21,860 292 5.35% 22,867 334 5.84%
Interest bearing deposits with banks 1,049 12 4.54% 1,358 16 4.76%
Federal funds sold 235 3 4.68% 959 7 2.95%
- -------------------------------------------------------------------------------------------------------
Total earning assets 49,994 896 7.17% 50,838 954 7.51%
- -------------------------------------------------------------------------------------------------------
Allowance for loan losses (158) (152)
Cash and due from banks 2,014 2,208
Other assets 1,241 1,346
- -------------------------------------------------------------------------------------------------------
Total assets $53,091 $54,240
=======================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits 9,458 8,506
Interest bearing demand deposits 5,855 26 1.74% 6,673 33 1.96%
Savings deposits 17,357 109 2.52% 17,508 109 2.47%
Time deposits 14,324 151 4.22% 15,768 178 4.53%
Notes payable 456 9 7.83% 683 11 6.59%
- -------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 37,992 295 3.11% 40,632 331 3.26%
- -------------------------------------------------------------------------------------------------------
Other liabilities 823 703
Minority interest 2,070 1,613
Stockholders' equity 2,748 2,786
- -------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $53,091 $54,240
=======================================================================================================
Net interest income $601 $623
=======================================================================================================
Interest rate spread 4.06% 4.25%
Net interest income to average
earning assets 4.81% 4.90%
</TABLE>
(1) Yield/rate is annualized
65
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
Babbscha Company, Fridley State Bank and Banrein Inc. (dollars in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------------------------------------------
1994 1993
----------------------------- -------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $26,101 $1,695 8.66% $24,739 $1,756 9.47%
Investment securities 22,915 913 5.31% 22,755 1,027 6.02%
Interest bearing deposits with banks 1,146 40 4.66% 1,604 58 4.82%
Federal funds sold 516 13 3.51% 1,007 22 2.91%
-------------------------------------------------------------------------------------------------------------
Total earning assets 50,678 2,661 7.00% 50,105 2,863 7.62%
-------------------------------------------------------------------------------------------------------------
Allowance for loan losses (156) (150)
Cash and due from banks 1,971 2,097
Other assets 1,234 1,362
-------------------------------------------------------------------------------------------------------------
Total assets $53,727 $53,414
=============================================================================================================
Liabilities and Stockholders' Equity
-------------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits 9,312 8,138
Interest bearing demand deposits 5,973 76 1.70% 6,415 103 2.13%
Savings deposits 17,717 307 2.31% 17,046 335 2.62%
Time deposits 14,630 467 4.26% 16,044 541 4.49%
Notes payable 506 28 7.37% 708 37 7.08%
-------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 38,826 878 3.02% 40,213 1,016 3.37%
-------------------------------------------------------------------------------------------------------------
Other liabilities 878 746
Minority interest 2,024 1,695
Stockholders' equity 2,687 2,622
-------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $53,727 $53,414
=============================================================================================================
Net interest income $1,783 $1,847
=============================================================================================================
Interest rate spread 3.98% 4.25%
Net interest income to average
earning assets 4.69% 4.92%
(1) Yield / rate is annualized
</TABLE>
66
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
Babbscha Company, Fridley State Bank and Banrein Inc. (dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------------------------------
1993 1992 1991
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Assets balance Interest yield/rate balance Interest yield/rate balance Interest yield/rate
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $24,915 $2,332 9.36% $24,254 $2,488 10.26% $25,234 $2,767 10.97%
Investment securities 22,869 1,359 5.95% 22,807 1,564 6.86% 17,872 1,409 7.89%
Interest bearing deposits with banks 1,494 71 4.76% 1,212 75 6.25% 1,858 154 8.25%
Federal funds sold 1,035 30 2.90% 1,776 60 3.35% 2,564 145 5.66%
---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 50,313 3,792 7.54% 50,049 4,187 8.37% 47,528 4,475 9.42%
---------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (150) (142) (134)
Cash and due from banks 2,130 2,003 1,751
Other assets 1,337 1,286 1,133
---------------------------------------------------------------------------------------------------------------------------------
Total assets $53,630 $53,196 $50,278
=================================================================================================================================
Liabilities and Stockholders' Equity
---------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits 8,327 7,595 7,024
Interest bearing demand deposits 6,352 130 2.05% 5,851 176 3.01% 5,135 247 4.81%
Savings deposits 17,337 441 2.54% 16,178 544 3.35% 14,073 730 5.19%
Time deposits 15,854 710 4.48% 17,864 916 5.13% 18,576 1,286 6.92%
Notes payable 704 47 6.74% 545 41 7.52% 284 24 8.56%
---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 40,247 1,328 3.30% 40,438 1,678 4.15% 38,068 2,288 6.01%
---------------------------------------------------------------------------------------------------------------------------------
Other liabilities 821 917 879
Minority interest 1,485 1,317 1,040
Stockholders' equity 2,750 2,929 3,267
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $53,630 $53,196 $50,278
=================================================================================================================================
Net interest income $2,464 $2,509 $2,187
=================================================================================================================================
Interest rate spread 4.24% 4.22% 3.41%
Net interest income to average
earning assets 4.90% 5.02% 4.60%
</TABLE>
67
<PAGE>
BABBSCHA HOLDING COMPANY AND SUBSIDIARIES
Selected Statistical Information
Investment Securities
Following is a table of the carrying value (dollars in thousands) of investment
securities:
<TABLE>
<CAPTION>
September 30, December 31,
--------------
1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury $ 5,102 4,200 6,190
U.S. government agencies 8,750 10,079 7,944
Municipals 5,792 6,759 6,793
Other 1,569 1,699 1,176
- ----------------------------------------------------------------
$21,213 22,737 22,103
================================================================
</TABLE>
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average annual yield at September
30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
--------------------------------------------------
Less than 1-5 5-10 More than
1 year years years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 799 4,303 5,102
Weighted average yield 3.96% 5.45% 5.18%
U.S. government agencies $ 0 6,269 1,169 1,312 8,750
Weighted average yield 0 5.67% 6.25% 6.34% 5.89%
Municipals $1,016 3,166 1,445 165 5,792
Weighted average yield 8.88% 9.49% 9.91% 8.62% 9.49%
Other $ 200 1,102 205 62 1,569
Weighted average yield 4.72% 6.66% 1.83% 5.79% 6.71%
- --------------------------------------------------------------------------------
Total investment securities 2,015 14,840 2,819 1,539 21,213
================================================================================
Weighted average yield 6.52% 6.49% 7.80% 6.56% 6.76%
================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders, equity.
68
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Investment Securities, Continued
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average yield at December 31,
1993 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
- --------------------------------------------------------------------------------
Less than 1-5 5-10 More than
1 year years years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 1,800 2,400 4,200
Weighted average yield 5.54% 5.39% 5.40%
U.S. government agencies 300 6,584 1,596 1,599 10,079
Weighted average yield 5.14% 5.52% 5.85% 6.00% 5.66%
Municipals 1,480 3,122 2,147 10 6,759
Weighted average yield 6.95% 9.42% 9.85% 9.43% 9.10%
Other 101 1,102 405 91 1,699
Weighted average yield 7.20% 6.16% 2.92% 4.03% 5.01%
- --------------------------------------------------------------------------------
Total investment securities 3,681 13,208 4,148 1,700 22,737
================================================================================
Weighted average yield 6.12% 6.47% 7.63% 5.91% 6.59%
================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
69
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Loan Portfolio
The following table classifies loans by major category (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial business $ 2,831 2,752 3,431
Real estate:
Commercial 5,727 5,606 5,174
Residential 10,630 9,873 9,268
Consumer 7,770 6,859 6,731
- --------------------------------------------------------------------------------
Total loans $26,958 25,090 24,604
================================================================================
</TABLE>
The following tables present maturities and sensitivities of loans to changes in
interest rates as of September 30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Less than 1-5 More than
1 year years 5 years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Maturities
a. Commercial business $ 1,145 1,652 34 2,831
Real estate 565 6,066 9,726 16,357
Consumer 695 6,188 887 7,770
- -------------------------------------------------------------------------------
$ 2,405 13,906 10,647 26,958
===============================================================================
b. Amount of loans due after one year
which have:
Predetermined interest rates 16,494
Floating/adjustable rates 8,059
- -------------------------------------------------------------------------------
$24,553
===============================================================================
</TABLE>
70
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Loan Portfolio, Continued
The following tables present maturities and sensitivities of loans to changes in
interest rates as of December 31, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Less than 1-5 More than
1 year years 5 years Total
- -------------------------------------------------------------------------------
1. Maturities
a. Commercial business $ 1,113 1,606 33 2,752
Real estate 534 5,741 9,204 15,479
Consumer 613 5,463 783 6,859
- -------------------------------------------------------------------------------
$ 2,260 12,810 10,020 25,090
===============================================================================
b. Amount of loans due after one
year which have:
Predetermined interest rates 13,788
Floating/adjustable rates 9,042
- -------------------------------------------------------------------------------
$22,830
===============================================================================
</TABLE>
71
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Nonaccrual, Restructured and Past Due Loans
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
September 30, -------------
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $58 50 18
Restructured loans 0 0 0
Loans past due more than 90 days and still 21 37 21
- ---------------------------------------------------------------------------
$79 87 39
===========================================================================
</TABLE>
The impact on interest income for the nine months ended September 30, 1994 and
the year ended December 31, 1993 for nonaccrual loans was approximately $1,524
and $1,558, respectively.
Allocation of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
September 30, 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Percent of Percent of Percent of
Loans in each Allowance Loans in each Allowance Loans in each Allowance
category to for loan category to for loan category to for loan
total loans losses total loans losses total loans losses
- ------------------------------------------------------------------------------------------------------
Commercial 10.5% $ 26 11.0% $ 28 13.9% $ 37
Real estate 60.7 65 61.7 62 58.7 58
Consumer 28.8 54 27.3 62 27.4 55
- ------------------------------------------------------------------------------------------------------
100.0% 145 100.0% 152 100.0% 150
====== ====== ======
Unallocated 14 7 0
- ------------------------------------------------------------------------------------------------------
$159 $159 $150
======================================================================================================
</TABLE>
72
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Analysis of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------------
1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance beginning of period $ 159 150 138
Provision for loan losses 20 24 105
Charge-offs:
Commercial 11 8 79
Consumer 14 23 29
Real estate 0 0 0
- ----------------------------------------------------------------------
Total loan losses 25 31 108
Recoveries:
Commercial 3 8 1
Consumer 2 8 15
Real estate 0 0 0
- ----------------------------------------------------------------------
Total recoveries 5 16 16
- ----------------------------------------------------------------------
Net charge-offs (20) (15) (92)
- ----------------------------------------------------------------------
Balance end of period $ 159 159 150
======================================================================
Net charge-offs as a percent
of average loans 0.08% 0.06% 0.4%
Allowance for loan losses to:
Total loans at period-end 0.6% 0.6% 0.6%
Net charge-offs 8.0% 10.6% 1.6%
Provision for loan losses to
average loans 0.08% 0.09% 0.43%
</TABLE>
73
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Selected Statistical Information
Maturity of Time Deposits of $100,000 or More
At September 30, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over
3 months months months 12 Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time $ 0 307 227 103 637
</TABLE>
Maturity of Time Deposits of $100,000 or More
At December 31, 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over 12
3 months months months months Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time $289 116 0 216 621
</TABLE>
<TABLE>
<CAPITON>
Three months Nine months ended
ended September 30, September 30, Year ended December 31,
------------------- ----------------- -----------------------
1994 1993 1994 1993 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average
assets 0.44% (1) 0.81% (1) 0.50% (1) 0.84% (1) 0.77% 0.81% 0.76%
Return on average
equity 8.43% (1) 15.79% (1) 10.02% (1) 17.12% (1) 14.92% 14.63% 11.72%
Average equity to
average assets 5.18% 5.02% 5.00% 4.79% 5.13% 5.51% 6.50%
Dividends paid per
share $ 3.70 $ 3.60 $ 15.50 $ 14.80 $ 23.20 $ 109.06 $ 57.84
</TABLE>
(1)Annualized.
74
<PAGE>
MANAGEMENT,S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FRIDLEY STATE BANK
FINANCIAL REVIEW
GENERAL
The following is management,s discussion and analysis of the significant factors
affecting Fridley State Bank's results of operations and financial condition.
This should be read in conjunction with Fridley State Bank,s unaudited financial
statements and accompanying footnotes and other selected financial data
presented elsewhere herein.
FINANCIAL CONDITION
Total assets decreased by $799,000 during the first nine months of 1994 to
$52,817,000 at September 30, 1994 following an increase of $510,000 during 1993
to $53,616,000 at December 31, 1993. The first nine months of 1994 decrease was
primarily due to decreases in federal funds sold and investments which are
offset by increases in loans.
Federal funds sold increased from $1,420,000 at December 31, 1992 to $1,675,000
at December 31, 1993. At September 30, 1994, federal funds sold had decreased
to $265,000.
Loans increased $1,868,000 during the first nine months of 1994 to $26,958,000
at September 30, 1994 and increased $486,000 during 1993 to $25,090,000 at
December 31, 1993. The increases were primarily due to less early payoffs on
residential mortgages and new commercial real estate loans.
Securities increased from $22,103,000 at December 31, 1992 to $22,737,000 at
December 31, 1993 and decreased to $21,213,000 at September 30, 1994. The 1993
increase was financed by growth in deposits and investment of proceeds from loan
payoffs. The 1994 decrease was due to a decrease in interest-bearing deposits
COMPARISONS OF THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
EARNINGS PERFORMANCE
Fridley State Bank earned net income of $51,000 and $145,000 for the three
months ended September 30, 1994 and 1993, respectively. The decrease in earnings
of $93,000 was primarily due to a $23,000 decrease in net interest income and a
$70,000 increase in operating expenses. The annualized return on average assets
was 0.38% for the third quarter of 1994 compared to 1.07% for the third quarter
of 1993. Annualized return on average stockholders, equity was 4.37% for the
third quarter of 1994 compared to 13.77% for the third quarter of 1993. On a per
share basis, net income for the third quarter of 1994 and 1993 were $10.15 and
$28.93 respectively.
75
<PAGE>
The following is a condensed summary of the consolidated statements of
operations (dollars in thousands):
<TABLE>
<CAPTION>
Three months
ended
September 30,
-------------
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $ 604 627
Provision for loan losses 1 0
Operating income 86 89
Operating expense 580 510
Net income 51 145
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Three
months
ended
September 30,
(dollars in
thousands) Percentage
------------------ increase
1994 1993 (decrease)
- --------------------------------------------------------------------------------
<S> <C><C> <C>
Interest income:
Loans $ 589 597 (1.3)%
Investment securities 292 334 (12.6)
Interest-bearing deposits with banks 12 16 (25.0)
Federal funds sold 3 7 (57.1)
- ------------------------------------------------------------------------------
Total interest income 896 954 (6.1)
- ------------------------------------------------------------------------------
Interest expense:
Deposits 286 320 (10.6)
Notes payable 7 7 (0.0)
- ------------------------------------------------------------------------------
Total interest expense 292 327 (10.7)
- ------------------------------------------------------------------------------
Net interest income $ 604 627 (3.7)%
==============================================================================
</TABLE>
76
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest
earning-assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Three months ended
September 30, 1994-1993
--------------------------------
Attributable to change
Total ----------------------
Interest-earning Assets change in volume in rate
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ (7,364) 27,097 (34,461)
Investment securities (41,816) (14,279) (27,535)
Interest-bearing deposits with banks (4,281) (3,536) (745)
Federal funds sold (4,324) (7,101) 2,777
- --------------------------------------------------------------------------
Total interest income $(57,785) 2,179 (59,964)
==========================================================================
Interest-bearing Liabilities
- --------------------------------------------------------------------------
Interest-bearing demand deposits (7,286) (3,784) (3,502)
Savings Deposits 945 (940) 1,885
Time Deposits (27,493) (15,700) (11,793)
Notes payable (793) (3,577) 2,784
- --------------------------------------------------------------------------
Total interest expense $(34,627) (24,001) (10,626)
==========================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated to
the change due to rate and the change due to volume on the basis of the
percentage of the total change excluding the combined rate/volume component.
The following table presents average asset and liability balances and percentage
changes.
<TABLE>
<CAPTION>
Three months
ended September 30, Percentage
(dollars in increase
thousands) (decrease)
-----------------------------------
1994 1993 1994/93
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $26,850 25,654 4.7%
Investment securities 21,860 22,867 (4.4)
Interest-bearing deposits with banks 1,049 1,358 (22.8)
Federal funds sold 235 959 (75.5)
- ---------------------------------------------------------------------------------------
Total average interest-earnings assets $49,994 50,838 (1.7)
=======================================================================================
Deposits:
Non-interest-bearing demand 9,478 8,526 11.2
Interest-bearing demand 5,855 6,673 (12.3)
Savings 17,357 17,508 (0.9)
Time 14,324 15,768 (9.2)
- ---------------------------------------------------------------------------------------
Total average interest-bearing deposits 37,536 39,949 (6.0)
Notes payable 307 505 (39.2)
- ---------------------------------------------------------------------------------------
Total average interest-bearing liabilities $37,843 40,454 (6.5)%
=======================================================================================
</TABLE>
77
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
Three months
ended September 30,
-------------------
1994 1993
- -----------------------------------------------------------------------------
Average yield earned:
Loans 8.78% 9.31%
Investment securities 5.35 5.84
Interest-bearing deposits with banks 4.54 4.76
Federal funds sold 4.68 2.95
- -----------------------------------------------------------------------------
Total interest-earning assets 7.17 7.51
- -----------------------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 1.74 1.96
Savings deposits 2.52 2.47
Time deposits 4.22 4.53
Notes payable 8.72 6.28
- -----------------------------------------------------------------------------
Total interest-bearing liabilities 3.08 3.33
- -----------------------------------------------------------------------------
Interest rate spread 4.09% 4.18%
=============================================================================
The following table shows the annualized net yield on interest-earning assets
for the three months ended September 30:
1994 1993
- -----------------------------------------------------------------------------
Average yield earned 7.17% 7.51%
Interest expense to average earning assets 2.34 2.58
- -----------------------------------------------------------------------------
Net yield on interest-earning assets 4.83% 4.93%
=============================================================================
Net interest income was $604,000 for the third quarter of 1994, compared with
$627,000 for the third quarter of 1993. The decrease is due primarily to lower
yields on loans and investment securities.
Total interest income decreased 6.1% to $896,000 for the third quarter of 1994
as compared to $954,000 for the third quarter of 1993. Average interest-earning
assets decreased to $49,994,000 for the three months ended September 30, 1994
from $50,838,000 for the three months ended September 30, 1993. Earning asset
yields declined to 7.17% in 1994 as compared to 7.51% in 1993.
Total interest expense for the third quarter of 1994 of $292,000 declined from
$327,000 for the third quarter of 1993. Average interest-bearing liabilities
decreased to $37,843,000 for the third quarter of 1994 from $40,454,000 for the
third quarter of 1993. Rates on interest-bearing liabilities declined to 3.08%
in 1994 from 3.33% in 1993.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. Fridley State Bank's provision for loan losses was $910 and
$0 for the third quarter of 1994 and 1993, respectively.
Net recoveries were $251 and $15,000 for the third quarter of 1994 and 1993,
respectively. The loan loss reserve as a percentage of loans was 0.6% and 0.6%
at September 30, 1994 and 1993, respectively.
78
<PAGE>
OPERATING INCOME
The following table presents a summary of operating income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges and fees $ 67 75 (10.7)%
Other 19 14 35.7
- ----------------------------------------------------------------------------------------------------------------------------------
$ 86 89 (3.4)%
==================================================================================================================================
</TABLE>
The decrease in operating income reflects lower service charges on checking
accounts.
OPERATING EXPENSES
The following table presents a summary of operating expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 281 279 0.7%
Net occupancy expense and depreciation 81 72 12.5
FDIC insurance assessment 27 27 0.0
Professional fees 61 15 306.7
Other expenses 130 117 11.1
- ----------------------------------------------------------------------------------------------------------------------------------
$ 580 510 13.7%
==================================================================================================================================
</TABLE>
Total operating expenses increased to $580,000 for the third quarter of 1994,
compared to $510,000 for the third quarter of 1993. The increase is due to an
increase in professional fees related to the merger.
The increase in net occupancy expense and depreciation was due to major furnace
repairs and a new maintenance contract on the heating and air conditioning
systems.
COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
EARNINGS PERFORMANCE
Fridley State Bank earned net income of $236,000 and $425,000 for the nine
months ended September 30, 1994 and 1993, respectively. The decrease in earnings
of $189,000 was primarily due to a $68,000 decrease in net interest income and a
$82,000 increase in other operating expense. The annualized return on average
assets was 0.59% for the first nine months of 1994 compared to 0.79% for the
first nine months of 1993. Annualized return on average stockholders' equity was
6.93% for the first nine months of 1994 compared to 13.75% for the first nine
months of 1993. On a per share basis, net income for the nine months of 1994 and
1993 were $47.15 and $84.99, respectively.
79
<PAGE>
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
Nine months
ended
September
30,
-------------
1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Net interest income $1,792 1,860
Provision for loan losses 20 7
Operating income 264 275
Operating expense 1,620 1,538
Net income 236 425
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Nine months
ended
September 30,
(dollars in Percentage
thousands) increase
-------------
1994 1993 (decrease)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $1,695 1,756 (3.5)%
Investment securities 913 1,027 (11.2)
Interest-bearing deposits with banks 40 58 (31.0)
Federal funds sold 13 22 (40.9)
- -------------------------------------------------------------------
Total interest income 2,661 2,863 (7.1)
- -------------------------------------------------------------------
Interest expense:
Interest-bearing demand deposits 76 103 (26.2)
Savings deposits 307 335 (8.4)
Time deposits 467 541 (13.7)
Notes payable 19 25 (24.0)
- -------------------------------------------------------------------
Total interest expense 869 1,003 (13.4)
- -------------------------------------------------------------------
Net interest income $1,792 1,860 (3.7)%
===================================================================
</TABLE>
80
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1994-1993
--------------------------------
Total Attributable to change
-----------------------
Interest-earning Assets change in volume in rate
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ (61,526) 93,439 (154,965)
Investment securities (114,201) 7,175 (121,376)
Interest-bearing deposits with banks (17,909) (17,042) (867)
Federal funds sold (8,393) (12,269) 3,876
- ---------------------------------------------------------------------------
Total interest income $(202,029) 71,303 (273,332)
===========================================================================
Interest-bearing Liabilities
- ---------------------------------------------------------------------------
Interest-bearing demand deposits (26,276) (6,699) (19,577)
Savings deposits (28,521) 12,799 (41,320)
Time deposits (73,271) (47,030) (26,241)
Notes payable (6,482) (8,818) 2,336
- ---------------------------------------------------------------------------
Total interest expense $(134,550) (49,749) (84,802)
===========================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest income/
expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated to
the change due to rate and the change due to volume on the basis of the
percentage of the total change excluding the combined rate/volume component.
The following table presents average asset and liability balances and percentage
changes.
<TABLE>
<CAPTION>
Nine months
ended September 30, Pecentage
(dollars in increase
thousands) (decrease)
------------------------------
1994 1993 1994/93
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $26,101 24,739 5.5%
Investment securities 22,915 22,755 0.7
Interest-bearing deposits with banks 1,146 1,604 (28.6)
Federal funds sold 516 1,007 (48.8)
- ---------------------------------------------------------------------------------------
Total average interest-earnings assets $50,678 50,105 1.1
=======================================================================================
Deposits:
Non-interest-bearing demand 9,332 8,158 14.4
Interest-bearing demand 5,973 6,415 (6.9)
Savings 17,717 17,046 3.9
Time 14,630 16,044 (8.8)
- ---------------------------------------------------------------------------------------
Total average interest-bearing deposits 38,320 39,505 (3.0)
Notes payable 357 530 (32.6)
- ---------------------------------------------------------------------------------------
Total average interest-bearing liabilities $38,677 40,035 (3.4)%
=======================================================================================
</TABLE>
81
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Nine months
ended September 30,
--------------------
1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 8.66% 9.47%
Investment securities 5.31 6.02
Interest-bearing deposits with banks 4.66 4.82
Federal funds sold 3.51 2.91
- ----------------------------------------------------------------
Total interest-earning assets 7.00 7.62
- ----------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 1.70 2.13
Savings deposits 2.31 2.62
Time deposits 4.26 4.49
Notes payable 6.92 6.28
- ----------------------------------------------------------------
Total interest-bearing liabilities 3.00 3.33
- ----------------------------------------------------------------
Interest rate spread 4.00% 4.29%
================================================================
The following table shows the annualized net yield on interest-earning assets
for the nine months ended September 30:
1994 1993
- ----------------------------------------------------------------
Average yield earned 7.00% 7.62%
Interest expense to average earning assets 2.29 2.67
- ----------------------------------------------------------------
Net yield on interest-earning assets 4.71 4.95
================================================================
</TABLE>
Net interest income was $1,792,000 for the first nine months of 1994, compared
with $1,860,000 for the first nine months of 1993. The decrease is due primarily
to lower yields on loans and investment securities.
Total interest income decreased 7.1% to $2,661,000 for the first nine months of
1994 as compared to $2,863,000 for the first nine months of 1993. Average
interest-earning assets increased to $50,678,000 for the nine months ended
September 30, 1994 from $50,105,000 for the nine months ended September 30,
1993. Earning asset yields declined to 7.00% in 1994 as compared to 7.62% in
1993.
Total interest expense for the first nine months of 1994 of $869,000 declined
from $1,003,000 for the first nine months of 1993. Average interest-bearing
liabilities decreased to $38,677,000 for the nine months ended September 30,
1994 from $40,035,000 for the nine months of 1993. Rates on interest-bearing
liabilities declined to 3.00% in 1994 from 3.33% in 1993.
82
<PAGE>
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. Fridley State Bank's provision for loan losses was $20,000
and $7,000 for the first nine months of 1994 and 1993, respectively.
Net charge-offs were $20,000 for the first nine months of 1994 and net
recoveries were $2,000 for the same period in 1993. The loan loss reserve as a
percentage of loans was 0.6% and 0.6% at September 30, 1994 and 1993,
respectively.
OPERATING INCOME
The following table presents a summary of operating income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
1994 1993 (decrease)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service charges and fees $217 224 (3.1)%
Investment security gains (losses) 0 5 NM
- -------------------------------------------------------------------------------
Other 47 46 (2.2)
- -------------------------------------------------------------------------------
$264 275 (4.0)%
===============================================================================
</TABLE>
NM = not meaningful
The decrease in other operating income reflects lower service charges on
checking accounts.
OPERATING EXPENSES
The following table presents a summary of operating expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
1994 1993 (decrease)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 858 848 1.2%
Net occupancy expense and depreciation 246 220 11.8
FDIC insurance assessment 80 79 1.3
Professional fees 94 54 74.1
Other expenses 341 337 1.2
- -------------------------------------------------------------------------------
$1,620 1,538 5.3%
===============================================================================
</TABLE>
Total operating expenses increased to $1,620,000 for the first nine months of
1994, compared to $1,538,000 for the first nine months of 1993. The increase is
due to an increase in professional fees related to the merger and increased
depreciation expense resulting from 1994 equipment purchases.
The increase in net occupancy expense and depreciation was due to increased
depreciation and major furnace repairs and a new maintenance contract on the
heating and air conditioning systems.
83
<PAGE>
COMPARISONS OF YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
EARNINGS PERFORMANCE
Fridley State Bank earned net income of $603,000 in 1993, $563,000 in 1992 and
$409,000 in 1991. The increase in earnings from 1992 to 1993 was primarily due
to a $48,000 decrease in net interest income and a $48,000 increase in operating
expenses offset by an $81,000 decrease in the provision for loan losses and a
decrease in income taxes of $44,000. The increase in earnings from 1991 to 1992
was primarily due to an increase of $320,000 in net interest income offset by an
increase of $85,000 in the provision for loan losses. The consolidated return on
average assets was 1.13% in 1993 compared to 1.06% in 1992 and 0.82% in 1991.
Return on average stockholders' equity was 14.55% in 1993 compared to 13.53% and
9.67% in 1992 and 1991, respectively. On a per share basis, net income for the
years 1993, 1992 and 1991 were $120.56, $112.60 and $81.90, respectively.
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income $2,479 2,527 2,207
Provision for loan losses 24 104 19
Operating income 401 390 376
Operating expense 2,033 1,985 1,974
Net income 603 563 409
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Percentage increase
Dollars (in thousands) (decrease)
---------------------- --------------------
1993 1992 1991 1993/92 1992/91
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $2,332 2,488 2,767 (6.3)% (10.1)%
Investment securities 1,359 1,564 1,409 (13.1) 11.0
Interest-bearing deposits with
banks 71 75 154 (5.3) (51.3)
Federal funds sold 30 60 145 (50.0) (58.6)
- -------------------------------------------------------------------------------
Total interest income 3,792 4,187 4,475 (9.4) (6.4)
- -------------------------------------------------------------------------------
Interest expense:
Interest-bearing demand deposits 130 176 247 (26.1) (28.7)
Saving deposits 441 544 730 (18.9) (25.5)
Time deposits 710 916 1,286 (22.5) (28.8)
Notes payable 33 25 5 32.0 400.0
- -------------------------------------------------------------------------------
Total interest expense 1,314 1,661 2,269 (20.9) (26.8)
- -------------------------------------------------------------------------------
Net interest income $2,479 2,527 2,207 (1.9)% 14.5%
===============================================================================
</TABLE>
84
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1993-1992
---------------------------------
Total Attributable to change
----------------------
Interest-earning Assets change in volume in rate
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(156,469) 64,290 (220,759)
Investment securities (204,353) 4,230 (208,583)
Interest-bearing deposits with banks (4,653) 15,577 (20,230)
Federal funds sold (29,520) (22,311) (7,209)
- ---------------------------------------------------------------------------
Total interest income $(394,995) 61,786 (456,781)
===========================================================================
Interest-bearing Liabilities
- ---------------------------------------------------------------------------
Interest-bearing demand deposits (45,972) 14,031 (60,003)
Saving deposits (102,698) 36,432 (139,130)
Time deposits (206,629) (97,950) (108,679)
Notes payable 8,162 11,793 (3,631)
- ---------------------------------------------------------------------------
Total interest expense $(347,137) (35,694) (311,443)
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
1992-1991
---------------------------------
Total Attributable to change
----------------------
Interest-earning Assets change in volume in rate
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(279,066) (105,500) (173,566)
Investment securities 154,591 357,579 (202,988)
Interest-bearing deposits with banks (77,618) (60,993) (16,625)
Federal funds sold (85,625) (36,790) (48,835)
- ---------------------------------------------------------------------------
Total interest income $(287,718) 154,296 (442,014)
===========================================================================
Interest-bearing Liabilities
- ---------------------------------------------------------------------------
Interest-bearing demand deposits (71,249) 30,978 (102,227)
Saving deposits (186,883) 98,144 (285,027)
Time deposits (368,979) (47,264) (321,715)
Notes payable 19,304 20,555 (1,251)
===========================================================================
Total interest expense $(607,807) 102,413 (710,220)
===========================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior year's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior year's volume.
The change due to combined rate/volume variance is allocated to the change due
to rate and the change due to volume on the basis of the percentage of the total
change excluding the combined rate/volume component.
85
<PAGE>
The following table presents average asset and liability balances and percentage
changes.
<TABLE>
<CAPTION>
Percentage increase
Dollars (in thousands) (decrease)
------------------------ ------------------
1993 1992 1991 1993/92 1992/91
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $24,915 24,254 25,234 2.7% (3.9)%
Investment securities 22,869 22,807 17,872 0.3 27.6
Interest-bearing deposits with banks 1,494 1,212 1,858 23.3 (34.8)
Federal funds sold 1,035 1,776 2,564 (41.7) (30.7)
- --------------------------------------------------------------------------------------------------
Total average interest-
earning assets $50,313 50,049 47,528 (0.5) 5.3
==================================================================================================
Deposits:
Non-interest-bearing demand 8,338 7,605 7,024 9.6 8.3
Interest-bearing demand 6,352 5,851 5,135 8.6 13.9
Savings 17,337 16,178 14,073 7.2 15.0
Time 15,854 17,864 18,576 (11.3) (3.8)
- --------------------------------------------------------------------------------------------------
Total average interest-
bearing deposits 39,543 39,893 37,784 (0.9) 5.6
==================================================================================================
Notes payable 531 346 60 53.4 476.7
- --------------------------------------------------------------------------------------------------
Total average interest-
bearing liabilities 40,074 40,239 37,844 (0.4) 6.3
==================================================================================================
</TABLE>
The following table shows the average interest yield on interest-earning assets
and the average interest rate paid on interest-bearing liabilities:
<TABLE>
<CAPTION>
1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned:
Loans 9.36% 10.26% 10.97%
Investment securities 5.95 6.86 7.89
Interest-bearing deposits with banks 4.76 6.25 8.25
Federal funds sold 2.90 3.35 5.66
- ----------------------------------------------------------------
Total interest-earning assets 7.54 8.37 9.42
- ----------------------------------------------------------------
Average rates paid:
Interest-bearing demand deposits 2.05 3.01 4.81
Savings deposits 2.54 3.35 5.19
Time deposits 4.48 5.13 6.92
Notes payable 6.18 7.13 8.88
- ----------------------------------------------------------------
Total interest-bearing liabilities 3.28 4.13 6.00
- ----------------------------------------------------------------
Interest rate spread 4.26% 4.24% 3.42%
================================================================
</TABLE>
86
<PAGE>
The following table shows the net yield on interest-earning assets:
<TABLE>
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned 7.54% 8.37 9.42
Interest expense to average earning assets 2.61 3.32 4.78
- ------------------------------------------------------------------------------
Net yield on interest-earning assets 4.93% 5.05 4.64
==============================================================================
</TABLE>
Net interest income was $2,479,000 in 1993, compared with $2,527,000 in 1992 and
$2,207,000 in 1991. During 1991 interest rates in the United States began a
general decline with short-term interest falling faster than long-term rates.
This trend continued throughout 1992 and 1993.
Total interest income decreased 9.4% to $3,792,000 in 1993 as compared to
$4,187,000 in 1992, which was down from $4,475,000 in 1991. Average interest-
earning assets increased to $50,313,000 in 1993 from $50,049,000 in 1992 and
$47,528,000 in 1991. Earning asset yields declined to 7.54% in 1993 as compared
to 8.37% and 9.42% in 1992 and 1991, respectively.
Total interest expense in 1993 of $1,314,000 declined from $1,661,000 in 1992.
This decline was attributed primarily to rates on interest-bearing liabilities
declining to 3.28% in 1993, from 4.13% in 1992. The 75 basis point decline from
1992 to 1993 was caused by the general economic and market conditions which
moved interest rates lower in 1993. Total interest expense in 1992 of $1,661,000
decreased from $2,269,000 in 1991.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. Fridley State Bank's provision for loan losses was $24,000,
$104,000 and $19,000 in 1993, 1992 and 1991, respectively.
Net charge-offs in 1993 decreased to $15,000 from $93,000 in 1992. Net charge-
offs in 1992 of $93,000 increased from $19,000 in 1991. The ratio of net
charge-offs to average loans in 1993 was .06% which was down from the 1992 ratio
of .07%. The loan loss reserve as a percentage of loans was .6%, .6% and .6% at
December 31, 1993, 1992 and 1991, respectively.
OPERATING INCOME
The following table presents a summary of operating income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase (decrease)
-------------------
1993 1992 1991 1993/92 1992/91
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges and fees $ 335 327 273 (2.4)% 19.8 %
Investment security gains (losses) 5 1 (3) 400.0 % NM
Other 61 62 106 0.0 % (41.0)%
- ------------------------------------------------------------------------------
$ 401 390 376 3.1 % 4.0 %
==============================================================================
</TABLE>
NM = not meaningful
In 1993 operating income increased $11,000 or 2.8% in comparison to 1992. In
1992 operating income increased $15,000 or 4.0% in comparison to 1991.
87
<PAGE>
OPERATING EXPENSES
The following table presents a summary of operating expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage increase
(decrease)
------------------
1993 1992 1991 1993/92 1992/91
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 1,124 1,100 1,073 2.2% 2.5%
Net occupancy expense and depreciation 290 245 232 18.4 5.6
FDIC insurance assessment 107 106 88 0.9 20.5
Professional fees 76 70 76 8.6 (7.9)
Other expenses 436 464 505 (6.0) (8.1)
- ------------------------------------------------------------------------------------
$ 2,033 1,985 1,974 2.4% 0.6%
====================================================================================
</TABLE>
Total operating expenses increased to $2,033,000 in 1993, compared to $1,985,000
in 1992 and $1,974,000 in 1991. The increase in 1993 is largely attributable to
an increase in depreciation due primarily to the purchase of a new computer
system. Depreciation on the system in 1992 was for half of the year; 1993
depreciation was for the entire year.
88
<PAGE>
INCOME TAXES
In February 1992 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Babbscha adopted SFAS No. 109 during 1993 and has elected to apply the
provisions on a prospective basis.
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 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 SFAS No. 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 change resulted in no impact on the
financial statements.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1993, the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, which was amended by SFAS No. 118, Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures. SFAS No. 114, as
amended, requires that certain impaired loans be measured to reflect the time
value of money. SFAS No. 114, as amended, is required to be adopted for fiscal
years beginning after December 15, 1994. The impact of adoption of the new
accounting standards on the Babbschas financial statements has not yet been
determined.
In June 1993, the FASB issued SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. This statement addressed the accounting and
reporting for investments by classifying into three categories--securities held
to maturity, trading securities, and available for sale. Babbscha adopted SFAS
No. 115 during 1994. The change resulted in no impact on the financial
statements.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
The assets of Fridley State Bank are primarily funded through the use of
borrowings in the form of deposits and short-term borrowings. The maintenance of
an adequate level of liquidity is necessary to ensure that sufficient funds are
available to meet customers, loan demand and deposit withdrawals. The sources
of asset liquidity consist of federal funds, maturing loans and investment
securities.
Fridley State Bank,s investment committee is charged with the responsibility of
maintaining an adequate level of liquidity and managing the risks associated
with interest rate changes while sustaining stable growth in net interest
income. Fridley State Bank,s basic strategy is to minimize interest rate risk
through matching the repricing periods of earning assets and interest-bearing
liabilities.
89
<PAGE>
CAPITAL MANAGEMENT OF FRIDLEY STATE BANK
Bank regulatory agencies measure capital adequacy through standardized risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance sheet obligations.
Under the rules effective December 31, 1993, all financial institutions are
required to maintain a level of core capital (known as tier 1 capital) which
must be at least 4.0% of risk-weighted assets, and a minimum level of total
capital of at least 8.0% of risk-weighted assets. Tier 1 capital consists
principally of stockholders' equity less goodwill. Total capital is comprised of
tier 1 capital, certain debt instruments and a portion of the allowance for loan
losses. Fridley State Bank's actual risk-based capital, risk-based capital
requirement and excess risk-based capital at September 30, 1994 and December 31,
1993 (dollars in thousands) are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1994 December 31, 1993
-------------------------- ----------------------------
Amount Percent (1) Amount Percent (1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $4,663 $4,580
- ------------------------------------------------------------------------------------------------
Allowable portion of allowance
for loan losses 159 159
================================================================================================
Total risk-based capital $4,822 8.99% $4,739 8.86%
================================================================================================
Risk-based capital requirement $4,291 8.00% 4,281 8.00%
================================================================================================
Excess risk-based capital $ 531 0.99% $ 458 0.86%
================================================================================================
</TABLE>
(1) Percentage based on risk-weighted assets of $53,633,400 and $53,516,000 at
September 30, 1994 and December 31, 1993, respectively.
As a supplement to the risk-based capital guidelines, the Federal Reserve Board
has also adopted a minimum ratio of tier 1 capital to total assets known as the
tier 1 leverage ratio. The principal objective of this measure is to place a
constraint on the maximum degree to which a banking organization can leverage
its equity capital base. This regulation has established a minimum level of tier
1 capital to total assets of 3.0%. Fridley State Bank's actual tier 1 leverage
ratio was 10.1% and 9.1% at September 30, 1994 and December 31, 1993,
respectively.
90
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the financial statements of Fridley State
Bank (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
-------------------------------------------------------------------
1994 1993
-------------------------------- ---------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 26,850 $ 589 8.78% $ 25,654 $ 597 9.31%
Investment securities 21,860 292 5.35% 22,867 334 5.84%
Interest bearing deposits with 1,049 12 4.54% 1,358 16 4.76%
banks
Federal funds sold 235 3 4.68% 959 7 2.95%
- ---------------------------------------------------------------------------------------------------------
Total earning assets 49,994 896 7.17% 50,838 954 7.51%
- ---------------------------------------------------------------------------------------------------------
Allowance for loan losses (158) (152)
Cash and due from banks 2,014 2,208
Other assets 992 1,083
- ---------------------------------------------------------------------------------------------------------
Total assets $52,842 $ 53,977
=========================================================================================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits 9,478 8,526
Interest bearing demand deposits 5,855 26 1.74% 6,673 33 1.96%
Savings deposits 17,357 109 2.52% 17,508 109 2.47%
Time deposits 14,324 151 4.22% 15,768 178 4.53%
Notes payable 307 7 8.72% 505 7 6.28%
- ---------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 37,843 292 3.08% 40,454 327 3.33%
- ---------------------------------------------------------------------------------------------------------
Other liabilities 877 794
Stockholders' equity 4,644 4,203
- ---------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 52,842 $ 53,977
=========================================================================================================
Net interest income $ 604 $ 627
=========================================================================================================
Interest rate spread 4.09% 4.18%
Net interest income to average
earning assets 4.83% 4.93%
</TABLE>
(1) Yield/rate is annualized
91
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the financial statements of Fridley State
Bank (dollars in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
-----------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $26,101 $1,695 8.66% $24,739 $1,756 9.47%
Investment securities 22,915 913 5.31% 22,755 1,027 6.02%
Interest bearing deposits with banks 1,146 40 4.66% 1,604 58 4.82%
Federal funds sold 516 13 3.51% 1,007 22 2.91%
- -------------------------------------------------------------------------------------------------------
Total earning assets 50,678 2,661 7.00% 50,105 2,863 7.62%
- -------------------------------------------------------------------------------------------------------
Allowance for loan losses (156) (150)
Cash and due from banks 1,971 2,097
Other assets 985 1,099
- -------------------------------------------------------------------------------------------------------
Total assets $53,478 $53,151
=======================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Non-interest bearing demand deposits 9,332 8,158
Interest bearing demand deposits 5,973 76 1.70% 6,415 103 2.13%
Savings deposits 17,717 307 2.31% 17,046 335 2.62%
Time deposits 14,630 467 4.26% 16,044 541 4.49%
Notes payable 357 19 6.92% 530 25 6.28%
- -------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 38,677 869 3.00% 40,035 1,003 3.33%
- -------------------------------------------------------------------------------------------------------
Other liabilities 932 836
Stockholders' equity 4,537 4,122
- -------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $53,478 $53,151
=======================================================================================================
Net interest income $1,792 $1,860
=======================================================================================================
Interest rate spread 4.00% 4.29%
Net interest income to average
earning assets 4.71% 4.95%
</TABLE>
(1) Yield/rate is annualized
92
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Average Balance Sheets and Average Yields Earned and Rates Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the financial statements of Fridley State
Bank (dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ------------------------------ -------------------------------
Average Average Average Average Average Average
Assets balance Interest yield/rate balance Interest yield/rate balance Interest yield/rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 24,915 $ 2,332 9.36% $24,254 $2,488 10.26% $25,234 $2,767 10.97%
Investment securities 22,869 1,359 5.95% 22,807 1,564 6.86% 17,872 1,409 7.89%
Interest bearing deposits
with banks 1,494 71 4.76% 1,212 75 6.25% 1,858 154 8.25%
Federal funds sold 1,035 30 2.90% 1,776 60 3.35% 2,564 145 5.66%
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 50,313 3,792 7.54% 50,049 4,187 8.37% 47,528 4,475 9.42%
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (150) (142) (134)
Cash and due from banks 2,130 2,003 1,751
Other assets 1,082 1,010 836
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 53,375 $52,920 $49,981
==============================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing
demand deposits 8,338 7,605 7,024
Interest bearing
demand deposits 6,352 130 2.05% 5,851 176 3.01% 5,135 247 4.81%
Savings deposits 17,337 441 2.54% 16,178 544 3.35% 14,073 730 5.19%
Time deposits 15,854 710 4.48% 17,864 916 5.13% 18,576 1,286 6.92%
Notes payable 531 33 6.18% 346 25 7.13% 60 5 8.88%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest
bearing liabilities 40,074 1,314 3.28% 40,239 1,661 4.13% 37,844 2,269 6.00%
- ------------------------------------------------------------------------------------------------------------------------------
Other liabilities 820 915 877
Stockholders' equity 4,143 4,161 4,236
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and stockholders'
equity $ 53,375 $52,920 $49,981
==============================================================================================================================
Net interest income $ 2,478 $2,526 $2,206
==============================================================================================================================
Interest rate spread 4.26% 4.24% 3.42%
Net interest income to average
earning assets 4.93% 5.05% 4.64%
</TABLE>
93
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Investment Securities
Following is a table of the carrying value (dollars in thousands) of investment
securities:
<TABLE>
<CAPTION>
September 30, December 31,
-------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury $ 5,102 4,200 6,190
U.S. government agencies 8,750 10,079 7,944
Municipals 5,792 6,759 6,793
Other 1,569 1,699 1,176
- --------------------------------------------------------------------------------
$21,213 22,737 22,103
================================================================================
</TABLE>
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average annual yield at September
30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
------------------------------------------------
Less than 1-5 5-10 More than
1 year years years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 799 4,303 5,102
Weighted average yield 3.96% 5.45% 5.18%
U.S. government agencies $ 0 6,269 1,169 1,312 8,750
Weighted average yield 0 5.67% 6.25% 6.34% 5.89%
Municipals $1,016 3,166 1,445 165 5,792
Weighted average yield 8.88% 9.49% 9.91% 8.62% 9.49%
Other $ 200 1,102 205 62 1,569
Weighted average yield 4.72% 6.66% 1.83% 5.79% 6.71%
- --------------------------------------------------------------------------------
Total investment securities $2,015 14,840 2,819 1,539 21,213
================================================================================
Weighted average yield 6.52% 6.49% 7.80% 6.56% 6.76%
================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
94
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Investment Securities, Continued
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average yield at December 31,
1993 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
--------------------------------------------------------
Less than 1-5 5-10 More than
1 year years years 10 years
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $1,800 2,400 4,200
Weighted average yield 5.54% 5.39% 5.40%
U.S. government agencies $ 300 6,584 1,596 1,599 10,079
Weighted average yield 5.14% 5.52% 5.85% 6.00% 5.66%
Municipals $1,480 3,122 2,147 10 6,759
Weighted average yield 6.95% 9.42% 9.85% 9.43% 9.10%
Other $ 101 1,102 405 91 1,699
Weighted average yield 7.20% 6.16% 2.92% 4.03% 5.01%
=============================================================================================
Total investment securities $3,681 13,208 4,148 1,700 22,737
=============================================================================================
Weighted average yield 6.12% 6.47% 7.63% 5.91% 6.59%
=============================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
95
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Loan Portfolio
The following table classifies loans by major category (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
----------------
1994 1993 1992
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial business $ 2,831 2,752 3,431
Real estate:
Commercial 5,727 5,606 5,174
Residential 10,630 9,873 9,268
Consumer 7,770 6,859 6,731
- -------------------------------------------------------------------------
Total loans $26,958 25,090 24,604
=========================================================================
</TABLE>
The following tables present maturities and sensitivities of loans to changes in
interest rates as of September 30, 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Less than 1-5 More than
1 year years 5 years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Maturities
a. Commercial business $ 1,145 1,652 34 2,831
Real estate 565 6,066 9,726 16,357
Consumer 695 6,188 887 7,770
- -------------------------------------------------------------------------------
$ 2,405 13,906 10,647 26,958
===============================================================================
b. Amount of loans due after one year
which have:
Predetermined interest rates 16,494
Floating/adjustable rates 8,059
- -------------------------------------------------------------------------------
$ 24,553
===============================================================================
</TABLE>
96
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Loan Portfolio, Continued
The following tables present maturities and sensitivities of loans to changes in
interest rates as of December 31, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Less than 1-5 More than
1 year years 5 years Total
- -------------------------------------------------------------------------------
1. Maturities
a. Commercial business $ 1,113 1,606 33 2,752
Real estate 534 5,741 9,204 15,479
Consumer 613 5,463 783 6,859
- -------------------------------------------------------------------------------
$ 2,260 12,810 10,020 25,090
===============================================================================
b. Amount of loans due after one
year which have:
Predetermined interest rates 13,788
Floating/adjustable rates 9,042
- -------------------------------------------------------------------------------
$22,830
===============================================================================
</TABLE>
97
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Nonaccrual, Restructured and Past Due Loans
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
------------
1994 1993 1992
- -------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $58 50 18
Restructured loans 0 0 0
Loans past due more than 90 days
and still accruing 21 37 21
- -------------------------------------------------------------
$79 87 39
=============================================================
</TABLE>
The impact on interest income for the nine months ended September 30, 1994 and
the year ended December 31, 1993 for nonaccrual loans was approximately $1,524
and $1,558, respectively.
Allocation of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
September 30, 1994 1993 1992
------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
loans in each Allowance loans in each Allowance loans in each Allowance
category to for loan category to for loan category to for loan
total loans losses total loans losses total loans losses
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial 10.5% $ 26 11.0% $ 28 13.9% $ 37
Real estate 60.7 65 61.7 62 58.7 58
Consumer 28.8 54 27.3 62 27.4 55
- ------------------------------------------------------------------------------------------------------------------------------------
100.0% 145 100.0% 152 100.0% 150
===== ===== =====
Unallocated 14 7 0
- ------------------------------------------------------------------------------------------------------------------------------------
$159 $159 $150
====================================================================================================================================
</TABLE>
98
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Analysis of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
---------------
1994 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Balance beginning of period $159 150 138
Provision for loan losses 20 24 105
Charge-offs:
Commercial 11 8 79
Consumer 14 23 29
Real estate 0 0 0
- -----------------------------------------------------------------------
Total loan losses 25 31 108
Recoveries:
Commercial 3 8 1
Consumer 2 8 15
Real estate 0 0 0
- -----------------------------------------------------------------------
Total recoveries 5 16 16
- -----------------------------------------------------------------------
Net (charge-offs) (20) (15) (92)
- -----------------------------------------------------------------------
Balance end of period $159 159 150
=======================================================================
Net charge-offs as a percent
of average loans 0.08% 0.06% 0.4%
Allowance for loan losses to:
Total loans at period-end 0.6% 0.6% 0.6%
Net charge-offs 8.0% 10.6% 1.6%
Provision for loan losses to
average loans 0.08% 0.09% 0.43%
</TABLE>
99
<PAGE>
FRIDLEY STATE BANK
Selected Statistical Information
Maturity of Time Deposits of $100,000 or More
At September 30, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over
3 months months months 12 months Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time $ 0 307 227 103 637
</TABLE>
Maturity of Time Deposits of $100,000 or More
At December 31, 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over
3 months months months 12 months Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time $ 289 116 0 216 621
</TABLE>
<TABLE>
Three months Nine months ended
ended September 30, September 30, Year ended December 31,
-------------------------- ------------------- ---------------------------------
1994 1993 1994 1993 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average
assets 0.38% (1) 1.07% (1) 0.59% (1) 0.79% (1) 1.13% 1.06% 0.82%
Return on average
equity 4.37% (1) 13.77% (1) 6.93% (1) 13.75% (1) 14.55% 13.53% 9.67%
Average equity to
average assets 8.79% 7.79% 8.48% 7.76% 7.76% 7.86% 8.48%
Dividends declared
per share $ 10.00 $ 10.00 $ 60.00 $ 60.00 $ 60.00 $ 60.00 $ 60.00
</TABLE>
(1) Annualized.
100
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF BANREIN, INC.
FINANCIAL REVIEW
GENERAL
The following is management,s discussion and analysis of the significant factors
affecting Banrein's results of operations and financial condition. This should
be read in conjunction with Banrein's unaudited financial statements and
accompanying footnotes.
FINANCIAL CONDITION
Total assets increased by $20,000 during the first nine months of 1994 to
$269,000 at September 30, 1994 following a decrease of $20,000 during 1993 to
$249,000 at December 31, 1993. Cash increased by $12,000 during the first nine
months of 1994. The yearly decrease in premises is due to depreciation on the
building. The increase in other assets during the first nine months of 1994 is
in real estate escrow for real estate taxes due in October 1994.
COMPARISONS OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
EARNINGS PERFORMANCE
Banrein's primary source of income is from Fridley State Bank's rental of the
building and land. Rental income increases in the three and nine month period
is primarily due to real estate tax increases.
OPERATING EXPENSES
Total operating expense decreases are due to interest payable on the declining
mortgage payable.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
EARNINGS PERFORMANCE
Banrein's primary source of income is from Fridley State Bank's rental of the
building and land. Rental income increases in the three year period is
primarily due to real estate tax increases.
OPERATING EXPENSES
Total operating expenses were materially unchanged. Increases in real estate
taxes were offset slightly by a decrease in interest expense due to the
declining mortgage payable.
101
<PAGE>
INCOME TAXES
In February 1992 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Babbscha adopted SFAS No. 109 during 1993 and has elected to apply the
provisions on a prospective basis.
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 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 SFAS No. 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 change resulted in no impact on the
financial statements.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
Banrein relies primarily on Fridley State Bank for its source of cash needs. The
cash flow from the Bank to Banrein comes in the form of rental income.
The net income of Banrein is paid out yearly in the form of dividends to the
stockholders. Generally, dividends are paid twice a year, April 1 and
December 1 as declared by the board of directors.
Banrein's board of directors is charged with the responsibility of maintaining
an adequate level of liquidity in order to make mortgage payments in a timely
manner and to assure the stockholders of an adequate return of their investment
in the form of dividends.
102
<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, whether in the form of loans, extensions of credit,
investments, or asset purchases. Such transfers by any
103
<PAGE>
subsidiary bank to Norwest or any nonbanking subsidiary are limited in amount to
10% of the bank's capital and surplus and, with respect to Norwest and all such
nonbanking subsidiaries, to an aggregate of 20% of such bank's capital and
surplus. Furthermore, such loans and extensions of credit are required to be
secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. This support may be required at times when Norwest may not
have the resources to provide it. Any capital loans by Norwest to any of the
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. In addition, the Crime Control Act
of 1990 provides that in the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989, in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur in the absence of regulatory
assistance.
Federal law (12 U.S.C. (S)55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any
such pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. Similarly, the
laws of certain states provide for such assessment and sale with respect to
banks chartered by such states. Norwest, as the sole shareholder of certain of
its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as stand-by letters of credit)
is 8%. At least half of the total capital is to be comprised of common stock,
minority interests, and noncumulative perpetual preferred stock ("Tier 1
capital"). The remainder ("Tier 2 capital") may consist of hybrid capital
instruments, perpetual debt, mandatory convertible debt securities, a limited
amount of subordinated debt, other preferred stock, and a limited amount of loan
and lease loss reserves. In addition, the Federal Reserve Board's final minimum
"leverage ratio" (the ratio of Tier 1 capital to quarterly average total assets)
guidelines for bank holding companies provide for a minimum leverage ratio of 3%
for bank holding companies that meet certain specified criteria, including that
they have the highest regulatory rating. All other bank holding companies are
required to maintain a leverage ratio of 3% plus an additional cushion of 100 to
200 basis points. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "tangible
Tier 1 leverage ratio" in evaluating proposals for expansion or new activities.
The tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier
1 capital, less all intangibles, to total assets, less all intangibles. Each of
Norwest's banking
104
<PAGE>
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.
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.
105
<PAGE>
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 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.
106
<PAGE>
EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, incorporated by reference herein, have been
incorporated herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Babbscha and subsidiaries as of
December 31, 1993, and for the year ended December 31, 1993, have been included
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, included herein and upon the authority of said
firm as experts in accounting and auditing.
LEGAL OPINION
A legal opinion to the effect that the shares of Norwest Common Stock
offered hereby, when issued in accordance with the Reorganization Agreement,
will be validly issued and fully paid and nonassessable, has been rendered by
Stanley S. Stroup, Executive Vice President and General Counsel of Norwest
Corporation. At September 30, 1994, Mr. Stroup was the beneficial owner of
107,193 shares and held options to acquire 207,410 additional shares of Norwest
Common Stock.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and related
transactions, and other related matters concerning Norwest is included or
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1993, as amended by Form 10-K/A dated May 13, 1994, which are
incorporated in this Proxy Statement-Prospectus by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of Babbscha
desiring copies of such documents may contact Norwest at its address or phone
number indicated under "AVAILABLE INFORMATION" above.
107
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
BABBSCHA COMPANY AND SUBSIDIARIES,
FRIDLEY STATE BANK AND BANREIN, INC.
<TABLE>
<CAPTION>
Beginning
page
<S> <C>
BABBSCHA COMPANY AND SUBSIDIARIES, CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors, Report F-3
Consolidated Statements of Financial Condition as of September 30, 1994 (unaudited), F-4
December 31, 1993 and December 31, 1992 (unaudited)
Consolidated Statements of Operations (unaudited) for the three and nine-month periods F-5
ended September 30, 1994 and 1993
Consolidated Statements of Operations for the year ended December 31, 1993 and the years F-6
ended December 31, 1992 (unaudited) and 1991 (unaudited)
Consolidated Statements of Changes in Stockholders, Equity for the nine-month period ended
September 30, 1994 (unaudited), and the year ended December 31, 1993 and the years ended F-7
December 31, 1992 (unaudited) and 1991 (unaudited)
Consolidated Statements of Cash Flows (unaudited) for the nine-month periods ended F-8
September 30, 1994 and 1993
Consolidated Statements of Cash Flows for the year ended December 31, 1993 and the years F-9
ended December 31, 1992 (unaudited) and 1991 (unaudited)
Notes to Consolidated Financial Statements F-10
FRIDLEY STATE BANK, FINANCIAL STATEMENTS (UNAUDITED):
Verification F-28
Statements of Financial Condition as of September 30, 1994, December 31, 1993 and F-29
December 31, 1992
Statements of Operations for the three and nine-month periods ended September 30, 1994 and F-30
1993
Statements of Operations for the years ended December 31, 1993, 1992 and 1991 F-31
Statements of Changes in Stockholders, Equity for the nine-month periods ended September
30, 1994, and the years ended December 31, 1993, 1992 and 1991 F-32
Statements of Cash Flows for the nine-month periods ended September 30, 1994 and 1993 F-33
Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 F-34
Notes to Financial Statements F-35
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
BABBSCHA COMPANY AND SUBSIDIARIES,
FRIDLEY STATE BANK AND BANREIN, INC.
<TABLE>
<CAPTION>
Beginning
page
<S> <C>
BANREIN, INC., FINANCIAL STATEMENTS (UNAUDITED):
Verification F-49
Statements of Financial Condition as of September 30, 1994, December 31, 1993 and F-50
December 31, 1992
Statements of Operations for the three and nine-month periods ended September 30, 1994 and F-51
1993
Statements of Operations for the years ended December 31, 1993, 1992 and 1991 F-52
Statements of Changes in Stockholders, Equity for the nine-month periods ended September
30, 1994, and the years ended December 31, 1993, 1992 and 1991 F-53
Statements of Cash Flows for the nine-month periods ended September 30, 1994 and 1993 F-54
Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 F-55
Notes to Financial Statements F-56
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Babbscha Company:
We have audited the accompanying consolidated statement of financial condition
of Babbscha Company and subsidiaries (the Company) as of December 31, 1993, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Babbscha Company and
subsidiaries as of December 31, 1993, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
September 30, 1994
F-3
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31
September 30 --------------------------
Assets 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 2,681,849 1,975,253 2,537,964
Interest bearing deposits with banks 886,700 1,279,492 1,530,258
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 3,568,549 3,254,745 4,068,222
Federal funds sold 265,000 1,675,000 1,420,000
Investment securities, market value of $20,872,362 (unaudited), 21,212,844 22,736,854 22,102,971
$23,153,389 and $22,574,079 (unaudited)
Loans 26,957,563 25,089,821 24,604,310
Less allowance for loan losses (158,952) (158,701) (149,815)
- ---------------------------------------------------------------------------------------------------------------
Loans, net 26,798,611 24,931,120 24,454,495
Premises and equipment, net 693,572 716,683 755,711
Accrued interest receivable 392,583 465,248 490,417
Other assets 138,836 82,015 79,782
- ---------------------------------------------------------------------------------------------------------------
Total assets $53,069,995 53,861,665 53,371,598
===============================================================================================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing 9,721,040 8,819,779 9,053,816
Interest-bearing 37,796,439 39,544,956 39,035,598
- ---------------------------------------------------------------------------------------------------------------
Total deposits 47,517,479 48,364,735 48,089,414
- ---------------------------------------------------------------------------------------------------------------
Notes payable 421,251 590,052 818,089
Accrued interest payable 112,691 116,929 123,865
Other liabilities 158,470 113,626 177,370
Minority interest 2,149,494 2,012,684 1,677,599
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 50,359,385 51,198,026 50,886,337
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, no par value; 25,000 shares authorized;
10,000 issued and outstanding 128,290 128,290 128,290
Retained earnings 2,582,320 2,535,349 2,356,971
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,710,610 2,663,639 2,485,261
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $53,069,995 53,861,665 53,371,598
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30
------------------------ -------------------------
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 589,456 596,820 1,694,780 1,756,306
Investment securities:
Taxable 227,123 262,755 704,373 802,212
Nontaxable 65,025 71,209 208,576 224,938
Interest bearing deposits with banks 11,891 16,172 40,022 57,931
Federal funds sold 2,754 7,078 13,581 21,974
- ------------------------------------------------------------------------------------------------
Total interest income 896,249 954,034 2,661,332 2,863,361
- ------------------------------------------------------------------------------------------------
Interest expense:
Deposits 285,668 319,502 850,397 978,465
Notes payable 8,915 11,243 27,934 37,549
- ------------------------------------------------------------------------------------------------
Total interest expense 294,583 330,745 878,331 1,016,014
- ------------------------------------------------------------------------------------------------
Net interest income 601,666 623,289 1,783,001 1,847,347
Provision for loan losses 910 0 20,329 6,661
- ------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 600,756 623,289 1,762,672 1,840,686
- ------------------------------------------------------------------------------------------------
Other income:
Service charges and fees 64,284 75,265 217,404 224,366
Investment security gains (losses) 0 0 (247) 4,753
Other 25,372 20,538 52,749 58,930
- ------------------------------------------------------------------------------------------------
Total other income 89,656 95,803 269,906 288,049
- ------------------------------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 281,058 279,992 859,039 849,032
Net occupancy expense 31,645 19,896 69,876 60,369
Depreciation 36,641 35,210 121,688 106,986
Data processing and supplies 21,265 15,637 57,347 52,700
FDIC insurance assessment 27,105 27,396 79,875 79,249
Professional fees 61,000 13,488 96,170 54,663
Postage and supplies 23,589 26,021 71,132 75,323
Real estate taxes 0 0 28,914 28,546
Other 53,195 51,572 128,116 137,740
- ------------------------------------------------------------------------------------------------
Total operating expenses 535,498 469,212 1,512,157 1,444,608
- ------------------------------------------------------------------------------------------------
Income before income taxes
and minority interest 154,914 249,880 520,421 684,127
Income taxes 60,876 64,699 201,180 173,323
Minority interest 36,097 75,223 117,270 174,184
- ------------------------------------------------------------------------------------------------
Net income $ 57,941 109,958 201,971 336,620
================================================================================================
Net income per share $ 5.79 11.00 20.20 33.66
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Interest income:
Loans 2,331,667 2,488,136 2,767,202
Investment securities:
Taxable 1,062,177 1,281,475 1,168,736
Nontaxable 297,469 282,524 240,672
Interest bearing deposits with banks 71,102 75,755 153,373
Federal funds sold 30,039 59,559 145,184
- --------------------------------------------------------------------------------------
Total interest income 3,792,454 4,187,449 4,475,167
- --------------------------------------------------------------------------------------
Interest expense:
Deposits 1,280,844 1,636,143 2,263,254
Notes Payable 47,467 41,543 24,296
- --------------------------------------------------------------------------------------
Total interest expense 1,328,311 1,677,686 2,287,550
- --------------------------------------------------------------------------------------
Net interest income 2,464,143 2,509,763 2,187,617
Provision for loan losses 23,630 104,397 18,987
- --------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,440,513 2,405,366 2,168,630
- --------------------------------------------------------------------------------------
Other income:
Service charges and fees 334,938 327,358 273,423
Investment security gains (losses) 4,753 1,175 (2,550)
Other 74,287 88,349 138,649
- --------------------------------------------------------------------------------------
Total operating income 413,978 416,882 409,522
- --------------------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 1,130,915 1,109,279 1,073,293
Net occupancy expense 78,805 80,912 89,684
Depreciation 138,775 91,251 69,710
Data processing and supplies 71,859 78,550 96,631
FDIC insurance assessment 106,677 106,361 87,875
Professional fees 78,993 72,896 77,973
Postage and supplies 102,523 105,387 123,230
Real estate taxes 57,093 54,339 50,341
Other 163,599 187,033 213,142
- --------------------------------------------------------------------------------------
Total operating expenses 1,929,239 1,886,008 1,881,879
- --------------------------------------------------------------------------------------
Income before income taxes and minority interest 925,252 936,240 696,273
Income taxes 232,626 275,499 190,908
Minority interest 282,248 232,110 122,581
- --------------------------------------------------------------------------------------
Net income $ 410,378 428,631 382,784
======================================================================================
Net income per share $ 41.04 42.86 38.28
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Total
Retained stockholders'
Common stock earnings equity
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1990 (unaudited) $128,290 3,214,581 3,342,871
Dividend (unaudited) (578,425) (578,425)
Net income (unaudited) 382,784 382,784
- --------------------------------------------------------------------------------------
Balance, December 31, 1991 (unaudited) 128,290 3,018,940 3,147,230
Dividend (unaudited) (1,090,600) (1,090,600)
Net income (unaudited) 428,631 428,631
- --------------------------------------------------------------------------------------
Balance, December 31, 1992 (unaudited) 128,290 2,356,971 2,485,261
Dividend (232,000) (232,000)
Net income 410,378 410,378
- --------------------------------------------------------------------------------------
Balance, December 31, 1993 128,290 2,535,349 2,663,639
Dividend (unaudited) (155,000) (155,000)
Net income (unaudited) 201,971 201,971
- --------------------------------------------------------------------------------------
Balance, September 30, 1994 (unaudited) $128,290 2,582,320 2,710,610
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-months ended September 30
-------------------------------
1994 1993
- --------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 201,971 336,620
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 121,688 106,986
Provision for loan losses 20,329 6,661
Minority interests 117,270 174,184
(Gains) losses on sales of securities 247 (4,753)
Change in accrued interest receivable 72,665 38,723
Change in accrued interest payable (6,707) (4,736)
Change in other assets (56,821) (35,355)
Change in other liabilities 60,651 (6,833)
- --------------------------------------------------------------------------------
Total adjustments 329,322 274,877
- --------------------------------------------------------------------------------
Net cash provided by
operating activities 531,293 611,497
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold 1,410,000 580,000
Proceeds from sales of securities 1,087,051 1,610,927
Proceeds from maturities of and principal
payments received on securities 4,215,409 6,956,355
Purchases of securities (3,778,697) (8,735,910)
Loan originations, net (1,887,820) (1,157,185)
Purchase of premises and equipment, net (98,577) (98,277)
- --------------------------------------------------------------------------------
Net cash provided (used) by
investing activities 947,366 (844,090)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Change in deposits $ (847,256) (321,655)
Repayments of notes payable (22,107) (20,311)
Dividends paid (155,000) (148,000)
Dividends paid to minority shareholders
of subsidiaries (140,492) (148,785)
- --------------------------------------------------------------------------------
Net cash used by financing activities (1,164,855) (638,751)
- --------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 313,804 (871,344)
Cash and cash equivalents at beginning of period 3,254,745 4,068,222
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,568,549 3,196,878
================================================================================
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest on borrowings $ 885,038 1,020,750
Income taxes 205,279 268,123
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
1993 1992 1991
- -----------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 410,378 428,631 382,784
- -----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 138,775 91,251 69,710
Provision for loan losses 23,630 104,397 18,987
Minority interests 282,248 232,110 122,581
(Gains) losses on sales of securities (4,753) (1,175) 2,550
Change in accrued interest receivable 25,169 93,202 (103,867)
Change in accrued interest payable (6,936) (107,699) 17,192
Change in other assets (2,233) (12,936) 27,315
Change in other liabilities (63,744) 116,523 (168,303)
- -----------------------------------------------------------------------------------------------
Total adjustments 392,156 515,673 (13,835)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating
activities 802,534 944,304 368,949
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold (255,000) (1,420,000) 2,485,000
Proceeds from sales of securities 1,610,927 493,342 300,000
Proceeds from maturities of and principal
payments received on securities 9,127,414 11,273,851 3,196,917
Purchases of securities (11,367,471) (10,989,211) (12,207,996)
Loan (originations) repayments, net (496,984) 354,835 (217,661)
Purchase of premises and equipment, net (99,748) (362,508) (54,623)
- -----------------------------------------------------------------------------------------------
Net cash used by
investing activities (1,480,862) (649,691) (6,498,363)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in deposits $ 275,321 916,116 6,197,055
Repayments of notes payable (27,374) (25,153) (23,108)
Dividends paid (232,000) (1,090,600) (578,425)
Dividends paid to minority shareholders
of subsidiaries (151,096) (121,982) (87,266)
Proceeds from sale of subsidiary stock 0 815,600 278,425
- -----------------------------------------------------------------------------------------------
Net cash provided (used) by
financing activities (135,149) 493,981 5,786,681
- -----------------------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (813,477) 788,594 (342,733)
Cash and cash equivalents at beginning
of period 4,068,222 3,279,628 3,622,361
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,254,745 4,068,222 3,279,628
===============================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowing $ 1,332,778 1,785,385 2,265,017
Income taxes 310,175 156,699 259,908
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Babbscha Company (the Company) is a one-bank holding company organized in
1962. The Company owns 55.46% and 52.65% of the common stock of the Fridley
State Bank (the Bank) and Banrein, Inc. (Banrein), respectively, which are
consolidated in the accompanying financial statements. The Bank provides
traditional community banking services and Banrein owns the Bank's premises,
which are leased to the Bank.
The consolidated statements of financial condition as of September 30, 1994
and December 31, 1992 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the three- and nine-month
periods ended September 30, 1994 and 1993 and the years ended December 31, 1992
and 1991 are unaudited. However, in the opinion of management, these financial
statements include all adjustments, which consist only of normal recurring
adjustments, necessary for fair presentation of the Company's financial
position. The results of operations for the unaudited three- and nine-month
periods ended September 30, 1994 are not necessarily indicative of the results
which may be expected for the entire fiscal year 1994.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated in consolidation.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates. Significant estimates that are particularly susceptible to change in
the near-term relate to the determination of the allowance for loan losses.
INVESTMENT SECURITIES
Investment securities are recorded at amortized cost because the Bank has
the ability and intent to hold these securities to maturity. These securities
are stated at cost, adjusted for amortization of premium and accretion of
discount, computed by the interest method.
(Continued)
F-10
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowances
for loan losses. Such agencies may require additions to the allowance based on
their judgment about information available to them at the time of their
examination. Loans deemed uncollectible are charged to the allowance. Provisions
for loan losses and recoveries on loans previously charged off are added to the
allowance. Management believes the allowance for loan losses is adequate.
INTEREST INCOME ON LOANS
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when a loan
has been past due for 90 days. Upon such discontinuance, all unpaid accrued
interest is reversed. Interest is subsequently recognized as income to the
extent cash is received when, in management's judgment, principal is
collectible.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), on a
prospective basis. The change resulted in no impact on the financial
statements.
The primary provision of SFAS 109 is the change from the deferred method of
accounting for income taxes to the asset and liability method. Under the asset
and liability method, 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 SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized as income in the period that includes the enactment date.
NET INCOME PER SHARE
Net income per share is calculated as net income divided by average shares
of common stock outstanding.
(Continued)
F-11
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended
September 30, 1994 and 1993 and as of and for the years ended
December 31, 1992 and 1991 is unaudited)
(2) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statements of cash flows, cash and cash
equivalents include cash on hand, cash clearings, and demand deposits with
banks.
The Bank is required by the Federal Reserve Bank to maintain reserve balances.
The reserve required at September 30, 1994 and December 31, 1993 and 1992 was
approximately $314,000, $281,000, and $276,000, respectively.
(3) INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities
are as follows:
<TABLE>
<CAPTION>
September 30, 1994
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
----------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,101,899 26,956 92,651 5,036,204
U.S. government agency
securities 8,253,739 7,129 317,075 7,943,793
Collateralized mortgage
obligations 496,089 0 33,340 462,749
Corporate debt securities 1,547,703 4,008 21,937 1,529,774
Obligations of state and
political subdivisions 5,792,214 116,392 29,964 5,878,642
Other 21,200 0 0 21,200
----------------------------------------------
$ 21,212,844 154,485 494,967 20,872,362
==============================================
December 31, 1993
----------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
----------------------------------------------
U.S. Treasury securities $ 4,199,989 73,228 1,468 4,271,749
U.S. government agency
securities 9,425,543 90,723 23,403 9,492,863
Collateralized mortgage
obligations 653,173 187 6,390 646,970
Corporate debt securities 1,678,047 27,654 1,724 1,703,977
Obligations of state and
political subdivisions 6,758,902 259,443 1,715 7,016,630
Other 21,200 0 0 21,200
----------------------------------------------
$ 22,736,854 451,235 34,700 23,153,389
==============================================
</TABLE>
(Continued)
F-12
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended
September 30, 1994 and 1993 and as of and for the years ended
December 31, 1992 and 1991 is unaudited)
<TABLE>
<CAPTION>
December 31, 1992
------------------------------------------------
Gross Gross
Amortized unrealized unrealized market
cost gains losses value
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,190,196 158,129 3,168 6,345,157
U.S. government agency
securities 7,895,883 119,678 3,986 8,011,575
Collateralized mortgage
obligations 47,624 0 7 47,617
Corporate debt securities 1,155,013 16,186 350 1,170,849
Obligations of state and
political subdivisions 6,793,055 190,798 6,172 6,977,681
Other 21,200 0 0 21,200
------------------------------------------------
$22,102,971 484,791 13,683 22,574,079
================================================
</TABLE>
Proceeds from sales and gross gains and losses realized from sales of
investment securities were as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
-------------------------------------------------------------------------------
1994 1993 1994 1993 1993 1992 1991
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds from sales 0 0 1,087,051 1,610,927 1,610,927 493,342 300,000
Gross realized gains 0 0 0 4,753 4,753 1,175 0
Gross realized losses 0 0 247 0 0 0 2,550
</TABLE>
Investment securities sold during the nine-month period ended September 30,
1994 were debt securities, sold within three months of their maturity date.
Investment securities with a carrying amount of $2,605,603, $2,397,569 and
$3,398,598 at September 30, 1994 and December 31, 1993 and 1992, respectively,
were pledged to secure public deposits or for other purposes required or
permitted by law.
(Continued)
F-13
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992
and 1991 is unaudited)
The amortized cost and estimated market value of investment securities 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>
September 30, 1994 December 31, 1993
----------------------- ---------------------
Amortized Market Amortized Market
cost value cost value
----------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,015,248 2,011,263 3,681,001 3,707,864
Due after one year
through five years 14,839,705 14,658,984 13,208,646 13,472,829
Due after five years
through ten years 2,818,955 2,774,571 4,147,229 4,286,919
Due after ten years 1,538,936 1,427,544 1,699,978 1,685,777
-----------------------------------------------
$21,212,844 20,872,362 22,736,854 23,153,389
===============================================
</TABLE>
Accrued interest receivable on securities aggregated $263,288, $328,667 and
$346,295 at September 30, 1994 and December 31, 1993 and 1992, respectively.
(4) LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------------------
1994 1993 1992
----------------------------------------
<S> <C> <C> <C>
Commercial business $ 2,831,007 2,751,693 3,430,673
Real estate
Commercial 5,727,289 5,606,140 5,173,600
Residential 10,629,741 9,872,914 9,268,154
Consumer 7,769,526 6,859,074 6,731,883
----------------------------------------
$26,957,563 25,089,821 24,604,310
========================================
</TABLE>
(Continued)
F-14
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991
is unaudited)
Included in loans are loans on nonaccrual status of $58,293, $49,504 and
$18,442 at September 30, 1994 and December 31, 1993 and 1992, respectively.
There was no troubled debt restructuring at September 30, 1994 and December 31,
1993. The impact on interest income of nonaccrual loans was not material. There
are no material commitments to lend additional funds to customers whose loans
are classified as nonaccrual or restructured at September 30, 1994 or
December 31, 1993.
Accrued interest receivable on loans aggregated $124,824 $130,999 and $139,194
at September 30, 1994 and December 31, 1993 and 1992, respectively.
The Bank generally grants commercial business loans, residential and
commercial real estate loans and consumer loans to customers in the Minneapolis
suburb of Fridley, Minnesota and the immediate surrounding areas. A substantial
proportion of the Bank's debtors' ability to honor their contracts is dependent
upon the general economic conditions in Minnesota.
(5) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
------------------------------------------------------------------------
1994 1993 1994 1993 1993 1992 1991
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning
of period $157,791 143,967 158,701 149,815 149,815 137,946 137,946
Provision for
losses 910 0 20,329 6,661 23,630 104,397 18,987
Net (charge-offs) recoveries:
Loans charged-off 0 (219) (25,168) (13,674) (30,716) (108,811) (35,689)
Less recoveries 251 14,953 5,090 15,899 15,972 16,283 16,702
------------------------------------------------------------------------
251 14,734 (20,078) 2,225 (14,744) (92,528) (18,987)
------------------------------------------------------------------------
Balance at end
of period $158,952 158,701 158,952 158,701 158,701 149,815 137,946
========================================================================
</TABLE>
(Continued)
F-15
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
(6) PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Premises and equipment are summarized as follows:
September 30, December 31,
------------
1994 1993 1992
--------------------------------------
<S> <C> <C> <C>
Land and improvements $ 473,139 473,139 458,132
Buildings 481,504 481,504 481,504
Furniture, fixtures and equipment 1,356,944 1,258,636 1,169,036
--------------------------------------
2,311,587 2,213,279 2,108,672
Less accumulated depreciation 1,618,015 1,496,596 1,352,961
--------------------------------------
Premises and equipment, net $ 693,572 716,683 755,711
======================================
</TABLE>
(7) DEPOSITS
The Company had certificates of deposit over $100,000 of approximately
$636,979, $620,619 and $603,646 at September 30, 1994 and December 31, 1993 and
1992, respectively. Interest expense on certificates of deposit over $100,000
was $8,175 and $8,676 for the three-month periods ended September 30, 1994 and
1993, respectively, $20,979 and $25,203 for the nine-month periods ended
September 30, 1994 and 1993, respectively, and $33,857, $58,531, and $89,986 for
the years ended December 31, 1993, 1992 and 1991, respectively.
Accrued interest payable on deposits aggregated $107,153, $115,797 and
$122,540 at September 30, 1994 and December 31, 1993 and 1992, respectively.
(Continued)
F-16
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
(8) NOTES PAYABLE:
<TABLE>
<CAPTION>
Notes payable consisted of the following:
September 30, December 31,
------------
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Debt related to ESOP, due October 31, 1996 $283,633 430,327 630,989
Mortgage note, due July 1, 1998 137,618 159,725 187,100
-------------------------------------
$421,251 590,052 818,089
=====================================
</TABLE>
The Company's financial statements include the debt of the Bank's Employee
Stock Ownership Plan (ESOP) as the Company is the ultimate source of funds to
repay the debt. This debt is secured by shares of Bank and Banrein stock owned
by the ESOP. The interest on the debt related to the ESOP is payable to an
unrelated bank semi-annually at 7 3/4% as of September 30, 1994 and 6% for the
years ended December 31, 1993 and 1992.
The mortgage note is due to First Bank, Minneapolis, Minnesota. Interest is
payable monthly at a fixed rate of 8.5%. The mortgage note is secured by the
land and bank building owned by Banrein.
Accrued interest payable on the notes payable aggregated $6,513, $1,132
and $1,325 at September 30, 1994 and December 31, 1993 and 1992, respectively.
(9) INCOME TAXES
As discussed in note 1 the Company adopted SFAS 109 as of January 1, 1993,
this change in accounting method had no impact on the consolidated financial
statements for the year ended December 31, 1993.
Babbscha Company is a Chapter S Corporation for income tax purposes and
passes all of its taxable income on directly to its shareholders. Therefore,
income tax expense is not provided on the parent company's separate net income
in the accompanying consolidated financial statements.
(Continued)
F-17
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991
is unaudited)
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
<S> <C> <C> <C>
Three-months ended September 30, 1994:
Federal $ 40,210 0 40,210
State 20,666 0 20,666
---------------------------
$ 60,876 0 60,876
===========================
Three-months ended September 30, 1993:
Federal $ 42,735 0 42,735
State 21,964 0 21,964
---------------------------
$ 64,699 0 64,699
===========================
Nine-months ended September 30, 1994:
Federal $124,840 8,043 132,883
State 64,163 4,134 68,297
---------------------------
$189,003 12,177 201,180
===========================
Nine-months ended September 30, 1993:
Federal $114,483 0 114,483
State 58,840 0 58,840
---------------------------
$173,323 0 173,323
===========================
Year ended December 31, 1993:
Federal $145,611 8,043 153,654
State 74,838 4,134 78,972
---------------------------
$220,449 12,177 232,626
===========================
Year ended December 31, 1992:
Federal $181,972 0 181,972
State 93,527 0 93,527
---------------------------
$275,499 0 275,499
===========================
Year ended December 31, 1991:
Federal $126,098 0 126,098
State 64,810 0 64,810
---------------------------
$190,908 0 190,908
===========================
</TABLE>
(Continued)
F-18
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended
September 30, 1994 and 1993 and as of and for the years ended
December 31, 1992 and 1991 is unaudited)
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 34% to income before income taxes and minority interest as a
result of the following:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
--------------------------------------------------------------------------------------------
1994 1993 1994 1993 1993 1992 1991
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Computed
"expected"
tax expense $ 52,325 85,285 176,943 232,603 314,586 318,322 236,733
Increase
(reduction)
in income
tax expense
resulting from:
Tax-exempt
income (22,109) (24,211) (70,916) (78,520) (103,801) (99,723) (81,828)
Dividend
applied to
ESOP loan (7,980) (1,887) (8,260) (7,973) (12,737) (8,430) (1,122)
State income
tax net of
federal in-
come tax
benefit 13,640 14,496 45,076 38,834 52,122 61,728 42,775
Other, net 25,000 (8,984) 58,337 (11,621) (17,544) 3,602 (5,650)
--------------------------------------------------------------------------------------------
$ 60,876 64,699 201,180 173,323 232,626 275,499 190,908
============================================================================================
(Continued)
</TABLE>
F-19
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
September 30, December 31
1994 1993
-----------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 8,399 8,399
-----------------------------
Deferred tax assets 8,399 8,399
Valuation allowance 0 0
-----------------------------
Deferred tax assets, net 8,399 8,399
=============================
Deferred tax liabilities:
Depreciation 20,576 20,576
-----------------------------
Deferred tax liabilities 20,576 20,576
-----------------------------
Net deferred tax assets (liabilities) $(12,177) (12,177)
=============================
</TABLE>
There was no valuation allowance required for deferred tax assets as of
January 1, 1993.
(10) EMPLOYEE BENEFITS
The Bank has a profit sharing plan that covers all employees who have
reached the age of 20 1/2 years and worked at least 1,000 hours annually for the
Bank. The plan provides for the Bank to make annual contributions, which are
allocated to each participant based on their compensation. Participants become
100% vested after 5 years of service. The Bank has not contributed to the profit
sharing plan since 1987 when an ESOP was established by the Bank. Since 1987 all
contributions have been made to the ESOP.
The Bank has an ESOP in which all employees who have reached the age of 20
1/2 years and worked at least 1,000 hours annually for the Bank are eligible to
participate. The Bank has committed to make annual contributions to the ESOP
necessary to fund the ESOP and any outstanding debt including interest. In 1992,
the ESOP borrowed $736,136 from an unrelated bank for the purchase of Bank and
Banrein stock from the Company. This debt is included in notes payable with a
corresponding amount shown as a reduction of minority interest. The debt balance
is reduced and minority interest increased by the amount of any principal
reduction of the debt by the ESOP.
All shares of the Bank and Banrein owned by the ESOP were purchased at their
respective book value per share. Shares that secure the ESOP debt are allocated
to participants as the debt principal is reduced. The shares of common stock of
the Bank and Banrein owned by the ESOP are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Bank:
Allocated to participants 883 883 660
Unallocated 366 366 555
----------------------------
1,249 1,249 1,215
============================
Banrein:
Allocated to participants 733 733 544
Unallocated 366 366 555
----------------------------
1,099 1,099 1,099
============================
(Continued)
</TABLE>
F-20
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
Dividends paid by the Bank and Banrein to the ESOP were as follows and the Bank
paid the following in contributions to the ESOP and interest on the ESOP debt:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
------------------- ------------------- ---------------------------
1994 1993 1994 1993 1993 1992 1991
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends $24,980 24,980 52,433 52,433 82,503 57,000 22,802
Contributions 38,400 43,200 108,400 129,600 162,636 167,737 163,932
Interest 6,707 7,500 18,527 25,009 32,807 24,645 5,341
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit, interest rate, and liquidity risk in excess of the amount recognized in
the accompanying statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since certain of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank had outstanding commitments to
extend credit of approximately $2,239,325, $2,072,938 and $2,354,217, at
September 30, 1994 and December 31, 1993 and 1992, respectively.
Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. The standby letters
of credit are primarily issued to support private borrowing arrangements, and
expire during 1994. The credit risk involved in issuing standby letters of
credit is essentially the same as that involved in making loans to customers.
The amount of collateral the Bank obtains to support standby letters of credit
is based on management's credit evaluation of the borrower. Since the conditions
under which the Bank is required to fund standby letters of credit may not
materialize, the cash requirements are expected to be less than the total
outstanding commitments. The Bank had outstanding standby letters of credit of
approximately $87,100, $69,000 and $97,117, at September 30, 1994 and December
31, 1993 and 1992, respectively.
(Continued)
F-21
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
(12) RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, officers,
significant stockholders and their affiliates. Such transactions were made in
the ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not, in the opinion of
management, involve more than normal credit risk or present other favorable or
unfavorable features.
Activity with respect to loans to directors, officers and significant
stockholders is summarized as follows:
<TABLE>
<CAPTION>
Nine-months
ended Year ended December 31,
September 30, ---------------------------------
1994 1993 1992 1991
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $532,198 466,052 496,628 387,312
New loans 64,420 140,037 62,230 140,500
Repayments 89,290 73,891 92,806 31,184
----------------------------------------------------
Balance at end of period $507,328 532,198 466,052 496,628
====================================================
</TABLE>
(13) SUBSEQUENT EVENT
On September 9, 1994 the Company and Norwest Corporation (Norwest) entered
into an Agreement and Plan of Reorganization (the Agreement) whereby the Company
would be merged into Norwest. All of the Company's outstanding common stock will
be exchanged for Norwest common stock. The number of shares of Norwest common
stock received in the exchange for the Company's common stock will be equal to
152,140 shares. The outstanding common stock of the Bank and Banrein that is not
owned by the Company will be exchanged for Norwest common stock equal to 108,207
and 15,653 shares respectively.
The Agreement requires that, prior to the effective date of the merger, the
Company shall establish additional accruals and loan loss reserves as may be
necessary to conform to the accounting and loan loss reserve practices of
Norwest and provide for costs and expenses anticipated in the consummation of
the merger. The Company has estimated, but not accrued, $531,000 and $1,246,000
for additional loan loss reserves and anticipated merger expenses, respectively.
Also, the current ESOP loan outstanding is to be paid subsequent to the closing
date of the merger at which time all unallocated shares will be allocated to
ESOP participants.
(Continued)
F-22
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
(14) CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, Year ended December 31,
-----------------------
Assets 1994 1993 1992
---------------------------------------
<S> <C> <C> <C>
Cash on deposit with the Bank $ 11,617 8,365 5,395
Investment in Subsidiaries 2,643,533 2,655,274 2,479,866
Dividend receivable 55,460 0 0
-------------------------------------
$2,710,610 2,663,639 2,485,261
=====================================
Stockholders, Equity
Common stock 128,290 128,290 128,290
Retained earnings 2,582,320 2,535,349 2,356,971
-------------------------------------
$2,710,610 2,663,639 2,485,261
=====================================
</TABLE>
(Continued)
F-23
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended
September 30, 1994 and 1993 and as of and for the years ended
December 31, 1992 and 1991 is unaudited)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30,
------------------- -------------------
1994 1993 1994 1993
---------------------------------------------
<S> <C> <C> <C> <C>
Income:
Dividends from subsidiaries $ 0 0 171,119 171,119
Service charges and fees 15,366 13,308 43,279 39,923
Other income 0 5,749 3,629 10,488
----------------------------------------------
15,366 19,057 218,027 221,530
Other expense 575 1,325 2,865 2,865
-----------------------------------------------
Earnings before equity in undis-
tributed earnings of subsidiaries 14,791 17,732 215,162 218,665
Equity in undistributed earnings
of subsidiaries 43,150 92,226 (13,191) 117,955
----------------------------------------------
Net income $57,941 109,958 201,971 336,620
==============================================
(Continued)
</TABLE>
F-24
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1993 1992 1991
--------------------------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $182,175 208,019 241,735
Service charges and fees 53,429 51,430 49,901
Other income 9,532 23,506 30,998
--------------------------
245,136 282,955 322,634
Other expense 10,166 11,675 20,261
--------------------------
Earnings before equity in undistributed
earnings of subsidiaries 234,970 271,280 302,373
Equity in undistributed earnings
of subsidiaries 175,408 157,351 80,411
--------------------------
Net income 410,378 428,631 382,784
==========================
</TABLE>
(Continued)
F-25
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended
September 30, 1994 and 1993 and as of and for the years ended
December 31, 1992 and 1991 is unaudited)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine-months
ended September 30,
---------------------
1994 1993
----------------------
<S> <C> <C>
Net income $ 201,971 336,620
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Equity in undistributed earnings of
subsidiaries 13,191 (117,955)
Change in other assets (55,460) (55,460)
Other, net (1,450) (6,473)
--------------------
Net cash provided by operating
activities 158,252 156,732
Cash flows used in financing activities:
Dividends paid (155,000) (148,000)
--------------------
Net increase in cash 3,252 8,732
Cash at beginning of period 8,365 5,395
--------------------
Cash at end of period $ 11,617 14,127
====================
</TABLE>
(Continued)
F-26
<PAGE>
BABBSCHA COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1994
and 1993 and as of and for the years ended December 31, 1992 and 1991 is
unaudited)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1993 1992 1991
---------------------------------
<S> <C> <C> <C>
Net income $ 410,378 428,631 382,784
Adjustments to reconcile net income
to net cash provided
by operating activities:
Equity in undistributed earnings of
subsidiaries (175,408) (157,351) (80,411)
---------------------------------
Net cash provided by operating
activities 234,970 271,280 302,373
Cash flows from investing activities:
Proceeds from sale of subsidiary stock 0 815,599 278,425
Cash flows used in financing activities:
Dividends paid (232,000) (1,090,600) (578,425)
---------------------------------
Net increase (decrease) in cash 2,970 (3,721) 2,373
Cash at beginning of period 5,395 9,116 6,743
---------------------------------
Cash at end of period $ 8,365 5,395 9,116
=================================
</TABLE>
The payment of dividends to the Company by the Bank is subject to various
federal and state regulatory limitations. The Bank must obtain the approval of
bank regulatory agencies if the dividends declared in any year exceed these
limitations.
F-27
<PAGE>
September 30, 1994
VERIFICATION
------------
The statement of financial condition of Fridley State Bank, a 55.46% owned
subsidiary of Babbscha Company, as of September 30, 1994 and December 31, 1993
and 1992, and the related statements of operations, changes in stockholders,
equity, and cash flows for each of the three- and nine-month periods ended
September 30, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1993, have been prepared under our control.
In our opinion, the aforementioned financial statements present fairly the
financial position of Fridley State Bank at September 30, 1994 and at December
31, 1993 and 1992, and the results of operations, changes in stockholders,
equity, and cash flows for each of the three- and nine-month periods ended
September 30, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1993, in conformity with generally accepted accounting
principles applied on a consistent basis.
/s/ William H. Beery
- ---------------------------------------------------
WILLIAM H. BEERY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ Marcia J. Etlicher
- ---------------------------------------------------
MARCIA J. ETLICHER
VICE PRESIDENT - CASHIER
F-28
<PAGE>
FRIDLEY STATE BANK
Statements of Financial Condition
(unaudited)
<TABLE>
<CAPTION> December 31
September 30 ------------------------------
ASSETS 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 2,681,849 1,975,253 2,537,964
Interest bearing deposits with banks 886,700 1,279,492 1,530,258
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 3,568,549 3,254,745 4,068,222
Federal funds sold 265,000 1,675,000 1,420,000
Investment securities, market value of $20,872,362 (unaudited),
$23,153,389 and $22,574,079 (unaudited) 21,212,844 22,736,854 22,102,971
Loans 26,957,563 25,089,821 24,604,310
Less allowance for loan losses (158,952) (158,701) (149,815)
- -----------------------------------------------------------------------------------------------------------------------
Loans, net 26,798,611 24,931,120 24,454,495
Premises and equipment, net 464,097 475,171 498,149
Accrued interest receivable 392,583 465,248 490,417
Other assets 115,414 78,350 71,632
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $52,817,098 53,616,488 53,105,886
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing 9,748,542 8,831,944 9,062,454
Interest-bearing 37,796,439 39,544,956 39,035,598
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 47,544,981 48,376,900 48,098,052
- -----------------------------------------------------------------------------------------------------------------------
Notes payable 283,633 430,327 630,989
Accrued interest payable 112,691 118,266 122,540
Other liabilities 212,955 110,583 177,370
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 48,154,260 49,036,076 49,028,951
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $37.50; 5,000 shares authorized;
5,000 issued and outstanding 187,500 187,500 187,500
Paid in capital 1,812,500 1,812,500 1,812,500
Debt related to ESOP (283,633) (430,327) (630,989)
Retained earnings 2,946,471 3,010,739 2,707,924
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,662,838 4,580,412 4,076,935
Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $52,817,098 53,616,488 53,105,886
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
FRIDLEY STATE BANK
Statements of Operations
(unaudited)
Three-months Nine-months
ended September 30 ended September 30
--------------------- ----------------------
1994 1993 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $589,456 596,820 1,694,780 1,756,306
Investment securities:
Taxable 227,123 262,755 704,373 802,212
Nontaxable 65,025 71,209 208,576 224,938
Interest bearing deposits with banks 11,891 16,172 40,022 57,931
Federal funds sold 2,754 7,078 13,581 21,974
- -------------------------------------------------------------------------------------
Total interest income 896,249 954,034 2,661,332 2,863,361
- -------------------------------------------------------------------------------------
Interest expense:
Deposits 285,668 319,502 850,397 978,465
Notes payable 6,707 7,500 18,527 25,009
- -------------------------------------------------------------------------------------
Total interest expense 292,375 327,002 868,924 1,003,474
- -------------------------------------------------------------------------------------
Net interest income 603,874 627,032 1,792,408 1,859,887
Provision for loan losses 910 0 20,329 6,661
- -------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 602,964 627,032 1,772,079 1,853,226
- -------------------------------------------------------------------------------------
Other income:
Service charges and fees 66,824 75,265 217,414 224,366
Investment security gains (losses) 0 0 (247) 4,753
Other 19,083 14,039 46,870 46,192
- -------------------------------------------------------------------------------------
Total other income 85,907 89,304 264,037 275,311
- -------------------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 280,683 278,867 857,914 847,907
Net occupancy expense 48,261 42,051 136,341 126,834
Depreciation 32,628 29,457 109,651 93,208
Data processing and supplies 21,265 15,637 57,347 52,700
FDIC insurance assessment 27,105 27,396 79,875 79,249
Professional fees 60,800 14,968 94,050 54,223
Postage and supplies 23,589 26,021 71,132 75,323
Real estate taxes 16,223 12,246 48,670 36,738
Other 68,995 63,033 165,026 171,821
- -------------------------------------------------------------------------------------
Total operating expenses 579,549 509,676 1,620,006 1,538,003
- -------------------------------------------------------------------------------------
Income before income taxes 109,322 206,660 416,110 590,534
Income taxes 58,575 61,999 180,378 165,577
- -------------------------------------------------------------------------------------
Net income $ 50,747 144,661 235,732 424,957
=====================================================================================
Net income per share $ 10.15 28.93 47.15 84.99
=====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
FRIDLEY STATE BANK
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------
1993 1992 1991
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans 2,331,667 2,488,136 2,767,202
Investment securities:
Taxable 1,062,177 1,281,475 1,168,736
Nontaxable 297,469 282,524 240,672
Interest bearing deposits with banks 71,102 75,755 153,373
Federal funds sold 30,039 59,559 145,184
- ------------------------------------------------------------------------
Total interest income 3,792,454 4,187,449 4,475,167
- ------------------------------------------------------------------------
Interest expense:
Deposits 1,280,844 1,636,143 2,263,254
Notes Payable 32,807 24,645 5,341
- ------------------------------------------------------------------------
Total interest expense 1,313,651 1,660,788 2,268,595
- ------------------------------------------------------------------------
Net interest income 2,478,803 2,526,661 2,206,572
Provision for loan losses 23,630 104,397 18,987
- ------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,455,173 2,422,264 2,187,585
- ------------------------------------------------------------------------
Other income:
Service charges and fees 334,938 327,358 273,423
Investment security gains (losses) 4,753 1,175 (2,550)
Other 61,755 61,843 104,651
- ------------------------------------------------------------------------
Total operating income 401,446 390,376 375,524
- ------------------------------------------------------------------------
Other expenses:
Salaries and employee benefits 1,124,390 1,100,279 1,073,293
Net occupancy expense 167,425 169,532 178,304
Depreciation 122,665 75,201 53,660
Data processing and supplies 71,859 78,550 96,631
FDIC insurance assessment 106,677 106,361 87,875
Professional fees 75,373 70,201 75,913
Postage and supplies 102,523 105,387 123,230
Real estate taxes 52,962 48,984 48,405
Other 208,678 230,313 236,244
- ------------------------------------------------------------------------
Total operating expenses 2,032,552 1,984,808 1,973,555
- ------------------------------------------------------------------------
Income before income taxes 824,067 827,832 589,554
Income taxes 221,252 264,853 180,072
- ------------------------------------------------------------------------
Net income $ 602,815 562,979 409,482
========================================================================
Net income per share $ 120.56 112.60 81.90
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
FRIDLEY STATE BANK
Statements of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Total
Paid in Debt related Retained stockholders'
Common stock capital to ESOP earnings equity
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $187,500 1,512,500 0 2,635,463 4,335,463
Dividend (300,000) (300,000)
Net income 409,482 409,482
Increase of ESOP debt (60,143) (60,143)
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1991 187,500 1,512,500 (60,143) 2,744,945 4,384,802
Dividend (300,000) (300,000)
Capital transfer 300,000 (300,000) 0
Net income 562,979 562,979
Increase of ESOP debt (570,846) (570,846)
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1992 187,500 1,812,500 (630,989) 2,707,924 4,076,935
Dividend (300,000) (300,000)
Net income 602,815 602,815
Repayment of ESOP debt 200,662 200,662
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1993 187,500 1,812,500 (430,327) 3,010,739 4,580,412
Dividend (300,000) (300,000)
Net income 235,732 235,732
Repayment of ESOP debt 146,694 146,694
- ------------------------------------------------------------------------------------------------
Balance, September 30, 1994 187,500 1,812,500 (283,633) 2,946,471 4,662,838
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
FRIDLEY STATE BANK
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine-months ended September 30
------------------------------
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 235,732 424,957
- ---------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 109,651 93,208
Provision for loan losses 20,329 6,661
(Gains) losses on sales of securities 247 (4,753)
Change in accrued interest receivable 72,665 38,723
Change in accrued interest payable (5,575) (4,592)
Change in other assets (37,064) (28,488)
Change in other liabilities 114,409 57,975
- ---------------------------------------------------------------------------
Total adjustments 274,662 158,734
- ---------------------------------------------------------------------------
Net cash provided by operating activities 510,394 583,691
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold 1,410,000 580,000
Proceeds from sales of securities 1,087,051 1,610,927
Proceeds from maturities of and principal
payments received on securities 4,215,409 6,956,355
Purchases of securities (3,778,697) (8,735,910)
Loan originations, net (1,887,820) (1,157,185)
Purchase of premises and equipment, net (110,614) (110,314)
- ---------------------------------------------------------------------------
Net cash provided (used) by
investing activities 935,329 (856,127)
- ---------------------------------------------------------------------------
Cash flows from financing activities:
Change in deposits $ (831,919) (298,908)
Dividends paid (300,000) (300,000)
- ---------------------------------------------------------------------------
Net cash used by
financing activities (1,131,919) (598,908)
- ---------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 313,804 (871,344)
Cash and cash equivalents at beginning of period 3,254,745 4,068,222
- ---------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,568,549 3,196,878
===========================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 885,038 1,020,750
Income taxes 205,279 268,123
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
FRIDLEY STATE BANK
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 602,815 562,979 409,482
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 122,665 75,201 53,660
Provision for loan losses 23,630 104,397 18,987
(Gains) losses on sales of securities (4,753) (1,175) 2,550
Change in accrued interest receivable 25,169 93,202 (103,867)
Change in accrued interest payable (4,274) (106,856) 16,691
Change in other assets (6,718) (18,701) 26,143
Change in other liabilities (70,058) 115,738 (167,024)
- --------------------------------------------------------------------------------------------
Total adjustments 85,661 261,806 (152,860)
- --------------------------------------------------------------------------------------------
Net cash provided by operating
activities 688,476 824,785 256,622
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold (255,000) (1,420,000) 2,485,000
Proceeds from sales of securities 1,610,927 493,342 300,000
Proceeds from maturities of and principal
payments received on securities 9,127,414 11,273,851 3,196,917
Purchases of securities (11,367,471) (10,989,211) (12,207,996)
Loan (originations) repayments, net (496,984) 354,835 (217,661)
Purchase of premises and equipment, net (99,687) (362,508) (54,623)
- --------------------------------------------------------------------------------------------
Net cash used by
investing activities (1,480,801) (649,691) (6,498,363)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Change in deposits $ 278,848 913,500 6,199,008
Dividends paid (300,000) (300,000) (300,000)
- --------------------------------------------------------------------------------------------
Net cash provided (used) by
financing activities (21,152) 613,500 5,899,008
- --------------------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (813,477) 788,594 (342,733)
Cash and cash equivalents at beginning of period 4,068,222 3,279,628 3,622,361
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,254,745 4,068,222 3,279,628
============================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 1,332,778 1,785,385 2,265,017
Income taxes 310,175 156,699 259,908
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fridley State Bank (the Company) is 55.46% owned by Babbscha Company
(Babbscha), a one-bank holding company. The Bank provides traditional community
banking services.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ from those
estimates. Significant estimates that are particularly susceptible to change in
the near-term relate to the determination of the allowance for loan losses.
INVESTMENT SECURITIES
Investment securities are recorded at amortized cost because the Company has
the ability and intent to hold these securities to maturity. These securities
are stated at cost adjusted for amortization of premium and accretion of
discount, computed by the interest method.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowances
for loan losses. Such agencies may require additions to the allowance based on
their judgment about information available to them at the time of their
examination. Loans deemed uncollectible are charged to the allowance. Provisions
for loan losses and recoveries on loans previously charged off are added to the
allowance. Management believes the allowance for loan losses is adequate.
INTEREST INCOME ON LOANS
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when a loan
has been past due for 90 days. Upon such discontinuance, all unpaid accrued
interest is reversed. Interest is subsequently recognized as income to the
extent cash is received when, in management's judgment, principal is
collectible.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method.
(Continued)
F-35
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109), on a
prospective basis. The change resulted in no impact on the financial
statements.
The primary provision of SFAS 109 is the change from the deferred method of
accounting for income taxes to the asset and liability method. Under the asset
and liability method, 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 SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized as income in the period that includes the enactment date.
NET INCOME PER SHARE
Net income per share is calculated as net income divided by average shares
of common stock outstanding.
(2) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents include cash on hand, cash clearings, and demand deposits with
banks.
The Company is required by the Federal Reserve Bank to maintain reserve
balances. The reserve required at September 30, 1994 and December 31, 1993 and
1992 was approximately $314,000, $281,000, and $276,000, respectively.
(Continued)
F-36
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
(3) INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
as follows:
<TABLE>
<CAPTION>
September 30, 1994
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
--------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,101,899 26,956 92,651 5,036,204
U.S. government agency
securities 8,253,739 7,129 317,075 7,943,793
Collateralized mortgage
obligations 496,089 0 33,340 462,749
Corporate debt securities 1,547,703 4,008 21,937 1,529,774
Obligations of state and
political subdivisions 5,792,214 116,392 29,964 5,878,642
Other 21,200 0 0 21,200
--------------------------------------------
$ 21,212,844 154,485 494,967 20,872,362
============================================
</TABLE>
(Continued)
F-37
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
December 31, 1993
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses Value
----------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 4,199,989 73,228 1,468 4,271,749
U.S. government agency
securities 9,425,543 90,723 23,403 9,492,863
Collateralized mortgage
obligations 653,173 187 6,390 646,970
Corporate debt securities 1,678,047 27,654 1,724 1,703,977
Obligations of state and
political subdivisions 6,758,902 259,443 1,715 7,016,630
Other 21,200 0 0 21,200
----------------------------------------------
$22,736,854 451,235 34,700 23,153,389
==============================================
</TABLE>
(Continued)
F-38
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
December 31, 1992
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Market
cost gains losses Value
----------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,190,196 158,129 3,168 6,345,157
U.S. government agency
securities 7,895,883 119,678 3,986 8,011,575
Collateralized mortgage
obligations 47,624 0 7 47,617
Corporate debt securities 1,155,013 16,186 350 1,170,849
Obligations of state and
political subdivisions 6,793,055 190,798 6,172 6,977,681
Other 21,200 0 0 21,200
----------------------------------------------
$22,102,971 484,791 13,683 22,574,079
==============================================
</TABLE>
(Continued)
F-39
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
Proceeds from sales and gross gains and losses realized from sales of
investment securities were as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
-------------------------------------------------------------------------------
1994 1993 1994 1993 1993 1992 1991
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds from sales $ 0 0 1,087,05 1,610,927 1,610,927 493,342 300,000
Gross realized gains 0 0 0 4,753 4,753 1,175 0
Gross realized losses 0 0 247 0 0 0 2,550
</TABLE>
Investment securities with a carrying amount of $2,605,603, $2,397,569 and
$3,398,598 at September 30, 1994 and December 31, 1993 and 1992, respectively,
were pledged to secure public deposits or for other purposes required or
permitted by law.
The amortized cost and estimated market value of investment securities 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>
September 30, 1994 December 31, 1993
---------------------- -----------------
Amortized Market Amortized Market
cost value cost value
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Due in one year or less $ 2,015,248 2,011,263 3,681,001 3,707,864
Due after one year
through five years 14,839,705 14,658,984 13,208,646 13,472,829
Due after five years
through ten years 2,818,955 2,774,571 4,147,229 4,286,919
Due after ten years 1,538,936 1,427,544 1,699,978 1,685,777
-----------------------------------------------------
$ 21,212,844 20,872,362 22,736,854 23,153,389
=====================================================
</TABLE>
Accrued interest receivable on securities aggregated $263,288, $328,667 and
$346,295 at September 30, 1994 and December 31, 1993 and 1992, respectively.
(Continued)
F-40
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
(4) LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Commercial business $ 2,831,007 2,751,693 3,430,673
Real estate
Commercial 5,727,289 5,606,140 5,173,600
Residential 10,629,741 9,872,914 9,268,154
Consumer 7,769,526 6,859,074 6,731,883
---------------------------------------------
$26,957,563 25,089,821 24,604,310
=============================================
</TABLE>
Included in loans are loans on nonaccrual status of $58,293, $49,504 and $18,442
at September 30, 1994 and December 31, 1993 and 1992, respectively. There was no
troubled debt restructuring at September 30, 1994 and December 31, 1993. The
impact on interest income of nonaccrual loans was not material. There are no
material commitments to lend additional funds to customers whose loans are
classified as nonaccrual or restructured at September 30, 1994 or December 31,
1993.
Accrued interest receivable on loans aggregated $124,824, $130,999 and
$139,194 at September 30, 1994 and December 31, 1993 and 1992, respectively.
The Company generally grants commercial business loans, residential and
commercial real estate loans and consumer loans to customers in the Minneapolis
suburb of Fridley, Minnesota and the immediate surrounding areas. A substantial
proportion of the Company's debtors, ability to honor their contracts is
dependent upon the general economic conditions in Minnesota.
(Continued)
F-41
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
(5) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
--------------------------------------------------------------------------------
1994 1993 1994 1993 1993 1992 1991
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning
of period $157,791 143,967 158,701 149,815 149,815 137,946 137,946
Provision for
losses 910 0 20,329 6,661 23,630 104,397 18,987
Net (charge-offs) recoveries:
Loans charged-off 0 (219) (25,168) (13,674) (30,716) (108,811) (35,689)
Less recoveries 251 14,953 5,090 15,899 15,972 16,283 16,702
--------------------------------------------------------------------------------
251 14,734 (20,078) 2,225 (14,744) (92,528) (18,987)
--------------------------------------------------------------------------------
Balance at end
of period $158,952 158,701 158,952 158,701 158,701 149,815 137,946
================================================================================
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
September 30, ------------
1994 1993 1992
----------------------------------------
<S> <C> <C> <C>
Leasehold improvements $ 341,255 341,255 326,248
Furniture, fixtures and equipment 1,356,944 1,258,636 1,169,036
----------------------------------------
1,698,199 1,599,891 1,495,284
Less accumulated depreciation 1,234,102 1,124,720 997,135
----------------------------------------
Premises and equipment, net $ 464,097 475,171 498,149
========================================
</TABLE>
(Continued)
F-42
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
(7) DEPOSITS
The Company had certificates of deposit over $100,000 of approximately
$636,979, $620,619 and $603,646 at September 30, 1994 and December 31, 1993 and
1992, respectively. Interest expense on certificates of deposit over $100,000
was $8,175 and $8,676 for the three-month periods ended September 30, 1994 and
1993, respectively, $20,979 and $25,203 for the nine-month periods ended
September 30, 1994 and 1993, respectively, and $33,857, $58,531, and $89,986 for
the years ended December 31, 1993, 1992 and 1991, respectively.
Accrued interest payable on deposits aggregated $107,153, $115,797 and
$122,540 at September 30, 1994 and December 31, 1993 and 1992, respectively.
<TABLE>
<CAPTION>
(8) NOTES PAYABLE:
Notes payable consisted of the following:
December 31,
September 30, ------------
1994 1993 1992
---------------------------------
<S> <C> <C> <C>
Debt related to ESOP, due October 31, 1996 $283,633 430,327 630,989
-------------------------------
283,633 430,327 630,989
===============================
</TABLE>
The Company's financial statements include the debt of the Bank's Employee
Stock Ownership Plan (ESOP) as the Company is the ultimate source of funds to
repay the debt. This debt is secured by shares of Bank and Banrein stock owned
by the ESOP. The interest on the debt related to the ESOP is payable to an
unrelated bank semi-annually at 7 3/4% as of September 30, 1994 and 6% for the
years ended December 31, 1993 and 1992.
Accrued interest payable on the notes payable aggregated $5,538, $0 and $0
at September 30, 1994 and December 31, 1993 and 1992, respectively.
(9) INCOME TAXES
As discussed in note 1 the Company adopted SFAS 109 as of January 1, 1993,
this change in accounting method had no impact on the consolidated financial
statements for the year ended December 31, 1993.
(Continued)
F-43
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
Income tax expense consists of:
Current Deferred Total
<S> <C> <C> <C>
Three-months ended September 30, 1994:
Federal $ 38,889 0 38,889
State 19,686 0 19,686
---------------------------
$ 58,575 0 58,575
===========================
Three-months ended September 30, 1993:
Federal $ 41,184 0 41,184
State 20,815 0 20,815
---------------------------
$ 61,999 0 61,999
===========================
Nine-months ended September 30, 1994:
Federal $111,844 8,043 119,887
State 56,357 4,134 60,491
---------------------------
$168,201 12,177 180,378
===========================
Nine-months ended September 30, 1993:
Federal $110,035 0 110,035
State 55,542 0 55,542
---------------------------
$165,577 0 165,577
===========================
Year ended December 31, 1993:
Federal $139,079 8,043 147,122
State 69,996 4,134 74,130
---------------------------
$209,075 12,177 221,252
===========================
Year ended December 31, 1992:
Federal $175,862 0 175,862
State 88,991 0 88,991
---------------------------
$264,853 0 264,853
===========================
Year ended December 31, 1991:
Federal $119,873 0 119,873
State 60,199 0 60,199
---------------------------
$180,072 0 180,072
===========================
(Continued)
</TABLE>
F-44
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
Income tax expense differs from the amounts computed by applying the federal
income tax rate of 34% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
------------------------------------------------------------------------------------
1994 1993 1994 1993 1993 1992 1991
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Computed
"expected"
tax expense $ 37,169 70,264 141,477 200,782 280,183 281,463 200,448
Increase
(reduction)
in income
tax expense
resulting from:
Tax-exempt
income (22,109) (24,211) (70,916) (78,520) (103,801) (99,723) (81,828)
Dividend
applied to
ESOP loan (7,980) (1,887) (7,980) (7,548) (11,322) (7,194) (1,122)
State income
tax net of
federal in-
come tax
benefit 7,071 13,367 41,779 38,195 53,301 53,544 38,477
Other, net 44,424 4,466 76,018 12,668 2,891 36,763 (24,097)
-------- ------- ------- ------- -------- ------- -------
$ 58,575 61,999 180,378 165,577 221,252 264,853 180,072
======== ======= ======= ======= ======== ======= =======
</TABLE>
(Continued)
F-45
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
-----------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 8,399 8,399
-----------------------------
Deferred tax assets 8,399 8,399
Valuation allowance 0 0
-----------------------------
Deferred tax assets, net 8,399 8,399
=============================
Deferred tax liabilities:
Depreciation 20,576 20,576
-----------------------------
Deferred tax liabilities 20,576 20,576
-----------------------------
Net deferred tax assets (liabilities) $(12,177) (12,177)
=============================
</TABLE>
There was no valuation allowance required for deferred tax assets as of
January 1, 1993.
(10) EMPLOYEE BENEFITS
The Company has a profit sharing plan that covers all employees who have
reached the age of 20 1/2 years and worked at least 1,000 hours annually for the
Company. The plan provides for the Company to make annual contributions, which
are allocated to each participant based on their compensation. Participants
become 100% vested after 5 years of service. The Company has not contributed to
the profit sharing plan since 1987 when an ESOP was established by the Company.
Since 1987 all contributions have been made to the ESOP.
The Company has an ESOP in which all employees who have reached the age of
20 1/2 years and worked at least 1,000 hours annually for the Company are
eligible to participate. The Company has committed to make annual contributions
to the ESOP necessary to fund the ESOP and any outstanding debt including
interest. In 1992, the ESOP borrowed $736,136 from an unrelated bank for the
purchase of Company and Banrein stock from Babbscha. This debt is included in
notes payable with a corresponding amount shown as a reduction of stockholders'
equity. The debt balance is reduced and stockholders' equity increased by the
amount of any principal reduction of the debt by the ESOP.
All shares of the Company owned by the ESOP were purchased at their respective
book value per share. Shares that secure the ESOP debt are allocated to
participants as the debt principal is reduced. The shares of common stock of
the Company owned by the ESOP are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Company:
Allocated to participants 883 883 660
Unallocated 366 366 555
----------------------------
1,249 1,249 1,215
============================
</TABLE>
(Continued)
F-46
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
The Company paid the following in dividends and contributions to the ESOP and
interest on the ESOP debt:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
------------------- ------------------- -----------------------
1994 1993 1994 1993 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends 24,980 24,980 49,960 49,960 74,760 50,260 20,260
Contributions 38,400 43,200 108,400 129,600 162,636 167,737 163,932
Interest 6,707 7,500 18,527 25,009 32,807 24,645 5,341
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit, interest rate, and liquidity risk in excess of the amount recognized in
the accompanying statements of financial condition.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since certain of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company had outstanding commitments to
extend credit of approximately $2,239,325, $2,072,938 and $2,354,217, at
September 30, 1994 and December 31, 1993 and 1992, respectively.
Standby letters of credit are conditional commitments issued by the Company
guaranteeing the performance of a customer to a third party. The standby letters
of credit are primarily issued to support private borrowing arrangements, and
expire during 1994. The credit risk involved in issuing standby letters of
credit is essentially the same as that involved in making loans to customers.
The amount of collateral the Company obtains to support standby letters of
credit is based on management's credit evaluation of the borrower. Since the
conditions under which the Company is required to fund standby letters of credit
may not materialize, the cash requirements are expected to be less than the
total outstanding commitments. The Company had outstanding standby letters of
credit of approximately $87,100, $69,000 and $97,117, at September 30, 1994 and
December 31, 1993 and 1992, respectively.
(Continued)
F-47
<PAGE>
FRIDLEY STATE BANK
Notes to Financial Statements
(unaudited)
(12) RELATED PARTY TRANSACTIONS
The Company has entered into transactions with its directors, officers,
significant stockholders and their affiliates. Such transactions were made in
the ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not, in the opinion of
management, involve more than normal credit risk or present other favorable or
unfavorable features.
Activity with respect to loans to directors, officers and significant
stockholders is summarized as follows:
<TABLE>
<CAPTION>
Nine-months
ended Year ended December 31,
September 30, -----------------------
1994 1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $532,198 466,052 496,628 387,312
New loans 64,420 140,037 62,230 140,500
Repayments 89,290 73,891 92,806 31,184
-----------------------------------------------
Balance at end of period $507,328 532,198 466,052 496,628
===============================================
</TABLE>
(13) SUBSEQUENT EVENT
On September 9, 1994 Babbscha and Norwest Corporation (Norwest) entered into
an Agreement and Plan of Reorganization (the Agreement) whereby Babbscha would
be merged into Norwest. All of Babbscha,s outstanding common stock will be
exchanged for Norwest common stock. The outstanding common stock of the Company
and Banrein that is not owned by Babbscha will be exchanged for Norwest common
stock equal to 108,207 shares.
The Agreement requires that, prior to the effective date of the merger, the
Company shall establish additional accruals and loan loss reserves as may be
necessary to conform to the accounting and loan loss reserve practices of
Norwest and provide for costs and expenses anticipated in the consummation of
the merger. The Company has estimated, but not accrued, $531,000 and $1,246,000
for additional loan loss reserves and anticipated merger expenses, respectively.
Also, the current ESOP loan outstanding is to be paid subsequent to the closing
date of the merger at which time all unallocated shares will be allocated to
ESOP participants.
F-48
<PAGE>
September 30, 1994
VERIFICATION
------------
The statement of financial condition of Banrein Inc., a 52.65% owned subsidiary
of Babbscha Company, as of September 30, 1994 and December 31, 1993 and 1992,
and the related statements of operations, changes in stockholders, equity, and
cash flows for each of the three- and nine-month periods ended September 30,
1994 and 1993, and for each of the years in the three-year period ended December
31, 1993, have been prepared under our control.
In our opinion, the aforementioned financial statements present fairly the
financial position of Banrein Inc. at September 30, 1994 and at December 31,
1993 and 1992, and the results of operations, changes in stockholders, equity,
and cash flows for each of the three- and nine-month periods ended September 30,
1994 and 1993, and for each of the years in the three-year period ended December
31, 1993, in conformity with generally accepted accounting principles applied on
a consistent basis.
/s/ Donald C. Savelkoul
- ----------------------------------------------------
DONALD C. SAVELKOUL
CHIEF EXECUTIVE OFFICER
/s/ William H. Beery
- ----------------------------------------------------
WILLIAM H. BEERY
SECRETARY
F-49
<PAGE>
BANREIN, INC.
Statements of Financial Condition
(unaudited)
<TABLE>
<CAPTION>
September 30 December 31
------------------
Assets 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash $ 15,885 3,800 3,243
Premises, net 229,475 241,512 257,562
Other assets 23,422 3,665 8,150
- --------------------------------------------------------------------------------
Total assets $268,782 248,977 268,955
================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Liabilities
Accrued interest payable 0 1,132 1,325
Note payable 137,618 159,725 187,100
Other liabilities 975 574 0
- --------------------------------------------------------------------------------
Total liabilities 138,593 161,431 188,425
- --------------------------------------------------------------------------------
Stockholders' equity
Common stock, no par value; 4,000 shares
authorized; 4,000 issued and
outstanding 52,000 52,000 52,000
Retained earnings 78,189 35,546 28,530
- --------------------------------------------------------------------------------
Total stockholders' equity 130,189 87,546 80,530
================================================================================
Total liabilities and stockholders $268,782 248,977 268,955
================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
BANREIN, INC.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30
-------------------- ----------------------
1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rental income $39,128 35,151 117,385 105,453
- ---------------------------------------------------------------------------------------------
Operating expenses:
Interest expense 2,208 3,743 9,407 12,540
Depreciation 4,013 4,013 12,037 12,038
Management fees 0 0 440 440
Real estate taxes 0 0 28,914 28,546
Other 2,106 1,907 6,319 5,842
- ---------------------------------------------------------------------------------------------
Total operating expenses 8,327 9,663 57,117 59,406
- ---------------------------------------------------------------------------------------------
Income before income taxes 30,801 25,488 60,268 46,047
Income taxes 2,301 2,700 8,625 7,746
- ---------------------------------------------------------------------------------------------
Net income $28,500 22,788 51,643 38,301
=============================================================================================
Net income per share $ 7.13 5.70 12.91 9.58
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE>
BANREIN, INC.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1993 1992 1991
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Rental income $144,582 140,604 140,025
- ------------------------------------------------------------------------
Operating expenses:
Interest expense 14,660 16,898 18,955
Depreciation 16,050 16,050 16,050
Management fees 7,829 7,630 7,601
Real estate taxes 57,093 54,339 50,341
Other 560 540 997
- ------------------------------------------------------------------------
Total operating expenses 96,192 95,457 93,944
- ------------------------------------------------------------------------
Income before income taxes 48,390 45,147 46,081
Income taxes 11,374 10,646 10,836
- ------------------------------------------------------------------------
Net income $ 37,016 34,501 35,245
========================================================================
Net income per share $ 9.25 8.63 8.81
========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-52
<PAGE>
BANREIN, INC.
Statements of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Total
Retained stockholders'
Common stock earnings equity
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1990 $52,000 17,784 69,784
Dividend (29,000) (29,000)
Net income 35,245 35,245
- -----------------------------------------------------------------
Balance, December 31, 1991 52,000 24,029 76,029
Dividend (30,000) (30,000)
Net income 34,501 34,501
- -----------------------------------------------------------------
Balance, December 31, 1992 52,000 28,530 80,530
Dividend (30,000) (30,000)
Net income 37,016 37,016
- -----------------------------------------------------------------
Balance, December 31, 1993 52,000 35,546 87,546
Dividend (9,000) (9,000)
Net income 51,643 51,643
- -----------------------------------------------------------------
Balance, September 30, 1994 $52,000 78,189 130,189
=================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-53
<PAGE>
BANREIN, INC.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine-months ended September 30
------------------------------
1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 51,643 38,301
- -------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 12,037 12,038
Change in accrued interest payable (1,132) (144)
Change in other assets (19,757) (6,867)
Change in other liabilities 401 0
- -------------------------------------------------------------------------------
Total adjustments (8,451) 5,027
- -------------------------------------------------------------------------------
Net cash provided by operating activities 43,192 43,328
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of notes payable (22,107) (20,313)
Dividends paid (9,000) (9,000)
- -------------------------------------------------------------------------------
Net cash used by financing activities (31,107) (29,313)
- -------------------------------------------------------------------------------
Net increase in
cash and cash equivalents 12,085 14,015
Cash and cash equivalents at beginning of period 3,800 3,243
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 15,885 17,258
===============================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on borrowings $ 10,539 13,865
Income taxes 8,625 7,746
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE>
BANREIN, INC.
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31
---------------------------
1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 37,016 34,501 35,245
- --------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 16,050 16,050 16,050
Change in accrued interest payable (193) (178) (164)
Change in other assets 4,485 5,765 1,172
Change in other liabilities 574 119 (616)
- --------------------------------------------------------------------------
Total adjustments 20,916 21,756 16,442
- --------------------------------------------------------------------------
Net cash provided by operating
activities 57,932 56,257 51,687
- --------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of notes payable (27,375) (25,151) (23,109)
Dividends paid (30,000) (30,000) (29,000)
- --------------------------------------------------------------------------
Net cash used by
financing activities (57,375) (55,151) (52,109)
- --------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents 557 1,106 (422)
Cash and cash equivalents at beginning
of period 3,243 2,137 2,559
- --------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 3,800 3,243 2,137
==========================================================================
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest on borrowings $ 14,853 19,133 19,119
Income taxes 11,374 10,646 10,836
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE>
BANREIN, INC.
Notes to Financial Statements
(unaudited)
(1) BUSINESS ACTIVITIES AND ACCOUNTING POLICIES
Banrein, Inc. (Banrein) is a 52.65% owned subsidiary of Babbscha Company
(Babbscha). The Corporation owns the land and building located at 6315
University Avenue N.E., Fridley, Minnesota 55432. The land and building is
leased primarily to Fridley State Bank (the Bank), a 55.46% owned subsidiary of
Babbscha Company. Accounting policies of the Company are summarized below:
PREMISES
Premises are recorded at cost less accumulated depreciation. The costs of
premises is depreciated on the straight-line method over the estimated useful
life of 30 years.
RENTAL INCOME AND RENTS RECEIVABLE
Rental income is recognized ratably over the terms of the leases.
(2) NOTE PAYABLE
The note payable is to First Bank of Minneapolis, maturing July 1, 1998,
payable in monthly installments of $3,519 with interest at 8.5% per annum, is
collateralized by the land and building.
(3) INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
Three-months ended Nine-month ended
September 30, September 30, December 31,
-------------------- ------------------ ----------------------
1994 1993 1994 1993 1993 1992 1991
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Federal $1,321 1,551 4,953 4,448 6,532 6,110 6,225
State 980 1,449 3,672 3,298 4,842 4,536 4,611
--------------------------------------------------------------------
$2,301 2,700 8,625 7,746 11,374 10,646 10,836
====================================================================
</TABLE>
(Continued)
F-56
<PAGE>
BANREIN, INC.
Notes to Financial Statement
(unaudited)
(4) PREMISES
Premises are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ---------------------
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Land $131,884 131,884 131,884
Buildings 481,504 481,504 481,504
-------------------------------------
613,388 613,388 613,388
Less accumulated depreciation 383,913 371,876 355,826
-------------------------------------
Premises, net $229,475 241,512 257,562
=====================================
</TABLE>
(5) RELATED PARTY TRANSACTIONS
Banrein has a five year lease agreement expiring March 1, 1998 with the
Bank, a related party through the ownership of 55.46% of the common stock of
the Bank by Babbscha. Monthly lease payments include an annual base rent
amount of $88,620.00 plus applicable real estate taxes.
Banrein also has a month to month verbal agreement for the rental of office
space at $250.00 per month to a shareholder of Babbscha.
Babbscha receives a management fee of 5.0% of gross rental income plus $50
per month for managing the rental operations.
The Bank has an Employee Stock Ownership Plan (ESOP) in which all
employees of the bank who have reached the age of 20 1/2 years and worked at
least 1,000 hours annually for the Bank are eligible to participate. The ESOP
has purchased shares of Banrein at Banreins's book value per share. Shares
owned by the ESOP are used to secure debt of the ESOP and are allocated to
participants as the debt principal is reduced. The shares of common stock of
Banrein owned by the ESOP are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
Banrein:
Allocated to participants 733 733 544
Unallocated 366 366 555
-------------------------------------
1,099 1,099 1,099
=====================================
</TABLE>
(Continued)
F-57
<PAGE>
BANREIN, INC.
Notes to Financial Statements
(unaudited)
Banrein paid the following in dividends to the ESOP:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30, ended September 30, Year ended December 31,
------------------- ------------------- -----------------------
1994 1993 1994 1993 1993 1992 1991
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividends $0 0 2,473 2,473 8,243 6,740 2,542
</TABLE>
(6) SUBSEQUENT EVENT
On September 9, 1994 Babbscha and Norwest Corporation (Norwest) entered into
an Agreement and Plan of Reorganization (the Agreement) whereby Babbscha would
be merged into Norwest. All of Babbscha's outstanding common stock will be
exchanged for Norwest common stock. The outstanding common stock of Banrein
that is not owned by Babbscha will be exchanged for Norwest common stock equal
to 15,653 shares.
F-58
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION,
AND
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the ____ day of September, 1994, by and between Babbscha Company, a Minnesota
Corporation ("Company"), Fridley State Bank ("Bank"), a Minnesota banking
corporation, and Banrein, Inc. ("Banrein"), a Minnesota corporation and NORWEST
CORPORATION ("Norwest"), a Delaware corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest ("Merger Co.") will merge with and into
Company and Banrein will merge with and into a wholly-owned subsidiary of
Norwest (individually each a "Merger" and collectively the "Mergers") pursuant
to agreements of merger (each a "Merger Agreement" and collectively, the "Merger
Agreements") in substantially the forms attached hereto as Exhibits A and B,
which provide, among other things, for the conversion and exchange of the shares
of all of the common stock of Company, no par value per share ("Company Common
Stock") and common stock of Banrein, no par value per share owned by
shareholders other than Company ("Banrein Common Stock") outstanding immediately
prior to the time the Mergers become effective in accordance with the provisions
of the Merger Agreements (each an "Effective Time of the Merger" and
collectively the "Effective Time of Mergers") into shares of voting Common Stock
of Norwest of the par value of $1-2/3 per share ("Norwest Common Stock").
WHEREAS, Norwest desires that, immediately following the Merger, the Bank
will merge with a wholly-owned national bank subsidiary of Norwest ("Norwest
Bank") under the charter of Norwest Bank (the "Bank Merger" pursuant to an
agreement of merger (the "Bank Merger Agreement") in substantially the form
attached hereto as Exhibit B, which provides, among other things, for the
conversion and exchange of the shares of voting common stock of the Bank, of the
par value of $37.50 per share, outstanding immediately prior to the time the
Bank Merger becomes effective in accordance with the provisions of the Bank
Merger Agreement and owned by shareholders other than Company ("Bank Common
Stock") into shares of Norwest Common Stock. The Merger Agreements and Bank
Agreement are hereafter sometimes referred to collectively as the "Merger
Agreements" and the Mergers and Bank Merger are hereafter sometimes referred to
collectively as the "Mergers."
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:
<PAGE>
1. BASIC PLAN OF REORGANIZATION
(a) Exchange of Shares. Shares of Company Common Stock, Banrein Common
------------------
Stock and Bank Common Stock outstanding immediately prior to the Effective Time
of the Mergers and the Effective Time of the Merger (as defined below), as the
case may be (other than shares as to which statutory dissenters' appraisals
rights have been exercised and other than shares of Banrein and Bank owned by
Company) will be converted into and exchanged for 276,000 shares of Norwest
Common Stock.
(b) Merger. Subject to the terms and conditions contained herein on the
------
Closing Date, Merger Co. will be merged by statutory merger with and into
Company pursuant to the Company Merger Agreement, with Company as the surviving
corporation, in which Merger each share of Company Common Stock outstanding
immediately prior to the Effective Time of the Merger (other than shares as to
which statutory dissenters' rights have been exercised) will be converted into
and exchanged for the number of shares of Norwest Common Stock determined by
dividing 152,140 by the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time of the Merger. The Effective Time of
the Merger shall occur upon the filing of the Certificate of Merger with the
Minnesota Secretary of State (which filing shall occur on the Closing Date) or
at such time thereafter as Norwest and Company may agree in writing to provide
in the Certificate of Merger referred to in Section 1(g) hereof.
(c) Merger. Subject to the terms and conditions contained herein on the
------
Closing Date, Banrein will be merged with and into a wholly owned subsidiary of
Norwest (the "Banrein Merger Co.") by statutory merger pursuant to the Merger
Agreement, with Banrein Merger Co. as the surviving corporation, in which Merger
each share of Banrein Common Stock outstanding immediately prior to the
Effective Time of the Merger owned by shareholders other than Company (other
than shares as to which statutory dissenters' rights have been exercised) will
be converted into and exchanged for the number of shares of Norwest Common Stock
determined by dividing 15,653 by the number of shares of Banrein Common Stock
owned by shareholders other than the Company immediately prior to the Effective
Time of the Merger. The Effective Time of the Merger shall occur upon the
filing of the Certificate of Merger with the Minnesota Secretary of State (which
filing shall occur on the Closing Date) or at such time thereafter as Norwest
and Banrein may agree in writing to provide in the Certificate of Merger
referred to in Section 1(g) hereof.
(d) Bank Merger. Following the Effective Time of the Mergers and on the
-----------
terms and conditions set forth in this Agreement and the Merger Agreement:
(i) Bank will merge with and into Norwest Bank under the charter
of Norwest Bank.
A-2
<PAGE>
(ii) Each share of Bank Common Stock outstanding immediately prior
to the Effective Time of the Merger owned by shareholders other than the
Company (other than shares as to which statutory dissenters' appraisal
rights have been exercised) will be converted into and exchanged for the
number of shares of Norwest Common Stock determined by dividing 108,207 by
the number of shares of Bank Common Stock owned by shareholders other than
the Company immediately prior to the Effective Time of the Merger.
(iii) The Bank Merger shall become effective at 12:01 a.m. on the
date specified in the Certificate of Approval of Merger to be issued by the
Office of the Comptroller of the Currency ("Comptroller"), which date shall
be the first business day after the Effective Date of the Merger (the
"Effective Time of the Bank Merger").
(e) Norwest Common Stock Adjustments. If between the date hereof and the
--------------------------------
Effective Time of the Merger shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared with a
record date within such period, then the number of shares of Norwest Common
Stock into which a share of Company Common Stock, Bank Common Stock or Banrein
Common Stock shall be converted pursuant to subparagraphs (a), (b) and (c),
above, will be appropriately and proportionately adjusted so that the number of
such shares of Norwest Common Stock into which a share of Company Common Stock,
Bank Common Stock or Banrein Common Stock shall be converted will equal the
number of shares of Norwest Common Stock which holders of shares of Company
Common Stock, Bank Common Stock or Banrein Common Stock would have received
pursuant to such reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or stock dividend had the record date
therefor been immediately following the Effective Time of the Merger or
Effective Time of the Bank Merger (the Effective Time of the Mergers and
Effective Time of the Bank Merger are sometimes collectively referred to as the
"Effective Time of Mergers").
(f) Fractional Shares. No fractional shares of Norwest Common Stock and
-----------------
no certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest to
which such holder is entitled by the average of the closing prices of a share of
Norwest Common Stock as reported by the consolidated tape of the New York Stock
Exchange for each of the five (5) trading days immediately preceding the
Effective Time of the Merger.
(g) Mechanics of Closing Merger. Subject to the terms and conditions set
---------------------------
forth herein, each Merger Agreement shall be executed and each Merger Agreement
or Articles of Merger or Certificates of Merger shall be filed with the
Secretary of State of the State of Minnesota ten (10) business days following
the satisfaction or waiver of
A-3
<PAGE>
all conditions precedent set forth in Sections 6 and 7 of this Agreement or on
such other date as may be agreed to by the parties (the "Closing Date"). Each of
the parties agrees to use its best efforts to cause the Merger to be completed
as soon as practicable after the receipt of final regulatory approval of the
Merger and the expiration of all required waiting periods. The time that the
filing referred to in the first sentence of this paragraph is made is herein
referexitred to as the "Time of Filing". The day on which such filing is made
and accepted is herein referred to as the "Effective Date of the Merger". The
Effective Time of the Merger shall be 11:59 p.m. C.S.T., on the Effective Date
of the Merger. At the Effective Time of the Merger on the Effective Date of the
Merger, the separate existence of Merger Co. shall cease and Merger Co. will be
merged with and into Company, and the separate existence of Banrein Merger Co.
shall cease and Banrein Merger Co. will be merged with and into Banrein pursuant
to each Merger Agreement.
The closing of the transactions contemplated by this Agreement, the Bank
Merger Agreement and each Merger Agreement (the "Closing") shall take place on
the Closing Date at the offices of Norwest, Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY, BANK AND BANREIN. Company,
Bank and Banrein represent and warrant to Norwest as follows:
(a) Organization and Authority. Company is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of Minnesota
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 Company and the Company Subsidiaries (defined below)
taken as a whole and has corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. Company is
registered as a bank holding company with the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Company has
furnished Norwest true and correct copies of its and Company Subsidiaries'
articles of incorporation and by-laws, as amended.
(b) Company's Subsidiaries. Schedule 2(b) sets forth a complete and
----------------------
correct list of all of Company's subsidiaries as of the date hereof
(individually a "Company Subsidiary" and collectively the "Company
Subsidiaries"), all shares of the outstanding capital stock of each of which,
except as set forth on Schedule 2(b), are owned directly or indirectly by
Company. No equity security of any Company Subsidiary is or may be required to
be issued by reason of any option, warrant, scrip, right to subscribe to, call
or commitment of any character whatsoever relating to, or security or right
convertible into, shares of any capital stock of such subsidiary, and there are
no contracts, commitments, understandings or arrangements by which any Company
Subsidiary is bound to issue additional shares of its capital stock, or any
option, warrant or right to purchase or acquire any additional shares of its
capital stock.
A-4
<PAGE>
Subject to the Minnesota Business Corporation Act , all of such shares so owned
by Company 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 Company Subsidiary is a corporation or national banking
association duly organized, validly existing, duly qualified to do business and
in good standing under the laws of its jurisdiction of incorporation, and has
corporate power and authority to own or lease its properties and assets and to
carry on its business as it is now being conducted. Except as set forth on
Schedule 2(b), Company 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 Company consists of
--------------
10,000 shares of common stock, no par value, of which 10,000 shares are
outstanding and no shares were held in the treasury and the authorized capital
stock of Bank consists of 5,000 shares of common stock, $37.50 par value, of
which 5,000 shares are outstanding and the authorized capital stock of Banrein
consists of 4,000 shares of common stock, no par value, of which 4,000 shares
are outstanding. The maximum number of shares of Company Common Stock, Bank
Common Stock and Banrein Common Stock (assuming for this purpose that phantom
shares and other share-equivalents constitute Company Common Stock, Bank Common
Stock and Banrein Common Stock) that would be outstanding as of the Effective
Date of the Merger if all options, warrants, conversion rights and other rights
with respect thereto were exercised is 10,000, 5,000 and 5,000, respectively.
All of the outstanding shares of capital stock of Company have been duly and
validly authorized and issued and are fully paid and nonassessable. Except as
set forth in Schedule 2(c), there are no outstanding subscriptions, contracts,
conversion privileges, options, warrants, calls or other rights obligating
Company or any Company Subsidiary to issue, sell or otherwise dispose of, or to
purchase, redeem or otherwise acquire, any shares of capital stock of Company or
any Company Subsidiary. Since June 30, 1994, except as set forth on Schedule
2(d), no shares of Company capital stock have been purchased, redeemed or
otherwise acquired, directly or indirectly, by Company or any Company Subsidiary
and no dividends or other distributions have been declared, set aside, made or
paid to the shareholders of Company.
(d) Authorization. Company, Bank and Banrein each have the corporate
-------------
power and authority to enter into this Agreement and the Merger Agreements and,
subject to any required approvals of their shareholders, to carry out its
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and the Merger Agreements and the by Company, Banrein and
Bank, as the case may be, and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of
Company, Banrein and Bank, as the case may be. Subject to such approvals of
shareholders and of government agencies and other governing boards having
regulatory authority over Company, Banrein and Bank as may be required by
statute or regulation, this
A-5
<PAGE>
Agreement and the Merger Agreements and Consolidation Agreement are valid and
binding obligations of Company, Banrein and Bank enforceable against Company,
Banrein and Bank in accordance with their respective terms.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by Company, Banrein and Bank of this Agreement or the Merger
Agreements , nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by Company, Banrein or Bank, as the case may be, 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 Company or any Company 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 Company or any
Company Subsidiary is a party or by which it may be bound, or to which Company
or any Company Subsidiary or any of the properties or assets of Company or any
Company 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 Company, violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to Company or any Company
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"), and filings required to effect the Merger under Minnesota law
and to effect the Consolidation with the Comptroller pursuant to the provisions
of the National Bank Act (12 U.S.C. (S)1 et. seq.), 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 Company, Banrein and Bank
of the transactions contemplated by this Agreement and the Merger Agreements.
(e) Company Financial Statements. The statements of financial condition
----------------------------
of Company and Company's Subsidiaries as of December 31, 1992 and 1993 and
related statements of income, shareholders' equity and cash flows for the three
years ended December 31, 1993, together with the notes thereto, for the fiscal
year ended December 31, 1993, and the unaudited statements of financial
condition of Company and Company's Subsidiaries as of June 30, 1994 and the
related unaudited statements of income, shareholders' equity and cash flows for
the 6 months then ended
A-6
<PAGE>
(collectively, the "Company 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 financial position of
Company and Company's Subsidiaries at the dates and the results of operations
and cash flows of Company and Company's Subsidiaries for the periods stated
therein.
(f) Reports. Since December 31, 1990, Company and each Company Subsidiary
-------
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the Federal Reserve
Board, (ii) the Federal Deposit Insurance Corporation (the "FDIC"), and (iii)
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 "Company Reports". As of their respective dates, the
Company Reports complied in all material respects with all the rules and
regulations promulgated by the Federal Reserve Board, the FDIC, and applicable
federal state securities or banking authorities, as the case may be, and to the
best knowledge of Company and the Company Subsidiaries, 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 Company Reports have been made available to Norwest by Company.
(g) Properties and Leases. Except as may be reflected in the Company
---------------------
Financial Statements and except for any lien for current taxes not yet
delinquent, Company and each Company Subsidiary have good title free and clear
of any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Company's and
Company Subsidiaries' balance sheets 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 Company
or any Company Subsidiary pursuant to which Company or such Company Subsidiary,
as lessee, leases real or personal property, which leases are described on
Schedule 2(g), are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Company or such Company Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Company's and each Company 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 Company and the Company Subsidiaries has filed all
-----
federal, state, county, local and foreign tax returns, including information
returns, required to be filed by it, and paid all taxes owed by it, including
those with respect to income, withholding, social security, unemployment,
workers compensation, franchise, ad valorem, premium, excise and sales taxes,
and no taxes shown on such returns to be
A-7
<PAGE>
owed by it or assessments received by it are delinquent. The federal income tax
returns of Company and the Company Subsidiaries for the fiscal year ended
December 31, 1990, and for all fiscal years prior thereto, are for the purposes
of routine audit by the Internal Revenue Service closed because of the statute
of limitations, and no claims for additional taxes for such fiscal years are
pending. Except only as set forth on Schedule 2(h), (i) neither Company nor any
Company Subsidiary is a party to any pending action or proceeding, nor is any
such action or proceeding threatened by any governmental authority, for the
assessment or collection of taxes, interest, penalties, assessments or
deficiencies and (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 Company or any Company Subsidiary which has
not been settled, resolved and fully satisfied. Each of Company and the Company
Subsidiaries has paid all taxes owed or which it is required to withhold from
amounts owing to employees, creditors or other third parties. The balance sheets
as of December 31, 1993, referred to in paragraph 2(e) hereof, includes adequate
provision for all accrued but unpaid federal, state, county, local and foreign
taxes, interest, penalties, assessments or deficiencies of Company and the
Company Subsidiaries with respect to all periods through the date thereof.
(i) Absence of Certain Changes. Since June 30, 1994, and except for
--------------------------
reasonable expenses incurred in connection with the transactions contemplated by
this Agreement, there has been no change in the business, financial condition or
results of operations of Company or any Company 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 Company and the Company
Subsidiaries taken as a whole.
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
-------------------------
neither Company nor any Company Subsidiary is a party or subject to any of the
following (whether written or oral, express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer,
director, employee or consultant (other than those which are terminable at
will by Company or such Company Subsidiary);
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant (except as set forth on Schedule 2(p);
(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 Company or any Company
A-8
<PAGE>
Subsidiary to compete in any line of business or with any person or which
involve any restriction of the geographical area in which, or method by
which, Company or any Company Subsidiary may carry on its business (other
than as may be required by law or applicable regulatory authorities);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $2,500 or
more.
(k) Litigation and Other Proceedings. Company has furnished Norwest copies
--------------------------------
of all attorney responses (if any) to the request of the independent auditors
for Company with respect to loss contingencies as of December 31, 1993. Attached
hereto as Schedule 2(k) is a list of legal and regulatory proceedings filed
against Company or any Company Subsidiary since December 31, 1993. Neither
Company nor any Company Subsidiary is a party to any pending or, to the best
knowledge of Company, 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 Company and the Company Subsidiaries taken as a whole.
(l) Insurance. Company and each Company Subsidiary is presently insured,
---------
and during each of the past five calendar years (or during such lesser period of
time as Company has owned such Company Subsidiary) has been insured, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable law and regulation.
(m) Compliance with Laws. Company and each Company Subsidiary has all
--------------------
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to own
or lease its properties and assets and to carry on its business as presently
conducted and that are material to the business of Company or such Company
Subsidiary; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best knowledge of Company, no
suspension or cancellation of any of them is threatened; and all such filings,
applications and registrations are current. The conduct by Company and each
Company 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 Company nor any Company 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
A-9
<PAGE>
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 Company or any Company Subsidiary which reasonably could be expected to have
a material adverse effect on the business or properties of Company and the
Company Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Company or any Company Subsidiary is
-----
pending or, to the best knowledge of Company, threatened. Neither Company nor
any Company 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 Company or such Company
Subsidiary. Employees of Company and the Company Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements
otherwise in effect with respect to such employees.
(o) Material Interests of Certain Persons. Except as set forth on Schedule
-------------------------------------
2(o), to the best knowledge of Company no officer or director of Company or any
Company Subsidiary, 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 Company or any Company Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from Company
or any Company Subsidiary to any present officer, director, employee or any
associate or related interest of any such person which was required under
Regulation O of the Federal Reserve Board to be approved by or reported to
Company's or such Company Subsidiary's Board of Directors.
(p) Company and Company Subsidiary 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 Company or any Company Subsidiary acts as the
plan sponsor as defined in ERISA Section 3(16)(B), and with respect to
which any liability under ERISA or otherwise exists or may be incurred by
Company or any Company Subsidiary are those set forth on Schedule 2(p) (the
"Plans"). No Plan is a "multi-employer plan" within the meaning of Section
3(37) of ERISA.
(ii) Each Plan is and has been in all material respects operated
and administered in accordance with its provisions and applicable law.
Except as set forth on Schedule 2(p), Company or the Company subsidiaries
have received favorable determination letters from the Internal Revenue
Service under the provisions of the Tax Equity and Fiscal Responsibility
Act
A-10
<PAGE>
("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. Company knows of no reason that any Plan which is subject
to the qualification provisions of Section 401(a) of the Code is not
"qualified" within the meaning of Section 401(a) of the Code and that each
related trust is not exempt from taxation under Section 501(a) of the Code,
except that any such Plan may not have been amended to comply with the Tax
Reform Act of 1986 (the "TRA") and other recent legislation and
regulations, although each such Plan is within the remedial amendment
period during which retroactive amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan for the plan year ending
December 31, 1993, 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 Company, 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
Company, 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 Company and the Company Subsidiaries taken
as a whole.
(v) No Plan which is subject to Title IV of ERISA or any trust
created thereunder has been terminated, nor have there been any "reportable
events" as that term is defined in Section 4043 of ERISA, with respect to
any Plan, other than those events which may result from the transactions
contemplated by this Agreement and the Merger Agreement.
(vi) No Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), since the effective date of ERISA.
(vii) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement nor the consummation of
the 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
A-11
<PAGE>
employee or former employee of Company or any Company Subsidiary under
any Plan or otherwise, (ii) materially increase any benefits otherwise
payable under any Plan or (iii) result in the acceleration of the time of
payment or vesting of any such benefits to any material extent.
(q) Proxy Statement, etc. None of the information regarding Company and
--------------------
the Company Subsidiaries supplied or to be supplied by Company for inclusion in
(i) a Registration Statement on Form S-4 to be filed with the Securities and
Exchange Commission (the "SEC") by Norwest for the purpose of registering the
shares of Norwest Common Stock to be exchanged for shares of Company Common
Stock, Bank Common Stock and Banrein Common Stock pursuant to the provisions of
the Merger Agreements (the "Registration Statement"), (ii) the proxy statement
to be mailed to Company's, Bank's and Banrein's shareholders in connection with
the meetings to be called to consider the Mergers (the "Proxy Statement") and
(iii) any other documents to be filed with the SEC or any regulatory authority
in connection with the transactions contemplated hereby or by the Merger
Agreements 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 Company and the Company Subsidiaries are responsible for
filing with the SEC and any other regulatory authority in connection with the
Mergers will comply as to form in all material respects with the provisions of
applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(r),
------------------------
neither Company nor any Company Subsidiary is under any obligation, contingent
or otherwise, which will survive the Merger by reason of any agreement to
register any of its securities under the Securities Act.
(s) Brokers and Finders. Neither Company nor any Company 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 Company or any Company Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(t) Administration of Trust Accounts. Company and each Company Subsidiary
--------------------------------
has properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of Company and the Company
Subsidiaries taken as a whole all accounts for which it acts as a fiduciary,
A-12
<PAGE>
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 Company, any Company
Subsidiary, nor any director, officer or employee of Company or any Company
Subsidiary has committed any breach of trust with respect to any such fiduciary
account which is material to or could reasonably be expected to be material to
the financial condition of Company and the Company Subsidiaries taken as a
whole, and the accountings for each such fiduciary account are true and correct
in all material respects and accurately reflect the assets of such fiduciary
account.
(u) No Defaults. Neither Company nor any Company 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 Company and the Company Subsidiaries, taken as a whole. To
the best of Company's knowledge, all parties with whom Company or any Company
Subsidiary has material leases, agreements or contracts or who owe to Company or
any Company Subsidiary material obligations other than with respect to those
arising in the ordinary course of the banking business of the Company
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 Company or any Company
Subsidiary, any liability arising from the release of hazardous substances under
any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, pending or to the best of
Company's knowledge, threatened against Company or any Company Subsidiary the
result of which has had or could reasonably be expected to have a material
adverse effect upon Company and Company's Subsidiaries taken as a whole; to the
best of Company's knowledge there is no reasonable basis for any such
proceeding, claim or action; and to the best of Company's knowledge neither
Company nor any Company Subsidiary is subject to any agreement, order, judgment,
or decree by or with any court, governmental authority or third party imposing
any such environmental liability.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Company 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
A-13
<PAGE>
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 April 30, 1992, of Norwest's Significant Subsidiaries (as defined in
Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary" and
collectively the "Norwest Subsidiaries"), all shares of the outstanding capital
stock of each of which, except as set forth in Schedule 3(b), are owned directly
or indirectly by Norwest. No equity security of any Norwest Subsidiary is or
may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (S) 55 (1982), all of such shares so owned by Norwest are
fully paid and nonassessable and are owned by it free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto. Each
Norwest Subsidiary is a corporation or national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted.
(c) Norwest Capitalization. The authorized capital stock of Norwest
----------------------
consists of (i) 5,000,000 shares of Preferred Stock, without par value, of which
as of the close of business on April 30, 1994, 1,135,000 shares of 10.24%
Cumulative Preferred Stock at $100 stated value and 1,143,750 shares of
Cumulative Convertible Preferred Stock, Series B, at $200 stated value and
35,125 shares of ESOP Cumulative Convertible Preferred Stock, at $1,000 stated
value were outstanding, and (ii) 500,000,000 shares of Common Stock, $1-2/3 par
value, of which as of the close of business on April 30, 1994, 318,480,722
shares were outstanding and 4,296,052 shares were held in the treasury.
(d) Authorization. Norwest has the corporate power and authority to enter
-------------
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Norwest and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Norwest. No approval or consent by the stockholders of Norwest is
necessary for the execution and delivery of this Agreement and the Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory
A-14
<PAGE>
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 or any Norwest
Subsidiary of this Agreement or the Merger Agreement, nor the consummation of
the transactions contemplated hereby and thereby, nor compliance by Norwest or
any Norwest Subsidiary 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
Mergers under Minnesota law and 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 Merger
Agreement.
(e) Norwest Financial Statements. The consolidated balance sheets of
----------------------------
Norwes 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 (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 6 months then ended included in
Norwest's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1994, as filed with the SEC (collectively, the "Norwest Financial Statements"),
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis and present fairly (subject, in the
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<PAGE>
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, 1990, 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 ("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.
(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,
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<PAGE>
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 material
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
-------------------------
the date hereof neither Norwest nor any Norwest Subsidiary is a party or subject
to any of the following (whether written or oral, express or implied):
(i) any labor contract or agreement with any labor union;
(ii) any contract not made in the ordinary course of business
containing covenants which materially limit the ability of Norwest or any
Norwest Subsidiary to compete in any line of business or with any person or
which involve any material restriction of the geographical area in which,
or method by which, Norwest or any Norwest Subsidiary may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
(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.
A-17
<PAGE>
(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 the date hereof, the only "employee benefit plans"
within the meaning of Section 3(3) of ERISA for which Norwest or any
Norwest Subsidiary acts as plan sponsor as defined in ERISA Section
3(16)(B) with respect to which any liability under ERISA or otherwise
exists or may be incurred by Norwest or any Norwest Subsidiary are those
set forth on
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<PAGE>
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 for the plan year
ending December 31, 1993, exceed the value of the assets of the Norwest
Plans allocable to such vested or accrued benefits.
(iv) Except as set forth on Schedule 3(o), and to the best
knowledge of Norwest, no Norwest Plan or any trust created thereunder, nor
any trustee, fiduciary or administrator thereof, has engaged in a
"prohibited transaction", as such term is defined in Section 4975 of the
Code or Section 406 of ERISA or violated fiduciary standards under Part 4
of Title I of ERISA, which could subject, to the best knowledge of Norwest,
such Norwest Plan or trust, or any trustee, fiduciary or administrator
thereof, or any party dealing with any such Norwest Plan or trust, to the
tax or penalty on prohibited transactions imposed by said Section 4975 or
would result in material liability to Norwest and its subsidiaries taken as
a whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other
than those events which may result from the transactions contemplated by
this Agreement and the Merger Agreement.
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<PAGE>
(vi) No Norwest Plan or any trust created thereunder has incurred
any "accumulated funding deficiency", as such term is defined in Section
412 of the Code (whether or not waived), during the last five Norwest Plan
years which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including,
without limitation, severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or employee or former employee
of Norwest under any Norwest Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Norwest Plan or (iii) result in
the acceleration of the time of payment or vesting of any such benefits to
any material extent.
(p) Registration Statement, etc. None of the information regarding Norwest
---------------------------
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Merger Agreements 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 Merger will comply as to form in all
material respects with the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor
-------------------
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
-----------
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject, the
result of which has had or could
A-20
<PAGE>
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.
(t) Merger Cos. As of the Closing Date, Merger Co., Norwest Bank and
----------
Banrein Merger Co. will each be a corporation duly organized, validly existing,
duly qualified to do business and in good standing under the laws of its
jurisdiction of incorporation, and will have corporate power and authority to
own or lease its properties and assets and to carry on its business.
4. COVENANTS OF COMPANY. Company 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 Mergers, Company, and each Company
Subsidiary will: maintain its corporate existence in good standing; maintain
the general character of its business and conduct its business in its ordinary
and usual manner; extend credit in accordance with existing lending policies,
except that it shall not, without the prior written consent of Norwest, make any
new loan or modify, restructure or renew any existing loan (except pursuant to
commitments made prior to the date of this Agreement) to any borrower if the
amount of the resulting loan, when aggregated with all other loans or extensions
of credit to such person, would be in excess of $200,000; maintain proper
business and accounting records in accordance with generally accepted
principles; maintain its properties in good repair and condition, ordinary wear
and 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
A-21
<PAGE>
the good will of its suppliers, customers and others having business
relationships with it; use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect following the
Merger; comply in all material respects with all laws, regulations, ordinances,
codes, orders, licenses and permits applicable to the properties and operations
of Company and each Company Subsidiary the non-compliance with which reasonably
could be expected to have a material adverse effect on Company and the Company
Subsidiaries taken as a whole; and permit Norwest and its representatives
(including KPMG Peat Marwick) to examine its and its subsidiaries books, records
and properties and to interview officers, employees and agents at all reasonable
times when it is open for business. No such examination by Norwest or its
representatives either before or after the date of this Agreement shall in any
way affect, diminish or terminate any of the representations, warranties or
covenants of Company herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from
the date hereof until the Effective Time of the Mergers, Company and each
Company Subsidiary will not (without the prior written consent of Norwest):
amend or otherwise change its articles of incorporation or association or by-
laws; issue or sell or authorize for issuance or sale, or grant any options or
make other agreements with respect to the issuance or sale or conversion of, any
shares of its capital stock, phantom shares or other share-equivalents, or any
other of its securities; authorize or incur any long-term debt (other than
deposit liabilities); mortgage, pledge or subject to lien or other encumbrance
any of its properties, except in the ordinary course of business; enter into any
material agreement, contract or commitment in excess of $25,000 except banking
transactions in the ordinary course of business and in accordance with policies
and procedures in effect on the date hereof; make any investments except
investments made by bank subsidiaries in the ordinary course of business for
terms of up to 1 year and in amounts of $100,000 or less; amend or terminate any
Plan except as required by law; make any contributions to any Plan except as
required by the terms of such Plan in effect as of the date hereof; declare, set
aside, make or pay any dividend or other distribution with respect to its
capital stock except any dividend declared by a Company Subsidiary's Board of
Directors in accordance with applicable law and regulation; redeem, purchase or
otherwise acquire, directly or indirectly, any of the capital stock of Company;
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 Company Subsidiary; or sell or
otherwise dispose of any of its assets or properties other than in the ordinary
course of business.
(c) The Board of Directors of Company, Bank and Banrein will duly call,
and will cause to be held not later than forty-five (45) days following the
effective date of the Registration Statement referred to in paragraph 5(c)
hereof, but in no event later than 20 "business days" (defined as any day on
which the SEC accepts documents for filing), meetings of their shareholders and
will direct that this Agreement and the Merger Agreements be submitted to a vote
at such meetings. The Board of Directors
A-22
<PAGE>
of Company, Bank and Banrein will (i) cause proper notice of such meeting to be
given to its shareholders in compliance with the Minnesota Business Corporation
Act and other applicable law and regulation, (ii) recommend by the affirmative
vote of the Board of Directors a vote in favor of approval of this Agreement and
the Merger Agreements , and (iii) use its best efforts to solicit from their
shareholders proxies in favor thereof.
(d) Company will furnish or cause to be furnished to Norwest all the
information concerning Company and Company Subsidiaries, including audited
financial statements which comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and rules and
regulations promulgated thereunder, 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.
(e) Company and Company Subsidiaries 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 Company and Company
Subsidiaries to carry out the transactions contemplated by this Agreement and
will cooperate with Norwest to obtain all such approvals and consents required
of Norwest, including the filing of any required applications with the
Comptroller and termination of the Company's status as an S Corporation under
the Code.
(f) Company 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) Company will hold in confidence all documents and information
concerning Norwest and its subsidiaries furnished to Company 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 Company'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 Company, in the public
domain, or later acquired by Company 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 Company, nor any Company Subsidiary, nor any director,
officer, representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of or enter into any discussions with any
corporation, partnership, person or other entity or group (other than Norwest)
concerning any offer or possible offer (i) to purchase any shares of common
stock, any option or warrant to purchase any shares of common stock, any
securities convertible into any shares of such common
A-23
<PAGE>
stock, or any other equity security of Company or any Company Subsidiary, (ii)
to make a tender or exchange offer for any shares of such common stock or other
equity security, (iii) to purchase, lease or otherwise acquire the assets of
Company or any Company Subsidiary except in the ordinary course of business, or
(iv) to merge, consolidate or otherwise combine with Company or any Company
Subsidiary. If any corporation, partnership, person or other entity or group
makes an offer or inquiry to Company or any Company Subsidiary concerning any of
the foregoing, Company or such Company Subsidiary will promptly disclose such
offer or inquiry, including the terms thereof, to Norwest.
(i) Company 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) Company and each Company Subsidiary will take all action necessary or
required (i) to terminate all qualified pension and welfare benefit plans and
all non-qualified benefit plans and compensation arrangements as of the
Effective Date of the Merger, and in connection with such termination, to either
(x) repay any outstanding indebtedness owed by any Plan sponsored by Company,
Bank or Banrein, release shares of Company, Bank or Banrein Common Stock or
Norwest Common Stock pledged therefore, and allocate such shares to the
participants in such Plans as quickly as is permitted by law, or (y) provide for
the repurchase of such shares by the issuer thereof from any such Plan, (ii) to
amend the Plans to comply with the provisions of the TRA and regulations
thereunder and other applicable law, and (iii) to submit application to the
Internal Revenue Service for a favorable determination letter for each of the
Plans which is subject to the qualification requirements of Section 401(a) of
the Code prior to the Effective Date of the Merger.
(k) Company, Bank and Banrein shall use its best efforts to obtain and
deliver at least 32 days prior to the Effective Date of the Merger signed
representations substantially in the form attached hereto as Exhibit B to
Norwest by each executive officer, director or shareholder of Company, Bank and
Banrein who may reasonably be deemed an "affiliate" of Company, Bank and
Banrein, as the case may be, within the meaning of such term as used in Rule 145
under the Securities Act.
(l) Company and Company Subsidiaries shall establish such additional
accruals and reserves as may be necessary to conform Company's accounting and
credit loss reserve practices and methods to those of Norwest and Norwest's
plans with respect to the conduct of Company's business following the Mergers
and to provide for the costs and expenses relating to the consummation by
Company of the Mergers and the other transactions contemplated by this
Agreement.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Company, Bank
and Banrein as follows:
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<PAGE>
(a) From the date hereof until the Effective Time of the Mergers, 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 Company, Bank and Banrein all the information
concerning Norwest required for inclusion in a proxy statement or statements to
be sent to the shareholders of Company, Bank and Banrein, or in any statement or
application made by Company, Bank and Banrein to any governmental body in
connection with the transactions contemplated by this Agreement.
(c) As promptly as practicable after the execution of this Agreement,
Norwest will file with the SEC a registration statement on Form S-4 (the
"Registration Statement") under the Securities Act and any other applicable
documents, relating to the shares of Norwest Common Stock to be delivered to the
shareholders of Company, Bank and Banrein pursuant to the Merger Agreements, 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
Company, Bank and Banrein shareholders, at the time of the Company, Bank and
Banrein shareholders' meetings referred to in paragraph 4(c) hereof and at the
Effective Time of the Mergers 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, to
--------- --------
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 Company or any Company
Subsidiary for use in the Registration Statement or the Prospectus.
(d) Norwest will file all documents required to be filed to list the
Norwest Common Stock to be issued pursuant to the Merger Agreements on the New
York Stock Exchange and the Chicago Stock Exchange and use its best efforts to
effect said listings.
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<PAGE>
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Company, Bank and Banrein pursuant to this Agreement and the
Merger Agreements will, upon such issuance and delivery to said shareholders
pursuant to the Merger Agreements, be duly authorized, validly issued, fully
paid and nonassessable. The shares of Norwest Common Stock to be delivered to
the shareholders of Company pursuant to the Merger Agreements 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 Mergers 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 Company, Bank and Banrein to obtain all such approvals and consents
required by Company, Bank and Banrein.
(h) Norwest will hold in confidence all documents and information
concerning Company and Company's Subsidiaries furnished to it and its
representatives in connection with the transactions contemplated by this
Agreement and will not release or disclose such information to any other person,
except as required by law and except to its outside professional advisers in
connection with this Agreement, with the same undertaking from such professional
advisers. If the transactions contemplated by this Agreement shall not be
consummated, such confidence shall be maintained and such information shall not
be used in competition with Company (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 Company.
(i) Norwest will file any documents or agreements required to be filed in
connection with the Merger under the Minnesota Business Corporation Act.
(j) Norwest will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(k) Norwest shall consult with Company 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 Company written notice of receipt of the regulatory
approvals referred to in paragraph 7(e).
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(m) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit Company 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
Company 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 COMPANY. The obligation of
Company to effect the Merger shall be subject to the satisfaction at or before
the Time of Filing of the following further conditions, which may be waived in
writing by Company:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
after the date of this Agreement made in the ordinary course of business and not
expressly prohibited by this Agreement, the representations and warranties
contained in paragraph 3 hereof shall be true and correct in all respects
material to Norwest and its subsidiaries taken as a whole as if made at the Time
of Filing.
(b) Norwest, Merger Co., Norwest Bank and Banrein Merger Co. 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
Norwest, Merger Co., Norwest Bank and Banrein Merger Co. at or before the Time
of Filing.
(c) Company shall have received a favorable certificate, dated as of the
Effective Date of the Merger, signed by the Chairman, the President or any
Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs (a)
and (b) of this paragraph 6.
(d) This Agreement and the Merger Agreements shall have been approved by
the affirmative vote of the holders of the percentage of the outstanding shares
of Company, Bank and Banrein required for approval of a plan of merger in
accordance with the provisions of Company's, Bank's and Banrein's Articles of
Incorporation and the Minnesota Business Corporation Act and Chapters 46 and 49
of Minnesota Statutes.
(e) Norwest shall have received approval by the Federal Reserve Board and
by such other governmental agencies as may be required by law of the
transactions contemplated by this Agreement and the Merger Agreements 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 Company, Bank and Banrein pursuant to this Agreement and the Merger
Agreements shall have been authorized for listing on the New York Stock Exchange
and the Chicago Stock Exchange upon official notice of issuance.
(h) Company, Bank and Banrein shall have received an opinion, dated the
Closing Date, of counsel to Company, Bank and Banrein, substantially to the
effect that, for federal income tax purposes: (i) the Merger of Merger Co. into
Company will constitute a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E), the merger of Bank into Norwest Bank will
constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D), and the merger of Banrein into Banrein Merger Co. will also
constitute a reorganization within the meaning of Section s368(a)(1)(A) and
368(a)(2)(D) of the Code; (ii) no gain or loss will be recognized by the holders
of Company Common Stock, Bank Common Stock and Banrein 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
Company, Bank and Banrein will be the same as the basis of Company Common Stock,
Bank Common Stock and Banrein Common Stock exchanged therefor (reduced by the
amount allocable to fractional share interests for which cash is received); and
(iv) the holding period of the shares of Norwest Common Stock received by the
shareholders of Company, Bank and Banrein will include the holding period of the
Company Common Stock, Bank Common Stock and Banrein Common Stock, provided such
shares of Company Common Stock, Bank Common Stock and Banrein Common Stock were
held as a capital asset as of the Effective Time of the Mergers.
(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 Mergers shall be subject to the satisfaction at or before
the Time of Filing of the following conditions, which may be waived in writing
by Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
or
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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 Company and the Company Subsidiaries taken as a whole as if
made at the Time of Filing.
(b) Company, Bank and Banrein shall have, or shall have caused to be,
performed and observed in all material respects all covenants, agreements and
conditions hereof to be performed or observed by it at or before the Time of
Filing.
(c) This Agreement and the Merger Agreements shall have been approved by
the affirmative vote of the holders of the percentage of the outstanding shares
of Company, Bank and Banrein required for approval of a plan of merger in
accordance with the provisions of Company's, Bank's and Banrein's Articles of
Incorporation and the Minnesota Business Corporation Act and Chapters 46 and 49
of Minnesota Statutes.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Mergers signed by the Chairman or President and by the
Secretary or Assistant Secretary of Company, Bank and Banrein, as to the matters
set forth in subparagraphs (a) through (c) of this paragraph 7.
(e) Norwest shall have received approval by all governmental agencies as
may be required by law of the transactions contemplated by this Agreement and
the Merger Agreement and all waiting and appeal periods prescribed by applicable
law or regulation shall have expired. No approvals, licenses or consents granted
by any regulatory authority shall contain any condition or requirement relating
to Company or any Company Subsidiary that, in the good faith judgment of
Norwest, is unreasonably burdensome to Norwest.
(f) Company and each Company Subsidiary shall have obtained any and all
material consents or waivers from other parties to loan agreements, leases or
other contracts material to Company's or such subsidiary's business required for
the consummation of the Merger, and Company and each Company Subsidiary shall
have obtained any and all material permits, authorizations, consents, waivers
and approvals required for the lawful consummation by it of the Merger.
(g) No court or governmental authority of competent jurisdiction shall
have issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(h) At any time since the date hereof the total number of shares of
Company Common Stock, Bank Common Stock and Banrein Common Stock outstanding and
subject to issuance upon exercise (assuming for this purpose that phantom shares
and other share-equivalents constitute Company Common Stock) of all warrants,
options,
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conversion rights, phantom shares or other share-equivalents, other
than any option held by Norwest, shall not have exceeded 10,000, 5,000 and
4,000, respectively.
(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 Company 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 Company 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 Company;
(ii) the amounts reported in the interim quarterly financial
statements of Company agree with the general ledger of Company;
(iii) the annual and quarterly financial statements of Company and
the Company Subsidiaries included in, or incorporated by reference in, the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published
rules and regulations thereunder;
(iv) from June 30, 1994 (or, if later, since the date of the most
recent unaudited consolidated financial statements of Company and the
Company Subsidiaries as may be included in the Registration Statement) to a
date 5 days prior to the effective date of the Registration Statement or 5
days prior to the Closing, there are no increases in long-term debt,
changes in the capital stock or decreases in stockholders' equity of
Company and the Company Subsidiaries, except in each case for changes,
increases or decreases which the Registration Statement discloses have
occurred or may occur or which are described in such letters. For the same
period, there have been no decreases in consolidated net interest income,
consolidated net interest income after provision for credit losses,
consolidated income before income taxes, consolidated net income and net
income per share amounts of Company and the Company Subsidiaries, or in
income before equity in undistributed income of subsidiaries, in each case
as compared with the comparable period of the preceding year, except in
each case for changes, increases or decreases which
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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 Company and the Company Subsidiaries, which appear in
the Registration Statement under the certain captions to be specified by
Norwest, and have compared certain of such amounts, percentages, numbers
and financial information with the accounting records of Company and the
Company Subsidiaries and have found them to be in agreement with financial
records and analyses prepared by Company included in the annual and
quarterly financial statements, except as disclosed in such letters.
(k) Company and the Company Subsidiaries considered as a whole shall not
have sustained since June 30, 1994 any material loss or interference with their
business from any civil disturbance or any fire, explosion, flood or other
calamity, whether or not covered by insurance.
(l) There shall be no reasonable basis for any proceeding, claim or action
of any nature seeking to impose, or that could reasonably be expected to result
in the imposition on Company or any Company Subsidiary of, any liability arising
from the release of hazardous substances under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
as amended, which has had or could reasonably be expected to have a material
adverse effect upon Company and its subsidiaries taken as a whole.
(m) 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 Company and
the Company Subsidiaries taken as a whole (other than changes in banking laws or
regulations, or interpretations thereof, that affect the banking industry
generally or changes in the general level of interest rates).
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Company or
any Company Subsidiary as of the Effective Date of the Merger ("Company
Employees") shall be eligible for participation in the employee welfare and
pension plans of Norwest, as in effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each Company 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 Merger:
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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
For the purpose of determining each Company Employee's benefit for the year in
which the Merger occurs under the Norwest vacation program, vacation taken by a
Company Employee in the year in which the Merger occurs will be deducted from
the total Norwest benefit.
(b) Employee Pension Benefit Plans.
-------------------------------
Each Company Employee shall be eligible for participation in the Norwest
Savings-Investment Plan (the "SIP"), subject to any eligibility requirements
applicable to the SIP (with full credit for years of past service to Company and
the Company Subsidiaries for the purpose of satisfying any eligibility and
vesting periods applicable to the SIP), and shall enter the SIP not later than
the first day of the calendar quarter which begins at least 32 days after the
Effective Date of the Merger.
Each Company Employee shall be eligible for participation, as a new employee, in
the Norwest Pension Plan under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of
Filing:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Mergers shall not have been consummated by May 31, 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;
or
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(iii) by Company or Norwest upon written notice to the other party if
any court or governmental authority of competent jurisdiction shall have
issued a final order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement;
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any liability
or damage to the other party hereto arising out of the breaching party's wilful
and material breach of the warranties and representations made by it, or wilful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by Company and Company Subsidiaries shall be borne by
Company and Company Subsidiaries, and all such expenses incurred by Norwest
shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
13. NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be delivered in
person or shall be mailed by first class registered or certified mail, postage
prepaid, addressed as follows:
If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to Company, Bank and Banrein:
W.H. Beery
President
Fridley State Bank
6315 University Avenue N.E.
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Fridley, MN 55432
with a copy to:
Donald C. Savelkoul
Attorney
Fridley State Bank Building
6315 University Avenue N.E.
Fridley, MN 55432
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Merger Agreement contain
the complete agreement between the parties hereto with respect to the Merger and
other transactions contemplated hereby and supersede all prior agreements and
understandings between the parties hereto with respect thereto.
15. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by a signed
writing, give any consent, take any action pursuant to paragraph 9 hereof or
otherwise, or waive any inaccuracies in the representations and warranties by
the other party and compliance by the other party with any of the covenants and
conditions herein.
17. AMENDMENT. At any time before the Time of Filing, the parties hereto,
by action taken by their respective Boards of Directors or pursuant to authority
delegated by their respective Boards of Directors, may amend this Agreement;
provided, however, that no amendment after approval by the shareholders of
Company shall be made which changes in a manner adverse to such shareholders the
consideration to be provided to said shareholders pursuant to this Agreement and
the Merger Agreements.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
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<PAGE>
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreements shall survive the
Mergers of Merger Co. with and into Company, Banrein Merger Co. with Banrein and
Bank with Norwest or except as set forth in paragraph 9(b), the termination of
this Agreement. Paragraph 10 shall survive the Mergers.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION BABBSCHA COMPANY
By: /s/ James R. Campbell By: /s/ Donald C. Savelkoul
----------------------------- -----------------------------
Its: Executive Vice President Its: President
----------------------------- -----------------------------
FRIDLEY STATE BANK
By: /s/ W.H. Beery
-----------------------------
Its: President
-----------------------------
BANREIN, INC.
By: /s/ Donald C. Savelkoul
------------------------------
Its: President
------------------------------
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
Between
NORWEST MERGER CORPORATION
a Minnesota corporation
(the merged corporation)
AND
BABBSCHA COMPANY
a Minnesota corporation
(the surviving corporation)
This Agreement and Plan of Merger dated as of __________, 19__, between
NORWEST MERGER CORPORATION, a Minnesota corporation (hereinafter sometimes
called "Norwest" and sometimes called the "merged corporation") and BABBSCHA
COMPANY, a Minnesota corporation ("Babbscha") (said corporations being
hereinafter sometimes referred to as the "constituent corporations"),
WHEREAS, Babbscha was incorporated by Articles of Incorporation filed in
the office of the Secretary of State of the State of Minnesota on August 1,
1962, and said corporation is now a corporation subject to and governed by the
provisions of the Minnesota Business Corporation Act. Babbscha has authorized
capital stock of _______ shares of common stock, divided into 10,000 shares of
Common Stock and no par value per share ("Babbscha Common Stock"). As of
_______, 19___, there were 10,000 shares of Babbscha Common Stock outstanding
and no shares were held in the treasury; and
WHEREAS, Norwest was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Minnesota on ________________
and said corporation is now a corporation subject to and governed by the
provisions of the Minnesota Business Corporation Act, with an authorized capital
stock of _________ shares of Common Stock, par value $________ per share
("Norwest Common Stock") of which ____________ shares were outstanding and
_________ shares were held in the treasury as of ___________, 1994; and
WHEREAS, Norwest Corporation ("Norwest Corporation"), which owns 100% of
the issued and outstanding Common Stock of Norwest, Babbscha, Fridley State Bank
and Banrein Corporation are parties to an Agreement and Plan of Reorganization
dated as of _________, 1994 (the "Reorganization Agreement"), setting forth
certain representations, warranties and covenants in connection with the merger
provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the constituent
corporations respectively deem it advisable for the welfare and advantage of
said corporations and for the best interests of the respective shareholders of
said corporations that said corporation merge and that Norwest be merged with
and into Babbscha, with Babbscha continuing as the surviving corporation, on the
terms and conditions hereinafter
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set forth in accordance with the provisions of the Minnesota Business
Corporation Act, which statutes permit such merger; and
WHEREAS, it is the intent of the parties to effect a merger which qualifies
as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Internal Revenue Code;
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of Babbscha and Norwest, in consideration of the premises and of
the mutual covenants and agreements contained herein and of the benefits to
accrue to the parties hereto, have agreed and do hereby agree that Norwest shall
be merged with and into Babbscha pursuant to the laws of the State of Minnesota,
and do hereby agree upon, prescribe and set forth the terms and conditions of
the merger of Norwest with and into Babbscha, the mode of carrying said merger
into effect, the manner and basis of converting the shares of Babbscha Common
Stock into shares of "Norwest Corporation Common Stock," and such other
provisions with respect to said merger as are deemed necessary or desirable, as
follows:
FIRST: At the time of merger Norwest shall be merged with and into
Babbscha, one of the constituent corporations, which shall be the surviving
corporation, and the separate existence of Norwest shall cease and the name of
the surviving corporation shall continue to be Babbscha Company.
SECOND: The Articles of Incorporation of Babbscha at the time of merger
shall be and remain the Articles of Incorporation of the surviving corporation
until amended according to law.
THIRD: The By-Laws of Babbscha at the time of merger shall be and remain
the By-Laws of the surviving corporation until amended according to the
provisions of the Articles of Incorporation of the surviving corporation or of
said By-Laws.
FOURTH: The following persons shall be the directors of the surviving
corporation and shall hold office from the time of merger until their respective
successors are elected and qualify:
___________________ _____________________
___________________ _____________________
___________________ _____________________
FIFTH: The officers of Norwest at the time of merger shall be the
officers of the surviving corporation and shall hold office from the time of
merger until their respective successors are elected or appointed and qualify.
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SIXTH: The manner and basis of converting the shares of Babbscha Common
Stock into shares of common stock of Norwest Corporation, $1 2/3 per share par
value ("Norwest Corporation Common Stock") shall be as follows:
1. Each of the shares of Babbscha Common Stock outstanding immediately
prior to the time of merger (other than shares as to which statutory
dissenters' rights have been exercised) shall at the time of merger, by
virtue of the merger and without any action on the part of the holder or
holders thereof, be converted into and exchanged for a number of shares of
Norwest Corporation Common Stock determined by dividing 152,140 by the
number of shares of Babbscha Common Stock outstanding immediately prior to
the merger.
2. As soon as practicable after the merger becomes effective, each
holder of a certificate for shares of Babbscha Common Stock outstanding
immediately prior to the time of merger shall be entitled, upon surrender
of such certificate for cancellation to the surviving corporation or to
Norwest Bank Minnesota, National Association, as the designated agent of
the surviving corporation (the "Agent"), to receive a new certificate for
the number of whole shares of Norwest Corporation Common Stock to which
such holder shall be entitled on the basis above set forth. Until so
surrendered each certificate which, immediately prior to the time of
merger, represented shares of Babbscha Common Stock shall not be
transferable on the books of the surviving corporation but shall be deemed
(except for the payment of dividends as provided below) to evidence
ownership of the number of whole shares of Norwest Corporation Common Stock
into which such shares of Babbscha 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 Corporation
Common Stock as of any date subsequent to the effective date of merger
shall be paid to such holder with respect to the Norwest Corporation Common
Stock represented by such certificate, but, upon surrender and exchange
thereof as herein provided, there shall be paid by the surviving
corporation or the Agent to the record holder of such certificate for
Norwest Corporation Common Stock issued in exchange therefor an amount with
respect to such shares of Norwest Corporation Common Stock equal to all
dividends that shall have been paid or become payable to holders of record
of Norwest Corporation Common Stock between the effective date of merger
and the date of such exchange.
3. If between the date of the Reorganization Agreement and the time of
merger, shares of Norwest Corporation 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
Corporation Common Stock into which a share of Babbscha Common Stock shall
be converted
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on the basis above set forth, will be appropriately and proportionately
adjusted so that the number of such shares of Norwest Corporation Common
Stock into which a share of Babbscha Common Stock shall be converted will
equal the number of shares of Norwest Corporation Common Stock which the
holders of shares of Babbscha Common Stock would have received pursuant to
such reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or stock dividend had the record date therefor been
immediately following the time of merger.
4. No fractional shares of Norwest Corporation Common Stock and no
certificates or scrip certificates therefor shall be issued to represent
any such fractional interest, and any holder of a fractional interest shall
be paid an amount of cash equal to the product obtained by multiplying the
fractional share interest to which such holder is entitled by the average
of the closing prices of a share of Norwest Corporation Common Stock as
reported by the consolidated tape of the New York Stock Exchange for each
of the five (5) trading days immediately preceding the time of merger.
5. Each share of Norwest Common Stock issued and outstanding at the time
of merger shall be converted into _____ shares of the surviving corporation
at the time of merger.
6. Each share of Norwest Common Stock held in the treasury of Norwest at
the time of merger shall be canceled.
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
1. The effective date of merger shall be the date on which this
Agreement or the Articles of Merger (as described in subparagraph 1(c) of
this Article Seventh) shall be delivered to and filed by the Secretary of
State of the State of Minnesota; provided, however, that all of the
following actions shall have been taken in the following order:
a. This Agreement shall be approved and adopted on behalf of
Babbscha and Norwest in accordance with the Minnesota Business
Corporation Act; and
b. Articles of merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by
the Minnesota Business Corporation Act, shall be executed by the
President or a Vice President of Babbscha and by the Secretary or an
Assistant Secretary of Babbscha, and by the President or a Vice
President of Norwest and by the Secretary or an Assistant Secretary
of Norwest, and
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shall be filed in the office of the Secretary of State of the State of
Minnesota in accordance with the Minnesota Business Corporation Act.
2. The merger shall become effective as of 11:59 p.m. (the "time of
merger") on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Norwest shall cease, and the corporate
existence and identity of Babbscha shall continue as the surviving
corporation.
2. The merger shall have the other effects prescribed by Section ______
of the Minnesota Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
1. For the convenience of the parties and to facilitate the filing of
this Agreement, any number of counterparts hereof may be executed and each
such counterpart shall be deemed to be an original instrument.
2. This Agreement and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Minnesota.
3. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
4. At any time prior to the filing of Articles of Merger with the
Secretary of State of the State of Minnesota subject to the provisions of
the Reorganization Agreement this Agreement may be terminated upon approval
by the Boards of Directors of either of the constituent corporations
notwithstanding the approval of the shareholders of either constituent
corporation.
A-41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan
of Merger to be signed in their respective corporate names by the undersigned
officers and their respective corporate seals to be affixed hereto, pursuant to
authority duly given by their respective Boards of Directors, all as of the day
and year first above written.
NORWEST CORPORATION
By: ________________________
Its: ________________________
(Corporate Seal)
Attest:
__________________________
Secretary
BABBSCHA COMPANY
By: _________________________
Its: _________________________
(Corporate Seal)
Attest:
___________________________
Secretary
A-42
<PAGE>
EXHIBIT B
SEE APPENDIX B TO THE
PROXY STATEMENT-PROSPECTUS
A-43
<PAGE>
EXHIBIT C
SEE APPENDIX C TO THE
PROXY STATEMENT-PROSPECTUS
A-44
<PAGE>
EXHIBIT D
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attn: Secretary
Gentlemen:
I have been advised that I might be considered to be an "affiliate," as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act") of [Babbscha
Company] ("Babbscha") [Banrein Corporation] ("Banrein"), a [Minnesota
corporation] [Fridley State Bank, a Minnesota banking corporation] ("Bank").
Pursuant to an Agreement and Plan of Reorganization, dated as of January
29, 1993, as amended July 14, 1993 (the "Reorganization Agreement"), between
Babbscha, Bank and Banrein , and Norwest Corporation, a Delaware corporation
("Norwest") it is contemplated that a wholly owned subsidiary of Norwest will
merge with and into Babbscha, Banrein will merge with and into a wholly owned
subsidiary of Norwest and Bank will consolidate with and into a wholly owned
banking subsidiary of Norwest (collectively, the "Reorganization") and as a
result, I will receive in exchange for each [share of [Babbscha] [Banrein]
Common Stock, no par value per share, of [Babbscha] [Banrein] ("[Babbscha]
[Banrein] Common Stock") owned by me immediately prior to the Effective Time of
the Mergers] [or each share of Bank Common Stock, par value $37.50 per share, of
the Bank owned by me immediately prior to the Effective Time of the Merger (as
defined in the Reorganization Agreement)], a number of shares of Common Stock,
par value $1 2/3 per share, of Norwest ("Norwest Common Stock"), as more
specifically set forth in the Reorganization Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Norwest Common Stock held by me during the 30 days prior to the
Effective Time of the Mergers.
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Norwest Common Stock issued to me pursuant to the Merger (the "Stock")
except (a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or (c) in an offering registered under the Securities Act.
A-45
<PAGE>
I consent to the endorsement of the Stock issued to me pursuant to the
Mergers with a restrictive legend which will read substantially as follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933,
as amended (the "Act"), applies, and may be sold or otherwise transferred
only in compliance with the limitations of such Rule 145, or upon receipt
by Norwest Corporation of an opinion of counsel reasonably satisfactory to
it that some other exemption from registration under the Act is available,
or pursuant to a registration statement under the Act."
Norwest's transfer agent shall be given an appropriate stop transfer order
and shall not be required to register any attempted transfer of the shares of
the Stock, unless the transfer has been effected in compliance with the terms of
this letter agreement.
It is understood and agreed that this letter agreement shall terminate and
be of no further force and effect and the restrictive legend set forth above
shall be removed by delivery of substitute certificates without such legend, and
the related stop transfer restrictions shall be lifted forthwith, if (i) any
such shares of Stock shall have been registered under the Securities Act for
sale, transfer or other disposition by me or on my behalf and are sold,
transferred or otherwise disposed of, or (ii) any such shares of Stock are sold
in accordance with the provisions of paragraphs (c), (e), (f) and (g) of Rule
144 promulgated under the Securities Act, or (iii) I am not at the time an
affiliate of Norwest and have been the beneficial owner of the Stock for at
least two years (or such other period as may be prescribed thereunder) and
Norwest has filed with the Commission all of the reports it is required to file
under the Securities Exchange Act of 1934, as amended, during the preceding
twelve months, or (iv) I am not and have not been for at least three months an
affiliate of Norwest and have been the beneficial owner of the Stock for at
least three years (or such other period as may be prescribed by the Securities
Act, and the rules and regulations promulgated thereunder), or (v) Norwest shall
have received an opinion of counsel acceptable to Norwest to the effect that the
stock transfer restrictions and the legend are not required.
I have carefully read this letter agreement and the Reorganization
Agreement and have discussed their requirements and other applicable limitations
upon my ability to offer to sell, transfer or otherwise dispose of shares of the
Stock, to the extent I felt necessary, with my counsel or counsel for Babbscha
[Bank] [Banrein].
Sincerely,
_________________________
-2-
A-46
<PAGE>
APPENDIX B
BANREIN MERGER AGREEMENT
<PAGE>
AGREEMENT AND PLAN OF MERGER
Between
NORWEST MERGER CORPORATION
a Minnesota corporation
(the surviving corporation)
AND
BANREIN COMPANY
a Minnesota corporation
(the merged corporation)
This Agreement and Plan of Merger dated as of __________, 19__, between
NORWEST MERGER CORPORATION, a Minnesota corporation (hereinafter sometimes
called "Norwest" and sometimes called the "surviving corporation") and BANREIN
CORPORATION, a Minnesota corporation ("Banrein") (said corporations being
hereinafter sometimes referred to as the "constituent corporations"),
WHEREAS, Banrein was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Minnesota on March 27, 1962,
and said corporation is now a corporation subject to and governed by the
provisions of the Minnesota Business Corporation Act. Banrein has authorized
capital stock of _______ shares of common stock, divided into 4,000 shares of
Common Stock and with no par value per share ("Banrein Common Stock"). As of
_______, 19___, there were 4,000 shares of Banrein Common Stock outstanding and
no shares were held in the treasury; and
WHEREAS, Norwest was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Minnesota on ________________
and said corporation is now a corporation subject to and governed by the
provisions of the Minnesota Business Corporation Act, with an authorized capital
stock of _________ shares of Common Stock, par value $________ per share
("Norwest Common Stock") of which ____________ shares were outstanding and
_________ shares were held in the treasury as of ___________, 1994; and
WHEREAS, Norwest Corporation ("Norwest Corporation"), which owns 100% of
the issued and outstanding Common Stock of Norwest, Babbscha Company
("Babbscha"), Fridley State Bank and Banrein are parties to an Agreement and
Plan of Reorganization dated as of _________, 1994 (the "Reorganization
Agreement"), setting forth certain representations, warranties and covenants in
connection with the merger provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the constituent
corporations respectively deem it advisable for the welfare and advantage of
said corporations and for the best interests of the respective shareholders of
said corporations that said corporation merge and that Banrein be merged with
and into Norwest, with
<PAGE>
Norwest continuing as the surviving corporation, on the terms and conditions
hereinafter set forth in accordance with the provisions of the Minnesota
Business Corporation Act, which statutes permit such merger; and
WHEREAS, it is the intent of the parties to effect a merger which qualifies
as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Internal Revenue Code;
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of Banrein and Norwest, in consideration of the premises and of the
mutual covenants and agreements contained herein and of the benefits to accrue
to the parties hereto, have agreed and do hereby agree that Banrein shall be
merged with and into Norwest pursuant to the laws of the State of Minnesota, and
do hereby agree upon, prescribe and set forth the terms and conditions of the
merger of Banrein with and into Norwest, the mode of carrying said merger into
effect, the manner and basis of converting the shares of Banrein Common Stock
into shares of "Norwest Corporation Common Stock," and such other provisions
with respect to said merger as are deemed necessary or desirable, as follows:
FIRST: At the time of merger Banrein shall be merged with and into
Norwest, one of the constituent corporations, which shall be the surviving
corporation, and the separate existence of Banrein shall cease and the name of
the surviving corporation shall continue to be Norwest Merger Corporation.
SECOND: The Articles of Incorporation of Norwest at the time of merger
shall be and remain the Articles of Incorporation of the surviving corporation
until amended according to law.
THIRD: The By-Laws of Norwest at the time of merger shall be and remain
the By-Laws of the surviving corporation until amended according to the
provisions of the Articles of Incorporation of the surviving corporation or of
said By-Laws.
FOURTH: The following persons shall be and remain the directors of the
surviving corporation and shall hold office from the time of merger until their
respective successors are elected and qualify:
____________________ _____________________
____________________ _____________________
____________________ _____________________
FIFTH: The officers of Norwest at the time of merger shall be and remain
the officers of the surviving corporation and shall hold office from the time of
merger until their respective successors are elected or appointed and qualify.
B-2
<PAGE>
SIXTH: The manner and basis of converting the shares of Banrein Common
Stock into shares of common stock of Norwest Corporation, $1 2/3 per share par
value ("Norwest Corporation Common Stock") shall be as follows:
1. Each of the shares of Banrein Common Stock outstanding immediately
prior to the time of merger (other than shares as to which statutory
dissenters' rights have been exercised) shall at the time of merger, by
virtue of the merger and without any action on the part of the holder or
holders thereof, be converted into and exchanged for a number of shares of
Norwest Corporation Common Stock determined by dividing 15,653 by the
number of shares of Banrein Common Stock owned by shareholders other than
Babbscha immediately prior to the merger.
2. As soon as practicable after the merger becomes effective, each holder
of a certificate for shares of Banrein Common Stock outstanding immediately
prior to the time of merger shall be entitled, upon surrender of such
certificate for cancellation to the surviving corporation or to Norwest
Bank Minnesota, National Association, as the designated agent of the
surviving corporation (the "Agent"), to receive a new certificate for the
number of whole shares of Norwest Corporation Common Stock to which such
holder shall be entitled on the basis above set forth. Until so
surrendered each certificate which, immediately prior to the time of
merger, represented shares of Banrein Common Stock shall not be
transferable on the books of the surviving corporation but shall be deemed
(except for the payment of dividends as provided below) to evidence
ownership of the number of whole shares of Norwest Corporation Common Stock
into which such shares of Banrein 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 Corporation
Common Stock as of any date subsequent to the effective date of merger
shall be paid to such holder with respect to the Norwest Corporation Common
Stock represented by such certificate, but, upon surrender and exchange
thereof as herein provided, there shall be paid by the surviving
corporation or the Agent to the record holder of such certificate for
Norwest Corporation Common Stock issued in exchange therefor an amount with
respect to such shares of Norwest Corporation Common Stock equal to all
dividends that shall have been paid or become payable to holders of record
of Norwest Corporation Common Stock between the effective date of merger
and the date of such exchange.
3. If between the date of the Reorganization Agreement and the time of
merger, shares of Norwest Corporation 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
Corporation Common Stock into which a share of Banrein Common Stock shall
be converted on the
B-3
<PAGE>
basis above set forth, will be appropriately and proportionately adjusted
so that the number of such shares of Norwest Corporation Common Stock into
which a share of Banrein Common Stock shall be converted will equal the
number of shares of Norwest Corporation Common Stock which the holders of
shares of Banrein Common Stock would have received pursuant to such
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or stock dividend had the record date therefor been
immediately following the time of merger.
4. No fractional shares of Norwest Corporation Common Stock and no
certificates or scrip certificates therefor shall be issued to represent
any such fractional interest, and any holder of a fractional interest shall
be paid an amount of cash equal to the product obtained by multiplying the
fractional share interest to which such holder is entitled by the average
of the closing prices of a share of Norwest Corporation Common Stock as
reported by the consolidated tape of the New York Stock Exchange for each
of the five (5) trading days immediately preceding the time of merger.
5. Each share of Norwest Common Stock issued and outstanding at the time
of merger shall be converted into _____ shares of the surviving corporation
at the time of merger.
6. Each share of Norwest Common Stock held in the treasury of Norwest at
the time of merger shall be canceled.
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
1. The effective date of merger shall be the date on which this Agreement
or the Articles of Merger (as described in subparagraph 1(c) of this
Article Seventh) shall be delivered to and filed by the Secretary of State
of the State of Minnesota; provided, however, that all of the following
actions shall have been taken in the following order:
a. This Agreement shall be approved and adopted on behalf of Banrein
and Norwest in accordance with the Minnesota Business Corporation Act;
and
b. Articles of merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by
the Minnesota Business Corporation Act, shall be executed by the
President or a Vice President of Banrein and by the Secretary or an
Assistant Secretary of Banrein, and by the President or a Vice
President of Norwest and by the Secretary or an Assistant Secretary of
Norwest, and shall be filed in the
B-4
<PAGE>
office of the Secretary of State of the State of Minnesota in
accordance with the Minnesota Business Corporation Act.
2. The merger shall become effective as of 11:59 p.m. (the "time of
merger") on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Banrein shall cease, and the corporate
existence and identity of Norwest shall continue as the surviving
corporation.
2. The merger shall have the other effects prescribed by Section ______
of the Minnesota Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
1. For the convenience of the parties and to facilitate the filing of
this Agreement, any number of counterparts hereof may be executed and each
such counterpart shall be deemed to be an original instrument.
2. This Agreement and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Minnesota.
3. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
4. At any time prior to the filing of Articles of Merger with the
Secretary of State of the State of Minnesota subject to the provisions of
the Reorganization Agreement this Agreement may be terminated upon approval
by the Boards of Directors of either of the constituent corporations
notwithstanding the approval of the shareholders of either constituent
corporation.
B-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan
of Merger to be signed in their respective corporate names by the undersigned
officers and their respective corporate seals to be affixed hereto, pursuant to
authority duly given by their respective Boards of Directors, all as of the day
and year first above written.
NORWEST CORPORATION
By: ________________________
Its: ________________________
(Corporate Seal)
Attest:
__________________________
Secretary
BANREIN CORPORATION
By: _________________________
Its: _________________________
(Corporate Seal)
Attest:
___________________________
Secretary
B-6
<PAGE>
APPENDIX C
BANK MERGER AGREEMENT
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is dated as of
_______________,1995, between FRIDLEY STATE BANK ("Fridley") and NORWEST INTERIM
BANK FRIDLEY, NATIONAL ASSOCIATION [NORWEST BANK MINNESOTA, N.A.] ("Norwest
Bank").
PREAMBLE
Fridley and Norwest Bank acknowledge and confirm the following:
(a) Fridley is a Minnesota banking corporation having its principal office
and place of business at 6315 University Avenue N.E., Fridley, MN 55432.
(b) As of ______________, 1995, Fridley had a capital of $________,
divided into 5,000 shares of common stock, par value $37.50 per share ("Fridley
Common Stock"), and surplus of $__________ and retained earnings of
$_____________.
(c) Norwest Bank is a national banking association having its principal
office and place of business at 6315 University Avenue N.E., Fridley, MN 55432.
(d) As of ___________, 1995, Norwest Bank had a capital of $________,
divided into _______ shares of common stock, par value $100 per share ("Norwest
Bank Common Stock"), and surplus of $_________.
(e) Babbscha Company ("Company"), Fridley, Banrein Corporation and Norwest
Corporation ("Norwest") have entered into an Agreement dated as of ____________
(the "Reorganization Agreement"), a copy of which has been presented to and
approved by the Board of Directors of Fridley and the Board of Directors of
Norwest Bank, which Reorganization Agreement contemplates the transactions to be
effected by this Merger Agreement, and a copy of which is attached as an Exhibit
hereto.
(f) A majority of the Board of Directors of Fridley and a majority of the
Board of Directors of Norwest Bank have duly approved this Merger Agreement and
authorized its execution.
(g) 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 368(a)(2)(D) of the Internal Revenue Code.
<PAGE>
AGREEMENTS
IN CONSIDERATION OF THE PREMISES, Fridley and Norwest Bank make this
Consolidation Agreement and fix the terms and conditions of the consolidation of
Fridley and Norwest Bank as follows:
SECTION 1
1.1 Pursuant to the authority of and in accordance with the provisions of
12 U.S.C. 215a, Fridley and Norwest Bank (hereinafter collectively called
"Merged or Merging Banks") shall be merged under the charter of Norwest Bank.
1.2 The name of the merged bank (the "New Bank") shall be Norwest Bank
Fridley, N.A. [Norwest Bank Minnesota, N.A.]
1.3 The merger shall be effective as of 12:01 a.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 merger (the
"Effective Date").
1.4 The business of the New Bank shall be that of a national banking
association and shall be conducted at the main office of [the New Bank, which
shall be located at 6315 University Avenue N.E., Fridley, MN 55432] [Norwest
Bank Minnesota address], and at its legally established branches.
1.5 As of the Effective Date, the Articles of Association of the New Bank
shall read in their entirety as set forth in Appendix A attached hereto, and the
New Bank shall be authorized under such Articles of Association to issue _______
shares of common stock, par value $100 per share.
SECTION 2
As of the Effective Date:
2.1 The corporate existence of Norwest Bank and Fridley shall be merged,
and the New Bank shall be deemed to be the same corporation as each of the
Merging Banks.
2.2 All rights, franchises, and interests of the Merging Banks in and to
every type of property (real, personal and mixed) and choses in action shall be
transferred to and vested in the New Bank by virtue of the merger without any
deed or other transfer. The New Bank, upon the merger 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
C-2
<PAGE>
same extent as such rights, franchises, and interests were held or enjoyed by
either of the Merging Banks at the time of merger.
2.3 The New 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 Merging Banks existing as of the Effective Date.
2.4 The amount of capital stock of the New Bank shall be $________,
divided into _______ shares of common stock, each of $100 par value, and at the
time the consolidation shall become effective, the New 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 Merging Banks
as stated in the preamble of this Merger Agreement, adjusted, however, for the
results of operations, and the payment of dividends, if any, between
___________, 199__ and the Effective Date.
SECTION 3
3.1 Subject to the provisions of 12 USC (S) 215a regarding rights of
dissenting shareholders, the shares of common stock of the Merging Banks issued
and outstanding immediately prior to the Effective Date shall, as of the
Effective Date, by virtue of the merger and without any action on the part of
the holder or holders thereof, be converted as follows:
(a) The shares of Fridley Common Stock outstanding immediately prior to the
time of merger and then owned by Company shall at the time of consolidation
be converted and exchanged for ______ shares of common stock of the New
Bank, each of $100 par value, plus cash in the amount of $__________, which
shares shall constitute the entire number of shares of common stock of the
New Bank authorized, issued and outstanding after the merger; and, upon
surrender of the certificates evidencing the shares of the Fridley Common
Stock owned by Company, the New Bank shall issue to Company a certificate
for ________ shares of common stock of the New Bank, which shares shall be
fully-paid and nonassessable.
(b) Each share of Fridley Common Stock outstanding immediately prior to the
time of consolidation and owned by a shareholder other than Company shall
at the time of merger, by virtue of the merger and without any action on
the part of the holder or holders thereof, be converted into a number of
shares of common stock of Norwest of the par value of $1 2/3 per share
("Norwest Common Stock") determined by dividing 108,207 by the number of
shares of Fridley Common Stock owned by shareholders other than Company
immediately prior to the Effective Time of the Merger.
C-3
<PAGE>
(c) As soon as practicable after the consolidation becomes effective, each
holder of a certificate for shares of Fridley Common Stock outstanding
immediately prior to the time of merger shall be entitled, upon surrender
of such certificate for cancellation to Norwest Bank Minnesota, National
Association, as the designated agent of the New Bank (the "Agent"), to
receive a new certificate for the number of whole shares of Norwest Common
Stock to which such holder shall be entitled on the basis above set forth.
Until so surrendered each certificate which, immediately prior to the time
of merger, represented shares of Fridley Common Stock shall not be
transferable on the books of the New 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
Fridley Common Stock have been converted on the basis above set forth;
provided, however, that, until the holder of such certificate shall have
surrendered the same for exchange as above set forth, no dividend payable
to holders of record of Norwest Common Stock as of any date subsequent to
the effective date of merger shall be paid to such holder with respect to
the Norwest Common Stock represented by such certificate, but, upon
surrender and exchange thereof as herein provided, there shall be paid by
the New Bank or the Agent to the record holder of such certificate for
Norwest Common Stock issued in exchange therefor an amount with respect to
such shares of Norwest Common Stock equal to all dividends that shall have
been paid or become payable to holders of record of Norwest Common Stock
between the effective date of merger and the date of such exchange.
(d) If between the date of the Reorganization Agreement and the Effective
Time of the Mergers (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 Fridley 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 Fridley Common Stock shall be converted will equal the number of
shares of Norwest Common Stock which the holders of shares of Fridley
Common Stock would have received pursuant to such reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or stock dividend had the record date therefor been
immediately following the time of Effective Time of the Mergers.
(e) No fractional shares of Norwest Common Stock and no certificates or
scrip certificates therefor shall be issued to represent any such
fractional interest, and any holder of a fractional interest shall be paid
an amount of cash equal to the product obtained by multiplying the
fractional share interest to which such holder is entitled by the average
of the closing prices of a share of Norwest Common
C-4
<PAGE>
Stock as reported by the consolidated tape of the New York Stock Exchange
for each of the five (5) trading days immediately preceding the time of the
merger.
(f) The presently outstanding 1,000 shares of Norwest Bank Common Stock
shall be deemed canceled. Shares of Norwest Bank Common Stock thereafter
surrendered to the New Bank shall be canceled and no further transfer or
registering of Norwest Bank Common Stock shall occur after the Effective
Date.
3.2 From and after the Effective Date, there shall be no transfers on the
stock transfer books of Merged Banks of the shares of Fridley Common Stock which
were issued and outstanding immediately prior to the Effective Date.
SECTION 4
4.1 The by-laws of Norwest Bank as they exist at the Effective Date shall
continue in full force as the by-laws of the New 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 New 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 Norwest holding office at the Effective Date shall
continue as the officers of the New Bank for the term prescribed in the by-laws
or until the Board of Directors otherwise shall determine.
4.4 From and after the Effective Date, the Articles of Association of the
Association shall read in their entirety as set forth in Appendix A attached
hereto and made a part hereof.
C-5
<PAGE>
SECTION 5
5.1 This Merger Agreement shall be submitted to the shareholders of
Fridley and Norwest Bank, respectively, for approval at meetings to be called
and held in accordance with the articles of incorporation of Fridley and the
articles of association of Norwest 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 Merging Banks owning at
least two-thirds of its capital stock outstanding.
SECTION 6
6.1 The merger shall be subject to and conditioned upon the following:
(a) approval of this Merger Agreement by the shareholders of Fridley and
Norwest Bank as required by law;
(b) approval of the merger by all appropriate banking and regulatory
authorities and the satisfaction of all other requirements prescribed by
law necessary for consummation of the merger; and
(c) consummation of the merger of a wholly owned subsidiary of Norwest
into Company as defined in and contemplated by the Reorganization
Agreement.
6.2 At any time before the Effective Date, if any of the following
circumstances obtain, this Merger Agreement may be terminated, at the election
of Fridley or Norwest Bank, by written notice from the party so electing to the
other, or the consummation of the merger may be postponed for such period, and
subject to such further rights of Fridley and Norwest Bank, or either of them,
to terminate this Merger Agreement as Fridley and Norwest Bank may agree in
writing:
(a) by mutual consent of the Boards of Directors of the Merging Banks if
consummation of the merger 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 Fridley and Norwest Bank, by mutual consent of their respective
Boards of Directors, may amend this Merger Agreement before the Effective Date;
provided, however, that after this Merger Agreement has been approved by the
shareholders of
C-6
<PAGE>
Fridley, no such amendment shall affect the rights of such shareholders of
Fridley in a manner which is materially adverse to such shareholders.
7.2 This Merger 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, Fridley and Norwest Bank have caused this Merger
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 Merging Bank's Board of Directors, acting by a
majority thereof.
(SEAL)
FRIDLEY STATE BANK
ATTEST:
By: ______________________________
_______________________ Its: ______________________________
Cashier
NORWEST [INTERIM]
(NO SEAL) BANK [FRIDLEY] [MINNESOTA],
NATIONAL ASSOCIATION
ATTEST:
By: ______________________________
_______________________ Its: ______________________________
Secretary
C-7
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF __________)
On this _____ day of __________, 1994, before me, a Notary Public for the
State and County aforesaid, personally came ____________________ , as President,
and ____________________, as Cashier, of FRIDLEY STATE BANK, 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 _________________
C-8
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF __________)
On this _____ day of __________, 1994, before me, a Notary Public for the
State and County aforesaid, personally came ____________________ , as President
and ____________________, as Secretary, of NORWEST [INTERIM] BANK [FRIDLEY]
[MINNESOTA], 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 _________________
C-9
<PAGE>
APPENDIX D
MINNESOTA STATUTES
SECTIONS 302A.471 AND 302A.473
<PAGE>
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.--Subdivision 1. Actions
creating rights. A shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, any of
the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of
the shares, including a provision respecting a sinking fund for the redemption
or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase shares or
securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or
to cumulate votes, except as the right may be excluded or limited through the
authorization or issuance of securities of an existing or new class or series
with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right to
obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation not made in the usual or
regular course of its business, but not including a disposition in dissolution
described in section 302A.725, subdivision 2, or a disposition pursuant to an
order of a court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year after
the date of disposition;
(c) A plan of reorganization, whether under this chapter or under chapter
322B, to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B,
to which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
<PAGE>
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3. Rights not to apply. The right to obtain payment under this
section does not apply to a shareholder of the surviving corporation in a
reorganization, if the shares of the shareholder are not entitled to be voted on
the reorganization.
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.--Subdivision 1.
Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by reorganization of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1 up
to and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If a proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
D-2
<PAGE>
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the shares
or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest within
30 days after the corporation mails the remittance under subdivision 5, and
demand
D-3
<PAGE>
payment of the difference. Otherwise, a dissenter is entitled only to the amount
remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a dissenter. The fair
value of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment for the amount by which
the fair value of the shares as determined by the court, plus interest, exceeds
the amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to the
dissenter under subdivision 5 exceeds the fair value of the shares as determined
by the court, plus interest.
Subd. 8. Cost; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
D-4
<PAGE>
APPENDIX E
MINNESOTA STATUTES
SECTION 49.41
<PAGE>
49.41 RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder not voting in favor of the agreement of consolidation or
merger at the meeting prescribed in section 49.37 may, at that meeting, or
within 20 days thereafter, object to the object to the consolidation or merger
and demand payment for that person's stock. If the consolidation or merger
takes effect at any time after this demand, the stockholder may, at any time
within 60 days thereafter, apply to the district court in the county wherein is
situated the principal place of business of the corporation with which the other
or others are consolidated or merged, for the appointment of three persons to
appraise the value of that person's stock. The court shall thereupon appoint
these appraisers and designate the time and place of their first meeting, with
such directions in regard to their proceedings as shall be deemed proper, and
also direct the time and manner in which payment shall be made of the value of
that person's stock to the stockholder. The appraisers shall meet at the time
and place designated, after being duly sworn to discharge their duties honestly
and faithfully, make and certify a written estimate of the value of the stock at
the time of the appraisal, and deliver one copy to the corporation and another
to the stockholder, if demanded. The charges and expenses of the appraisers
shall be paid one-half by the stockholder and one-half by the corporation. When
the corporation shall have paid the appraised value of this stock, the stock
shall be canceled and this stockholder shall cease to be a member of the
corporation or to have any interest in this stock or in the corporation or in
the corporate property, and this stock may be held and disposed of by the
corporation for its own benefit.
E-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
-----------------------------------------
Section 145 of the Delaware General Corporation Law authorizes indemnification
of directors and officers of a Delaware corporation under certain circumstances
against expenses, judgments, and the like in connection with an action, suit, or
proceeding. Article Fourteenth of the Certificate of Incorporation of the
registrant provides for broad indemnification of directors and officers of the
registrant.
Item 21. Exhibits and Financial Statement Schedules
------------------------------------------
Exhibits:
- --------
2(a) -- Agreement and Plan of Reorganization, dated as of September 9, 1994,
among Babbscha Company, Banrein, Inc., and Fridley State Bank, and
Norwest Corporation, and form of Agreement and Plan of Merger
between Babbscha Company and Merger Co. (the "Babbscha Merger")
(included in Proxy Statement-Prospectus as Appendix A).
2(b) -- Form of Agreement and Plan of Merger between Banrein Merger Co. and
Banrein, Inc. (the "Banrein Merger") (included in Proxy Statement-
Prospectus as Appendix B).
2(c) -- Form of Agreement and Plan of Merger between Fridley State Bank and
Norwest Interim Bank Fridley, N.A. (the "Bank Merger") (included in
Proxy Statement-Prospectus as Appendix C).
4(a) -- Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(b) to the Registrant's Current Report on Form
8-K dated June 28, 1993 (File No. 1-2979)).
4(b) -- Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's ESOP Cumulative Convertible Preferred
Stock (incorporated by reference to Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994
(File No. 1-2979)).
4(c) -- Certificate of Designations of Powers, Preferences, and Rights of the
Registrant's Cumulative Tracking Preferred Stock (incorporated by
reference to Exhibit 3 to Norwest's Current Report on Form 8-K dated
January 9, 1995.)
4(d) -- By-Laws of the Registrant, as amended (incorporated herein by
reference to Exhibit 4(c) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1991 (File No. 1-2979)).
II-1
<PAGE>
4(e) -- Rights Agreement, dated as of November 22, 1988, between Norwest
Corporation and Citibank, N.A., including as Exhibit A the form of
Certificate of Designation of Powers, Preferences and Rights setting
forth the terms of the Series A Junior Participating Preferred Stock,
without par value, (incorporated herein by reference to Exhibit 1 to
the Registrant's Form 8-A dated December 6, 1988 (File No. 1-2979))
and Certificates of Adjustment pursuant to Section 12 of the Rights
Agreement (incorporated herein by reference to Exhibit 3 to the
Registrant's Form 8 dated July 21, 1989, and to Exhibit 4 to the
Registrant's Form 8-A/A dated June 28, 1993 (File No. 1-2979)).
5 -- Opinion of General Counsel of the Registrant.
8(a) -- Opinion of Briggs & Morgan, P.A. with respect to the Babbscha
Merger.*
8(b) -- Opinion of Briggs & Morgan, P.A. with respect to the Banrein Merger.*
8(c) -- Opinion of Briggs & Morgan, P.A. with respect to the Bank Merger.*
23(a) -- Consent of General Counsel of the Registrant (included as part of
Exhibit 5 filed herewith).
23(b) -- Consent of Briggs & Morgan, P.A. (included as part of Exhibits 8(a)
to 8(c)).*
23(c) -- Consent of KPMG Peat Marwick LLP with respect to Norwest.
23(d) -- Consent of KPMG Peat Marwick LLP with respect to Babbscha and
subsidiaries.
24 -- Powers of Attorney.
99(a) -- Form of proxy for Special Meeting of Shareholders of Babbscha
Company.*
99(b) -- Form of proxy for Special Meeting of Shareholders of Banrein, Inc.*
99(c) Form of proxy for Special Meeting of Stockholders of the Bank.*
- ----------
*To be filed by amendment.
Item 22. Undertakings
------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being made,
a posteffective amendment to this registration statement (i) to
include any prospectus required by section 10(a)(3) of the Securities
Act of 1933, (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent posteffective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement, and (iii) to
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a posteffective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated
II-3
<PAGE>
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
posteffective amendment all information concerning a Reorganization, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Minneapolis, State of Minnesota, on the 30th day of January,
1995.
NORWEST CORPORATION
By: /s Richard M. Kovacevich
-----------------------------------
Richard M. Kovacevich
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed on the 30th day of January,
1995, by the following persons in the capacities indicated:
/s Richard M. Kovacevich President and Chief Executive Officer
------------------------
Richard M. Kovacevich (Principal Executive Officer)
/s/ John T. Thornton Executive Vice President and Chief
--------------------
John T. Thornton Financial Officer
(Principal Financial Officer)
/s/ Michael A. Graf Senior Vice President and Controller
-------------------
Michael A. Graf (Principal Accounting Officer)
DAVID A. CHRISTENSEN )
GERALD J. FORD )
PIERSON M. GRIEVE )
CHARLES M. HARPER )
N. BERNE HART )
WILLIAM A. HODDER )
LLOYD P. JOHNSON ) A majority of the
REATHA CLARK KING ) Board of Directors*
RICHARD M. KOVACEVICH)
RICHARD S. LEVITT )
RICHARD D. McCORMICK )
CYNTHIA H. MILLIGAN )
JOHN E. PEARSON )
IAN M. ROLLAND )
STEPHEN E. WATSON )
MICHAEL W. WRIGHT )
---------
*Richard M. Kovacevich, by signing his name hereto, does hereby sign this
document on behalf of each of the directors named above pursuant to powers of
attorney duly executed by such persons.
/s/ Richard M. Kovacevich
--------------------------------
Richard M. Kovacevich
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Form
Number Description of Filing
- ------- ----------- ---------
<S> <C> <C>
2(a) Agreement and Plan of Reorganization, dated as of September 9, 1994,
among Babbscha Company, Banrein, Inc., and Fridley State Bank, and
Norwest Corporation, and form of Agreement and Plan of Merger
between Babbscha Company and Merger Co. (the "Babbscha Merger")
(included in Proxy Statement-Prospectus as Appendix A).
2(b) Form of Agreement and Plan of Merger between Banrein Merger Co. and
Banrein, Inc. (the "Banrein Merger") (included in Proxy Statement-
Prospectus as Appendix B)
2(c) Form of Agreement and Plan of Merger between Fridley State Bank and
Norwest Interim Bank Fridley, N.A. (the "Bank Merger") (included in
Proxy Statement-Prospectus as Appendix C).
4(a) Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(b) to the Registrant's Current Report on Form
8-K dated June 28, 1993 (File No. 1-2979)).
4(b) Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's ESOP Cumulative Convertible Preferred
Stock (incorporated by reference to Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994
(File No. 1-2979)).
4(c) Certificate of Designations of Powers, Preferences, and Rights of the
Registrant's Cumulative Tracking Preferred Stock (incorporated by
reference to Exhibit 3 to Norwest's Current Report on Form 8-K dated
January 9, 1995).
4(d) By-Laws of the Registrant, as amended (incorporated herein by reference
to Exhibit 4(c) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1991 (File No. 1-2979)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4(e) Rights Agreement, dated as of November 22, 1988, between Norwest
Corporation and Citibank, N.A., including as Exhibit A the form of
Certificate of Designation of Powers, Preferences and Rights setting
forth the terms of the Series A Junior Participating Preferred Stock,
without par value, (incorporated herein by reference to Exhibit 1 to
the Registrant's Form 8-A dated December 6, 1988 (File No. 1-2979)) and
Certificates of Adjustment pursuant to Section 12 of the Rights
Agreement (incorporated herein by reference to Exhibit 3 to the
Registrant's Form 8 dated July 21, 1989, and to Exhibit 4 to the
Registrant's Form 8-A/A dated June 28, 1993 (File No. 1-2979)).
Electronic
5 Opinion of General Counsel of the Registrant. Transmission
8(a) Opinion of Briggs & Morgan, P.A. with respect to the Babbscha Merger. *
8(b) Opinion of Briggs & Morgan, P.A. with respect to the Banrein Merger. *
8(c) Opinion of Briggs & Morgan, P.A. with respect to the Bank Merger. *
23(a) Consent of General Counsel of the Registrant (included as part of
Exhibit 5 filed herewith).
23(b) Consent of Briggs & Morgan, P.A. (included as part of Exhibits 8(a) to 8(c)). *
Electronic
23(c) Consent of KPMG Peat Marwick LLP with respect to Norwest. Transmission
Electronic
23(d) Consent of KPMG Peat Marwick LLP with respect to Babbscha and subsidiaries. Transmission
Electronic
24 Powers of Attorney. Transmission
99(a) Form of proxy for Special Meeting of Shareholders of Babbscha Company. *
99(b) Form of proxy for Special Meeting of Shareholders of Banrein, Inc. *
99(c) Form of proxy for Special Meeting of Stockholders of the Bank. *
</TABLE>
- ---------
*To be filed by amendment.
<PAGE>
EXHIBIT 5
January 27, 1995
Board of Directors
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, by Norwest Corporation ("Norwest"), a Delaware corporation, of
276,000 shares of the common stock (the "Shares"), par value $1 2/3 per share,
of Norwest proposed to be issued pursuant to that certain Agreement and Plan of
Reorganization dated September 9, 1994, (the "Reorganization Agreement"), under
which Babbscha Company, a Minnesota corporation ('Babbscha"), will merge with a
wholly-owned subsidiary of Norwest (the "Merger"), and Babbscha's subsidiaries,
Fridley State Bank, a Minnesota state bank (the "Bank"), and Banrein, Inc.
("Banrein") will each merge in related transactions, in the case of the Bank,
with and into a wholly owned national bank subsidiary of Norwest (the "Bank
Merger"), and in the case of Banrein, with and into another wholly-owned
subsidiary of Norwest. I have examined such corporate records and other
documents, including the Registration Statement on Form S-4 relating to the
Shares and have reviewed such matters of law as I have deemed necessary for this
opinion, and I advise you that in my opinion:
1. Norwest is a corporation duly organized and existing under the
laws of the State of Delaware.
2. All necessary corporate action on the part of Norwest has been
taken to authorize the issuance of the Shares in the amount provided for in the
Reorganization Agreement upon consummation of the the Merger, the Bank Merger,
and the Banrein Merger, and, when issued as described in the Registration
Statement, the Shares will be legally and validly issued, fully paid, and
nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/Stanley S. Stroup
-----------------------
Stanley S. Stroup
<PAGE>
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Norwest Corporation:
We consent to the use of our report dated January 19, 1994 incorporated herein
by reference and to the reference to our firm under the heading "EXPERTS" in the
prospectus. Our report refers to the Corporation's adoption of Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 27, 1995
<PAGE>
EXHIBIT 23(d)
The Board of Directors
Babbscha Company:
We consent to the use of our report dated September 30, 1994 included herein and
to the reference to our Firm under the heading "EXPERTS".
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 27, 1995
<PAGE>
EXHIBIT 24
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ David A. Christensen
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Gerald J. Ford
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Pierson M. Grieve
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Charles M. Harper
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ N. Berne Hart
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ William A. Hodder
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Lloyd P. Johnson
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Reatha Clark King
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Richard M. Kovacevich
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Richard S. Levitt
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Richard D. McCormick
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Cynthia H. Milligan
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ John E. Pearson
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Ian M. Rolland
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Stephen E. Watson
-----------------------------------
<PAGE>
NORWEST CORPORATION
Power of Attorney
of Director and/or Officer
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON, AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 276,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of Babbscha Company and
its subsidiaries, and to file the same, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said attorneys-in-
fact, and each of them, full power and authority to do and perform any and all
acts necessary or incidental to the performance and execution of the powers
herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 26th day of September, 1994.
/s/ Michael W. Wright
-----------------------------------
