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Rule 424(b)(3)
Registration No. 33-57227
PROXY STATEMENT
OF
DIRECTORS MORTGAGE LOAN CORPORATION
DIRECTORS INSURANCE SERVICE
STAN-SHAW CORPORATION
FOR SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON MARCH 3, 1995
---------------------
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
---------------------
This Prospectus of Norwest Corporation ("Norwest") relates to up to
10,545,794 shares of the common stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock") issuable to the shareholders of Directors Mortgage Loan
Corporation ("Directors Mortgage"), Directors Insurance Service ("Directors
Insurance") and Stan-Shaw Corporation ("Stan-Shaw", and together with Directors
Mortgage and Directors Insurance, sometimes hereinafter referred to collectively
as the "Companies") upon consummation of the mergers of wholly owned
subsidiaries of Norwest with each of the Companies (collectively, the "Mergers"
and individually, a "Merger"), pursuant to the Agreement and Plan of
Reorganization among the Companies and Norwest, dated as of December 7, 1994
(the "Reorganization Agreement") and the Agreements of Merger attached thereto
(collectively, the "Merger Agreements" and individually, a "Merger Agreement").
The Reorganization Agreement, together with the Merger Agreements, is set forth
in Appendix A to this Proxy Statement-Prospectus and is incorporated by
reference herein.
This Prospectus also serves as the Proxy Statement of each of the Companies
for a special meeting of shareholders of each of the Companies to be held on
March 3, 1995 (the "Special Meetings").
Upon consummation of the Mergers, each outstanding share of common stock of
each of the Companies ("Companies Common Stock"), except shares with respect to
which statutory dissenters' rights have been exercised and not forfeited, will
be converted into a number of shares of Norwest Common Stock determined in
accordance with the terms of the Reorganization Agreement. For a more complete
description of the Reorganization Agreement and the terms of the Mergers, see
"THE MERGERS."
This Proxy Statement-Prospectus and the applicable form of proxy are first
being mailed to shareholders of each of the Companies on or about February 1,
1995.
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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 January 31, 1995.
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AVAILABLE INFORMATION
Norwest is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance therewith,
Norwest files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission").
Reports, proxy statements, and other information concerning Norwest can be
inspected and copied at the public reference facilities of the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. Reports, proxy statements, and other information
filed by Norwest with the New York Stock Exchange and the Chicago Stock Exchange
may be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005 and at the offices of the Chicago Stock
Exchange at One Financial Place, 440 South LaSalle Street, Chicago, Illinois
60605.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby that Norwest
has filed with the Commission. Certain portions of the Registration Statement
have been omitted pursuant to the rules and regulations of the Commission.
Reference is hereby made to such omitted portions for further information with
respect to Norwest and the securities offered hereby.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO NORWEST,
EXCLUDING EXHIBITS, UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST TO LAUREL A. HOLSCHUH, SECRETARY, NORWEST
CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE, MINNEAPOLIS, MINNESOTA 55479-
1026, TELEPHONE (612) 667-8655. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 24, 1995.
The following documents filed by Norwest with the Commission are
incorporated by reference in, and made a part of, this Proxy Statement-
Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A dated May 13, 1994; (ii) Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994, June 30, 1994 and September 30,
1994; and (iii) Current Reports on Form 8-K dated February 15, 1994, July 21,
1994, November 1, 1994, November 15, 1994, January 9, 1995 and January 27, 1995.
All documents filed by Norwest with the Commission pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the Special 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.
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TABLE OF CONTENTS
AVAILABLE INFORMATION............................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................... 2
SUMMARY............................................................. 6
THE COMPANIES...................................................... 6
TERMS OF THE MERGERS............................................... 7
THE SPECIAL MEETINGS AND VOTE REQUIRED............................. 8
REASONS FOR THE MERGERS............................................ 9
RECOMMENDATION OF THE BOARDS OF DIRECTORS OF THE COMPANIES......... 10
EFFECTIVE DATE AND TIME OF THE MERGERS............................. 10
CONDITIONS AND TERMINATION......................................... 10
ACCOUNTING TREATMENT............................................... 10
REGULATORY APPROVALS............................................... 10
MANAGEMENT AND OPERATIONS AFTER THE MERGERS........................ 11
INTERESTS OF CERTAIN PERSONS IN THE MERGERS........................ 11
DISSENTERS' RIGHTS................................................. 11
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................ 11
MARKETS AND MARKET PRICES.......................................... 11
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS...................... 12
COMPARATIVE UNAUDITED PER SHARE DATA............................... 12
SELECTED FINANCIAL DATA............................................ 15
MEETING INFORMATION................................................. 21
GENERAL............................................................ 21
DATE, PLACE AND TIME............................................... 21
RECORD DATE; VOTE REQUIRED......................................... 21
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF THE
COMPANIES......................................................... 23
VOTING AND REVOCATION OF PROXIES................................... 25
SOLICITATION OF PROXIES............................................ 26
THE MERGERS......................................................... 27
BACKGROUND OF AND REASONS FOR THE MERGERS.......................... 27
TERMS OF THE MERGERS............................................... 28
EFFECTIVE DATE AND TIME OF THE MERGERS............................. 29
SURRENDER OF CERTIFICATES.......................................... 29
CONDITIONS TO THE MERGERS.......................................... 30
REGULATORY APPROVALS............................................... 31
BUSINESS PENDING THE MERGERS....................................... 32
WAIVER, AMENDMENT, AND TERMINATION................................. 33
MANAGEMENT AND OPERATIONS AFTER THE MERGERS........................ 33
INTERESTS OF CERTAIN PERSONS IN THE MERGERS........................ 33
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CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS...................... 34
RIGHTS OF DISSENTING COMPANIES SHAREHOLDERS........................ 44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................ 45
RESALE OF NORWEST COMMON STOCK..................................... 46
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN............... 47
ACCOUNTING TREATMENT............................................... 47
EXPENSES........................................................... 48
INFORMATION ABOUT DIRECTORS MORTGAGE................................ 49
GENERAL............................................................ 49
MORTGAGE BANKING OPERATIONS........................................ 49
COMPETITION........................................................ 51
ENVIRONMENTAL MATTERS.............................................. 52
EMPLOYEES.......................................................... 52
MARKET PRICES AND DIVIDENDS........................................ 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 52
INFORMATION ABOUT DIRECTORS INSURANCE............................... 62
BUSINESS AND PROPERTY.............................................. 63
MARKET PRICES AND DIVIDENDS........................................ 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 63
INFORMATION ABOUT STAN-SHAW......................................... 65
BUSINESS AND PROPERTY.............................................. 65
MARKET PRICES AND DIVIDENDS........................................ 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................. 66
CERTAIN REGULATORY CONSIDERATIONS................................... 69
GENERAL............................................................ 69
DIVIDEND RESTRICTIONS.............................................. 69
HOLDING COMPANY STRUCTURE.......................................... 69
CAPITAL REQUIREMENTS............................................... 70
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991...... 71
FDIC INSURANCE..................................................... 72
EXPERTS............................................................. 73
LEGAL OPINION....................................................... 73
MANAGEMENT AND ADDITIONAL INFORMATION............................... 73
INDEX TO FINANCIAL STATEMENTS OF THE COMPANIES...................... F-1
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APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION, AND AGREEMENTS OF MERGER
APPENDIX B CALIFORNIA GENERAL CORPORATION LAW, CHAPTER 13
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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 OR ANY OF THE COMPANIES SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS.
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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",
"Directors Mortgage", "Directors Insurance", "Stan-Shaw" and the "Companies"
refer to such entities, respectively, and where the context requires, such
entities and their respective subsidiaries. All information concerning Norwest
included in this Proxy Statement-Prospectus has been furnished by Norwest, and
all information concerning Directors Mortgage, Directors Insurance and Stan-Shaw
included in this Proxy Statement-Prospectus has been furnished by Directors
Mortgage, Directors Insurance and Stan-Shaw, respectively, to Norwest for
incorporation herein.
THE COMPANIES
NORWEST CORPORATION
Norwest Corporation is a regional bank holding company which was organized
under the laws of Delaware in 1929 and is registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). As a diversified financial
services organization, Norwest operates through subsidiaries engaged in banking
and in related businesses. Norwest provides retail, commercial, and corporate
banking services to its customers through banks located in Arizona, Colorado,
Illinois, Indiana, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Ohio, South Dakota, Texas, Wisconsin, and Wyoming. Norwest provides additional
financial services to its customers through subsidiaries engaged in various
businesses, principally mortgage banking, consumer finance, equipment leasing,
agricultural finance, commercial finance, securities brokerage and investment
banking, insurance, computer and data processing services, trust services, and
venture capital investments.
At 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. For information
relating to the financial results of Norwest for the year ended December 31,
1994, see the Current Report on Form 8-K dated January 27, 1995 and mentioned
under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Norwest regularly explores opportunities for acquisitions of financial
institutions and related businesses. In connection with many of its completed
acquisitions, Norwest has issued its Common Stock to the shareholders of the
acquired entity and can be expected to continue to do so in the future.
Generally, management of Norwest does not make any public announcement about a
potential acquisition until a definitive agreement has been signed. Norwest has
entered into definitive agreements for the acquisition of various entities,
including the Companies, having aggregate total assets at September 30, 1994, of
approximately $5.1 billion. Certain of these acquisitions were completed
subsequent to September 30, 1994, and the others remain subject to regulatory
approval and are expected to be completed before the end of the second quarter
of 1995. None of these acquisitions is significant to the financial statements
of Norwest, either individually or in the aggregate.
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Norwest's principal executive offices are located at Norwest Center, Sixth
and Marquette, in Minneapolis, Minnesota, and its telephone number is
612-667-1234.
Additional information concerning Norwest is included in the Norwest
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
DIRECTORS MORTGAGE LOAN CORPORATION
Directors Mortgage is a California corporation which was organized in 1964.
Directors Mortgage conducts mortgage banking operations consisting primarily of
the origination, sale and servicing of residential single-family, first mortgage
loans and the retention, purchase and sale of servicing rights associated with
such mortgage loans. In 1993, Directors Mortgage was, based on dollar amount of
originations, the fifteenth largest residential mortgage lender in the United
States and the fifth largest originator of residential single-family, first
mortgage loans in California. Directors Mortgage originated $4.7 billion of
mortgage loans during the nine months ended September 30, 1994, $10.5 billion of
mortgage loans in 1993 and $7.7 billion of mortgage loans in 1992. As of
September 30, 1994, Directors Mortgage operated 121 branch offices and 29
satellite offices in 25 states. See "INFORMATION ABOUT DIRECTORS MORTGAGE --
Mortgage Banking Operations."
DIRECTORS INSURANCE SERVICE
Directors Insurance is a California corporation which was organized in 1985
to provide a full line of home mortgage insurance products, including mortgage,
life, flood and earthquake insurance, primarily to customers of Directors
Mortgage and, to a lesser extent, non-affiliated persons. During the nine
months ended September 30, 1994, and the year ended December 31, 1993,
approximately 97% and 95%, respectively, of Directors Insurance's total revenues
were derived from sales of insurance products to persons obtaining mortgage
loans from Directors Mortgage. At September 30, 1994, Directors Insurance had
total assets of $1,217,000 and stockholders' equity of $953,000. The principal
executive offices of Directors Insurance are located at 1595 Spruce Street,
Riverside, California. See "INFORMATION ABOUT DIRECTORS INSURANCE -- Business
and Property".
STAN-SHAW CORPORATION
Stan-Shaw is a California corporation which was incorporated in 1958. Stan-
Shaw acts as a trustee under deeds of trust, preparing and filing notices of
default, reconveyances and related documents, primarily for Directors Mortgage
and, to a lesser extent, non-affiliated persons. At September 30, 1994, Stan-
Shaw had total assets of $609,000 and stockholders' equity of $434,000. The
principal executive offices of Stan-Shaw are located at 140 East Chaparral
Court, Suite 130, Anaheim Hills, California. See "INFORMATION ABOUT STAN-SHAW
- --Business and Property."
TERMS OF THE MERGERS
The Reorganization Agreement provides for the merger of a wholly owned
subsidiary of Norwest with Directors Mortgage (the "Directors Mortgage Merger"),
the merger of a wholly owned subsidiary of Norwest with Directors Insurance (the
"Directors Insurance Merger") and the merger of
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a wholly owned subsidiary of Norwest with Stan-Shaw (the "Stan-Shaw Merger", and
together with the Directors Mortgage Merger and the Directors Insurance Merger,
sometimes hereinafter collectively referred to as the "Mergers" and individually
as a "Merger"). Upon consummation of the Mergers, the outstanding shares of
Companies Common Stock (other than shares as to which statutory dissenters'
rights have been exercised and not forfeited) will be converted into a number of
shares of Norwest Common Stock determined in accordance with the provisions of
the Reorganization Agreement. As provided in the Reorganization Agreement, the
exact number of shares of Norwest Common Stock into which each share of Common
Stock of Directors Mortgage ("Directors Mortgage Common Stock") will be
converted will be determined by dividing 10,355,386 by the number of shares of
Directors Mortgage Common Stock outstanding immediately prior to the Directors
Mortgage Merger, the exact number of shares of Norwest Common Stock into which
each share of Common Stock of Directors Insurance ("Directors Insurance Common
Stock") will be converted will be determined by dividing 116,636 by the number
of shares of Directors Insurance Common Stock outstanding immediately prior to
the Directors Insurance Merger, and the exact number of shares of Norwest
Common Stock into which each share of Common Stock of Stan-Shaw ("Stan-Shaw
Common Stock") will be converted will be determined by dividing 73,772 by the
number of shares of Stan-Shaw Common Stock outstanding immediately prior to the
Stan-Shaw Merger. See "THE MERGERS--Terms of the Mergers."
THE SPECIAL MEETINGS AND VOTE REQUIRED
THE SPECIAL MEETINGS
The Board of Directors of Directors Mortgage, Directors Insurance and Stan-
Shaw have furnished this Proxy Statement-Prospectus in connection with the
solicitation of proxies by the Board of Directors of Directors Mortgage,
Directors Insurance and Stan-Shaw for use at the Special Meetings to be held on
March 3, 1995 and any adjournments thereof, to consider and take action upon
proposals to approve the Reorganization Agreement and the Merger Agreements and
any such other business as may properly come before the Special Meetings or any
adjournments thereof.
This Proxy Statement-Prospectus, the applicable Notice of Special Meeting,
and the applicable form of proxy are being mailed to shareholders of Directors
Mortgage, Directors Insurance and Stan-Shaw on or about February 1, 1995. See
"MEETING INFORMATION--General."
VOTE REQUIRED
The Board of Directors of Directors Mortgage has fixed the close of business
on February 1, 1995 as the record date for the determination of shareholders of
Directors Mortgage entitled to receive notice of and to vote at the Directors
Mortgage Special Meeting. On the record date, there were 1,083,795 shares of
Directors Mortgage Common Stock outstanding. Each share of Directors Mortgage
Common Stock outstanding on the record date is entitled to one vote. Approval
of the Reorganization Agreement and the applicable Merger Agreement requires the
affirmative vote of the holders of the majority of the outstanding shares of
Directors Mortgage Common Stock. As of the
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record date, the Marital Trust of the A. Gary Anderson Living Trust dated
October 7, 1987 (the "A. Gary Anderson Trust") owned of record 622,128 shares,
or 57.4%, of the Directors Mortgage Common Stock. The trustee of the A. Gary
Anderson Trust has contractually agreed with Norwest to vote the shares of
Directors Mortgage Common Stock owned by the A. Gary Anderson Trust in favor of
the Directors Mortgage Merger.
The Board of Directors of Directors Insurance has fixed the close of
business on February 1, 1995 as the record date for the determination of
shareholders of Directors Insurance entitled to receive notice of and to vote at
the Directors Insurance Special Meeting. On the record date, there were 100
shares of Directors Insurance Common Stock outstanding. Each share of Directors
Insurance Common Stock outstanding on the record date is entitled to one vote.
Approval of the Reorganization Agreement and the applicable Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of the Directors Insurance Common Stock. As of the record date, the Erik
Kjell Anderson Qualified Subchapter S Trust dated July 22, 1994 (the "Erik
Anderson Trust") and the Erin Jette Lastinger Qualified Subchapter S Trust dated
July 22, 1994 (the "Erin Lastinger Trust") each owned of record 50 shares, or
50%, of the Directors Insurance Common Stock. The trustee of the Erik Anderson
Trust and the trustee of the Erin Anderson Trust have each contractually agreed
with Norwest to vote the shares of Directors Insurance Common Stock owned by the
Erik Anderson Trust and the Erin Lastinger Trust in favor of the Directors
Insurance Merger.
The Board of Directors of Stan-Shaw has fixed the close of business on
February 1, 1995 as the record date for the determination of shareholders of
Stan-Shaw entitled to receive notice of and to vote at the Stan-Shaw Special
Meeting. On the record date, there were 1,420 shares of Stan-Shaw Common Stock
outstanding. Each share of Stan-Shaw Common Stock outstanding on the record
date is entitled to one vote. Approval of the Reorganization Agreement and the
applicable Merger Agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of Stan-Shaw Common Stock. As of the record
date, the Erik Anderson Trust and the Erin Lastinger Trust each owned of record
710 shares, or 50%, of the Stan-Shaw Common Stock. The trustee of the Erik
Anderson Trust and the trustee of the Erin Lastinger Trust have each
contractually agreed with Norwest to vote the shares of Stan-Shaw Common Stock
owned by the Erik Anderson Trust and the Erin Lastinger Trust in favor of the
Stan-Shaw Merger. See "MEETING INFORMATION--Record Date; Vote Required."
REASONS FOR THE MERGERS
Management of the Companies believes that, as a result of the Mergers,
shareholders of the Companies will achieve liquidity in their investment and
that the ability of the Companies to vigorously compete in a consolidating
market will be enhanced. Shareholders of the Companies will own stock which is
actively traded on the New York Stock Exchange ("NYSE") and the Chicago Stock
Exchange ("CHX") and will become shareholders of an entity which has overall
more diverse operations than the Companies. Management of the Companies
believes that the Companies and their customers will benefit from the strong
capital base, financial strength and services which Norwest can bring to the
Companies. See "THE MERGERS--Background of and Reasons for the Mergers."
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RECOMMENDATION OF THE BOARDS OF DIRECTORS OF THE COMPANIES
THE BOARD OF DIRECTORS OF EACH OF DIRECTORS MORTGAGE, DIRECTORS INSURANCE
AND STAN-SHAW UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF DIRECTORS
MORTGAGE, DIRECTORS INSURANCE AND STAN-SHAW VOTE FOR THE MERGERS. For
information concerning the interests of certain members of the Companies' Board
of Directors and management in the Mergers, see "THE MERGERS--Interests of
Certain Persons in the Mergers."
EFFECTIVE DATE AND TIME OF THE MERGERS
Subject to the terms and conditions of the Reorganization Agreement, each of
the Mergers will be effective when all required documents are filed with the
Secretary of State of the State of California in accordance with the California
General Corporation Law (the "Effective Time of the Mergers"). See "THE
MERGERS--Effective Date and Time of the Mergers" and "THE MERGERS--Conditions to
the Mergers."
CONDITIONS AND TERMINATION
The respective obligations of Norwest and each of the Companies to
consummate the Mergers are subject to certain conditions, including the receipt
of regulatory approvals, approval of the Reorganization Agreement and the
applicable Merger Agreement by the shareholders of each of the Companies,
receipt by the Companies of certain tax opinions, and certain other conditions
customary in transactions of this nature. See "THE MERGERS--Conditions to the
Mergers" and "THE MERGERS--Regulatory Approvals."
The Reorganization Agreement may be terminated at any time prior to the
Effective Time of the Mergers, whether prior to or after approval by the
shareholders of the Companies, by either Norwest or Directors Mortgage under
specified conditions, including 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 termination to perform its respective covenants and
agreements under the Reorganization Agreement. See "THE MERGERS--Waiver,
Amendment, and Termination."
ACCOUNTING TREATMENT
It is intended that the Mergers will be accounted for as a "pooling-of-
interests" of Norwest and the Companies under generally accepted accounting
principles. See "THE MERGERS--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"). Norwest filed the
required notification with the Federal Reserve Board on January 13, 1995. See
"THE MERGERS--Regulatory Approvals."
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MANAGEMENT AND OPERATIONS AFTER THE MERGERS
Following the Mergers, Norwest intends to continue to operate the current
businesses of the Companies as wholly owned subsidiaries of Norwest. Norwest
intends to operate in the Companies'
present markets and to provide products and services substantially similar to
those currently provided by the Companies.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain officers and directors of the Companies have direct and indirect
interests in the consummation of the Mergers separate from their interests as
holders of Companies Common Stock. See "THE MERGERS--Interests of Certain
Persons in the Mergers."
DISSENTERS' RIGHTS
Pursuant to the California General Corporation Law, dissenting shareholders
who comply with the requisite statutory procedures will be entitled to receive a
cash payment of the fair market value of their shares. The value so determined
could be more than, the same as, or less than the value of the consideration to
be received by shareholders of the Companies, pursuant to the Reorganization
Agreement, who do not dissent. See "THE MERGERS--Rights of Dissenting Companies
Shareholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Mergers are designed so that no gain or loss (other than with respect to
cash received in lieu of fractional shares or in satisfaction of dissenters'
rights) will be recognized to shareholders of the Companies upon the exchange of
their Companies Common Stock for Norwest Common Stock. The opinion of Manatt,
Phelps & Phillips, counsel for the Companies, with respect to the Mergers
qualifying as "tax-free" reorganizations for federal income tax purposes, will
be provided to the Companies. See "THE MERGERS--Certain Federal Income Tax
Considerations". HOWEVER, THE FEDERAL INCOME TAX CONSIDERATIONS RELATED TO THE
MERGERS MAY BE DIFFERENT TO PARTICULAR TYPES OF SHAREHOLDERS, OR IN LIGHT OF THE
SHAREHOLDERS' PERSONAL INVESTMENT CIRCUMSTANCES. ACCORDINGLY, SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE TAX CONSIDERATIONS
THAT MAY BE RELEVANT TO THEM IN CONNECTION WITH THE MERGERS UNDER FEDERAL,
STATE, LOCAL, AND ANY OTHER APPLICABLE TAX LAWS.
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the NYSE and the CHX. On December 7,
1994, the last trading day preceding public announcement of the proposed
Mergers, the closing price per share of Norwest Common Stock was $22.50 and on
January 27, 1994, the price was $24.375. There is
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no public market for Companies Common Stock. Shareholders of the Companies are
advised to obtain current market quotations for Norwest Common Stock. The
market price for Norwest Common Stock will fluctuate between the date of this
Proxy Statement-Prospectus and the Effective Time of the Mergers, which may be a
substantial period. As a result, the market value of the Norwest Common Stock
that shareholders of the Companies ultimately receive in the Mergers could be
more or less than its market value on the date of this Proxy Statement-
Prospectus. No assurance can be given concerning the market price of Norwest
Common Stock before or after the Effective Time of the Mergers.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Mergers, shareholders of the Companies will become
stockholders of Norwest. As a result, such shareholders' rights will change
significantly. See "THE MERGERS--Certain Differences in Rights of
Shareholders."
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for Norwest Common Stock on a historical and pro forma combined basis and for
Directors Mortgage Common Stock, Directors Insurance Common Stock and Stan-Shaw
Common Stock on a historical and a pro forma equivalent basis giving effect to
the Mergers using the pooling-of-interests method of accounting. For a
description of the pooling-of-interests method of accounting with respect to the
Mergers and the related effects on the historical financial statements of
Norwest, see "THE MERGERS--Accounting Treatment." This information is derived
from the consolidated historical financial statements of Norwest, including the
related notes thereto, incorporated by reference into this Proxy Statement-
Prospectus, and the historical financial statements of each of the Companies,
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 "INDEX TO FINANCIAL STATEMENTS OF THE
COMPANIES."
This data is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have occurred
had the Mergers been consummated prior to the periods indicated.
-12-
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
<TABLE>
<CAPTION>
NORWEST DIRECTORS MORTGAGE DIRECTORS INSURANCE STAN-SHAW
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
--------------------- ---------------------- ---------------------- ----------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
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 $10.83 $ 18.99 $103.52 $ 9,528.21 $12,636.81 $ 305.49 $562.87
December 31, 1993..... 11.00 10.76 60.60 172.13 5,795.70 12,553.67 149.67 559.17
DIVIDENDS DECLARED(2):
Nine Months Ended
September 30, 1994.. 0.555 0.555 -- 5.303 3,180.000 647.330 133.099
Year Ended
December 31, 1993... 0.640 0.640 34.829 10.235 8500.000 746.470 240.845
December 31, 1992... 0.540 0.540 40.483 8.636 5300.000 629.834 148.592 28.054
December 31, 1991... 0.470 0.470 9.931 7.517 2330.000 548.189 7.042 24.417
NET INCOME(3):
Nine Months Ended
September 30, 1994.. 1.78 1.73 0.29 16.53 6912.51 2018.31 288.92
Year Ended
December 31, 1993... 1.86 1.91 55.69 30.53 9775.21 2226.83 293.42
December 31, 1992... 1.19 1.25 49.51 19.93 5255.81 1453.83 199.91 64.76
December 31, 1991... 1.32 1.32 18.91 21.08 3687.51 1537.63 18.77 68.49
</TABLE>
-13-
<PAGE>
(1) The pro forma combined book values per share of Norwest Common Stock are
based upon the historical total common equity for Norwest, Directors
Mortgage, Directors Insurance, and Stan-Shaw divided by total pro forma
common shares of the combined entities assuming (i) conversion of the
outstanding Directors Mortgage Common Stock at a merger conversion factor
of 9.555 and 15.993 at September 30, 1994 and December 31, 1993,
respectively, (ii) conversion of the outstanding Directors Insurance Common
Stock at a merger conversion factor of 1,166.360, and (iii) conversion of
the outstanding Stan-Shaw Common Stock at a merger conversion factor of
51.952. The pro forma equivalent book values per share of Directors
Mortgage Common Stock, Directors Insurance Common Stock, and Stan-Shaw
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 Mergers of
10,545,794, would result in the issuance of 10,355,386 shares of Norwest
Common Stock upon conversion of all outstanding shares of Directors
Mortgage Common Stock in connection with the Directors Mortgage Merger, of
116,636 shares upon conversion of all outstanding shares of Directors
Insurance Common Stock in connection with the Directors Insurance Merger,
and 73,772 shares upon conversion of all outstanding shares of Stan-Shaw
Common Stock in connection with the Stan-Shaw Merger. See "THE MERGERS--
Terms of the Mergers."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Directors Mortgage Common Stock, per share of
Directors Insurance Common Stock and per share of Stan-Shaw Common Stock
represent cash dividends declared per share of Norwest Common Stock
multiplied by 9.555 at September 30, 1994 and 15.993 at December 31, 1993,
1992, and 1991 for Directors Mortgage, 1,166.360 for Directors Insurance
and 51.952 for Stan-Shaw.
(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 Directors Mortgage, Directors
Insurance and Stan-Shaw divided by the average pro forma common shares of
the combined entities. The pro forma equivalent net income per share of
Directors Mortgage Common Stock, Directors Insurance Common Stock and Stan-
Shaw Common Stock represents the pro forma combined net income per share
multiplied by 9.555 at September 30, 1994 and 15.993 at December 31, 1993,
1992, and 1991 for Directors Mortgage, 1,166.360 for Directors Insurance
and 51.952 for Stan-Shaw.
-14-
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial information for Norwest and Directors Mortgage, Directors Insurance
and Stan-Shaw. The income statement and balance sheet data included in the
selected financial data for the five years ended December 31, 1993 are derived
from audited consolidated financial statements of Norwest and the audited
financial statements of Directors Mortgage, Directors Insurance and Stan-Shaw
for such five-year period. The selected financial data for the nine-month
periods ended September 30, 1994 and 1993 are derived from the unaudited
historical financial statements of Norwest, Directors Mortgage, Directors
Insurance and Stan-Shaw. All financial information derived from unaudited
financial statements reflects, in the respective opinions of management of
Norwest, Directors Mortgage, Directors Insurance and Stan-Shaw, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such data. Results for the nine months ended September 30, 1994
are not necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. This information should be read in
conjunction with the consolidated financial statements of Norwest and the
related notes thereto, included in documents incorporated herein by reference,
and in conjunction with the financial statements of Directors Mortgage,
Directors Insurance and Stan-Shaw, including the notes thereto, appearing
elsewhere in this Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "INDEX TO FINANCIAL STATEMENTS OF THE COMPANIES."
-15-
<PAGE>
NORWEST
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)
--------- --------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT
DATA:
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..............
Cumulative effect on years....... 595.5 502.0 613.1 470.0 418.3 169.4 284.5
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
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
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
BALANCE SHEET DATA:
(AT END OF PERIOD)
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>
-16-
<PAGE>
(1) On January 14, 1994, First United Bank Group, Inc. ("First United"), a $3.9
billion bank holding company headquartered in Albuquerque, New Mexico, was
acquired in a pooling transaction. Norwest's historical results have been
restated to include the historical results of First United. Appropriate
Norwest items reflect an increase in First United's provision for credit
losses of $16.5 million to conform with Norwest's credit loss reserve
practices and methods and $83.2 million in accruals and reserves for
merger-related expenses, including termination costs, systems and
operations costs, and investment banking, legal, and accounting expenses.
(2) On February 9, 1993, Lincoln Financial Corporation ("Lincoln"), a $2.0
billion bank holding company headquartered in Fort Wayne, Indiana, was
acquired in a pooling transaction. Norwest's historical results have been
restated to include the historical results of Lincoln. Appropriate Norwest
items reflect an increase in Lincoln's provision for credit losses of $60.0
million and $33.5 million in Lincoln's provisions and expenditures for
costs related to restructuring activities.
(3) On April 19, 1991, United Banks of Colorado, Inc. ("United"), a $5.5
billion financial institution headquartered in Denver, Colorado, merged
with Norwest in a pooling transaction. Norwest's historical results have
been restated to include the historical results of United. Appropriate
Norwest items reflect United's special provisions for credit losses and
writedowns for other real estate owned, which together totaled $165
million, and $31 million of accruals for expected reorganization and
restructuring costs for the year ended December 31, 1990. The special
provisions were due to deterioration of several large commercial loan
relationships, the anticipated results of the then recent examination by
the Office of the Comptroller of the Currency, and the anticipated impact
of the Resolution Trust Corporation's accelerated efforts to liquidate
foreclosed properties at deep discounts.
(4) On May 1, 1990, First Interstate Corporation of Wisconsin ("FIWI"), a $2.0
billion financial institution headquartered in Sheboygan, Wisconsin, merged
with Norwest in a pooling transaction. Norwest's historical results have
been restated to include the historical results of FIWI. Appropriate
Norwest items reflect $12.0 million in charges resulting from FIWI's
decision to sell its portfolio of stripped mortgage-backed securities, an
increase in FIWI's provision for credit losses of $16.2 million, and $24.5
million in FIWI's provisions and expenditures for costs related to
restructuring activities.
-17-
<PAGE>
DIRECTORS MORTGAGE
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------- --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT OPERATING DATA AND PER SHARE AMOUNTS)
INCOME STATEMENT
DATA:
Revenue:
Loan origination and
processing................... $ 41,834 $ 52,870 $ 75,090 $ 60,959 $ 33,176 $ 21,321 $ 17,169
Mortgage servicing............. 35,738 24,226 34,990 22,574 13,630 9,140 7,642
Sales of servicing............. 40,648 14,256 22,339 26,686 6,207 8,073 14,139
Gain (loss) on sale of loans
(net)........................ (2,321) 61,948 83,425 31,516 21,457 367 (1,289)
Interest income................ 20,690 23,987 33,651 32,855 25,546 17,624 12,981
Escrow fees.................... 591 833 1,259 1,111 378 173 1
Death benefits from
insurance policy............. -- -- -- 2,330 -- -- --
Other.......................... 1,306 1,556 2,262 1,861 931 399 286
-------- -------- -------- -------- -------- -------- --------
Total revenue................ 138,486 179,676 253,016 179,892 101,325 57,097 50,929
-------- -------- -------- -------- -------- -------- --------
Expenses:
Salaries and related expenses.. 78,880 101,490 136,858 95,088 52,985 32,884 26,928
Interest expense............... 14,009 14,940 21,487 19,732 17,887 12,874 9,194
Other operating expenses....... 45,230 40,414 57,416 31,606 17,696 11,418 9,842
-------- -------- -------- -------- -------- -------- --------
Total expenses............... 138,119 156,844 215,761 146,426 88,568 57,176 45,964
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes................... 367 22,832 37,255 33,466 12,757 (79) 4,965
Income taxes (1)................. 50 895 1,197 1,409 511 360 1,188
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................ $ 317 $ 21,937 $ 36,058 $ 32,057 $ 12,246 $ (439) $ 3,777
-------- -------- -------- -------- -------- -------- --------
PER SHARE DATA:
Net income (loss)................ $0.29 $33.88 $55.69 $49.51 $18.91 $(0.68) $5.83
Sub "S" shareholder
distributions (2).............. -- 23.62 34.83 40.48 9.93 -- --
Dividends........................ -- -- -- -- -- -- 1.55
OPERATING DATA:
(in millions)
Loan origination (volume)........ $ 4,668 $ 7,184 $ 10,460 $ 7,663 $ 3,890 $ 1,744 $ 1,299
Loan servicing portfolio
(at end of period)............. 12,789 11,781 13,127 8,405 5,269 2,660 1,785
BALANCE SHEET DATA:
(AT END OF PERIOD)
Mortgage loans................... $256,519 $663,507 $717,421 $538,945 $407,555 $214,138 $209,586
Total assets..................... 318,225 724,610 803,368 575,910 433,605 230,040 232,808
Short-term debt.................. 242,998 629,470 695,604 515,593 391,361 202,307 207,827
Long-term debt................... 30,100 10,338 13,355 7,032 3,362 2,917 1,487
Total stockholders' equity....... 20,585 32,378 39,239 25,732 19,888 14,072 14,511
</TABLE>
- -----------------
(1) Effective May 1, 1990 Directors Mortgage converted to Subchapter "S" income
tax reporting status and subsequent to that date only provided for state
taxes at a reduced level.
(2) Subchapter "S" distributions are made to shareholders for related
individual income taxes and general purposes.
-18-
<PAGE>
DIRECTORS INSURANCE
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT OPERATING DATA AND PER SHARE AMOUNTS)
INCOME STATEMENT
DATA:
Revenue:
Insurance commissions.......... $ 1,663 $ 1,295 $ 1,808 $ 1,601 $ 1,504 $ 1,245 $ 1,219
Interest income................ 10 4 7 5 8 18 6
Other.......................... 294 427 609 206 33 14 --
--------- --------- --------- --------- --------- --------- ---------
Total revenue................ 1,967 1,726 2,424 1,812 1,545 1,277 1,225
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Salaries and related expenses.. 738 559 897 835 788 617 488
Interest expense............... -- -- -- -- 1 3 2
Other operating expenses....... 527 369 524 438 378 267 258
--------- --------- --------- --------- --------- --------- ---------
Total expenses............... 1,265 928 1,421 1,273 1,167 887 748
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes....... 702 798 1,003 539 378 390 477
Income taxes (1)................. 11 20 25 13 9 10 125
--------- --------- --------- --------- --------- --------- ---------
Net income................... $ 691 $ 778 $ 978 $ 526 $ 369 $ 380 $ 352
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Net income....................... $6,912.51 $7,776.56 $9,775.21 $5,255.81 $3,687.51 $3,802.78 $3,520.00
Sub "S" shareholder
distributions (2).............. 3,180 7,580 8,500 5,300 2,330 5,850 --
Dividends........................ -- -- -- -- -- -- 4,000
OPERATING DATA:
(IN UNITS)
Policies issued.................. 6,180 3,394 4,977 3,980 3,642 3,606 3,740
Policies in force................ 26,801 21,503 22,011 20,415 18,233 16,798 (3)
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets..................... $ 1,217 $ 850 $ 1,055 $ 568 $ 615 $ 345 $ 564
Short-term debt.................. -- -- -- -- 2 7 6
Long-term debt................... -- -- -- -- -- 2 6
Total stockholders' equity....... 953 472 580 452 456 321 525
</TABLE>
- -------------------
(1) Effective May 1, 1990 Directors Insurance converted to Subchapter "S"
income tax reporting status and subsequent to that date only provided for
state taxes at a reduced level.
(2) Subchapter "S" distributions are made to shareholders for related
individual income taxes and general purposes.
(3) Not available.
-19-
<PAGE>
STAN-SHAW CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------ ---------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT OPERATING DATA AND PER SHARE AMOUNTS)
INCOME STATEMENT
DATA:
Revenue:
Trustee and reconveyance
fees......................... $ 914 $ 760 $ 1,042 $ 851 $ 490 $ 365 $ 355
Interest income................ 5 2 3 2 -- 6 2
Other.......................... -- 24 25 20 2 1 --
------- ------- ------- ------- ------ ------- -------
Total revenue................ 919 786 1,070 873 492 372 357
------- ------- ------- ------- ------ ------- -------
Expenses:
Salaries and related expenses.. 374 342 476 384 284 197 156
Other operating expenses....... 129 117 167 198 180 58 53
------- ------- ------- ------- ------ ------- -------
Total expenses............... 503 459 643 582 464 255 209
------- ------- ------- ------- ------ ------- -------
Income before income
taxes.......................... 416 327 427 291 28 117 148
Income taxes (1)................. 6 8 11 7 1 3 47
------- ------- ------- ------- ------ ------- -------
Net income....................... $ 410 $ 319 $ 416 $ 284 $ 27 $ 114 $ 101
------- ------- ------- ------- ------ ------- -------
PER SHARE DATA:
Net income....................... $288.92 $224.65 $293.42 $199.91 $18.77 $80.28 $71.13
Sub "S" shareholder
distributions (2).............. 133.10 209.15 240.85 148.59 7.04 105.83 --
Dividends........................ -- -- -- -- -- -- 211.27
OPERATING DATA:
(IN UNITS)
Foreclosures..................... 1,187 910 1,345 1,047 780 423 446
Reconveyances.................... 401 572 941 958 861 3,073 2,535
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets..................... $ 609 $ 343 $ 444 $ 201 $ 106 $ 52 $ 103
Total stockholders' equity....... 434 160 213 138 65 48 84
</TABLE>
- -------------------
(1) Effective May 1, 1990 Stan-Shaw converted to Subchapter "S" income tax
reporting status and subsequent to that date only provided for state taxes
at a reduced level.
(2) Subchapter "S" distributions are made to shareholders for related
individual income taxes and general purposes.
-20-
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of
Directors Mortgage Common Stock, Directors Insurance Common Stock and Stan-Shaw
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Directors Mortgage, Directors Insurance and Stan-Shaw for use at
the Special Meetings to be held on Friday, March 3, 1995, and any adjournments
thereof, to consider and take action upon a proposal to approve the
Reorganization Agreement and the respective Merger Agreements and such other
business as may properly come before the Special Meetings or any adjournments
thereof. Each copy of this Proxy Statement-Prospectus mailed to holders of
Directors Mortgage Common Stock, Directors Insurance Common Stock and Stan-Shaw
Common Stock is accompanied by a form of proxy for use at the applicable Special
Meeting.
This Proxy Statement-Prospectus is also being furnished by Norwest to
the shareholders of Directors Mortgage, Directors Insurance and Stan-Shaw as a
prospectus in connection with the issuance by Norwest of shares of Norwest
Common Stock upon consummation of the Mergers.
This Proxy Statement-Prospectus, the attached Notices of Special
Meeting, and the forms of proxies for Directors Mortgage, Directors Insurance
and Stan-Shaw shareholders enclosed herewith are first being mailed to
shareholders of Directors Mortgage, Directors Insurance and Stan-Shaw on or
about February 1, 1995.
DATE, PLACE AND TIME
The Directors Mortgage Special Meeting will be held at 1595 Spruce
Street, Riverside, California on Friday, March 3, 1995, at 11:00 a.m., local
time. The Directors Insurance Special Meeting will be held at 1595 Spruce
Street, Riverside, California on Friday, March 3, 1995 at 11:00 a.m., local
time. The Stan-Shaw Special Meeting will be held at 1595 Spruce Street,
Riverside, California on Friday, March 3, 1995 at 11:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
Directors Mortgage Special Meeting
The Board of Directors of Directors Mortgage has fixed the close of
business on February 1, 1995, as the record date for the determination of
shareholders of Directors Mortgage entitled to receive notice of and to vote at
the Directors Mortgage Special Meeting. On the record date there were 1,083,795
shares of Directors Mortgage Common Stock outstanding. Each share of Directors
Mortgage Common Stock outstanding on the record date is entitled to one vote.
Approval of the Reorganization Agreement and the applicable Merger Agreement
providing for the merger of Directors Mortgage and a wholly owned subsidiary of
Norwest (the "Directors Mortgage Merger Agreement") requires the affirmative
vote of the holders of a majority of the outstanding shares of Directors
Mortgage Common Stock. The Directors Mortgage Merger cannot be consummated
without shareholder approval of the Reorganization Agreement and Directors
Mortgage Merger Agreement.
As of the record date for the Directors Mortgage Special Meeting,
directors and officers of Directors Mortgage and their affiliates owned
beneficially 938,564 shares, or 86.6%, of the shares of Directors Mortgage
Common Stock outstanding on that date. Directors Mortgage directors and
-21-
<PAGE>
officers have informed Directors Mortgage that they intend to vote all of their
shares in favor of the Reorganization Agreement and Directors Mortgage Merger
Agreement. As of the record date for the Directors Mortgage Special Meeting,
the A. Gary Anderson Trust owned of record 622,128 shares, or 57.4%, of the
Directors Mortgage Common Stock. The trustee of the A. Gary Anderson Trust has
contractually agreed with Norwest to vote the shares of Directors Mortgage
Common Stock owned by the A. Gary Anderson Trust in favor of the Directors
Mortgage Merger. Information regarding the shares of Directors Mortgage Common
Stock beneficially owned, directly or indirectly, by certain shareholders, by
each director and executive officer of Directors Mortgage, 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 Companies--Directors
Mortgage," below.
Directors Insurance Special Meeting
The Board of Directors of Directors Insurance has fixed the close of
business on February 1, 1995, as the record date for the determination of
shareholders of Directors Insurance entitled to receive notice of and to vote at
the Directors Insurance Special Meeting. On the record date there were 100
shares of Directors Insurance Common Stock outstanding. Each share of Directors
Insurance Common Stock outstanding on the record date is entitled to one vote.
Approval of the Reorganization Agreement and the applicable Merger Agreement
providing for the merger of Directors Insurance and a wholly owned subsidiary of
Norwest (the "Directors Insurance Merger Agreement") requires the affirmative
vote of the holders of a majority of the outstanding shares of Directors
Insurance Common Stock. The Directors Insurance Merger cannot be consummated
without shareholder approval of the Reorganization Agreement and Directors
Insurance Merger Agreement.
As of the record date for the Directors Insurance Special Meeting,
directors and officers of Directors Insurance and their affiliates did not own
beneficially or control the voting of any shares of Directors Insurance Common
Stock outstanding on that date. The Erik Anderson Trust and the Erin Lastinger
Trust each owned of record as of the record date 50 shares, or 50%, of the
Directors Insurance Common Stock. The trustee of the Erik Anderson Trust and
the trustee of the Erin Lastinger Trust have each contractually agreed with
Norwest to vote shares of Directors Insurance Common Stock owned by the Erik
Anderson Trust and the Erin Lastinger Trust in favor of the Directors Insurance
Merger. Information regarding the shares of Directors Insurance Common Stock
beneficially owned, directly or indirectly, by certain shareholders, by each
director and executive officer of Directors Insurance, 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 Companies--Directors
Insurance," below.
Stan-Shaw Special Meeting
The Board of Directors of Stan-Shaw has fixed the close of business on
February 1, 1995, as the record date for the determination of shareholders of
Stan-Shaw entitled to receive notice of and to vote at the Stan-Shaw Special
Meeting. On the record date there were 1,420 shares of Stan-Shaw Common Stock
outstanding. Each share of Stan-Shaw Common Stock outstanding on the record
date is entitled to one vote. Approval of the Reorganization Agreement and the
applicable Merger Agreement providing for the merger of Stan-Shaw and a wholly
owned subsidiary of Norwest (the "Stan-Shaw Merger Agreement") requires the
affirmative vote of the holders of a majority of the outstanding shares of Stan-
Shaw Common Stock. The Stan-Shaw Merger cannot be consummated without
shareholder approval of the Reorganization Agreement and Stan-Shaw Merger
Agreement.
-22-
<PAGE>
As of the record date for the Stan-Shaw Special Meeting, directors and
officers of Stan-Shaw and their affiliates did not own beneficially or control
the voting of any shares of Stan-Shaw Common Stock outstanding on that date.
The Erik Anderson Trust and the Erin Lastinger Trust each owned of record as of
the record date 710 shares, or 50%, of the Stan-Shaw Common Stock. The trustee
of the Erik Anderson Trust and the trustee of the Erin Lastinger Trust have each
contractually agreed to vote shares of Stan-Shaw Common Stock held by the Erik
Anderson Trust and the Erin Lastinger Trust in favor of the Stan-Shaw Merger.
Information regarding the shares of Stan-Shaw Common Stock beneficially owned,
directly or indirectly, by certain shareholders, by each director and executive
officer of Stan-Shaw, 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 Companies--Stan-Shaw," below.
At the record dates for the Special Meetings, directors and executive
officers of Norwest did not own beneficially any shares of Directors Mortgage
Common Stock, Directors Insurance Common Stock or Stan-Shaw Common Stock.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF THE COMPANIES
Directors Mortgage
Set forth below are the names, and, where appropriate, the addresses,
of and the number of shares held as of the record date for the Directors
Mortgage Special Meeting by (i) each person known to Directors Mortgage to
beneficially own more than 5% of the outstanding shares of Directors Mortgage
Common Stock; (ii) each director of Directors Mortgage; (iii) each executive
officer of Directors Mortgage; and (iv) all directors and officers of Directors
Mortgage 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
Name and Address Beneficially Owned Percent of Total Shares
---------------- ------------------ -----------------------
<S> <C> <C>
Daniel S. Coehlo, Sr. (1)(2)........ 638,802.00 58.9%
Erik K. Anderson (1) (3)............ 72,615.50 6.7
Erin J. Lastinger (1) (4)........... 72,615.50 6.7
Raymond L. Crebs (5)................ 79,670.00 7.4
Gerald E. Horton.................... 33,348.00 3.1
Dan A. Hanson....................... 19,453.00 1.8
Norman Anderson..................... 19,453.00 1.8
Alicia Vandergeld................... 2,779.00 0.3
Directors and officers as a group
(29 persons) (6).................... 938,564.00 86.6
</TABLE>
________________________
(1) The address of each of these persons is: c/o Resource Financial, 300 S.
Harbor Boulevard, Suite 1000, Anaheim, California 92805.
(2) Consists of 622,128 shares held by Mr. Coehlo as Trustee of the A. Gary
Anderson Trust and 16,674 shares held by Mr. Coehlo in his individual
capacity.
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<PAGE>
(3) Consists of 44,825.50 shares held by Mr. Anderson as Trustee of the Erik
Anderson Trust and 27,790 shares held by Mr. Anderson in his individual
capacity.
(4) Consists of 44,825.50 shares held by Ms. Lastinger as Trustee of the Erin
Lastinger Trust and 27,790 shares held by Ms. Lastinger in her individual
capacity.
(5) The address of Mr. Crebs is: c/o Directors Mortgage, 1595 Spruce Street,
Riverside, California 92507.
(6) Includes 622,128 shares held by Mr. Coehlo as Trustee of the A. Gary
Anderson Trust as set forth in footnote 2 above.
Directors Insurance
Set forth below are the names, and, where appropriate, the addresses, of
and number of shares held as of the record date for the Directors Insurance
Special Meeting by (i) each person known to Directors Insurance to beneficially
own more than 5% of the outstanding shares of Directors Insurance Common Stock;
(ii) each director of Directors Insurance; (iii) each executive officer of
Directors Insurance; and (iv) all directors and officers of Directors Insurance
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
Name and Address Beneficially Owned Percent of Total Shares
---------------- ------------------ -----------------------
<S> <C> <C>
Erik K. Anderson, Trustee of the
Erik Kjell Anderson Qualified
Subchapter S Trust dated July 22,
1994 (1)............................ 50 50%
Erin Jette Lastinger, Trustee of the
Erin Jette Lastinger Qualified
Subchapter S Trust, dated July 22,
1994 (1)............................ 50 50
Raymond L. Crebs...................... 0 --
Gerald E. Horton...................... 0 --
Directors and officers as a
group (5 persons)................... 0 --
</TABLE>
________________________
(1) The address of both shareholders is: c/o Resource Financial, 300 S. Harbor
Boulevard, Suite 1000, Anaheim, California 92805.
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<PAGE>
Stan-Shaw
Set forth below are the names, and, where appropriate, the addresses, of
and the number of shares held as of the record date for the Stan-Shaw Special
Meeting by (i) each person known to Stan-Shaw to beneficially own more than 5%
of the outstanding shares of Stan-Shaw Common Stock; (ii) each director of Stan-
Shaw; (iii) each executive officer of Stan-Shaw; and (iv) all directors and
officers of Stan-Shaw 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
Name and Address Beneficially Owned Percent of Total Shares
---------------- ------------------ -----------------------
<S> <C> <C>
Erik K. Anderson, Trustee of the
Erik Kjell Anderson Qualified
Subchapter S Trust dated July 22,
1994 (1).......................... 710 50%
Erin J. Lastinger, Trustee of the
Erin Jette Lastinger Qualified
Subchapter S Trust dated July 22,
1994 (1).......................... 710 50
Raymond L. Crebs.................... 0 --
Daniel S. Coehlo, Sr................ 0 --
Gerald E. Horton.................... 0 --
Directors and officers a group
(4 persons)....................... 0 --
</TABLE>
________________________
(1) The address of both shareholders is: c/o Resource Financial, 300 S. Harbor
Boulevard, Suite 1000, Anaheim, California 92805
VOTING AND REVOCATION OF PROXIES
Shares of Directors Mortgage Common Stock, Directors Insurance Common Stock
and Stan-Shaw Common Stock represented by a proxy properly signed and received
at, or prior to, the applicable Special Meeting, unless subsequently revoked,
will be voted at the Special Meeting in accordance with the instructions
thereon. If a proxy is signed and returned without indicating any voting
instructions, shares of Directors Mortgage Common Stock, Directors Insurance
Common Stock or Stan-Shaw Common Stock represented by such proxy will be voted
FOR approval of the Reorganization Agreement and the Directors Mortgage Merger
Agreement, Directors Insurance Merger Agreement or Stan-Shaw Merger Agreement,
as applicable. Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before the proxy is voted by filing either an
instrument revoking it or a duly executed proxy bearing a later date with the
Secretary of Directors Mortgage, Directors Insurance or Stan-Shaw, as the case
may be, prior to or at the respective Special Meeting or by voting the shares
subject to the proxy in person at the respective Special Meeting. Attendance at
a Special Meeting will not in and of itself constitute a revocation of a proxy.
A proxy may indicate that all or a portion of the shares represented
thereby are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to
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<PAGE>
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
proposals to adopt the Reorganization Agreement and the Merger Agreements must
be approved by the holders of a majority of the outstanding Directors Mortgage
Common Stock, Directors Insurance Common Stock and Stan-Shaw Common Stock.
Because these proposals require the affirmative vote of a specified percentage
of outstanding shares, the nonvoting of shares or abstentions with regard to
these proposals will have the same effect as votes against the proposals.
The Board of Directors of each of Directors Mortgage, Directors Insurance
and Stan-Shaw is not aware of any business to be acted upon at their respective
Special Meetings other than the business described herein. If, however, other
matters are properly brought before any of the Special Meetings 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
Directors Mortgage, Directors Insurance and Stan-Shaw may solicit proxies from
the shareholders of their respective Companies, 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.
Each of Directors Mortgage, Directors Insurance and Stan-Shaw will bear its own
expenses in connection with any solicitation of proxies for the Special
Meetings. See "THE MERGERS--Expenses."
HOLDERS OF DIRECTORS MORTGAGE COMMON STOCK, DIRECTORS INSURANCE COMMON STOCK AND
STAN-SHAW COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING APPLICABLE PROXY AND RETURN IT PROMPTLY TO DIRECTORS MORTGAGE,
DIRECTORS INSURANCE OR STAN-SHAW, AS APPLICABLE, IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE.
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<PAGE>
THE MERGERS
This section of the Proxy Statement-Prospectus describes certain aspects
of the Mergers. The following description does not purport to be complete and
is qualified in its entirety by reference to the Reorganization Agreement and
the Merger Agreements, which are attached as Appendix A to this Proxy Statement-
Prospectus and are incorporated by reference herein. ALL SHAREHOLDERS OF THE
COMPANIES ARE URGED TO READ THE REORGANIZATION AGREEMENT AND APPLICABLE MERGER
AGREEMENT IN THEIR ENTIRETY.
BACKGROUND OF AND REASONS FOR THE MERGERS
Each of Directors Mortgage, Directors Insurance and Stan-Shaw was
beneficially owned by A. Gary Anderson at the time of his death in August 1992.
Subsequent to his death, the Companies were owned by the A. Gary Anderson Trust
until July 1994, when ownership was restructured into its current form as set
forth under "Principal Shareholders and Security Ownership of Management of the
Companies". Administration of the Directors Mortgage Common Stock held by the
A. Gary Anderson Trust is handled by Daniel Coelho, Raymond Crebs, Gerald
Horton, Erik Anderson and Frank O'Bryan (collectively, the "Special Trust
Advisors") pursuant to the A. Gary Anderson Trust.
The Special Trust Advisors and Daniel Coelho, the trustee of the A. Gary
Anderson Trust (the "Trustee"), concluded in June and July of 1994 that the
various trusts and their beneficiaries had liquidity and diversity needs
sufficient that sale of the Companies should be considered. In addition, the
Board of Directors of Directors Mortgage concluded that the nature of the
mortgage business was changing and that the Companies had needs which could best
be met by affiliation with another company. This conclusion was based upon a
period of industry consolidation, the ending of the refinance boom and the
expected decline in originations that would require cut-backs in staff and sales
of servicing rights in order to meet the cash flow needs of the A. Gary Anderson
Trust and Directors Mortgage. Furthermore, access to capital markets was
necessary in order to make the technology investments necessary for Directors
Mortgage to remain competitive. In addition, Directors Mortgage needed
additional access to capital to expand product lines and to obtain lower cost of
funds for warehousing of mortgages.
As a result, Furash & Company was retained by the Companies on July 14,
1994 to find a buyer for the Companies or an entity suitable for affiliation
with the Companies. Furash & Company prepared an offering memorandum in August
1994 and contacted a wide circle of potential acquirors. A number of these
entities expressed sufficient interest to obtain the memorandum and a number
conducted preliminary due diligence on the Companies.
Serious price negotiations were commenced only with Norwest. This led to
the execution of a letter of intent on October 17, 1994 (the "Letter of Intent")
and subsequent significant due diligence by Norwest. Detailed negotiations on
terms and conditions continued from November 10 to December 7, 1994 with
representatives of Norwest and individual meetings of the Special Trust Advisors
and Boards of Directors of the Companies were held on November 14, 1994 in
Riverside, California; on November 17 and 18, 1994 in Dallas, Texas; and on
November 28 and December 7, 1994 in Riverside, when agreement was reached as to
the final terms of the transaction.
Management of the Companies believes that, as a result of the Mergers,
shareholders of the Companies will achieve liquidity in their investment and
that the ability of the Companies to vigorously compete in a consolidating
market will be enhanced. Shareholders of the Companies will
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<PAGE>
own stock which is actively traded on the NYSE and CHX and will become
shareholders of an entity which has overall more diverse operations than the
Companies. Management of the Companies believes that the Companies and their
customers will benefit from the strong capital base, financial strength and
services which Norwest can bring to the Companies.
THE BOARD OF DIRECTORS OF DIRECTORS MORTGAGE, DIRECTORS INSURANCE AND
STAN-SHAW UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF THE COMPANIES VOTE FOR
APPROVAL OF THE REORGANIZATION AGREEMENT AND THE MERGER AGREEMENTS.
TERMS OF THE MERGERS
At the Effective Time of the Mergers, three wholly owned subsidiaries of
Norwest, Merger Co. I, Merger Co. II and Merger Co. III, will be merged into
Directors Mortgage, Directors Insurance and Stan-Shaw, respectively, which, as
the surviving corporations, will become wholly owned subsidiaries of Norwest.
The Articles of Incorporation and the By-Laws of the Companies in effect at the
Effective Time of the Mergers will govern the surviving corporations until
amended or repealed in accordance with applicable law. At the Effective Time of
the Mergers, Norwest Common Stock will be exchanged for the stock of each of the
Companies as follows: each outstanding share of Directors Mortgage Common Stock
(other than shares as to which statutory dissenters' appraisal rights have been
exercised and not forfeited) will be converted into and exchanged for the right
to receive the number of fully paid and nonassessable shares of Norwest Common
Stock determined (to the eighth decimal place) by dividing 10,355,386 by the
number of shares of Directors Mortgage Common Stock then outstanding; each
outstanding share of Directors Insurance Common Stock (other than shares as to
which statutory dissenters' appraisal rights have been exercised and not
forfeited) will be converted into and exchanged for the right to receive the
number of shares of fully paid and nonassessable shares of Norwest Common Stock
determined (to the eighth decimal place) by dividing 116,636 by the number of
shares of Directors Insurance Common Stock then outstanding; and each
outstanding share of Stan-Shaw Common Stock (other than shares as to which
statutory dissenters' appraisal rights have been exercised and not forfeited)
will be converted into and exchanged for the right to receive the number of
shares of fully paid and nonassessable shares of Norwest Common Stock determined
(to the eighth decimal place) by dividing 73,772 by the number of shares of
Stan-Shaw Common Stock then outstanding.
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 the Companies ultimately receive in the
Mergers could be more or less than its market value on the date of this Proxy
Statement-Prospectus.
The Reorganization Agreement provides that if, between the date of the
Reorganization Agreement and the Effective Time of the Mergers, shares of
Norwest Common Stock are changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares, or readjustment, or if a stock dividend thereon is declared
with a record date within the same period, the conversion ratios provided for in
the Reorganization Agreement will be adjusted accordingly.
No fractional shares of Norwest Common Stock will be issued in the Mergers.
Instead, Norwest will pay to each holder of Companies Common Stock who would
otherwise be entitled to a
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<PAGE>
fractional share an amount of cash equal to the fraction of a share of Norwest
Common Stock to which the Companies shareholder would otherwise be entitled
multiplied by the closing price of a share of Norwest Common Stock on the NYSE
at the end of the fifth trading day immediately preceding the Closing Date (as
defined below).
Shares of Norwest Common Stock issued and outstanding immediately prior to
the Effective Date of the Mergers will remain issued and outstanding.
Based upon the number of shares of Norwest Common Stock outstanding at
September 30, 1994, approximately 323,551,369 shares of Norwest Common Stock
would be outstanding immediately following the Effective Time of the Mergers, of
which less than 3.5% would be held by the former stockholders of the Companies.
EFFECTIVE DATE AND TIME OF THE MERGERS
The Effective Time of the Mergers will be when the Merger Agreements and
appropriate certificates of their approval and adoption are filed with the
Secretary of State of the State of California in accordance with Section 1103 of
the California General Corporation Law (the time of filing hereinafter referred
to as the "Time of Filing"). Subject to the terms and conditions set forth in
the Reorganization Agreement, the closing of the Mergers will occur on a date
(the "Closing Date") agreed to by the parties to the Reorganization Agreement,
but no later than ten business days following the satisfaction or waiver of all
conditions set forth in the Reorganization Agreement, or on such other date upon
which the parties agree. The parties have agreed to hold the Closing as soon as
practicable after the receipt of final regulatory approval of the contemplated
transactions and the expiration of all required waiting periods. Norwest and
the Companies anticipate that the Mergers will close in the first half of 1995,
although there can be no assurance as to whether or when the Mergers will occur.
See "Terms of the Mergers," "Conditions to the Mergers," and "Regulatory
Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Mergers, 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 Companies Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's Companies Common Stock
certificates for a certificate representing Norwest Common Stock. Under the
terms of the Reorganization Agreement, Norwest acknowledges that some
certificates for Companies Common Stock may be pledged and that shareholders may
be required to take out new loans to pay off loans secured by such pledges.
Norwest agrees to cooperate with shareholders and their brokers in making
arrangements for shareholders to use the shares of Norwest Common Stock as
collateral for these new loans.
SHAREHOLDERS OF THE COMPANIES 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
Companies 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
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<PAGE>
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 Mergers will be deemed
issued as of the Effective Time of the Mergers. No dividends on Norwest Common
Stock with a record date after the Effective Time of the Mergers will be paid to
shareholders of the Companies entitled to receive certificates for shares of
Norwest Common Stock until such shareholders surrender their certificates
representing shares of Companies Common Stock. Upon such surrender, there shall
be paid to the shareholder in whose name the certificates representing such
shares of Norwest Common Stock are issued any dividends the record and payment
dates of which shall have been after the Effective Time of the Mergers and
before the date of such 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
The Mergers will occur only if the Reorganization Agreement and all of the
Merger Agreements are approved by the requisite vote of shareholders of the
Companies. Consummation of the Mergers is subject to the satisfaction of
certain other conditions, which may be waived by the parties to the
Reorganization Agreement, to the extent that waiver is permitted by applicable
law. Such conditions to the obligations of the parties to consummate the
Mergers include, among other conditions, (i) the continued accuracy of
representations and warranties by the other parties, (ii) the performance by the
other parties of their obligations under the Reorganization Agreement, (iii) the
receipt of certain certificates from officers of the other parties, (iv) the
receipt of all necessary regulatory approvals, and the expiration of all
applicable waiting and approval periods, (v) the absence of any order of a court
or agency of competent jurisdiction restraining, enjoining, or otherwise
prohibiting consummation of the transactions contemplated by the Reorganization
Agreement, (vi) the continued effectiveness of the Registration Statement of
which this Proxy Statement-Prospectus is a part and receipt by Norwest of all
state securities law or blue sky authorizations necessary for the Mergers, (vii)
the receipt of a certificate signed by the Chief Executive Officer and Chief
Financial Officer of Directors Mortgage concerning the accuracy and completeness
of certain financial statements and related information and the absence of any
changes in such financial statements and related information subsequent to the
date of such financial statements, and (viii) all of the Mergers must be capable
of being effected on the Closing Date pursuant to the terms of the
Reorganization Agreement and the Merger Agreements and all of the Mergers must
be so effected on the Closing Date, or none of the Mergers will be effected.
The Companies' obligations to consummate the Mergers are also subject to,
among other conditions, (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 Mergers, and (ii) the receipt of an opinion of counsel for the
Companies to the effect that for federal income tax purposes the Mergers will be
tax-free reorganizations.
Norwest's obligation to consummate the Mergers is also subject to, among
other conditions, (i) the receipt by the Companies and their subsidiaries of any
and all material consents or waivers from third parties to loan agreements,
leases, or other material contracts required for the consummation of the
Mergers, and the receipt by the Companies of any and all material permits,
authorizations,
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<PAGE>
consents, waivers, and approvals required for the consummation of the Mergers;
(ii) the qualification of each of the Mergers as a pooling of interests for
accounting purposes and the receipt by Norwest from KPMG Peat Marwick LLP and
Eadie and Payne of letters to that effect, (iii) the total number of shares of
Directors Mortgage Common Stock outstanding and subject to issuance upon
exercise of all warrants, options, conversion rights, phantom shares or other
share-equivalents not having exceeded 1,083,795; (iv) the total number of shares
of Directors Insurance Common Stock outstanding and subject to issuance upon
exercise of all warrants, options, conversion rights, phantom shares or other
share-equivalents not having exceeded 100; (v) the total number of shares of
Stan-Shaw Common Stock outstanding and subject to issuance upon exercise of all
warrants, options, conversion rights, phantom shares or other share equivalents
not having exceeded 1,420; (vi) the requirement that the Companies and their
subsidiaries considered as a whole shall not have sustained since September 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; (vii) the absence of any reasonable basis for any
proceeding, claim, or action seeking to impose, or that could reasonably be
expected to result in the imposition, on the Companies or any of their
subsidiaries or their respective properties, of any liability arising from the
release of hazardous substances under any local, state, or federal environmental
statute, regulation, or ordinance which has had or could reasonably be expected
to have a material adverse effect upon the Companies and their subsidiaries
taken as a whole; and (viii) no change shall have occurred and no circumstance
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 the Companies and their subsidiaries taken as a whole (other than
changes in banking laws or regulations that affect the mortgage and insurance
industries generally or changes in the general level of interest rates).
REGULATORY APPROVALS
The Mergers are subject to prior approval by the Federal Reserve Board under
the BHC Act, which requires the Federal Reserve Board to approve an acquisition
of a company engaged in business closely related to banking. Norwest filed the
required notification with the Federal Reserve Board, requesting approval of the
Mergers, on January 13, 1995.
The approval of any acquisition merely implies satisfaction of regulatory
criteria for approval, which do not include review of the transaction from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed transactions.
The change in control of Directors Insurance resulting from the Directors
Insurance Merger may, in certain states, require the approval of insurance
regulatory authorities in order to retain applicable agency licenses.
Norwest and the Companies are not aware of any additional governmental
approvals or compliance with banking laws and regulations that would be required
for consummation of the Mergers other than those described above. Should any
other approval or action be required, it is currently contemplated that such
approval or action would be sought. There can be no assurance that any such
approval or action, if needed, could be obtained and, if such approvals or
actions are obtained, there can be no assurance regarding the timing thereof.
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<PAGE>
BUSINESS PENDING THE MERGERS
Under the Merger Agreements, each of the Companies is generally obligated to
maintain its corporate existence in good standing; to maintain the general
character of its business and to conduct its business in the ordinary and usual
manner; to extend credit in accordance with existing lending policies, to
maintain proper business and accounting records in accordance with generally
accepted accounting principles; to maintain its properties in good repair and
condition, ordinary wear and tear excepted; to maintain in all material respects
presently existing insurance coverage; to use its best efforts to preserve its
business organization intact, to keep the services of its present principal
employees and to preserve its goodwill and the goodwill of its suppliers,
customers, and others having business relationships with it; to use its best
efforts to obtain any approvals or consents required to maintain existing leases
and other contracts in effect following the Mergers; to comply in all material
respects with all laws, regulations, ordinances, codes, orders, licenses, and
permits applicable to its properties and operations, the non-compliance with
which reasonably could be expected to have a material adverse effect on the
Companies and their subsidiaries taken as a whole; and to permit Norwest and its
representatives (including KPMG Peat Marwick LLP) to examine its books, records,
and properties, and to interview officers, employees, and agents at all
reasonable times when it is open for business; and maintain its election under
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), as a
Subchapter S corporation. The Reorganization Agreement also provides that,
prior to the Effective Time of the Mergers, none of the Companies may, without
the prior written consent of Norwest, among other things: (i) amend or
otherwise change its articles of incorporation or bylaws; (ii) issue or sell, or
authorize for issuance or sale, or grant any options or make other agreements
with respect to the issuance or sale, or conversion, of any shares of its
capital stock, phantom shares, or other share equivalents, or any other of its
securities; (iii) authorize or incur any long-term debt; (iv) mortgage, pledge,
or subject to lien or other encumbrance any of its properties, except in the
ordinary course of business; (v) enter into any agreement, contract, or
commitment in excess of $500,000 (unless a lesser amount is applicable pursuant
to other provisions in the Reorganization Agreement) except transactions in the
ordinary course of the mortgage business and in accordance with policies and
procedures in effect on the date of the Reorganization Agreement; (vi) enter
into any material agreement, contract or commitment for the acquisition of fixed
assets or real property, leases, investments, or maintenance contracts in excess
of $20,000; amend or terminate any "employee benefit plan" within the meaning of
the Employee Retirement Income Security Act of 1974 (a "Benefit Plan") except as
required by law; (vii) make any contributions to any Benefit Plan in excess of
$500,000 in the aggregate for all Companies except as required by the terms of
the Benefit Plan in effect at the time of the Reorganization Agreement; (viii)
declare, set aside, make, or pay any dividend or other distribution with respect
to its capital stock except as permitted under the terms of the Reorganization
Agreement; (ix) redeem, purchase, or otherwise acquire, directly or indirectly,
any of the capital stock of the Companies; (x) increase the compensation of any
officers, directors, or executive employees, provided that payments may be made
pursuant to the Incremental Value Plan and the Value Creation Plan in the amount
shown on the books of Directors Mortgage as of September 30, 1994 plus accrued
interest to the date of payment at the rate set forth in such plans; or (xi)
sell or otherwise dispose of any of its assets or properties other than in the
ordinary course of business.
None of the Companies nor any director, officer, representative, or agent
will directly or indirectly, solicit, authorize the solicitation of, or enter
into any discussions with any corporation, partnership, person, or other entity
or group (other than Norwest) concerning any offer or possible offer (i) to
purchase any shares of common stock, any option or warrant to purchase any
shares of common stock, any securities convertible into any shares of common
stock, or any other equity security of the Companies; (ii) to make a tender or
exchange offer for any shares of such common
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stock or other equity security; (iii) to purchase, lease, or otherwise acquire
the assets of the Companies except in the ordinary course of business; or (iv)
to merge, consolidate, or otherwise combine with the Companies.
WAIVER, AMENDMENT, AND TERMINATION
Either Norwest or the Companies may, in writing, give any consent, take any
action, or waive any inaccuracies in the representations and warranties of the
other party or compliance by the other party with any of the covenants and
conditions in the Reorganization Agreement.
At any time before the Time of Filing, a Merger Agreement may be amended by
the parties thereto 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 a Merger
Agreement by the shareholders of Directors Mortgage, Directors Insurance or
Stan-Shaw, as the case may be, may adversely affect the consideration to be
received by such shareholders.
The Reorganization Agreement may be terminated at any time prior to the Time
of Filing (i) by mutual written consent of the parties thereto; (ii) by
Directors Mortgage or Norwest by written notice to the other if the Mergers
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 Directors
Mortgage or Norwest 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.
MANAGEMENT AND OPERATIONS AFTER THE MERGERS
Following the Mergers, Norwest intends to continue to operate the current
businesses of the Companies as wholly owned subsidiaries of Norwest. Norwest
intends to operate at the Companies' present locations and to provide services
currently provided by the Companies.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In consideration of the favorable recommendations of the Boards of Directors
of Directors Mortgage, Directors Insurance and Stan-Shaw with respect to the
Mergers, shareholders of the Companies should be aware that certain officers and
directors of the Companies have certain direct and indirect interests, including
those referred to below, separate from their interests as holders of the
Companies Common Stock.
In connection with the execution of the Reorganization Agreement, Raymond L.
Crebs and Gerald E. Horton entered into employment agreements with Norwest
Mortgage, Inc. ("Norwest Mortgage").
Mr. Crebs will be Executive Vice President and National Production Manager
of Norwest Mortgage and President of Directors Mortgage. As such, he will be
paid an annualized base compensation of $280,000 and will be eligible for a
bonus upon accomplishment of performance objectives in an amount up to a maximum
of 120% of his base compensation. He will also be granted, at the first Norwest
board of directors meeting held following the Closing Date, an option for 27,400
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shares of Norwest Common Stock at the market price on the date of grant
exercisable at the rate of 50% on each of the first and second anniversaries of
the Closing Date. In addition, Mr. Crebs has signed a non-compete and non-
solicit agreement to take effect upon the Closing, which provides for
significant cash payments to him should he choose to extend the term of the
agreement in the future.
Mr. Horton will be Senior Vice President of Norwest Mortgage and Senior
Executive Vice President and Chief Financial Officer of Directors Mortgage. As
such, he will be paid an annualized base compensation of $180,000 and will be
eligible for a bonus upon accomplishment of performance objectives in an amount
up to a maximum of 60% of his base compensation. He will also be granted, at
the first Norwest board of directors meeting held following the Closing Date, an
option for 16,000 shares of Norwest Common Stock at market price on the date of
grant and exercisable at the rate of 50% on each of the first and second
anniversaries of the Closing Date. In addition, Mr. Horton has signed a non-
compete and non-solicit agreement to take effect upon the Closing, which
provides for significant cash payments to him should he choose to extend the
agreement in the future.
Mr. Crebs and Mr. Horton are both beneficiaries of the Directors Mortgage
Long Term Incentive Bonus Plan (the "Plan"), which is designed to reward certain
key individuals for increases in the value of Directors Mortgage. Under the
Plan, when certain sale targets are met, cash compensation is payable. The Plan
is administered by the Board of Directors of Directors Mortgage and the Board of
Special Trust Advisors. Both the Board of Directors of Directors Mortgage and
the Board of Special Trust Advisors have determined that the "sale price" of
Directors Mortgage, for purposes of the Plan, is equal to 10,599,000 shares of
Norwest Common Stock, which is the number of shares offered by Norwest before
taking effect of payments under the Plan, multiplied by twenty-six dollars a
share, which was in the trading range of Norwest Common Stock during the period
the Letter of Intent was being negotiated. This determination results in a
payment due to Mr. Crebs and Mr. Horton of $7,365,180 and $1,473,036,
respectively, upon the sale of Directors Mortgage. Pursuant to the
Reorganization Agreement, such payments will be made the day after the Closing
Date.
Messrs. Daniel Coelho, Frank O'Bryan and Eric Anderson will receive finders
fees in connection with evaluating and negotiating the Mergers. This will
result in an aggregate payment from all three Companies to Messrs. Coelho,
O'Bryan and Anderson of $561,080, $561,080 and $280,540, respectively.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Each of the Companies is organized under the laws of the State of
California, and Norwest is incorporated as a corporation in the State of
Delaware. Shareholders of the Companies, whose rights are governed by the
Articles of Incorporation and By-Laws of Directors Mortgage, Directors Insurance
or Stan-Shaw, as the case may be, will, upon consummation of the Mergers, become
stockholders of Norwest. Their rights as Norwest stockholders will then be
governed by Norwest's Certificate of Incorporation and By-Laws and by the
Delaware General Corporation Law. The following is a summary of certain
significant differences between the rights of shareholders of the Companies and
the rights of stockholders of Norwest.
Capital Stock
Directors Mortgage. The Articles of Incorporation of Directors Mortgage
authorize the issuance of one class of shares of stock divided into two series.
The Articles of Incorporation
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authorize the issuance of 1,000,000 shares of Series A Voting common stock, no
par value per share ("Series A Common Stock"), and 1,000,000 shares of Series B
Nonvoting common stock, no par value per share ("Series B Common Stock"). The
only difference between these two series of shares is that, except as provided
by applicable law, the holders of Series A Common Stock have voting rights while
the holders of Series B Common Stock do not. Series B Common Stock, although
non-voting, will vote on this transaction. As of the date hereof, 647,500 shares
of Series A Common Stock and 436,295 shares of Series B Common Stock were
outstanding.
Directors Insurance. The Articles of Incorporation of Directors Insurance
authorize the issuance of 10,000 shares of stock, no par value per share. As of
the date hereof, 100 shares of Directors Insurance Common Stock were
outstanding.
Stan-Shaw. The Articles of Incorporation of Stan-Shaw authorize the
issuance of 2,500 shares of stock, par value $10.00 per share. As of the date
hereof, 1,420 shares of Stan-Shaw Common Stock were outstanding.
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 Norwest 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 with the Commission pursuant to two universal shelf registration
statements, an indeterminate number of securities (the "Shelf Securities") with
an aggregate initial offering price 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 Norwest 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 Norwest
Common Stock, respectively, that could be issued pursuant to the effective shelf
registration statements, when added to shares of Preferred Stock and Norwest
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 Norwest 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 Norwest 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 Norwest Common
Stock. The relative rights and preferences of any Preferred Stock issued in the
future may be established by Norwest's Board of Directors without stockholder
action. Although management has no current plans for the issuance of any shares
of Preferred Stock, except as disclosed in this Proxy Statement-Prospectus, such
shares, when and if issued, could have dividend, liquidation, voting and other
rights superior to those of the Norwest Common Stock.
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Subject to any prior rights of any Preferred Stock then outstanding, holders
of Norwest 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 Norwest 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 Norwest Common Stock are entitled to receive pro
rata any assets distributable to stockholders in respect of shares held by them.
Holders of shares of Norwest Common Stock do not have any preemptive right to
subscribe for any additional securities which may be issued by Norwest. The
outstanding shares of Norwest Common Stock, including the shares offered hereby,
are fully paid and nonassessable. The transfer agent and registrar for the
Norwest Common Stock is Norwest Bank Minnesota, N.A. Each share of Norwest
Common Stock also includes, and each share offered hereby will include, a right
to purchase certain Preferred Stock.
The foregoing description of the material terms of the Norwest Common Stock
does not purport to be complete and is qualified in its entirety by reference to
Article Fourth of Norwest's Certificate of Incorporation.
On November 22, 1988, the Board of Directors of Norwest declared a dividend
of one preferred share purchase right (collectively, the "Rights") for each
outstanding share of Norwest Common Stock. The dividend was paid on December 9,
1988, to stockholders of record on that date. Holders of shares of Norwest
Common Stock issued subsequent to that date, including those to be issued in
connection with the Mergers, will receive the Rights with their shares.
The Rights trade automatically with shares of Norwest Common Stock and
become exercisable only under certain circumstances. The Rights are designed to
protect the interests of Norwest and its stockholders against coercive takeover
tactics. The purpose of the Rights is to encourage potential acquirors to
negotiate with Norwest's Board of Directors prior to attempting a takeover and
to give the Board leverage in negotiating on behalf of all stockholders the
terms of any proposed takeover. The Rights may, but are not intended to, deter
takeover proposals.
Until a Right is exercised, the holder of a Right, as such, will have no
rights as a stockholder of Norwest including, without limitation, the right to
vote or receive dividends. Upon becoming exercisable, each Right will entitle
the registered holder to purchase from Norwest one four-hundredth of a share of
Norwest Series A Junior Participating Preferred Stock (collectively, the "Junior
Preferred Shares"). The stated purchase price for each one one-hundredth of a
Junior Preferred Share is $175.00. The purchase price is subject to adjustment
upon the occurrence of certain events, including stock dividends on the Junior
Preferred Shares or issuance of warrants for, or securities convertible on
certain terms into, Junior Preferred Shares. The number of Rights outstanding
and the number of Junior Preferred Shares issuable upon exercise of the Rights
are subject to adjustment in the event of a stock split of, or a stock dividend
on, Norwest Common Stock.
The Rights will become exercisable only if a person or group acquires or
announces an offer to acquire 25% or more of the outstanding shares of Norwest
Common Stock. This triggering percentage may be reduced to no less than 15% by
the Board of Directors prior to the time the Rights become exercisable. The
Rights have certain additional features that will be triggered upon the
occurrence of specified events:
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(1) If a person or group acquires at least the triggering percentage
of Norwest Common Stock, the Rights permit holders of the Rights, other
than such person or group, to acquire Norwest Common Stock at 50% of market
value. However, this feature will not apply if a person or group which
owns less than the triggering percentage acquires at least 85% of the
outstanding shares of Norwest Common Stock pursuant to a cash tender offer
for 100% of the outstanding Norwest Common Stock.
(2) After a person or group acquires at least the triggering
percentage and before the acquiror owns 50% of the outstanding shares of
Norwest Common Stock, the Board of Directors may exchange each Right, other
than Rights owned by such acquiror, for one share of Norwest Common Stock
or one four-hundredth of a Junior Preferred Share.
(3) In the event of certain business combinations involving Norwest or
the sale of 50% or more of the assets or earning power of Norwest, the
Rights permit holders of the Rights to purchase the stock of the acquiror
at 50% of market value.
The Junior Preferred Shares will not be redeemable. Each Junior Preferred
Share will be entitled to a minimum preferential quarterly dividend payment of
$1.00 per share but will be entitled to an aggregate dividend of 400 times the
dividend declared per share of Norwest Common Stock. In the event of
liquidation, the holders of the Junior Preferred Shares will be entitled to a
minimum preferential liquidation payment of $400.00 per share but will be
entitled to an aggregate payment of 400 times the payment made per share of
Norwest Common Stock. Each Junior Preferred Share will have 400 votes, voting
together with the Norwest Common Stock. Finally, in the event of any merger,
consolidation, or other transaction in which Norwest Common Stock is exchanged,
each Junior Preferred Share will be entitled to receive 400 times the amount
received per share of Norwest Common Stock. These rights are protected by
customary antidilution provisions.
At any time prior to the acquisition by a person or group of the triggering
percentage or more of the outstanding shares of Norwest Common Stock, the Board
of Directors may redeem the Rights in whole, but not in part, at a price of
$.0025 per Right (the "Redemption Price"). The redemption of the Rights may be
made effective at such time, on such basis, and with such conditions as the
Board of Directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only remaining right of the holders of Rights will be to receive the
Redemption Price.
The Rights will expire on November 23, 1998, unless extended or earlier
redeemed by Norwest. Generally, the terms of the Rights may be amended by the
Board of Directors without the consent of the holders of the Rights.
Required Vote for Authorization of Certain Actions
The Companies. California law generally requires approval of any
reorganization (including a merger, certain exchange reorganizations, and
certain sale-of-asset reorganizations), or sale of all or substantially all of
the assets of a corporation, by the affirmative vote of the holders of a
majority (unless the articles of incorporation require a higher percentage) of
the outstanding shares of each class of capital stock of the corporation
entitled to vote thereon. None of the Companies' articles of incorporation
provide for a higher percentage. In general, under California law, no approval
of a reorganization is required by the holders of the outstanding shares in the
case of any corporation if such corporation, or its shareholders immediately
before such reorganization, or both, own, immediately after such reorganization,
equity
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securities of the surviving or acquiring corporation or parent party (other than
warrants or rights) possessing more than five-sixths of the voting power of the
surviving or acquiring corporation or parent party. None of the Companies'
articles of incorporation require shareholder approval for this type of
reorganization.
California law also provides that bylaws of a California corporation may be
adopted, amended or repealed either by approval of a majority of the outstanding
shares entitled to vote or by the approval of a majority of the board of
directors. However, a bylaw addressing the authorized number of directors may
not be adopted, amended or repealed except by approval of the majority of shares
entitled to vote on such matter.
Norwest. Under Delaware law the vote of a simple majority of the
outstanding shares of Norwest Common Stock entitled to vote thereon is required
to approve a merger or consolidation, or the sale, lease, or exchange of
substantially all of Norwest's corporate assets. With respect to a merger, no
vote of the stockholders of Norwest is required if Norwest is the surviving
corporation and (1) the related agreement of merger does not amend Norwest's
Certificate of Incorporation, (2) each share of stock of Norwest outstanding
immediately before the merger is an identical outstanding or treasury share of
Norwest after the merger, and (3) the number of shares of Norwest stock to be
issued in the merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) does not exceed 20% of the shares of
Norwest Common Stock outstanding immediately before the merger.
In addition to being subject to the laws of Delaware, Norwest, as a bank
holding company, is subject to various provisions of federal law with respect to
mergers, consolidations and certain other corporate transactions.
Under Delaware law, after a Delaware corporation has received payment for
its stock, its bylaws cannot be amended by the Board of Directors absent
specific authority given in the certificate of incorporation. The Certificate
of Incorporation of Norwest gives no such authority.
Dissenters' Rights
The Companies. Under California law, in connection with certain
reorganizations of a corporation (including certain mergers) for which approval
of outstanding shares is required, dissenting shareholders who follow the
procedures prescribed by the California General Corporation Law (the "CGCL") are
entitled to receive payment of the fair market value of their shares. For a
more complete description of such rights, see "Rights of Dissenting Companies
Shareholders" below.
Norwest. Under Delaware law a stockholder is generally entitled to receive
payment of the appraised value of such stockholder's shares if the stockholder
dissents from a merger or consolidation. However, appraisal rights are not
available to holders of (a) shares listed on a national securities exchange or
held of record by more than 2,000 persons or (b) shares of the corporation
surviving a merger, if the merger did not require the approval of the
stockholders of such corporation, unless in either case, the holders of such
stock are required by the terms of the consolidation to accept anything other
than (i) shares of stock of the surviving corporation, (ii) shares of stock of
another corporation which are also listed on a national securities exchange or
held by more than 2,000 holders, or (iii) cash in lieu of fractional shares of
such stock. Appraisal rights are not available for a sale of assets or an
amendment to the Certificate of Incorporation. Because shares of Norwest Common
Stock are listed on both the NYSE and the CHX, and Norwest has more than 2,000
stockholders of record, its
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stockholders are not, subject to the aforementioned exceptions, entitled to any
rights of appraisal in connection with mergers or consolidations involving
Norwest.
Special Meetings
The Companies. Under California law, the board of directors, the chairman
of the board, the president or the holders of at least 10% of the outstanding
shares of a corporation may call a special meeting of shareholders. None of the
Companies' articles of incorporation or bylaws (collectively, the "Charter
Documents") permits any other person to call a special meeting.
Norwest. Under Delaware law and the By-Laws of Norwest, a special meeting
of stockholders may be called only by the Chairman of the Board, a Vice
Chairman, the President, or a majority of the Board of Directors.
Antitakeover Statutes
The Companies. Under California law, if a tender offer or a written
proposal for approval of a reorganization or for certain sale of assets is made
to some or all of a corporation's shareholders by an interested party (an
"Interested Party Proposal"), an affirmative opinion in writing as to the
fairness of the consideration to the shareholders must be delivered in writing
to the shareholders of that corporation. An "interested party" is a person who
is a party to the transaction and (i) directly or indirectly controls the
corporation that is the subject of the tender offer or proposal, (ii) is, or is
directly or indirectly controlled by, an officer or director of the subject
corporation, or (iii) is an entity in which a material financial interest is
held by any director or executive officer of the subject corporation. This
provision does not apply to an Interested Party Proposal if the corporation that
is the subject thereof does not have shares held of record by 100 or more
persons.
If a tender of shares or a vote or written consent is being sought pursuant
to an Interested Party Proposal and a later tender offer or written proposal for
a reorganization or sale of assets made by other persons is made, such
shareholder must be informed of such later tender offers and given a reasonable
opportunity to withdraw any vote, consent, or proxy previously given before the
vote or written consent on the Interested Party Proposal becomes effective, or a
reasonable time to withdraw any tendered shares before the purchase of shares
pursuant to the Interested Party Proposal.
Furthermore, in connection with any merger transaction, California law
generally requires that, unless all shareholders of the class or series consent,
each share of such class or series must be treated equally with respect to any
distribution of cash, property, rights or securities. California law also
provides generally that if a corporation that is a party to a merger, or its
parent, owns more than 50% but less than 90% of the voting power of the other
corporation that is party to such merger, the nonredeemable shares of common
stock of the controlled corporation may be converted only into nonredeemable
shares of the surviving corporation or a parent party unless all of the
shareholders of the class consent.
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
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corporation. Delaware law prohibits a corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date on which the stockholder became an interested stockholder unless (a)
the board of directors approved the business combination before the stockholder
became an interested stockholder, (b) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, such stockholder
owned at least 85% of the voting stock outstanding when the transaction began,
excluding in computing such percentage shares held by certain types of
stockholders, or (c) the board of directors approved the business combination
after the stockholder became an interested stockholder and the business
combination was approved by at least two-thirds of the outstanding voting stock
not owned by such stockholder.
Dividends
The Companies. Generally, a California corporation may pay dividends if the
amount of the corporation's retained earnings equals or exceeds the amount of
the proposed distribution or if, after giving effect to the distribution (i) the
sum of the assets of the corporation (excluding goodwill and certain other
assets) would be at least equal to 1 1/4 times its liabilities (excluding
certain deferred credits) and (ii) the current assets of the corporation would
be at least equal to its current liabilities or, if the average of the earnings
of the corporation before taxes on income and before interest expense for the
two preceding fiscal years was less than the average of the interest expense of
the corporation for such fiscal years, at least equal to 1 1/4 times its current
liabilities. The ability of a California corporation to pay dividends is also
restricted by certain limitations for the benefit of certain preferenced shares.
Norwest. Under Delaware law, Norwest's Board of Directors may authorize and
pay dividends to its shareholders either (i) out of surplus, which is that part
of a corporation's net assets which is in excess of the amount determined by the
board of directors to be capital, provided that, for a corporation like Norwest
with par value capital stock, a corporation's capital may not be less than the
aggregate par value of its issued shares, or (ii) if there is no surplus, out of
the corporation's net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. The board of directors of a Delaware
corporation may reduce the corporation's capital, provided that the
corporation's assets remaining after the reduction are sufficient to pay any of
the corporation's debts for which payment has not otherwise been provided.
Election of Directors
The Companies. Under CGCL (unless a corporation's articles of incorporation
provide otherwise), any shareholder of a corporation is entitled to cumulate his
or her votes for the election of directors provided that at least one
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. A shareholder can
cumulate his or her votes only for candidates whose names have been placed in
nomination prior to the voting. None of the Companies' articles of
incorporation eliminate cumulative voting with respect to the election of
directors.
Norwest. Delaware law does not provide for cumulative voting for directors
unless such rights are explicitly granted to shareholders in the certificate of
incorporation of the corporation. The Certificate of Incorporation of Norwest
does not contain any provision granting cumulative voting to shareholders.
Removal of Directors; Filling Vacancies on the Board of Directors
The Companies. Under California law, the holders of at least 10% of the
number of outstanding shares of any class of stock may initiate a court action
to remove any director for cause. In addition, any or
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all of the directors may be removed without cause if the removal is approved by
a majority of the outstanding shares entitled to vote. However, no director may
be removed (unless the entire board is removed) when the votes cast against
removal would be sufficient to elect the director if voted cumulatively at an
election at which the same total number of votes were cast (or, if the action is
taken by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected.
Under California law (unless otherwise provided in the articles of
incorporation or bylaws and except for a vacancy created by the removal of a
director), vacancies on the board of directors may be filled by approval of the
board. Vacancies not filled by the board of directors or caused by the removal
of a director by the vote of the shareholders may only be filled by the approval
of the shareholders entitled to vote. None of the Charter Documents contain any
provisions to the contrary.
Norwest. Under Delaware law, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, except that (i) if the
corporation has a staggered board, directors may be removed only for cause and
(ii) if a corporation has cumulative voting, a director may not be removed if
the votes cast against his or her removal would be sufficient to elect him or
her if then cumulatively voted at an election of the entire board of directors.
Norwest does not have a staggered board and does not have cumulative voting.
The By-Laws of Norwest provide that if an office of director becomes vacant
by reason of death, resignation, retirement, disqualification, removal from
office, or otherwise, a majority of the remaining directors, though less than a
quorum, except as prohibited by law, the Certificate of Incorporation, or the
By-Laws, may fill the vacancy.
Limitation of Directors' Liability and Indemnification
The Companies. The Articles of Incorporation of Directors Mortgage provide
that the liability of the directors for monetary damages is eliminated to the
fullest extent permissible under California law.
As permitted under the CGCL, the bylaws of Directors Mortgage and Directors
Insurance provide that Directors Mortgage and Directors Insurance shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any proceeding, other than an action by or in the right of the corporation,
by reason of the fact that such person is or was an agent of the corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with such proceeding if that person acted in
good faith and in a manner that person reasonably believed to be in the best
interest of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent does not, of itself, create a presumption that
the person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of this corporation or that the persons had
reasonable cause to believe that his or her conduct was unlawful.
The bylaws of Directors Mortgage and Directors Insurance also provide that
each corporation shall indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that person is or was an agent of the corporation, against expenses
actually and reasonably incurred by that person in connection with the defense
or settlement of that action if that person acted in good faith, in a
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manner that person believed to be in the best interests of this corporation and
with such care, including reasonable inquiry, as an ordinarily prudent person in
a like position would use under similar circumstances.
Under the bylaws of Directors Mortgage and Directors Insurance, no
indemnification shall be made: (i) in respect of any claim, issue or matter as
to which that person shall have been adjudged to be liable to the corporation in
the performance of that person's duty to this corporation, unless and only to
the extent that the court in which that action was brought shall determine upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for the expense which the court
shall determine; (ii) of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or (iii) of
expenses incurred in defending a threatened or pending action which is settled
or otherwise disposed of without court approval.
To the extent the agent of the corporation is successful on the merits in
the defense of any proceeding, or in defense of any claim, issue or matter
therein, the bylaws of Directors Mortgage and Directors Insurance provide that
the agent will be indemnified against expenses actually and reasonably incurred
by the agent in connection with such proceeding. Indemnification is authorized
only upon a determination that indemnification is proper in the circumstances by
(i) a majority vote of a quorum consisting of directors who are not parties to
the proceeding; (ii) the affirmative vote of a majority of the shares entitled
to vote (excluding those shares held by the person to be indemnified); or (iii)
the court in which the proceeding is or was pending, on application made by the
corporation or agent or the attorney or other person rendering services in
connection with the defense, whether or not such application by the agent,
attorney or other person is opposed by the corporation.
Expenses incurred in defending any proceeding may be advanced by the
corporation before the final disposition on the proceeding if the agent
undertakes to repay the amount of the advance unless it is ultimately determined
that the agent is entitled to be indemnified.
The bylaws of Stan-Shaw do not have comparable provisions, though the CGCL
permits indemnification to the extent currently provided in the bylaws of
Directors Mortgage and Directors Insurance as described above.
Norwest. Under Delaware law, absent a provision in the certificate of
incorporation to the contrary, directors can be held liable for gross negligence
in connection with the decisions made on behalf of the corporation and the
performance of their duty of care, but will not be liable for simple negligence.
As permitted under Delaware law, Norwest's Certificate of Incorporation provides
that a director (including an officer who is also a director) of Norwest shall
not be liable personally to Norwest or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability arising out of (i)
any breach of a director's duty of loyalty to Norwest or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) payment of a dividend or approval of a stock
repurchase in violation of Section 174 of the Delaware General Corporation Law,
or (iv) any transaction from which the director derives improper personal
benefit. This provision protects Norwest's directors against personal liability
for monetary damages from breaches of their duty of care. However, it does not
eliminate the director's duty of care. For example, this provision in Norwest's
Certificate of Incorporation has no effect on the availability of equitable
remedies, such as an injunction or rescission, based upon a director's breach of
his duty of care.
Delaware law provides that directors, officers, and other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines, and amounts paid in
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settlement in connection with specified actions, suits, or proceedings, whether
civil, criminal, administrative, or investigative (other than a derivative
action) if they acted in good faith and in a manner they reasonably believed to
be in, or not opposed, to the best interests of the corporation, and regarding
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions. In the case of derivative actions, Delaware law requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. To the extent that a person otherwise
eligible to be indemnified is successful on the merits of any claim or defense
described above, indemnification for expenses (including attorneys' fees)
actually and reasonably incurred is mandated by Delaware law.
Norwest's Certificate of Incorporation provides that Norwest must indemnify,
to the fullest extent authorized by Delaware law, each person who was or is made
party to, is threatened to be made a party to, or is involved in, any action,
suit, or proceeding because he is or was a director or officer of Norwest (or
was serving at the request of Norwest as a director, trustee, officer, employee,
or agent of another entity) while serving in such capacity against all expenses,
liabilities, or loss incurred by such person in connection therewith, provided
that indemnification in connection with a proceeding brought by such person will
be permitted only if the proceeding was authorized by the Norwest Board of
Directors. Norwest's Certificate of Incorporation also provides that Norwest
must pay expenses incurred in defending the proceedings specified above in
advance of their final disposition, provided that if so required by Delaware
law, such advance payments for expenses incurred by a director of officer may be
made only if he undertakes to repay all amounts so advanced if it is ultimately
determined that the person received such payments is not entitled to be
indemnified.
Norwest's Certificate of Incorporation authorizes Norwest to provide similar
indemnification to employees or agents of Norwest.
Pursuant to Norwest's Certificate of Incorporation, Norwest may maintain
insurance, at its expense, to protect itself and any directors, officers,
employees, or agents of Norwest or another entity against any expense,
liability, or loss, regardless of whether Norwest has the power or obligation to
indemnify that person against such expense, liability, or loss under Delaware
law.
The right to indemnification is not exclusive of any other right which any
person may have or acquire under any statute, provision of Norwest's Certificate
of Incorporation or By-Laws, agreement, vote of stockholders or disinterested
directors, or otherwise.
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RIGHTS OF DISSENTING COMPANIES SHAREHOLDERS
Any shareholder of the Companies who does not vote any of the shares which
he or she is entitled to vote in favor of the Reorganization Agreement and the
applicable Merger Agreement may, by complying with the procedures set forth in
Chapter 13 of Division 1 of Title 1 of the California General Corporation Law
("Chapter 13"), attached as Appendix B hereto, require the issuer of that
shareholder's stock to purchase in cash at fair market value the shares which
the shareholder does not vote in favor of the Reorganization Agreement and the
applicable Merger Agreement. The fair market value is to be determined as of
the day before the first announcement of the terms of the Reorganization
Agreement and excludes any appreciation or depreciation in consequence of the
proposed action. If the dissenting shareholder and the respective issuer cannot
agree as to such fair market value, the dissenting shareholder may have such
value determined by a California court.
Any shareholder of the Companies contemplating the exercise of such
dissenter's rights is urged to review the full text of Chapter 13, attached as
Appendix B to this Joint Proxy Statement-Prospectus. THE REQUIRED PROCEDURE SET
FORTH IN CHAPTER 13 MUST BE FOLLOWED EXACTLY OR ANY DISSENTER'S RIGHTS MAY BE
LOST. The following, qualified in its entirety by reference to the full text of
Chapter 13, is a brief summary of procedures to be followed to accomplish the
effective exercise of such dissenter's rights.
No Vote in Favor of the Agreement. Any shares for which dissenter's rights
are sought must not be voted in favor of the Reorganization Agreement and the
applicable Merger Agreement. Such shares must either be voted against the
Reorganization Agreement and the applicable Merger Agreement or not voted at
all. Thus, any shareholder who wishes to dissent and who executes and returns a
proxy in the accompanying form must specify that his or her shares are to be
voted against the Reorganization Agreement and the applicable Merger Agreement
or that the proxy holder shall abstain from voting his or her shares. If the
shareholder returns a proxy without voting instructions, or with instructions to
vote in favor of the Reorganization Agreement and the applicable Merger
Agreement, his or her shares will automatically be voted in favor of the
Reorganization Agreement and the applicable Merger Agreement and the shareholder
will lose any dissenter's rights.
Written Demand. If the Reorganization Agreement and the applicable Merger
Agreement are approved, the Companies will have ten days after such approval to
send to those shareholders who have not voted for the approval of the
Reorganization Agreement and the applicable Merger Agreement written notice of
such approval accompanied by a copy of Chapter 13, a statement of the price
determined by Directors Mortgage, Directors Insurance or Stan-Shaw, as the case
may be, to represent the fair market value of the respective dissenting shares,
and a brief description of the procedure to be followed if the shareholder
desires to exercise his or her dissenter's rights. In order to preserve his or
her dissenter's rights, a shareholder must, within 30 days after the date on
which the notice for approval is mailed, make written demand upon the issuer of
his or her stock for the purchase of dissenting shares, specifying the number,
and payment to the shareholder in cash of the fair market value. A vote against
the Reorganization Agreement and the applicable Merger Agreement does not
constitute such written demand. Within the same 30-day period, the dissenting
shareholder must surrender to the issuer of his or her stock, at the office
designated in the notice of approval, the certificates representing the
dissenting shares to be stamped or endorsed with a statement that they are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed. Any shares of the Companies' Common Stock
which are transferred prior to their submission for endorsement lose their
status as dissenting shares.
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Court Appraisal. If Directors Mortgage, Directors Insurance or Stan-Shaw
denies that the shares surrendered to it are dissenting shares, or such
corporation and the shareholder fail to agree upon a fair market value of such
shares, the dissenting shareholder must, within six months after the notice of
approval is mailed, file a complaint in the superior court of the proper county
requesting the court to make such determinations or intervene in any pending
action brought by any other dissenting shareholder. If the complaint is not
filed or intervention in a pending action is not made within the specified six-
month period, the dissenter's rights are lost.
Withdrawal of Dissent. A dissenting shareholder may not withdraw his or her
dissent or demand for payment unless the issuer of the shareholder's stock
consents to such withdrawal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain U.S. federal income tax
consequences of the Mergers to holders of Companies Common Stock under the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL
INFORMATION ONLY. SHAREHOLDERS OF DIRECTORS MORTGAGE, DIRECTORS INSURANCE AND
STAN-SHAW ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGERS, INCLUDING THE APPLICABILITY AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
It is intended that each of the Mergers will be treated as a reorganization
within the meaning of Section 368(a) of the Code, and that, accordingly, for
federal income tax purposes: (i) no gain or loss will be recognized by any of
the corporate parties as a result of the Mergers; (ii) no gain or loss will be
recognized by holders of Directors Mortgage Common Stock, Directors Insurance
Common Stock or Stan-Shaw Common Stock upon the receipt of Norwest Common Stock
in the Mergers, except as discussed below with respect to cash received in lieu
of a fractional share interest in Norwest Common Stock; (iii) the tax basis of
the shares of Norwest Common Stock to be received by the holders of Directors
Mortgage Common Stock, Directors Insurance Common Stock or Stan-Shaw Common
Stock in the Mergers will be the same as the tax basis in the shares of such
stock surrendered in exchange therefor (reduced by any amount allocable to
fractional share interests for which cash is to be received); and (iv) the
holding period of the shares of Norwest Common Stock to be received by the
holders of Directors Mortgage Common Stock, Directors Insurance Common Stock or
Stan-Shaw Common Stock in the Mergers will include the holding period of the
shares of Directors Mortgage Common Stock, Directors Insurance Common Stock or
Stan-Shaw Common Stock surrendered in exchange therefor, provided that such
shares of stock are held as capital assets at the Closing Date.
Consummation of the Mergers is conditioned upon each of Directors Mortgage,
Directors Insurance and Stan-Shaw receiving an opinion, dated the Closing Date,
of counsel to the Companies substantially to the effect that the federal income
tax consequences of the Mergers are as set forth in the preceding paragraph. An
opinion of counsel represents the best judgment of counsel as to the likely
outcome of the tax issues addressed therein if such issues were litigated. It
has no binding effect on the Internal Revenue Service or the courts.
A holder of shares of Directors Mortgage Common Stock, Directors Insurance
Common Stock or Stan-Shaw Common Stock who receives cash in the Mergers in lieu
of a fractional share interest in Norwest Common Stock will be treated for
federal income tax purposes as having received cash in redemption of such
fractional share interest. The receipt of such cash generally should result in
capital gain or loss, in an amount equal to the difference between the amount of
cash received and the portion
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of such shareholder's adjusted tax basis in the shares of Directors Mortgage
Common Stock, Directors Insurance Common Stock or Stan-Shaw Common Stock
allocable to the fractional share interest. Such capital gain or loss will be
long-term capital gain or loss if the holding period for the fractional shares
of Norwest Common Stock deemed to be received and then redeemed is more than one
year.
A holder of shares of Directors Mortgage Common Stock, Directors Insurance
Common Stock or Stan-Shaw Common Stock who perfects dissenters' rights under the
laws of the State of California and who receives payment of the fair value of
his or her shares of Directors Mortgage Common Stock, Directors Insurance Common
Stock or Stan-Shaw Common Stock will be treated as having received such payment
in redemption of such shares. Such redemption will be subject to the conditions
and limitations of Section 302 of the Code, including the ownership attribution
rules of Section 318. In general, if the shares of Directors Mortgage Common
Stock, Directors Insurance Common Stock or Stan-Shaw Common Stock are held by
the holder as a capital asset at the Closing Date, a dissenting holder will
recognize capital gain or loss measured by the difference between the amount of
cash received by such holder and the basis for such shares. Such capital gain
or loss will be long-term capital gain or loss if the holding period of such
shares is more than one year. If, however, such holder owns, either actually or
constructively, any Norwest Common Stock, the payment made to such holder could
be treated as dividend income. In general, under the constructive ownership
rules of the Code, a holder may be considered to own stock that is owned, and in
some cases constructively owned, by certain related individuals or entities, as
well as stock that such holder (or related individuals or entities) has the
right to acquire by exercising an option or converting a convertible security.
Each holder of Directors Mortgage Common Stock, Directors Insurance Common Stock
or Stan-Shaw Common Stock who contemplates exercising his or her dissenters'
rights should consult his or her own tax advisor as to the possibility that any
payment to him or her will be treated as dividend income.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of the Companies
upon consummation of the Mergers have been registered under the Securities Act
of 1933 (the "Securities Act"). Such shares may be traded freely and without
restriction by those shareholders not deemed to be "affiliates" of the Companies
or Norwest as that term is defined in the rules under the Securities Act.
Norwest Common Stock received by those shareholders of the Companies who are
deemed to be "affiliates" of the Companies may be resold without registration as
provided for by Rule 145, or as otherwise permitted under the Securities Act.
In the Reorganization Agreement, each of the Companies has agreed to use its
best efforts to cause each Companies shareholder who is an executive officer or
director of the Companies or who may otherwise reasonably be deemed to be an
affiliate of the Companies 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 Mergers except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations promulgated thereunder. This Proxy Statement-Prospectus does
not cover any resales of Norwest Common Stock received by affiliates of the
Companies.
Pursuant to the Reorganization Agreement, Norwest and the Companies have
agreed to use their best efforts to cause their affiliates to execute written
agreements not to take any action that would cause the Mergers not to be treated
as a pooling of interests for accounting purposes. Under generally accepted
accounting principles, the sale of Norwest Common Stock or Companies Common
Stock by an affiliate of either Norwest or the Companies within 30 days prior to
the Effective Time of the Mergers or thereafter prior to the publication of
financial statements that include at least 30 days of
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combined operations of Norwest and the Companies after the Effective Time of the
Mergers could preclude pooling of interests accounting treatment of the Mergers.
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 Mergers. It is a condition to the
consummation of the Mergers 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
For those stockholders who elect to participate in Norwest's Dividend
Reinvestment and Optional Cash Payment Plan, dividends on Norwest Common Stock
will be reinvested in shares of Norwest Common Stock at market price (as
defined). The plan also permits participants to invest through voluntary cash
payments, within certain dollar limitations, in additional shares of Norwest
Common Stock at the market price (as defined) of such stock at the time of
purchase. It is anticipated that after the Effective Time of the Mergers,
Norwest will continue to offer its Dividend Reinvestment and Optional Cash
Payment Plan and that shareholders of the Companies who receive Norwest Common
Stock in the Mergers will have the right to participate therein.
ACCOUNTING TREATMENT
Norwest's obligation to consummate the Mergers is conditioned upon
qualification of the Mergers under the pooling-of-interests method of accounting
and the receipt by Norwest of an opinion from Norwest's and Companies'
independent public accountants to the effect that each of the Mergers qualifies
for pooling-of-interests method of accounting if consummated in accordance with
the terms of the applicable Merger Agreement. Under the pooling-of-interests
method of accounting, the historical basis of the assets and liabilities of
Norwest and the Companies will be combined at the Effective Time of the Mergers
and carried forward at their previously recorded amounts, and the shareholders'
equity accounts of the Companies and Norwest will be combined on Norwest's
consolidated balance sheet. Income and other financial statements of Norwest
issued after consummation of the Mergers will not be restated retroactively
because the effect of the acquisitions on Norwest's financial statements will
not be material.
In order for the Mergers to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of each of the outstanding Directors
Mortgage Common Stock, Directors Insurance Common Stock and Stan-Shaw Common
Stock must be exchanged for Norwest Common Stock. Norwest and the Companies
have agreed not intentionally to take any action that would disqualify the
Mergers from pooling-of-interests treatment by Norwest. In this regard, Norwest
has agreed to use its best efforts to obtain and deliver to the Companies signed
representations from the directors and executive officers of Norwest that they
will not sell, transfer or otherwise dispose of any shares of Norwest or the
Companies during the period commencing 30 days prior to the closing of the
Mergers and ending upon publication of financial results including at least 30
days of combined operations of Norwest and the Companies.
The unaudited pro forma financial information contained in this Proxy
Statement-Prospectus has been prepared using the pooling-of-interests accounting
method to account for the Mergers. See "SUMMARY--Comparative Unaudited Per
Share Data" and "--Selected Financial Data."
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EXPENSES
Norwest and each of the Companies will each pay their own expenses in
connection with the Reorganization Agreement and the Mergers and the
transactions contemplated thereby, including fees and expenses of their
respective accountants and counsel.
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INFORMATION ABOUT DIRECTORS MORTGAGE
GENERAL
Directors Mortgage is a California corporation which was organized in 1964.
In 1976, Directors Mortgage was purchased by A. Gary Anderson, who managed
Directors Mortgage as principal owner until his death in August 1992, at which
time he was the sole beneficial shareholder. At September 30, 1994, Directors
Mortgage had total assets of $318.2 million and stockholders' equity of $20.6
million. The principal executive offices of Directors Mortgage are located at
1595 Spruce Street, Riverside, California.
MORTGAGE BANKING OPERATIONS
General. Directors Mortgage's mortgage banking operations consist primarily
of the origination, sale and servicing of residential single-family, first
mortgage loans and the retention, purchase and sale of servicing rights
associated with such mortgage loans. Substantially all such loans are sold as
whole loans or mortgage-backed securities issued or guaranteed by the Federal
National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Government National Mortgage Association ("GNMA").
The mortgage loans are primarily sold with the rights to service the loan being
retained by Directors Mortgage.
Directors Mortgage expanded its mortgage banking operations significantly in
recent years and was in 1993 the nation's 15th largest residential mortgage
lender based on dollar amount of originations. Estimates obtained from
independent sources indicate that for 1993, Directors Mortgage ranked fifth
largest in California among originators of residential single-family, first
mortgage loans based on dollar amount of originations. Directors Mortgage
originated $4.7 billion of mortgage loans during the first nine months of 1994,
$10.5 billion of mortgage loans in 1993 and $7.7 billion of mortgage loans in
1992. The mortgage loan servicing portfolio also grew significantly in recent
years, but has leveled off in 1994 due to more sales of loans with servicing
released. At September 30, 1994, the servicing portfolio totaled $12.8 billion
principal amount of mortgage loans serviced, compared to $13.1 billion at
December 31, 1993 and $8.4 billion at December 31, 1992.
The fundamental business strategy of Directors Mortgage has been to increase
its nationwide market share of mortgage loan originations and the size of its
servicing portfolio. Directors Mortgage's geographic diversification efforts
have focused on increasing penetration of California markets and expanding its
operations outside of California. As of September 30, 1994 mortgage loan
originations in California represented 56% of total mortgage loan originations
of Directors Mortgage and the servicing portfolio related to California
mortgages represented 51% of the total servicing portfolio of Directors
Mortgage. As of September 30, 1994, Directors Mortgage operated 121 branch
offices and 29 satellite offices in 25 states.
Mortgage Loan Origination. Directors Mortgage originates mortgage loans
through three primary channels: retail, wholesale and correspondent. Of total
fundings during 1993, 53% were through its retail channel, 44% were through its
wholesale channel and 3% were through its correspondent channel. As of
September 30, 1994, Directors Mortgage's retail channel operated through 136
locations from which loan officers originate mortgage loans principally through
referrals from local realtors and home builders. As of the same date, Directors
Mortgage's wholesale channel operated through 14 offices from which mortgage
loans are solicited from approved independent mortgage brokers and realty/broker
offices with which Directors Mortgage has contractual
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relationships. The correspondent channel generates mortgage loans through
independent mortgage banking companies, savings and loan institutions and small
community banks. All mortgage loans originated by Directors Mortgage through its
retail and wholesale channels are underwritten, funded and closed by Directors
Mortgage. Mortgage loans originated through its correspondents are generally
underwritten by the correspondent, unless third party underwriting is required
and closed in the name of the correspondent and funded by Directors Mortgage,
with an assignment of the mortgage loan to Directors Mortgage concurrent with
the funding. Directors Mortgage also purchases loans from correspondents on a
whole loan basis after funding.
Mortgage loan originations during the first nine months of 1994 consisted of
64% fixed rate mortgage loans and 36% adjustable rate mortgage loans. Mortgage
loan originations during 1993 consisted of 77% fixed rate mortgage loans and 23%
adjustable rate mortgage loans.
A majority of the mortgage loans originated by Directors Mortgage are
conforming conventional loans which qualify for inclusion in purchase and
guaranty programs sponsored by FNMA and FHLMC. In order to qualify for these
programs, mortgage loans must meet the property and credit standards and loan
size limits, currently $203,150 for all states other than Alaska, Hawaii and the
U.S. Virgin Islands which have loan size limits of $304,725, established by FNMA
and FHLMC. Nonconforming conventional mortgage loans originated by Directors
Mortgage which are not eligible for sale to FNMA or FHLMC, primarily due to loan
size limitations, must meet Directors Mortgage's own underwriting criteria, as
well as satisfy the criteria of investors to which such loans are sold.
Directors Mortgage also originates conforming mortgage loans insured by the
Department of Housing and Urban Development ("HUD") and mortgage loans partially
guaranteed by the Veterans Administration ("VA") which are originated according
to HUD and VA guidelines.
Sale of Mortgage Loans. Directors Mortgage strives to sell all of the
mortgage loans it originates. A majority of the conventional conforming loans
originated by Directors Mortgage are either sold directly to FNMA, FHLMC or
private investors for cash or are pooled and sold as mortgage-backed securities
to investment banking firms who act as dealers in mortgage securities. Mortgage
loans exceeding FNMA and FHLMC maximum loan size limits and other mortgage loans
which do not conform to agency requirements are sold directly to investment
banks and institutional investors. Directors Mortgage's FHA mortgage loans and
VA mortgage loans are generally pooled and sold in the form of GNMA mortgage-
backed securities.
Sales of mortgage loans to investors are generally made without recourse to
Directors Mortgage in the event of default by the borrower, other than VA
mortgage loans which are subject to the limits of the VA guarantee and certain
losses related to foreclosures of FHA mortgage loans. In connection with its
mortgage loan sales, Directors Mortgage makes representations and warranties
customary in the industry. In the event of a breach of these representations
and warranties, or under certain other specified circumstances, regardless of
whether there has been such a breach, Directors Mortgage may be required to
repurchase such mortgage loans. Typically, any documentation defects with
respect to these mortgage loans which cause them to be repurchased are corrected
and the loans are resold, unless the loan is in default. In some cases,
repurchased mortgage loans are foreclosed and the acquired real estate is
subsequently sold. Losses incurred as a result of breaches of such
representations and warranties were approximately $1.2 million during the first
nine months of 1994 and $3.8 million during 1993.
Mortgage Loan Servicing. Mortgage loan servicing includes collecting
payments from borrowers and remitting such funds to investors, accounting for
mortgage loan principal and interest
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payments, making advances when required, holding impound funds for the payment
of taxes, insurance and other mortgage-related expenses, contacting delinquent
borrowers, supervising foreclosures and property dispositions in the event of
unremedied defaults and generally administering mortgage loans. A servicer's
mortgage loan servicing duties and its right to collect fees are set forth in
the servicing contract with the investor.
Directors Mortgage receives loan servicing fees under its servicing
contracts which generally range from .25% to .50% per annum of the aggregate
unpaid principal balance of the mortgage loans, plus any late charges collected
from delinquent borrowers and other fees incidental to the services provided.
Servicing fees are collected out of monthly mortgage payments. In the event of
default by the borrower, Directors Mortgage receives no servicing fees during
the default period unless the default is cured.
Sales of Servicing. Directors Mortgage sells servicing rights from time to
time to generate working capital to support its operations. It retains as much
servicing as possible to support its long-term goal of portfolio growth. The
majority of servicing rights sold are auctioned and released on a "bulk" basis
to investors who are active buyers of servicing. Such sales substantially
increase revenue during the period in which sales occur but reduce future
servicing fee income. Prices obtained for mortgage loan servicing rights vary.
Among the factors that influence the value received for mortgage loan servicing
rights are servicing fee rates, anticipated prepayment rates, average loan
balances, servicing costs, impound balances, delinquency and foreclosure
experience and purchasers' required rates of return.
Servicing Portfolio Credit Risk. Portfolio credit risk associated with
mortgage loan servicing is largely dependent on the extent to which the
servicing portfolio is nonrecourse or recourse. In nonrecourse servicing, the
principal credit risk to the servicer is the cost of temporary advances of funds
on delinquent loans and foreclosing related expense on FHA and VA loans. At
September 30, 1994, 32% of the Company's servicing portfolio was comprised of
FHA and VA loans serviced primarily under GNMA guidelines. Although such
portfolio is deemed to be nonrecourse, in certain circumstances when a national
disaster occurs, such as the recent San Fernando Valley earthquake in Southern
California, Directors Mortgage is exposed to recourse type risk if proceeds from
primary homeowner insurance or disaster relief are not available to restore
properties to livable conditions. In recourse servicing, the servicer agrees to
share credit losses with the owner, insurer or guarantor of the mortgage loan.
Losses on recourse servicing occur primarily when foreclosure sale proceeds of
the property underlying a defaulted mortgage loan are less than the then
outstanding principal balance of such mortgage loan and costs of holding and
disposing of such underlying property. At September 30, 1994, Directors
Mortgage was servicing mortgage loans in the aggregate principal amount of
approximately $10.5 million on a recourse basis. The provision for losses
related to servicing responsibilities amounted to approximately $1.3 million
during the first nine months of 1994, including $650,000 for earthquake losses,
and approximately $125,000 during 1993.
COMPETITION
The business of mortgage banking is highly competitive. Directors Mortgage
competes for mortgage loan originations with other financial institutions, such
as mortgage bankers, commercial banks, savings and loan associations, credit
unions and insurance companies. Many of the competitors of Directors Mortgage
have financial resources that are substantially greater than those of Directors
Mortgage.
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ENVIRONMENTAL MATTERS
Compliance with environmental laws and regulations have not had a
significant impact on Directors Mortgage's capital expenditures, earnings or
competitive position. Directors Mortgage does not anticipate that it will incur
any material capital expenditures for environmental control of facilities in the
near future.
EMPLOYEES
At September 30, 1994, Directors Mortgage had 2,033 full-time employees and
36 part-time employees.
MARKET PRICES AND DIVIDENDS
The outstanding shares of Directors Mortgage Common Stock are owned of
record by 35 shareholders. See "MEETING INFORMATION--Principal Shareholders and
Security Ownership of Management of the Companies--Directors Mortgage".
Therefore, there is no established trading market for Directors Mortgage Common
Stock.
Directors Mortgage is a Subchapter S corporation and makes cash
distributions to shareholders for related income taxes and other general
purposes. No distributions were made on the Directors Mortgage Common Stock
during the nine months ended September 30, 1994. Directors Mortgage made
distributions on the Directors Mortgage Common Stock of $22,552,000 in the
aggregate, or $34.83 per share, during 1993; and $26,213,000 in the aggregate,
or $40.48 per share, during 1992. The mortgage warehouse facility maintained by
Directors Mortgage contains restrictions on the payment of cash distributions by
Directors Mortgage. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'
Overview
Revenues from mortgage loan origination activities are generated from loan
origination and related fees, interest income earned on loans and net gains, if
any, on the sale of mortgage loans. Directors Mortgage's loan originations have
increased significantly in recent years as a result of opening new retail and
wholesale loan offices and correspondent relationships and the favorable
interest rate environment. Directors Mortgage now originates loans in 25
states.
Revenues related to servicing rights are derived principally from loan
servicing fees earned in connection with the collection and processing of loan
payments and the administration of loans, and from gains realized on the sale of
servicing rights. Directors Mortgage's servicing portfolio increased
significantly in 1993 due to higher loan volume and the retention of servicing
rights on loans originated by Directors Mortgage.
Directors Mortgage sells a portion of the servicing rights generated by its
loan originations to other servicers to generate income and cash flow to finance
its operating needs. Consequently, results of operations may fluctuate
significantly depending upon the amount of servicing rights sold in particular
periods. Although the amount of loan servicing rights sold in recent periods is
not necessarily indicative of future sales activity, management expects that in
the near term Directors Mortgage will continue to sell a
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significant percentage of the servicing rights it generates. Management's long-
term plans are to continue to build the loan servicing portfolio and retain loan
servicing rights to generate additional servicing fee income, which is expected
to provide a stable source of revenue in a rising interest rate environment.
While Directors Mortgage acquires loan servicing rights from loan
correspondents, this activity is expected to continue to be minimal.
Directors Mortgage, with the consent of its shareholders, elected to be an S
Corporation under the Code effective May 1, 1990. In lieu of corporation income
taxes, the shareholders of Directors Mortgage are taxed on Directors Mortgage's
taxable income. Therefore, no provision or liability for federal income taxes
has been included in the financial statements. Directors Mortgage continues to
pay state income tax at a reduced rate. Distributions for the income taxes are
provided to shareholders at the maximum individual income tax rates.
Recent Developments and Outlook
In recent years, Directors Mortgage has benefited from a declining interest
rate environment which has generated demand to refinance existing mortgage
loans, increased overall demand for mortgage loans and lowered the cost of the
funds used in Directors Mortgage's mortgage banking operations. Rising interest
rates in 1994 have resulted in declines in loan origination volumes, with
overall refinancing activity during the nine months ended September 30, 1994 38%
(based upon dollar amount of loans) below the comparable period in 1993 and
during the month of September 1994 82% (based upon dollar amount of loans) below
the month of September 1993. In view of the decline in refinance activity and
rising interest rate environment, Directors Mortgage has endeavored to increase
origination volume and revenues through identifying competitive investors in
adjustable rate mortgage product to qualify more borrowers at lower initial
interest rates and to create new loan origination programs such as below "A"
quality loan programs for borrowers with substandard credit. Activity in below
"A" quality loan programs has not been material to date. The increased loan
servicing portfolio has provided additional revenues to partially offset the
decline in loan origination related income. Management anticipates that loan
origination volume and related revenues will, for at least the near term, remain
below 1993 and 1992 levels.
Certain Accounting Considerations Related to "Off-Balance-Sheet" Value
The financial statements of a mortgage company are significantly influenced
by the relative composition of its mortgage loan production between loans
originated by the company itself and loans purchased from other originators, as
well as by the mortgage company's decision to sell or retain the servicing
rights associated with such loans. Generally accepted accounting principles
require that the acquisition costs of mortgage servicing rights purchased from
others ("PMSRs") be capitalized on the balance sheet and amortized over the
expected life of the loans. In contrast, the origination costs associated with
retained servicing rights to loans directly originated and subsequently sold by
a mortgage company ("OMSRs") must, in general, be expensed currently. The only
amount allowed to be capitalized with respect to such retained servicing is the
present value of the excess servicing -- the amount by which the difference
between the contractual note rate of a loan and the interest rate payable to the
purchaser of the loan exceeds what is considered to be a "normal" servicing fee.
To the extent the market value of OMSRs exceeds the amount allowed to be
capitalized on the balance sheet, a mortgage company can choose to recognize
such value through subsequent sale of the OMSRs, thereby offsetting the then-
current period expensing of origination costs and potentially producing net
income or the mortgage company can choose to retain this "off-balance-sheet"
value and recognize it over the life of the loan in the form of servicing
income.
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<PAGE>
As of September 30, 1994, Directors Mortgage's servicing portfolio, not
including loans held for sale, consisted of servicing rights to mortgage loans
with an aggregate outstanding balance of $12.8 billion, as to which $2.8
million, or .02%, was capitalized on its balance sheet. During the first nine
months of 1994 and during all of 1993, 1992 and 1991, Directors Mortgage sold
servicing rights to mortgage loans with aggregate principal balances of $4.1
billion, $2.5 billion, $2.7 billion and $0.5 billion, respectively, at weighted
average prices net of related selling expenses of 1.00%, .88%, .98%, and 1.22%
of the aggregate principal balance of the loans, respectively. The prices at
which servicing rights may be sold vary over time according to, among other
factors, type of loan and prevailing mortgage interest and prepayment rates.
Servicing rights sold by Directors Mortgage have generally related to agency
loans (loans sold to FNMA, FHLMC or GNMA) recently originated by Directors
Mortgage, and such servicing rights may, in certain interest rate environments,
have relatively higher values than nonagency or more seasoned loans in Directors
Mortgage's servicing portfolio.
On June 28, 1994, the Financial Accounting Standards Board ("FASB") issued
an Exposure Draft, "Accounting for Mortgage Servicing Rights and Excess
Servicing Receivables and for Securitization of Mortgage Loans." The Exposure
Draft provides accounting guidance for the recognition and capitalization of
OMSRs in addition to guidance for evaluating all capitalized servicing rights
for impairment and the recognition of impairment. The provisions of the
Exposure Draft call for its application in fiscal years beginning after December
15, 1995. The changes, when adopted, are expected to permit recognition of the
economic value of originated servicing and to account for purchased and
originated servicing in the same manner. If the provisions of the Exposure
Draft had been in effect during the first nine months of 1994 and for all of
1993, management estimates that Directors Mortgage would have recognized
additional revenues before tax of approximately $40 million and $90 million,
respectively.
Results of Operations for the Nine Months Ended September 30, 1994 Compared
to the Nine Months Ended September 30, 1993
Summary. Revenue for the nine months ended September 30, 1994 decreased
22% to $138.5 million from $179.7 million for the nine months ended September
30, 1993, and Directors Mortgage had net income of $300,000 for the 1994 period
compared to net income of $21.9 million for the 1993 period. The results of the
1994 period relative to the 1993 period were due to a substantial reduction in
revenue from loan origination, gain on sale of loans (net), and net interest
income, offset, in part, by increased revenue from mortgage servicing and sales
of servicing and a reduction in total expenses.
Mortgage Origination Revenue. The following table sets forth the primary
components of mortgage origination revenue for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Loan origination and processing.......... $41,834 $ 52,870
Gain (loss) on sale of loans (net)....... (2,321) 61,948
------- --------
Total mortgage origination revenue.. $39,513 $114,818
======= ========
</TABLE>
For the nine months ended September 30, 1994, Directors Mortgage
experienced reduced mortgage origination revenues of $39.5 million compared to
$114.8 million for the nine months ended September 30,
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<PAGE>
1993, reflecting a lower overall level of loan origination activity and a
significant decline in revenues from net secondary marketing activity in the
1994 period.
Loan origination and processing revenues were down 21% in the nine months
ended September 30, 1994, corresponding to a 35% decrease in loan origination
volume from $7.2 billion in the 1993 period to $4.7 billion in the 1994 period.
Of the total loan origination volume during the first nine months of 1994, 64%
was through the retail channel, 32% was through the wholesale channel and 4% was
through the correspondent channel. Loan origination volume through the retail,
wholesale and correspondent channels decreased 19%, 55% and 12%, respectively,
during the 1994 period compared to the 1993 period.
Secondary marketing activity resulted in a $2.3 million net loss on the
sale of loans for the nine months ended September 30, 1994 compared to a $61.9
million net gain for the nine months ended September 30, 1993. The loss on the
sale of loans for the first nine months of 1994 represents 0.05% of total loan
origination volume during the period while the gain on the sale of loans for the
first nine months of 1993 represents 0.9% of total loan origination volume
during the period. The decline in revenues from the sale of loans is primarily
due to the rising interest rate environment in 1994, which has resulted in a
decreased demand for mortgage loans and corresponding increased competition in
pricing of mortgage loans.
Mortgage Servicing Revenue. Total mortgage servicing revenue for the first
nine months of 1994 increased 47% to $35.7 million from $24.2 million for the
first nine months of 1993, primarily due to growth of Directors Mortgage's
servicing portfolio through its loan origination operations. The average
mortgage servicing portfolio during the first nine months of 1994 was $13.8
billion compared to $10.6 billion for the comparable period of 1993. The impact
of amortization of PMSRs and excess servicing fees was not material since
Directors Mortgage obtains a minimal amount of servicing through acquisition and
prices and markets its mortgage loans to minimize the amount of excess servicing
fees. During the nine months ended September 30, 1994, amortization of excess
servicing and purchased servicing amounted to $407,000 compared to $725,000 for
the same period in 1993. At September 30, 1994 and 1993, total PMSRs and excess
servicing fees capitalized on the balance sheet amounted to $2.7 million.
Expressed as an annualized percentage of the average month-end balance of
Directors Mortgage's servicing portfolio, gross servicing fees for the first
nine months of 1994 and 1993 represented .32% and .29%, respectively.
Sales of Servicing. For the nine months ended September 30, 1994,
Directors Mortgage recorded a net gain of $40.6 million on the sales of
servicing compared to $14.3 million for the nine months ended September 30,
1993. Directors Mortgage sold mortgage servicing rights on loans with an
aggregate principal balance of $4.1 billion in the first nine months of 1994
compared to $1.7 billion in the first nine months of 1993. Expressed as a
percentage of the aggregate outstanding principal balances of the underlying
mortgages with respect to which servicing rights were sold in the first nine
months of 1994 and the first nine months of 1993, the weighted average prices of
such sales, net of related selling expenses, were 1.00% and 0.86%, respectively.
Servicing values increased in 1994 reflecting lower prepayment or runoff rates
and attractive mortgage note rate levels.
The increased level of servicing sales in the first nine months of 1994
primarily reflects Directors Mortgage's decision to sell based on overall
financial objectives, including offsetting the net secondary marketing loss
incurred in the first nine months of 1994 and providing funds for 1993
Subchapter S shareholder income taxes.
Interest Income. Interest income is generated primarily from the interest
income earned from mortgage loans before they are sold to investors. Interest
income for the first nine months of 1994 decreased 14% to $20.7 million from
$24.0 million for the first nine months of 1993, primarily due to a reduction in
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<PAGE>
average mortgage loans receivable held for sale as a result of reduced lending
activity. Other loan servicing related reductions to interest income, primarily
interest income foregone on foreclosed loans, increased to $1.1 million for the
first nine months of 1994 from $500,000 for the first nine months of 1993.
Expenses. The following table sets forth the primary components of
expenses for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
1994 1993
-------- --------
(In thousands)
<S> <C> <C>
Salaries and related expenses............... $ 78,880 $101,490
Interest expense............................ 14,009 14,940
Occupancy................................... 7,895 6,106
Other general and administrative............ 37,335 34,308
-------- --------
Total expenses......................... $138,119 $156,844
======== ========
</TABLE>
For the nine months ended September 30, 1994, expenses decreased by 12% to
$138.1 million from $156.8 million for the nine months ended September 30, 1993,
primarily due to decreases in personnel and interest expenses.
Personnel expense decreased 22% for the first nine months of 1994 compared
to the first nine months of 1993, primarily due to reduction in staff and
commissions paid to loan originators because of decreased loan activity.
Interest expense decreased $900,000 for the nine months ended September 30, 1994
as compared to the nine months ended September 30, 1993. Interest cost on
warehousing decreased by $2.0 million for the first nine months of 1994 as
compared to the first nine months of 1993, primarily due to reduced loan volume.
This was partially offset by an increase of $1.1 million of interest expense
associated with additional equipment financing of $8.8 million during 1994 and
$19.0 million of subordinated debt incurred in July 1994. Occupancy expense
increased from the 1993 period to the 1994 period because of Directors
Mortgage's strategy for continued branch office expansion during this period
which resulted in a net increase of 19 offices subsequent to September 1993.
Other general and administrative expenses increased 9% for the first nine
months of 1994 compared to the first nine months of 1993 primarily due to the
increased expenses associated with Directors Mortgage's investment in data
processing, foreclosure related expenses, as well as other operating expenses.
Expenses in data processing increased $1.7 million and foreclosure losses, net
of interest expense, increased $2.7 million. These increases, together with
the increases in other operating expenses, were offset in part by a $5.0 million
decrease in costs associated with "no-cost refinance" loans, due to the reduced
volume of such loans.
Results of Operations for the Year Ended December 31, 1993 Compared to the
Year Ended December 31, 1992
Summary. Revenue for 1993 increased 41% to $253.0 million from $179.9
million for 1992 and Directors Mortgage had net income of $36.1 million for 1993
compared to net income of $32.1 million for 1992. The results for 1993 compared
to 1992 were due to a combination of increases in loan origination and mortgage
servicing, and gain on the sale of loans, offset in part by a reduction in sales
of servicing and net
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<PAGE>
interest income. Total expenses increased 47% primarily related to Directors
Mortgage's expansion and increased business activity.
Mortgage Origination Revenue. The following table sets forth the primary
components of Directors Mortgage's mortgage origination revenue for the periods
indicated:
<TABLE>
<CAPTION>
Years Ended
December 31
-----------------
1993 1992
-------- -------
(in thousands)
<S> <C> <C>
Loan origination and processing.......... $ 75,090 $60,959
Gain on sale of loans (net).............. 83,425 31,516
-------- -------
Total mortgage origination revenue.. $158,515 $92,475
======== =======
</TABLE>
Directors Mortgage experienced increased mortgage origination revenues of
$158.5 million during 1993 compared to $92.5 million during 1992, reflecting
higher overall levels of loan origination activity and an interest rate
environment providing for a significant increase in revenues from secondary
marketing activity in 1993.
Loan origination and processing revenues increased 23% in 1993,
corresponding to a 37% increase in loan origination volume from $7.7 billion in
1992 to $10.5 billion in 1993. Of the total loan origination volume in 1993,
53% was through the retail channel, 44% was through the wholesale channel and 3%
was through the correspondent channel. Loan origination volume through the
retail, wholesale and correspondent channels increased 39%, 26% and 444%,
respectively, during 1993 compared to 1992.
Directors Mortgage's secondary marketing activity resulted in a $83.4
million net gain on the sale of loans during 1993 compared to a $31.5 million
net gain during 1992. Expressed as a percentage of total loan origination
volume during the year, the gain for 1993 and 1992 represent 0.8% and 0.4%,
respectively, of total loan origination volume during the applicable year. The
increase in revenues from the sale of loans is primarily due to the falling
interest rate environment in 1993, and resultant increased demand for refinance
mortgage loans.
Mortgage Servicing Revenues. Total mortgage servicing revenue during 1993
increased 55% to $35.0 million from $22.6 million during 1992, primarily due to
growth of Directors Mortgage's servicing portfolio from $8.4 billion at December
31, 1993 to $13.1 billion at December 31, 1993. The average mortgage servicing
portfolio during 1993 was $11.4 billion compared to $7.4 billion during 1992.
During 1993, amortization of excess servicing and purchased servicing was
$987,000 compared to $758,00 for 1992. At December 31, 1993 and 1992, total
PMSRs and excess servicing fees capitalized on the balance sheet was $2.6
million and $2.5 million, respectively. Expressed as an annualized percentage
of the average month-end balance of Directors Mortgage's servicing portfolio,
gross servicing fees for 1993 and 1992 represented .28% each year.
Sales of Servicing. Directors Mortgage recorded a net gain of $22.3
million on the sales of servicing during 1993 compared to $26.7 million for
1992. Directors Mortgage sold mortgage servicing rights on loans with an
aggregate principal balance of $2.5 billion in 1993 compared to $2.7 billion in
1992. Expressed as a percentage of the aggregate outstanding principal balances
of the underlying mortgages with respect to which servicing rights were sold
during 1993 and 1992, the weighted average prices of such sales,
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<PAGE>
net of related selling expenses, were .88% and .98%, respectively. Servicing
values decreased in 1993 reflecting higher than normal prepayment rates and
uncertainty over future mortgage note rate levels.
Interest Income. Interest income during 1993 increased 2% to $33.7 million
from $32.9 million during 1992, primarily due to an increase in average mortgage
loans receivable held for sale. This was partially offset by an increase of
$1.6 million in interest foregone on foreclosed loans and early payoffs on
securitized servicing collateral during 1993 as compared to 1992.
Expenses. The following table sets forth the primary components of
expenses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31
--------------------
1993 1992
-------- ----------
(in thousands)
<S> <C> <C>
Salaries and related expenses..... $136,858 $ 95,088
Interest expense.................. 21,487 19,732
Occupancy......................... 8,421 6,445
Other general and administrative.. 48,995 25,161
-------- --------
Total expenses............... $215,761 $146,426
======== ========
</TABLE>
Expenses increased by 47% to $215.8 million during 1993 from $146.4 million
for 1992, primarily due to increases in personnel expenses and other general and
administrative expenses.
Personnel expense increased 31%, interest expense increased 9% and other
general and administration expenses increased 95% during 1993 compared to 1992.
Personnel expense increased primarily due to increases in staff and commissions
paid to loan originators because of increased loan activity. Interest expense
increased $1.8 million during 1993. Interest cost on warehousing was $1.4
million greater in 1993 than in 1992 due to increased loan volume. Interest
expense associated with equipment financing of $12.6 million increased other
borrowing costs in 1993 by $400,000. Occupancy expense increased because of
Directors Mortgage's strategy for continued branch office expansion during this
period which resulted in a net increase of 30 offices during 1993.
The increase in other general and administrative expense reflects primarily
the subsidized borrower's costs on "no-cost refinance" loans, which was $16.3
million in 1993 compared to $2.1 million in 1992. These costs are offset by
the marketing yield gain on the sale of these loans due to the higher interest
rates passed on to the borrower. Additional increased costs include expansion
related expenses, expenses associated with investment in data processing and the
rise in foreclosure related expenses. Expenses related to data processing
increased $1.3 million and foreclosure losses, net of interest expense,
increased $2.2 million.
Results of Operations for the Year Ended December 31, 1992 Compared to the
Year Ended December 31, 1991
Summary. Revenue for 1992 increased 77% to $179.9 million from $101.3
million for 1991, and Directors Mortgage had net income of $32.1 million for
1992 compared to $12.2 million for 1991. The results of 1992 compared to the
1991 were due to a combination of increases in loan origination, mortgage
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<PAGE>
servicing, sales of servicing, net interest income, death benefits, and gain on
the sale of loans (net). Total expenses increased 65% primarily due to
expansion and increased business activity.
Mortgage Origination Revenue. The following table sets forth the primary
components of Directors Mortgage's mortgage origination revenue for the periods
indicated:
<TABLE>
<CAPTION>
Years Ended
December 31
----------------
1992 1991
------- -------
(in thousands)
<S> <C> <C>
Loan origination and processing.......... $60,959 $33,176
Gain on sale of loans (net).............. 31,516 21,457
------- -------
Total mortgage origination revenue.. $92,475 $54,633
======= =======
</TABLE>
Directors Mortgage experienced increased mortgage origination revenues of
$92.5 million during 1992 compared to $54.6 million during 1991, reflecting
higher overall levels of loan origination activity and an interest rate
environment providing for a significant improvement in secondary marketing
results in 1992.
Loan origination and processing revenues increased 84% during 1992,
corresponding to a 97% increase in loan origination volume from $3.9 billion in
1991 to $7.7 billion in 1992. Of the total loan origination volume in 1992, 52%
was through the retail channel and 48% was through the wholesale channel. Loan
origination volume through the retail and wholesale channels increased 102% and
89%, respectively, during 1992 compared to 1991. The correspondent channel was
introduced during 1992.
Directors Mortgage's secondary marketing activity resulted in a $31.5
million net gain on the sale of loans during 1992 compared to a $21.5 million
net gain during 1991. Expressed as a percentage of total loan origination
volume during the year, the gain for 1992 and 1991 represents 0.4% and 0.6%,
respectively, of total loan origination volume during the applicable year. The
increase in revenues from the sale of loans was primarily due to the favorable
interest rate environment in 1992, and resultant increased demand for mortgage
loans.
Mortgage Servicing Revenue. Mortgage servicing revenue during 1992
increased 66% to $22.6 million from $13.6 million during 1991, primarily due to
growth of Directors Mortgage's servicing portfolio. The average mortgage
servicing portfolio during 1992 was $7.4 billion compared to $4.2 billion for
1991. During 1992, amortization of excess servicing and purchased servicing was
$758,000 compared to $256,000 for 1991. At December 31, 1992 and 1991, total
purchased and excess servicing fees capitalized on the balance sheet was $2.5
million and $1.9 million, respectively. Expressed as an annualized percentage
of the average month-end balance of Directors Mortgage's servicing portfolio,
gross servicing fees for 1992 and 1991 represented .28% and .29%, respectively.
Sales of Servicing. Directors Mortgage recorded a net gain of $26.7
million on the sales of servicing during 1992, compared to $6.2 million during
1991. Directors Mortgage sold mortgage servicing rights on loans with an
aggregate principal balance of $2.7 billion in 1992 compared to $0.5 billion in
1991. Expressed as a percentage of the aggregate outstanding principal balances
of the underlying mortgages with respect to which servicing rights were sold
during 1992 and 1991, the weighted average prices of such sales, net of related
selling expenses, were .98% and 1.22%, respectively. Servicing values decreased
in 1992, reflecting higher than normal prepayment rates and uncertainty over
future mortgage note rate levels.
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<PAGE>
Interest Income. Interest income during 1992 increased 29% to $32.9
million from $25.5 million during 1991, due primarily to a near doubling in loan
origination volume in a declining interest rate environment. This was partially
offset by an increase of $1.0 million in interest foregone on foreclosed loans
and early payoffs on securitized servicing collateral during 1992 as compared to
1991.
Expenses. The following table sets forth the primary components of
expenses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31
-----------------
1992 1991
-------- -------
(in thousands)
<S> <C> <C>
Salaries and related expenses..... $ 95,088 $52,985
Interest expense.................. 19,732 17,887
Occupancy......................... 6,445 4,446
Other general and administrative.. 25,161 13,250
-------- -------
Total expenses............... $146,426 $88,568
======== =======
</TABLE>
Expenses increased by 65% to $146.4 million from $88.6 million during 1991,
primarily due to increases in personnel expenses and other general and
administrative expenses.
Personnel expense increased 79%, interest expense increased 8% and other
general and administration expenses increased 95% during 1992 compared to 1991.
Personnel expense increased primarily due to increases in staff and commissions
paid to loan originators because of increased loan activity. Interest expense
increased $1.8 million during 1992. Interest cost on warehousing increased
$900,000 in 1992 as compared to 1991 due to increased loan volume and increased
equipment financing accounted for another $900,000 increase. Occupancy
increased because of Directors Mortgage's strategy for continued branch office
expansion during this period. The increase in other general and administrative
expense reflects primarily expansion related expenses.
Inflation
Directors Mortgage is affected by inflation primarily as it impacts
interest rates. During periods of rising inflation, interest rates generally
tend to increase, causing loan refinancing activity and, potentially, total loan
origination volume to decline. At the same time, rising interest rates tend to
cause prepayment rates to decrease, extending the average life of Directors
Mortgage's servicing portfolio and generally enhancing its servicing-related
revenues. During periods of declining inflation, interest rates generally tend
to decline, resulting in increased loan origination volume and loan refinancing
activity, and impacting Directors Mortgage's servicing portfolio in a manner
opposite to that which generally occurs during periods of increasing interest
rates.
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<PAGE>
Liquidity and Capital Resources
Directors Mortgage's primary financing requirements are for the funding of
its mortgage loan originations pending the settlement of the forward sale of
such loans ("warehouse loans") in the secondary mortgage market, and the ongoing
net cost of Directors Mortgage's loan originations.
Directors Mortgage finances its warehouse loan funding requirements
principally through its mortgage warehouse facility secured by the warehouse
loan inventory (the "Mortgage Warehouse Facility"). This financing begins at
the time of mortgage loan funding and continues until the sale of the loan into
the secondary market. The Mortgage Warehouse Facility is provided by a
syndicate of sixteen commercial banks through a Letter of Credit Reimbursement
and Revolving Loan Agreement. The Mortgage Warehouse Facility has funding
commitments in place for $0.4 billion and can be increased to an aggregate $1.0
billion to the extent existing or new lenders make additional commitments. The
Mortgage Warehouse Facility is structured to incorporate three separate
borrowing tranches, including Letter of Credit Enhanced Commercial Paper,
Compensating Balance Borrowing and Standard Mortgage Warehouse Borrowing. The
Facility is for a one-year term expiring on May 30, 1995, renewable in each year
by the lenders. The agreement governing the Mortgage Warehouse Facility
includes various covenants including minimum equity and servicing portfolio
balances, leverage ratio requirements, and limitations on mergers and
consolidations, acquisitions and sales of assets, dividend/distributions,
investment and advances.
Directors Mortgage also makes regular use of certain short-term credit
facilities (such as gestation repurchase agreements) provided by major
investment banks in connection with its inventory of mortgage loan originations
and mortgage-backed securities. These facilities tend to carry lower interest
rates and permit Directors Mortgage to better utilize its Mortgage Warehouse
Facility by accelerating the turnover of loans in the facility, thereby
permitting greater origination volumes.
Directors Mortgage also maintains a convertible revolving term loan secured
credit facility with several of the lenders under the Mortgage Warehouse
Facility. This facility is in its term period with borrowings of $1.0 million
at September 30, 1994. Payments are due each quarter with a maturity date of
December 29, 1995 at an interest rate of prime plus one. The credit facility
includes restrictive covenants similar to those in the Mortgage Warehouse
Facility, provides for borrowings under the facility to be secured by certain
servicing contracts of Directors Mortgage, and limits the total credit available
based on the market value of the servicing pledged to secure the facility.
Additionally, Directors Mortgage maintains a revolving foreclosure credit
facility to finance approved claims on government agency loans included in GNMA
pools which it services. The facility provides for borrowings up to $6.0
million and has been increased in amount from time to time based upon the growth
in Directors Mortgage's servicing portfolio.
During the last few years Directors Mortgage has obtained borrowings from
various financial institutions to support its expansion of technology and new
branch office locations. These borrowing arrangements are secured by the
equipment acquired with repayment periods ranging from three to five years.
As part of the plan of restructuring undertaken to maintain Subchapter S
income tax filing status, in July 1994, Directors Mortgage redeemed $19.0
million of stock in exchange for a note, which is subordinated to the Mortgage
Warehouse Facility, with quarterly principal and interest payments due over the
next 10 years.
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<PAGE>
To the extent Directors Mortgage's costs of new loan originations have, in
the past, not been offset by related revenues, such net costs have been financed
primarily through income from operations and, when required, sales of servicing
rights. As Directors Mortgage's loan servicing portfolio increases through
additions from Directors Mortgage's loan originations, the income available to
fund net origination costs increases, thereby reducing the requirements for
servicing sales to fund such costs to the extent the need arises in the future.
Management believes that Directors Mortgage's existing lines of credit and
capital resources are sufficient to enable Directors Mortgage to maintain its
current level of operations and anticipated level of operations for at least the
next twelve months. Directors Mortgage has no commitments for any material
capital expenditures.
Dividend/Distribution Restriction
Without the prior consent of lenders representing more than 50% of the
aggregate commitments under the Mortgage Warehouse Facility, Directors Mortgage
is limited under the Mortgage Warehouse Facility with respect to the payment of
cash dividends/distributions to an aggregate amount during any calendar year not
to exceed 25% of the net income of Directors Mortgage (after allowance for the
payment of Subchapter "S" shareholders' taxes) for the immediately preceding
calendar year, provided no event of default or potential default under the
Mortgage Warehouse Facility exists or would exist after giving effect to the
payment. Directors Mortgage is permitted to distribute additional
dividends/distributions equal to 10% of the earnings of the immediately
preceding calendar year to the extent not distributed in the preceding year.
The credit facility contains similar restrictions.
Prior to 1992 and the death of the sole beneficial shareholder, Directors
Mortgage endeavored to increase stockholder's equity and build its servicing
portfolio in order to support growth and fund business expansion. However, in
connection with the settlement of the estate of the sole shareholder, general
distributions of $14.6 million were made in 1992 and general distributions of
$4.4 million and $700,000 were provided for during 1993 and the nine months
ended September 30, 1994, respectively. The lenders under the Mortgage
Warehouse Facility consented to these distributions. Additionally, in
connection with payments by shareholders of Subchapter S income taxes, Directors
Mortgage made provisions for distributions of $18.2 million and $11.6 million
for 1993 and 1992, respectively. Subchapter S income tax provisions for 1993
were overaccrued based upon actual tax return filings in the amount of $1.0
million and $300,000 was provided for 1994 estimated income taxes, which
resulted in a credit of $700,000 for the nine months ended September 30, 1994.
INFORMATION ABOUT DIRECTORS INSURANCE
BUSINESS AND PROPERTY
General. Directors Insurance is a California corporation which was
organized in 1985 by A. Gary Anderson who managed Directors Insurance as sole
beneficial shareholder until his death in August 1992. Directors Insurance's
services, which are provided primarily to customers of Directors Mortgage and,
to a lesser extent, nonaffiliated persons, include a full line of home mortgage
insurance products, including mortgage life, flood and earthquake insurance.
During the nine months ended September 30, 1994 and the year ended December 31,
1993, approximately 97% and 95%, respectively, of Directors Insurance's total
revenues were derived from sales of insurance products to persons obtaining
mortgage loans from Directors Mortgage. At September 30, 1994, Directors
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<PAGE>
Insurance had total assets of $1.2 million and stockholders' equity of $953,000.
The principal executive offices of Directors Insurance are located at 1595
Spruce Street, Riverside, California.
Competition. Directors Insurance is subject to competition in all aspects
of its business from other insurance companies, banks and financial
institutions.
Employees. At September 30, 1994, Directors Insurance had 29 full-time
employees and 5 part-time employees.
Location. The office of Directors Insurance is located at 1595 Spruce
Street, Riverside, California.
MARKET PRICES AND DIVIDENDS
The outstanding shares of Directors Insurance Common Stock are owned by two
shareholders. See "MEETING INFORMATION--Principal Shareholders and Security
Ownership of Management of the Companies--Directors Insurance." Therefore,
there is no established trading market for the Directors Insurance Common Stock.
Directors Insurance is a Subchapter S corporation and makes cash
distributions to its shareholders for related income taxes and other general
purposes. Directors Insurance made distributions on the Directors Insurance
Common Stock of $318,000 in the aggregate, or $3,180 per share, during the nine
months ended September 30, 1994; $850,000 in the aggregate, or $8,500 per share,
during 1993; and $530,000 in the aggregate, or $5,300 per share, during 1992.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'
Overview
The primary source of revenues for Directors Insurance is commissions
earned on insurance policy coverage placed principally on the single-family
homes securing mortgage loans originated by Directors Mortgage. During the nine
months ended September 30, 1994, and the year ended December 31, 1993,
approximately 97% and 95%, respectively, of Directors Insurance's total revenues
were derived from sales of insurance products to persons obtaining mortgage
loans from Directors Mortgage. In addition to a full line of home mortgage
insurance products, Directors Insurance has a flood division which researches
and certifies the need for additional hazard coverage.
Taxes
Directors Insurance, with the consent of its shareholders, elected to be an
S Corporation under the Code effective May 1, 1990. In lieu of corporation
income taxes, the shareholders of Directors Insurance are taxed on Directors
Insurance's taxable income. Therefore, no provision or liability for federal
income taxes have been included in the financial statements. Directors
Insurance continues to pay state tax at a reduced rate. Distributions for the
income taxes are provided to shareholders at the maximum individual income tax
rates.
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Recent Developments and Outlook
Directors Insurance continues to benefit primarily from the growth in
Directors Mortgage's lending activity. In addition to servicing existing
markets, Directors Insurance is actively pursuing related services in other
states where Directors Mortgage is doing business and continues to solicit other
lenders for home mortgage insurance business.
Results of Operations for the Nine Months Ended September 30, 1994 Compared
to the Nine Months Ended September 30, 1993
Summary. Revenue for the nine months ended September 30, 1994 increased
14% to $2.0 million from $1.7 million for the nine months ended September 30,
1993, and Directors Insurance had net income of $691,000 for the 1994 period
compared to $778,000 for the 1993 period.
Insurance Commissions. For the nine months ended September 30, 1994,
insurance commissions increased 28% from the comparable period in 1993,
reflecting a 82% increase in new policies issued and a 25% increase in policies
in force.
Other Income. Other income consists substantially of flood determination
report fees, which decreased 31% during the 1994 period compared to the 1993
period, due to lower lending activity at Directors Mortgage.
Expenses. For the nine months ended September 30, 1994, expenses increased
by 36% to $1.3 million from $928,000 for the nine months ended September 30,
1993, primarily due to increases in the number of employees from 30 at September
30, 1993 to 34 at September 1994, and expansion of Directors Insurance's
activities.
Results of Operations for the Year Ended December 31, 1993 Compared to the
Year Ended December 31, 1992
Summary. Revenue during 1993 increased 34% to $2.4 million from $1.8
million during 1992, and Directors Insurance had net income of $978,000 during
1993 compared to $526,000 during 1992.
Insurance Commissions. Directors Insurance's insurance commissions
increased 13% during 1993 compared to 1992, reflecting a 25% increase in new
policies issued and a 8% increase in policies in force.
Other Income. Other income consists primarily of flood determination
report fees, which increased 195% during 1993 compared to 1992, due to higher
lending activity at Directors Mortgage.
Expenses. Expenses increased by 12% during 1993 to $1.4 million from $1.3
million during 1992, primarily due to increases in the number of employees from
26 at year end 1992 to 36 at year end 1993, and expansion of Directors
Insurance's activities.
Results of Operations for the Year Ended December 31, 1992 Compared to the
Year Ended December 31, 1991
Summary. Revenue during 1992 increased 17% to $1.8 million from $1.5
million during 1991, and Directors Insurance had net income of $526,000 during
1992 compared to $369,000 during 1991.
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Insurance Commissions. Directors Insurance's insurance commissions
increased 6% during 1992 compared to 1991, reflecting a 9% increase in new
policies issued and a 12% increase in policies in force.
Other Income. Other income consists substantially of flood determination
report fees, which increased 525% during 1992 compared to 1991, due to higher
lending activity at Directors Mortgage.
Expenses. Expenses increased by 9% during 1992 to $1.3 million from $1.2
million during 1991, primarily due to increases in the number of employees from
24 at year end 1991 to 26 at year end 1992, and expansion of Directors
Insurance's activities.
Inflation
Directors Insurance is primarily a service organization whose business
activity is tied closely to the volume of lending activity at Directors
Mortgage. Such lending activity declines during period of higher interest rates
resulting from increases in inflation and slower economic activity.
Liquidity and Capital Resources
Directors Insurance is generally able to fund its business activities
through cash flow derived from ongoing operations. Management believes that
Directors Insurance's existing capital resources are sufficient to enable the
company to maintain its current level of operations and anticipated level of
operations for at least the next twelve months. Directors Insurance has no
commitments for any material capital expenditures.
Dividend/Distribution Restriction
There are no limitations governing dividend/distributions to Subchapter "S"
shareholders.
INFORMATION ABOUT STAN-SHAW
BUSINESS AND PROPERTY
General. Stan-Shaw is a California corporation which was organized in
1958. In 1976, Stan-Shaw was purchased by A. Gary Anderson, who managed Stan-
Shaw as sole beneficial shareholder until his death in August 1992. Stan-Shaw's
services, which are provided in California and Nevada primarily to Directors
Mortgage and, to a lesser extent, nonaffiliated persons, include acting as a
trustee under deeds of trust, preparing and filing notices of default,
reconveyances and related documents. During the nine months ended September 30,
1994 and the year ended December 31, 1993, approximately 58% and 46%,
respectively, of Stan-Shaw's total revenues were derived from services related
to mortgage loans originated by Directors Mortgage. At September 30, 1994,
Stan-Shaw had total assets of $609,000 and stockholders' equity of $434,000.
The principal executive offices of Stan-Shaw are located at 140 East Chaparral
Court, Suite 130, Anaheim Hills, California.
Competition. Stan-Shaw is subject to competition in all aspects of its
business from banks, other financial institutions and other companies acting as
trustees under deeds of trust.
Employees. At September 30, 1994, Stan-Shaw had 9 full-time employees and
1 part-time employee.
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Location. The office of Stan-Shaw is located at 140 East Chaparral Court,
Suite 130, Anaheim Hills, California.
MARKET PRICES AND DIVIDENDS
The outstanding shares of Stan-Shaw Common Stock are held by two
shareholders. See "MEETING INFORMATION--Principal Shareholders and Security
Ownership of Management of the Companies--Stan-Shaw." Therefore, there is not
an established trading market for the Stan-Shaw Common Stock.
Stan-Shaw is a Subchapter S corporation and makes cash distributions to its
shareholders for related income taxes and other general purposes. Stan-Shaw
made distributions on the Stan-Shaw Common Stock of $189,000 in the aggregate,
or $133.10 per share, during the nine months ended September 30, 1994; $342,000
in the aggregate, or $240.85 per share, during 1993; and $211,000 in the
aggregate, or $148.59 per share, during 1992.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'
Overview
Revenues from performing foreclosure trustee and reconveyance services
generate fee income for Stan-Shaw. This income is primarily earned through
acting as trustee on deeds of trust securing mortgage loans originated by
Directors Mortgage. Customers other than Directors Mortgage include
governmental agencies, institutional lenders, title and escrow companies,
attorneys and individual investors. During the nine months ended September 30,
1994 and the year ended December 31, 1993, approximately 58% and 46%,
respectively, of Stan-Shaw's total revenues were derived from services related
to mortgage loans originated by Directors Mortgage.
Taxes
Stan-Shaw, with the consent of its shareholders, elected to be an S
Corporation under the Code effective May 1, 1990. In lieu of corporation income
taxes, the shareholders of Stan-Shaw are taxed on Stan-Shaw's taxable income.
Therefore, no provision or liability for federal income taxes has been included
in the financial statements. Stan-Shaw continues to pay state income tax at a
reduced rate. Distributions for the income taxes are provided to shareholders
at the maximum individual income tax rates.
Recent Developments and Outlook
In recent years Stan-Shaw has benefited from the growth in Directors
Mortgage and the refinance activity taking place in California and Nevada. In
addition, the slowdown in the California economy has led to increased
foreclosure activity which is a primary source of trustee fee income for Stan-
Shaw.
Results of Operations for the Nine Months Ended September 30, 1994 Compared
to the Nine Months Ended September 30, 1993
Summary. Revenue for the nine months ended September 30, 1994 increased
17% to $919,000 from $786,000 for the nine months ended September 30, 1993, and
Stan-Shaw had net income of $410,000 for the 1994 period compared to $319,000
for the 1993 period.
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Trustee and Reconveyance Fees. For the nine months ended September 30,
1994, Stan-Shaw's trustee and reconveyance fees increased 20% from the
comparable period in 1993, reflecting 30% greater foreclosure activity and
slightly reduced reconveyances.
Expenses. For the nine months ended September 30, 1994, expenses increased
by 10% to $503,000 from $459,000 for the nine months ended September 30, 1993,
primarily due to increases in personnel expenses.
Results of Operations for the Year Ended December 31, 1993 Compared to the
Year Ended December 31, 1992
Summary. Revenue during 1993 increased 23% to $1.1 million from $873,000
during 1992, and Stan-Shaw had net income of $416,000 for 1993 compared to
$284,000 for 1992.
Trustee and Reconveyance Fees. Stan-Shaw's foreclosure and reconveyance
fees increased 22% during 1993 compared to 1992, reflecting 28% greater
foreclosure activity and slightly reduced reconveyances.
Expenses. Expenses increased by 10% during 1993 to $643,000 from $582,000
during 1992, primarily due to increased in personnel expenses. Other operating
expenses decreased 16% during 1993.
Results of Operations for the Year Ended December 31, 1992 Compared to the
Year Ended December 31, 1991
Summary. Revenue during 1992 increased 77% to $873,000 from $492,000
during 1991, and Stan-Shaw had net income of $284,000 for the 1992 period
compared to $27,000 for the 1991 period.
Trustee and Reconveyance Fees. Stan-Shaw's trustee and reconveyance fees
increased 74% during 1992 compared to 1991, reflecting 34% greater foreclosure
activity and a 11% greater reconveyance activity.
Expenses. Expenses increased by 25% during 1992 to $582,000 from $464,000
during 1991, primarily due to increases in personnel expenses with the addition
of five staff personnel.
Inflation
Stan-Shaw is primarily a service organization and is impacted by inflation
and general economic conditions to the extent that personnel expense comes under
higher wage pressure. During periods of economic slowdown with corresponding
rises in unemployment, foreclosure activity increases providing greater revenue
to Stan-Shaw.
Liquidity and Capital Resources
Stan-Shaw is generally able to fund its business activities through cash
flow derived from ongoing operations. Management believes that Stan-Shaw's
existing capital resources are sufficient to enable the company to maintain its
current level of operations for at least the next twelve months. Stan-Shaw has
no commitments for any material capital expenditures.
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Dividend/Distribution Restriction
There are no limitations governing dividend/distributions to Subchapter "S"
shareholders.
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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 Office of the Comptroller of the Currency (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 respective banks
below minimum levels. Norwest also has several state bank subsidiaries that are
subject to state regulations limiting dividends; however, the amount of
dividends payable by Norwest's state bank subsidiaries, with or without state
regulatory approval, would represent an immaterial contribution to Norwest's
revenues.
If, in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board,
the OCC, and the FDIC have issued policy statements which provide 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
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form of loans, extensions of credit, investments, or asset purchases. Such
transfers by any subsidiary bank to Norwest or any nonbanking subsidiary are
limited in amount to 10% of the bank's capital and surplus and, with respect to
Norwest and all such nonbanking subsidiaries, to an aggregate of 20% of such
bank's capital and surplus. Furthermore, such loans and extensions of credit are
required to be secured in specified amounts.
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. This support may be required at times when Norwest may not
have the resources to provide it. Any capital loans by Norwest to any of the
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. In addition, the Crime Control Act
of 1990 provides that in the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August 9,
1989, in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur in the absence of regulatory
assistance.
Federal law (12 U.S.C. (S)55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any
such pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. Similarly, the
laws of certain states provide for such assessment and sale with respect to
banks chartered by such states. Norwest, as the sole shareholder of certain of
its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, the minimum ratio of total capital to risk-adjusted assets
(including certain off-balance sheet items, such as stand-by letters of credit)
is 8%. At least half of the total capital is to be comprised of common stock,
minority interests, and noncumulative perpetual preferred stock ("Tier 1
capital"). The remainder ("Tier 2 capital") may consist of hybrid capital
instruments, perpetual debt, mandatory convertible debt securities, a limited
amount of subordinated debt, other preferred stock, and a limited amount of loan
and lease loss reserves. In addition, the Federal Reserve Board's final minimum
"leverage ratio" (the ratio of Tier 1 capital to quarterly average total assets)
guidelines for bank holding companies provide for a minimum leverage ratio of 3%
for bank holding companies that meet certain specified criteria, including that
they have the highest regulatory rating. All other bank holding companies will
be required to maintain a leverage ratio of 3% plus an additional cushion of 100
to 200 basis points. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. Furthermore, the
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guidelines indicate that the Federal Reserve Board will continue to consider a
"tangible Tier 1 leverage ratio" in evaluating proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 capital, less all intangibles, to total assets, less all
intangibles. Each of Norwest's banking subsidiaries is also subject to capital
requirements adopted by applicable regulatory agencies which are substantially
similar to the foregoing. At September 30, 1994, Norwest's Tier 1 and total
capital (the sum of Tier 1 and Tier 2 capital) to risk-adjusted assets ratios
were 9.96% and 12.34%, respectively, and Norwest's leverage ratio for the
quarter ended September 30, 1994, was 6.87%. Neither Norwest nor any subsidiary
bank has been advised by the appropriate federal regulatory agency of any
specific leverage ratio applicable to it.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), which substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and makes
revisions to several other federal banking statutes. Among other things, FDICIA
requires the federal banking regulators to take "prompt corrective action" in
respect of FDIC-insured depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well capitalized,"
"adequately capitalized," "undercapitalized," significantly undercapitalized,"
and "critically undercapitalized." Under applicable regulations, an FDIC-
insured depository institution is defined to be well capitalized if it maintains
a leverage ratio of at least 5%, a risk-adjusted Tier 1 capital ratio of at
least 6%, and a risk-adjusted total capital ratio of at least 10%, and is not
subject to a directive, order, or written agreement to meet and maintain
specific capital levels. An insured depository institution is defined to be
adequately capitalized if its meets all of its minimum capital requirements as
described above. An insured depository institution will be considered
undercapitalized if it fails to meet any minimum required measure, significantly
undercapitalized if it has a risk-adjusted total capital ratio of less than 6%,
risk-adjusted Tier 1 capital ratio of less than 3%, or a leverage ratio of less
than 3%, and critically undercapitalized if it fails to maintain a level of
tangible equity equal to at least 2% of total assets. An insured depository
institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory
examination rating.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to a
wide range of limitations on operations and activities, including growth
limitations, and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to 5% of the depository
institution's total assets at the time it became undercapitalized and (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply with the plan. If a
depository institution fails to submit an acceptable plan, it is treated as if
it were significantly undercapitalized.
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
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banks. Critically undercapitalized institutions are subject to the appointment
of a receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares, and such other standards as the agency deems
appropriate. The FDIC, in consultation with the other federal banking agencies,
has adopted a final rule and guidelines with respect to external and internal
audit procedures and internal controls in order to implement those provisions of
FDICIA intended to facilitate the early identification of problems in financial
management of depository institutions. The FDIC has also issued proposed rules
prescribing standards relating to certain other of the management and
operational standards listed above. The full impact of such rule and guidelines
and proposed standards on Norwest cannot yet be ascertained.
FDICIA also contains a variety of other provisions that may affect the
operations of Norwest, including new reporting requirements, revised regulatory
standards for real estate lending, "truth in savings" provisions, and the
requirement that a depository institution give 90 days' notice to customers and
regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA a bank cannot accept
brokered deposits (that is, deposits obtained through a person engaged in the
business of placing deposits with insured depository institutions or with
interest rates significantly higher than prevailing market rates) unless (i) it
is "well capitalized" or (ii) it is "adequately capitalized" and receives a
waiver from the FDIC. A bank is defined to be "adequately capitalized" if it
meets all of its minimum capital requirements. A bank that cannot receive
brokered deposits also cannot offer "pass-through" insurance on certain employee
benefit accounts, unless it provides certain notices to affected depositors. In
addition, a bank that is "adequately capitalized" and that has not received a
waiver from the FDIC may not pay an interest rate on any deposits in excess of
75 basis points over certain prevailing market rates. There are no such
restrictions on a bank that is "well capitalized." At September 30, 1994, all
of Norwest's banking subsidiaries were well capitalized and therefore were not
subject to these restrictions.
FDIC INSURANCE
Effective January 1, 1993, the deposit insurance assessment rate for the
Bank Insurance Fund ("BIF") increased as part of the adoption by the FDIC of a
transitional risk-based assessment system. In June 1993, the FDIC published
final regulations making the transitional system permanent effective January 1,
1994, but left open the possibility that it may consider expanding the range
between the highest and lowest assessment rates at a later date. An
institution's risk category is based upon whether the institution is well
capitalized, adequately capitalized, or less than adequately capitalized. Each
insured depository institution is also to be assigned to one of the following
"supervisory subgroups": Subgroup A, B, or C. Subgroup A institutions are
financially sound institutions with few minor weaknesses; Subgroup B
institutions are institutions that demonstrate weaknesses which, if not
corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability that
the FDIC will suffer a loss in connection with the institution unless 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
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undercapitalized Subgroup C institutions). Adequately capitalized institutions
will be assigned assessment rates ranging from 0.26% to 0.30%. Norwest incurred
$72.4 million of FDIC insurance expense in 1993.
EXPERTS
The consolidated financial statements of Norwest Corporation and
subsidiaries as of December 31, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1993, incorporated by reference herein,
have been incorporated herein in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein
and upon the authority of said firm as experts in accounting and auditing.
The financial statements of each of Directors Mortgage, Directors Insurance
and Stan-Shaw as of December 31, 1993 and 1992, and for each of the years in the
three-year period ended December 31, 1993, included herein have been audited by
Eadie and Payne, independent public accountants, as indicated in their report
with respect thereto and are included herein upon the authority of said firm as
experts in accounting and auditing.
LEGAL OPINION
A legal opinion to the effect that the shares of Norwest Common Stock
offered hereby, when issued in accordance with the 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. 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 OF NORWEST
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and related
transactions, and other related matters concerning Norwest is included or
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1993, as amended by Form 10-K/A dated May 13, 1994, which are
incorporated in this Proxy Statement-Prospectus by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of the
Companies desiring copies of such documents may contact Norwest at its address
or phone number indicated under "AVAILABLE INFORMATION" above.
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INDEX TO FINANCIAL STATEMENTS OF THE COMPANIES
Directors Mortgage Financial Statements for the Years Ended December 31,
1992 and 1993 with Report of Independent Accountants................. F-2
Directors Mortgage Unaudited Financial Statements for the Nine Months
Ended September 30, 1994............................................. F-23
Directors Insurance Financial Statements for the Years Ended December 31,
1992 and 1993 with Report of Independent Accountants................. F-40
Directors Insurance Unaudited Financial Statements for the Nine Months
Ended September 30, 1994............................................. F-48
Stan-Shaw Financial Statements for the Years Ended December 31, 1992
and 1993 with Report of Independent Accountants...................... F-55
Stan-Shaw Unaudited Financial Statements for the Nine Months Ended
September 30, 1994................................................... F-62
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Directors Mortgage Loan Corporation
Riverside, California
We have audited the balance sheets of Directors Mortgage Loan Corporation as of
December 31, 1993 and 1992, and the related statements of operations, retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Directors Mortgage Loan
Corporation as of December 31, 1993 and 1992, and the results of its operation
and its cash flows for each of the three years in the period ended December 31,
1993, in conformity with generally accepted accounting principles.
/s/ Eadie and Payne
March 3, 1994
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DIRECTORS MORTGAGE LOAN CORPORATION
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 25,763,960 $ 8,630,505
Mortgage loans receivable held for sale 717,421,342 538,945,198
Accrued interest receivable 999,004 805,856
Other receivables 20,213,096 9,688,138
Notes receivable 201,529 209,661
Property held for sale 387,259 53,052
Prepaid expenses 8,855,797 3,147,857
Deferred charges 75,176 16,667
------------ ------------
TOTAL CURRENT ASSETS 773,917,163 561,496,934
------------ ------------
PROPERTY AND EQUIPMENT
At cost - net of depreciation 25,132,785 8,790,605
------------ ------------
INVESTMENTS
Cash surrender value - life insurance 643,226 453,193
Investments in Common Stock
Victoria Mortgage 778,688
Mission Savings and Loan 737,811 710,337
Other 61,435 18,335
Joint venture and real estate partnerships 150,000 766,250
Investment in mortgages 94,342 299,725
------------ ------------
1,686,814 3,026,528
------------ ------------
OTHER ASSETS
Notes receivable 66,500 66,000
Excess of cost over net assets
acquired - net of amortization 40,114
Capitalized purchased servicing -
net of amortization 1,223,456 1,063,088
Capitalized excess servicing fees -
net of amortization 1,341,000 1,426,541
------------ ------------
2,630,956 2,595,743
------------ ------------
TOTAL ASSETS $803,367,718 $575,909,810
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
1993 1992
---- ----
CURRENT LIABILITIES
Notes payable - secured by mortgage loans
receivable held for sale $685,955,615 $510,086,010
Notes payable - foreclosure line 3,947,600 1,858,500
Notes payable - secured by GNMA/FNMA
servicing rights 2,100,000 2,100,000
Notes payable - other 2,939,975 990,006
Obligations under capital leases 660,673 558,184
Accounts payable 14,541,384 8,668,362
Due to related parties 422,387 193,522
Commissions and bonuses payable 7,548,465 4,539,206
Accrued expenses 1,439,064 2,536,762
Deferred income 2,618,745 1,028,716
Other liabilities 1,239,188 1,137,538
Estimated liability on recourse obligations 2,740,642 250,000
Stockholder distribution payable 18,477,000 5,153,005
------------ ------------
TOTAL CURRENT LIABILITIES 744,630,738 539,099,811
------------ ------------
LONG-TERM LIABILITIES
Notes payable - secured by
GNMA/FNMA servicing rights 350,000 3,150,000
Notes payable - other 12,036,607 3,042,160
Obligations under capital leases 968,360 839,919
Deferred compensation 5,793,000 3,701,423
Employee contract payable 350,445 344,700
------------ ------------
19,498,412 11,078,202
------------ ------------
STOCKHOLDER'S EQUITY
Common stock, no par value, 2,000,000
shares authorized; 647,500 shares
issued and outstanding 161,875 161,875
Paid-in capital 84,216 84,216
Retained earnings 38,992,477 25,485,706
------------ ------------
39,238,568 25,731,797
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $803,367,718 $575,909,810
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Loan origination and processing $75,089,749 $ 60,958,720 $ 33,176,154
Mortgage servicing 34,989,968 22,574,186 13,629,880
Sales of servicing 22,338,708 26,685,590 6,207,277
Gain on sale of loans, net of commitment fees 83,425,093 31,515,871 21,456,554
Interest income 33,651,073 32,855,241 25,545,938
Escrow fees 1,259,451 1,111,043 377,699
Gain on investments 42,171 132,887 102,692
Death benefits from insurance policy 2,329,903
Other 2,219,563 1,728,340 828,882
----------- ------------ ------------
TOTAL REVENUE 253,015,776 179,891,781 101,325,076
------------ ------------ ------------
EXPENSES
Salaries and related expenses 136,857,589 95,087,861 52,984,582
Interest expense 21,486,684 19,732,205 17,886,853
Other operating expenses 57,416,126 31,605,712 17,696,444
------------ ------------ ------------
TOTAL EXPENSES 215,760,399 146,425,778 88,567,879
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 37,255,377 33,466,003 12,757,197
INCOME TAX EXPENSE 1,196,606 1,409,364 511,319
------------ ------------ ------------
NET INCOME $ 36,058,771 $ 32,056,639 $ 12,245,878
============ ============ ============
EARNINGS PER SHARE
Net income per share $55.69 $49.51 $18.91
====== ====== ======
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-4
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ -----------
<S> <C> <C> <C>
Beginning balance $ 25,485,706 $ 19,642,067 $13,826,189
Net income 36,058,771 32,056,639 12,245,878
Distribution to Stockholder
For payment of income taxes (18,172,000) (11,593,000) (4,430,000)
Other (4,380,000) (14,620,000) (2,000,000)
------------ ------------ -----------
Ending Balance $ 38,992,477 $ 25,485,706 $19,642,067
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 36,058,771 $ 32,056,639 $ 12,245,878
Adjustments to Reconcile Net Income to Net Cash
Provided By (Used In) Operating Activities
Depreciation on property and equipment 3,240,141 2,039,698 1,600,280
Amortization of excess of cost over net assets acquired 40,114 53,887 53,886
Loss on disposal of assets and sale of investments 68,374 372,277 239,758
Increase in cash surrender value of officers'
life insurance (190,033) (119,670) (222,325)
Increase (decrease) in loan purchase and sales
premiums/discounts (4,300,788) 380,999 (472,695)
Increase (decrease) in reserve for losses and net
deferred fees (2,236,250) 140,000 289,000
(Increase) Decrease in Assets
Mortgage loans held for sale (171,852,356) (131,853,984) (193,233,476)
Accrued interest receivable (193,148) (535,518) 87,324
Other receivables (10,524,958) (4,095,008) (3,485,135)
Property held for sale (420,957) (110,052)
Prepaid expenses (5,707,940) (1,329,695) (697,102)
Income taxes receivable (45,041)
Deferred charges (58,509) 17,458 (3,375)
Capitalized purchased servicing (160,368) 223,586 (635,824)
Capitalized excess servicing fees 85,541 (303,675) (784,484)
Increase (Decrease) in Liabilities
Accounts payable 5,873,022 3,013,526 3,577,150
Due to related parties 228,865 (830,823) (1,897,842)
Commissions and bonuses payable 3,009,259 1,106,562 1,969,564
Accrued expenses (1,097,698) 1,149,636 1,201,567
Deferred income 1,590,029 (1,045,879) (1,457,224)
Other liabilities 136,000 674,883 (25,169)
Estimated liability on recourse obligations 2,490,642 (115,000) 365,000
Deferred compensation 2,091,577 3,205,000 496,423
Employee contract payable 219,089 79,975
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (141,830,670) (95,686,064) (180,753,887)
------------- ------------- -------------
</TABLE>
STATEMENTS OF CASH FLOWS (CONTINUED)
F-6
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets $ 1,436,753 $ 781,780 $ 27,462
Proceeds from sale of real estate owned 257,732 16,629 35,022
Purchase of assets (6,570,797) (2,386,317) (1,994,911)
Purchase of investments (95,449) (450,117) (793,319)
Principal payments received on notes receivable 93,828 1,482,224 1,066,419
Disbursements on notes receivable (86,196) (1,440,142) (2,453,000)
Surrender values on terminated
officers' life insurance policies 1,095,349
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (4,964,129) (900,594) (4,112,327)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit 177,958,705 121,917,567 188,488,346
Principal payments under capital lease obligations (573,756) (1,023,136) (496,062)
Proceeds from long-term debt 4,800,000
Principal payments on long-term debt (4,200,085) (1,784,427) (426,225)
Contractual payments to employees (28,605) (37,500)
Distributions to stockholder (9,228,005) (21,730,077) (2,490,000)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 163,928,254 102,142,427 185,076,059
------------- ------------- -------------
NET INCREASE IN CASH 17,133,455 5,555,769 209,845
CASH AT BEGINNING OF YEAR 8,630,505 3,074,736 2,864,891
------------- ------------- -------------
CASH AT END OF YEAR $ 25,763,960 $ 8,630,505 $ 3,074,736
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash Payments For
Interest $ 22,631,827 $ 18,620,428 $ 17,114,612
Income taxes 1,274,500 1,342,107 556,360
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Capital lease obligations incurred for use of equipment $ 804,686 $ 1,397,225 $ 514,420
============= ============= =============
Furniture and equipment acquired through issuance of long-
term debt $ 5,908,359 $ 2,594,291 $ 1,419,273
============= ============= =============
Real property acquired through issuance of long-term debt $ 6,436,142
=============
Distributions to stockholder applied against notes
receivable, accrued interest, and purchase of assets $ 3,269,918
=============
Land contributed in exchange for equity in
Indio Housing Developments - (A Limited Partnership) $ 765,000
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1. SIGNIFICANT ACCOUNTING POLICIES
A. Mortgage loans receivable held for sale are valued at the lower of cost or
aggregate market, with market being based on outstanding commitments that
the Company has acquired from investors for the purchase of such mortgages.
B. Commitment fees received are recorded as income when the related loans are
sold or when it becomes apparent the commitment will expire unused.
Commitment fees paid are recorded as an expense when the related loans are
sold to an investor or when it becomes apparent that the related commitment
will not be fulfilled.
C. Property and equipment are stated at cost and are depreciated using the
straight-line and declining-balance methods over the estimated useful lives
of the various assets. Capital leases are amortized over the lives of the
leases.
D. When the Company sells mortgage loans and retains the servicing rights,
the contractual sales price and resulting gain or loss on the sale is
adjusted to provide the recognition of a normal service fee over the
estimated life of the loan. The amount of the adjustment is equal to the
present value of the difference between the contractual service rate and
normal servicing fee. For calculating the adjustment, the Company's normal
servicing fee for conventional fixed-rate loans is .25%, for GNMA securities
.44%, and for adjustable-rate mortgages .375%.
E. Investments in common stock are stated at cost except for the investment
in Mission Savings and Loan, which is stated using the equity method.
F. Loan origination revenue consists primarily of fees received in connection
with making and processing residential loans. The Financial Accounting
Standards Board Statement No. 91, which prescribes accounting for loan
origination fees, has been adopted. Net deferred origination fees are
shown in Note 2 to the financial statements. The net effect on the
results of operations for the years ended December 31, 1993, 1992 and
1991, was immaterial.
G. Mortgage servicing revenues, which are based on a percentage of the
outstanding principal balances of the serviced mortgages, are recorded as
income as the installment collections on the mortgages are received.
H. Gains on sales of mortgages are recorded at the time of sale to investors.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
I. The Company, with the consent of its stockholder, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporation income
taxes, the stockholder of an S Corporation is taxed on the Company's taxable
income. Therefore, no provision or liability for Federal income taxes has
been included in the financial statements. The Company continues to pay state
tax at a reduced rate.
Distributions for income taxes are provided to the stockholder at the
maximum individual income tax rates.
J. The Company enters into futures contracts to reduce the impact of interest
rate fluctuations. The gains or losses on these contracts are included in
income when the revenue from the sale of loans is recognized, or when the
contracts expire.
K. For purposes of reporting cash flows, the Company considers certificates
of deposit with maturities of three months or less when acquired to be
cash equivalents.
L. Statement of Financial Accounting Standards No. 105 (FAS105), "Disclosure
of Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentration of Credit Risk," requires disclosure
of the face, contract, or notional amounts of off-balance-sheet positions in
order to illustrate the maximum loss that would occur if the counterparty to
the instrument failed to perform according to its terms. The Company uses
financial instruments having off-balance-sheet risk in the normal course of
business in order to reduce exposure to fluctuations in interest rates and
market prices. Included in the notes to the financial statements are
disclosures relating to financial instruments having off-balance-sheet risk.
These disclosures indicate the magnitude of the Company's involvement in such
activities and reflect the instruments at their face, contract, or notional
amounts and are not intended to represent the much smaller credit risk of
such instruments.
2. MORTGAGE LOANS RECEIVABLE HELD FOR SALE
Mortgage loans receivable held for sale (pledged to secure notes payable to
bank) were secured by first and second trust deeds and are summarized as
follows:
<TABLE>
<CAPTION>
1993 1992
------------- -------------
<S> <C> <C>
Principal Balances
Mortgage loans $714,761,588 $541,746,070
Purchase and sales premium (discount) 2,491,917 (1,808,872)
Advances due on reverse annuity mortgages (1,163,163)
Net deferred origination (fees) costs 1,331,000 (992,000)
------------ ------------
TOTALS $717,421,342 $538,945,198
============ ============
</TABLE>
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. OTHER RECEIVABLES
Other receivables are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
----------- ----------
<S> <C> <C>
Various accrued fees $ 2,877,216 $2,499,503
Bulk sales of servicing 4,165,715 1,270,093
Sale of loan participation 2,107,235 1,024,375
Advances on investor pools and impound accounts 2,962,503 1,440,406
Advances to employees 187,136 170,268
Advances on loans in foreclosure 7,370,593 2,365,262
Due from related parties 40,916 431,971
Other 501,782 486,260
----------- ----------
TOTALS $20,213,096 $9,688,138
=========== ==========
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
CURRENT TERM CURRENT TERM
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Unsecured Notes
Officers $66,000 $66,000
Employees $ 45,260
Other 156,269 500 $209,661
-------- ------- -------- -------
TOTALS $201,529 $66,500 $209,661 $66,000
======== ======= ======== =======
</TABLE>
5. PROPERTY HELD FOR SALE
Property held for sale consisted of real estate owned (net of reserve for
loss of $143,750 and $57,000) of $387,259 and $53,052, respectively.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PREPAID EXPENSES
Prepaid expenses consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Unexpired commitment fees $ 125,652 $1,151,335
Unexpired hedging commitments 4,463,497 807,718
Prepaid insurance 388,669 328,180
Prepaid rent 431,839 356,153
Deposits for hedging transactions 2,250,417 6,904
Deposits 360,622 239,488
Other 835,101 258,079
---------- ----------
TOTALS $8,855,797 $3,147,857
========== ==========
</TABLE>
7. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Land $ 750,000
Building 5,686,142
Automobiles 21,748 $ 21,748
Office furniture and equipment 22,563,344 12,678,129
Leasehold improvements 1,843,890 934,087
Capital leases 2,541,142 1,870,160
Equipment inventory 851,413
-----------
34,257,679 15,504,124
Less: Accumulated depreciation (9,124,894) (6,713,519)
----------- -----------
TOTALS $25,132,785 $ 8,790,605
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1992 and 1991,
amounted to $3,240,141, $2,039,698 and $1,600,280, respectively.
Equipment inventory consisted of equipment received but not delivered to its
final location and placed into service at December 31, 1993. No depreciation is
recorded on this equipment until placed into service.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. NOTES PAYABLE - SECURED BY MORTGAGE LOANS RECEIVABLE
Held for Sale and GNMA and FNMA Servicing Rights
The Company had the following notes payable secured by mortgage loans
receivable:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Commercial paper $348,810,933 $164,279,956
Revolving credit line 288,168,723 328,363,053
Loans in transit 48,975,959 17,443,001
------------ ------------
TOTALS $685,955,615 $510,086,010
============ ============
</TABLE>
The Company has an agreement with commercial banks to provide financing for
mortgage loans receivable held for sale. The revolving credit facilities
allowed the Company to borrow a maximum aggregate amount of $795,000,000 at
varying interest rates at December 31, 1993. The lines are secured by the
following:
A. Mortgage loans receivable for sale;
B. All mortgage-backed securities and all mortgage notes, deeds of trust,
and other documents deposited with or held by the collateral agent;
C. All investor commitments covering the mortgage loans;
D. All deposit accounts maintained by the Company with the banks.
As of December 31, 1993 and 1992, the facilities amounting to $795,000,000
and $550,000,000, respectively, provided for borrowings under commercial
paper up to $350,000,000 and $165,000,000. The Company issues its commercial
paper notes in denominations of not less than $100,000 and having a maturity
date of 270 days or less. The notes are issued to institutional investors and
are not advertised or sold to the general public. The commercial paper notes
are backed by letters of credit that expire 15 days after the note is due.
The note payable - secured by GNMA and FNMA servicing rights is a revolving
credit agreement for up to $7,000,000 which was converted to term debt on
March 31, 1992. The note is secured by the servicing rights to GNMA and FNMA
pools amounting to $439,327,229 and $758,122,227 at December 31, 1993 and
1992, respectively. At December 31, 1993 and 1992, amounts outstanding under
the agreement amounted to $2,450,000 and $5,250,000, respectively.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The agreements provide for various financial and operating covenants
including liens on assets, mandatory commitments, indebtedness, consolidation
and merger, acquisitions, dividends, purchase or retirement of stock,
investments, advances to affiliates, sale of assets, minimum net worth, and
servicing portfolio. The covenants specify certain financial ratios including
the following:
<TABLE>
<S> <C>
Total debt to adjusted tangible net worth (includes value of
servicing portfolio calculated at 1%) not to exceed 6:1
Maintain a cash flow coverage of at least 1.25:1
Total debt to GAAP net worth not to exceed 25:1
Maintain a servicing portfolio of at least $7,500,000,000
Maintain a Minimum
- Tangible net worth $12,000,000
- GAAP net worth $20,000,000
- Adjusted tangible net worth $100,000,000
- Working capital $15,000,000
</TABLE>
9. NOTES PAYABLE - FORECLOSURE LINE
The foreclosure line is a revolving credit facility maintained for the
purpose of financing up to 90% of the insurance claim on government agency
insured loans foreclosed in GNMA pools. The interest rate is variable at 1%
over the bank reference rate. An advance is made for no more than 180 days.
At December 31, 1993 and 1992, the outstanding balance was $3,947,600 and
$1,858,500, respectively. The available unused credit was $52,400 at December
31, 1993.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. NOTES PAYABLE - OTHER
Other notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------
CURRENT TERM
------- ----
<S> <C> <C>
Secured Notes
Metlife Capital Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $55,629,
including interest ranging from 8.42% to 10.1% $ 475,300 $ 750,404
LB Credit Corporation
Secured by equipment; five notes payable in
aggregate monthly installments of $55,001,
including interest ranging from 9.43% to 11.98% 491,271 1,325,773
Randolph Computer Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $98,948,
including interest ranging from 6.38% to 6.85% 893,549 3,917,834
Fleet Credit Corporation
Secured by equipment; payable in monthly
installments of $89,580, including
interest at 6.27% 926,807 1,857,180
John Hancock Mutual Life Insurance Company
Secured by building; payable in monthly
installments of $43,082, including
interest at 8.5% 153,048 4,185,416
---------- -----------
TOTALS $2,939,975 $12,036,607
========== ===========
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1992
--------------------
CURRENT TERM
------- ----
<S> <C> <C>
Secured Notes
Metlife Capital Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $55,629,
including interest ranging from 8.42% to 10.1% $484,933 $1,225,705
LB Credit Corporation
Secured by equipment; five notes payable in
aggregate monthly installments of $55,001,
including interest ranging from 9.43% to 11.98% 439,505 1,816,455
-------- ----------
924,438 3,042,160
Unsecured notes 65,568
--------
TOTALS $990,006 $3,042,160
======== ==========
</TABLE>
A summary of the note payments for the next five years is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------- ------
<S> <C>
1994 $ 2,939,975
1995 2,985,550
1996 2,831,779
1997 1,724,263
1998 1,048,591
Thereafter 3,446,424
-----------
TOTAL $14,976,582
===========
</TABLE>
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. LEASES
The Company acquired computers, copiers, furniture, and telephone systems
through capital leases. A schedule of the minimum future lease payments and
present values of the net minimum lease payments is as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1994 $738,175
1995 563,200
1996 454,845
----------
Minimum Lease Payments 1,756,220
Less: Interest portion of payments 127,187
----------
Total Present Value of Future
Net Minimum Lease Payments 1,629,033
Less: Current portion 660,673
----------
LONG-TERM PORTION $ 968,360
==========
</TABLE>
The majority of the Company's operating leases are for office space at
various locations. These leases have terms from one to ten years with
renewal options from zero to five years. The net rent expense for the
years ended December 31, 1993, 1992 and 1991, amounted to $5,968,833,
$4,718,179 and $3,115,113, respectively. The remaining lease
obligations are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1994 $ 5,584,825
1995 4,011,776
1996 2,763,071
1997 559,251
1998 188,996
Thereafter 64,475
-----------
TOTAL $13,172,394
===========
</TABLE>
12. DEFERRED INCOME
Deferred income is comprised of the following:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Commitment fees $2,602,221 $1,002,479
Lock-in fees 16,524 26,237
---------- -----------
TOTALS $2,618,745 $1,028,716
========== ===========
</TABLE>
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES
As discussed in Note 1.I., the Company elected S Corporation status.
Provisions for state income taxes amounted to $1,196,606, $1,409,364 and
$511,319 for the years ended December 31, 1993, 1992 and 1991,
respectively.
14. PROFIT-SHARING AND 401(K) PENSION PLANS
The Company has a profit-sharing plan and a 401(k) pension plan which cover
substantially all employees. Contributions to the plans are at the sole
discretion of the Board of Directors. Contributions for the years ended
December 31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
---------- --------
<S> <C> <C>
Profit-sharing plan $1,477,000 $887,000
401(k) pension plan 107,400 68,320
---------- --------
TOTALS $1,584,400 $955,320
========== ========
</TABLE>
15. EMPLOYEE CONTRACT PAYABLE
The Company entered into a contract with an employee to pay the employee
$50,000 per year for fifteen years upon the completion of ten years of
service with the Company and the attainment of fifty-two years of age. The
contract expense for the years ended December 31, 1992 and 1991, amounted
to $269,090 and $79,975, respectively. The employee has met the above
requirements and is receiving annual payments from the Company. There was
no contract expense for the year ended December 31, 1993.
16. LONG-TERM INCENTIVE PLANS
The Company has two incentive compensation plans covering selected
officers.
A. INCREMENTAL VALUE PLAN
The Incremental Value Plan provides for the award of phantom equity
equal to five percent of the increase in net worth of Directors Mortgage
Loan Corporation, as defined in the Plan, over the performance period. The
award vests annually and is payable in five installments commencing upon
the earlier of termination of the participants' employment or 2005,
including interest at the six-month treasury bill rate compounded
semiannually.
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. VALUE-CREATION SHARE PLAN
The Value-Creation Share Plan provides for awards determined by the
increase in net worth of Directors Mortgage Loan Corporation, as defined in
the Plan, over four-year cycles. Payments under the awards will be in five
annual installments including interest at the six-month treasury bill rate
compounded semiannually, unless the participant requests to defer the
payments over a period not to exceed fifteen years, commencing after the
completion of each cycle.
Amounts charged to expense under the plans amounted to $2,091,577,
$3,205,000 and $496,423, for the years ended December 31, 1993, 1992 and
1991, respectively.
17. LOANS SERVICED
Loans serviced for investors amounted to $13,649,746,688 and $8,478,262,056
at December 31, 1993 and 1992, respectively.
18. ESCROW AND CUSTODIAL FUNDS
Escrow and custodial funds amounted to $276,475,221 and $121,667,367 at
December 31, 1993 and 1992, respectively. These amounts consisted of
escrow funds of $4,279,439 and $431,229 and custodial funds of $272,195,782
and $121,236,138, at December 31, 1993 and 1992, respectively. These funds
are maintained by the Company in special bank accounts and are excluded
from assets and liabilities in the combined balance sheets.
19. ERRORS AND OMISSIONS INSURANCE AND FIDELITY BOND
The Company maintained errors and omissions and fidelity bond insurance
coverage of $16,000,000 and $10,000,000 for the years ended December 31,
1993 and 1992, respectively, which meets the requirements of investors.
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
20. RELATED-PARTY TRANSACTIONS
The Company shares common management and control with Stan-Shaw Corporation,
Directors Insurance Services, Allmark, Inc., and Anderson Financial
Corporation. Related-party transactions during the years ended December 31,
1993, 1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- -------
<S> <C> <C> <C>
Insurance Referral Fees
Received From Directors Insurance Service $116,880 $ 74,946 $72,009
======== ========= =======
Flood Determination Report Fees
Paid to Directors Insurance Service $566,693 $ 164,018
======== =========
Balance Due To (Due From) Affiliates
at December 31
Directors Insurance Service $223,655 $ 179,616
Anderson Financial Corporation (150) (340,561)
Stan-Shaw Corporation 198,331 13,906
Allmark, Inc. (38,546) (90,177)
Other - net (1,819) (1,233)
-------- ---------
TOTALS $381,471 $(238,449)
======== =========
</TABLE>
21. CONTINGENCIES AND COMMITMENTS
REPURCHASE REQUIREMENTS
Mortgage loans and their related servicing rights are sold under agreements
that define certain criteria for the mortgage loan. If the criteria are not
met, the Company is required to repurchase the mortgage loan. The Company
attempts to sell all loans made on a nonrecourse basis. Conforming
conventional loans serviced by the Company are sold through Federal National
Mortgage Association ("FNMA") or Federal Home Loan Mortgage Corporation
("FHLMC") programs on a nonrecourse basis, whereby foreclosure losses are
generally the responsibility of FNMA or FHLMC and not the Company.
Similarly, the government loans serviced by the Company are securitized
through Government National Mortgage Association programs, whereby the
Company is insured against loss by the Federal Housing Administration or
partially guaranteed against loss by the Veterans Administration. In
addition, jumbo mortgage loans are also sold and serviced on a nonrecourse
basis. With respect to sale of loans, under certain circumstances, the
Company may become liable for the unpaid principal and interest on defaulted
recourse loans or other loans if there has been a breach of representations
or warranties. The Company produced mortgage loans sold to the various
agencies and investors that have provisions for recourse in the event of
foreclosure. At December 31, 1993, there were loans with outstanding
principal balances of approximately $16,300,000 remaining under these
recourse obligations. In the opinion of management, adequate reserves have
been established for losses that may be incurred as a result of these
transactions.
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORWARD DELIVERY COMMITMENTS
The Company sells mortgage-backed securities through forward delivery
commitments with major dealers in such securities. Forward delivery
commitments outstanding at December 31, 1993 require the Company to deliver
pools of mortgages with coupon rates ranging from 4% to 8% and with
settlement dates from January 1994 to March 1994. The average length of the
forward delivery commitments is approximately 60 days. At December 31, 1993,
the total amount of mortgage-backed securities sold through forward delivery
commitments was $702,900,000, of which approximately $692,600,000 represents
mortgages which closed prior to December 31, 1993. It is expected that the
remaining forward delivery commitments of approximately $10,300,000 at
December 31, 1993 will be satisfied from mortgage loans in process at
December 31, 1993. In management's opinion, the forward delivery commitments
will settle without a material adverse effect on the financial statements of
the Company.
MORTGAGE COMMITMENTS
The Company had estimated mortgage commitments to extend credit aggregating
approximately $249,400,000 at December 31, 1993. Of this amount,
approximately $96,100,000 were at market rates. Risks arise from the
possible inability of counterparties to meet the terms of their contracts
and from movements in mortgage values and interest rates. In management's
opinion, the mortgage commitments will settle without a material adverse
effect on the financial statements of the Company.
22. DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (SFAS 107)
The Company has adopted Statement of Financial Accounting Standards No. 107
(SFAS 107), Disclosures About Fair Values of Financial Instruments, which
requires the Company to disclose the fair value of its financial
instruments, both recognized and unrecognized, in the statement of financial
position.
CASH
The fair value of cash is the carrying amount.
MORTGAGE LOANS RECEIVABLE HELD FOR SALE
The fair value is estimated using current market values for mortgage loans
held for sale.
DEPOSITS FOR HEDGING TRANSACTIONS
For securities and derivative instruments held for hedging purposes (which
include interest rate futures, options, and forward contracts), fair values
are based on dealer quotes.
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MORTGAGE SERVICING PORTFOLIO
The value of the mortgage servicing portfolio is based upon an estimate of
the present value prepared by an independent mortgage banking consultant
using the discounted cash flow analysis approach.
INVESTMENTS
The cash surrender value of life insurance is based upon values reported to
the Company by insurance companies. The value of the investment in the stock
of Victoria Mortgage is equal to the proportionate share of the equity owned
by the Company.
NOTES RECEIVABLE
The fair value of the notes receivable approximates the carrying amount
given market rates and payment terms.
NOTES PAYABLE AND OBLIGATIONS UNDER CAPITAL LEASES
The notes payable secured by mortgage loans receivable held for sale and
foreclosure claims receivable approximate market given their market rates
and terms. The note secured by servicing rights, notes payable - other, and
obligations under capital leases are valued based on rates and terms for the
same or similar issues offered to the Company.
DEFERRED INCOME - COMMITMENTS TO EXTEND CREDIT
The fair value of deferred income on commitments to extend credit is based
on dealer quotes.
DEFERRED COMPENSATION AND EMPLOYEE CONTRACTS PAYABLE
The carrying value approximates the estimated fair value given contract
provisions.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
CARRYING FAIR
AMOUNT VALUE
------------ -------------
<S> <C> <C>
Cash $ 25,763,960 $ 25,763,960
Mortgage loans receivable held for sale 717,421,342 722,768,424
Unexpired hedging commitments 4,463,497 2,517,295
Mortgage servicing portfolio 2,564,456 122,260,000
Investments 643,226 643,226
Notes receivable 268,029 268,029
Notes payable and obligations under capital leases (708,958,830) (708,417,861)
Deferred income - commitments to extend credit (2,618,745) (1,593,961)
Deferred compensation and employee contracts payable (6,157,743) (6,157,743)
</TABLE>
F-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1992
------------------------------
CARRYING FAIR
AMOUNT VALUE
-------------- --------------
<S> <C> <C>
Cash $ 8,630,505 $ 8,630,505
Mortgage loans receivable held for sale 538,945,198 544,588,258
Unexpired hedging commitments 807,718 408,594
Mortgage servicing portfolio 2,489,629 84,780,000
Investments 1,231,881 1,941,161
Notes receivable 275,661 275,661
Notes payable and obligations under capital leases (522,624,779) (522,436,365)
Deferred income - commitments to extend credit (1,028,716) (840,166)
Deferred compensation and employee contracts payable (4,046,123) (4,046,123)
</TABLE>
23. SAN FERNANDO VALLEY EARTHQUAKE
On January 17, 1994, an earthquake struck the San Fernando Valley region of
Southern California. This earthquake caused damage to a small percentage
of properties securing loans in the Company's servicing portfolio,
including some mortgage loans receivable held for sale. In the event the
Company is forced to foreclose on any of these loans, it is exposed to the
possibility of incurring foreclosure losses. The FHA requires that a
damaged property be conveyed upon foreclosure to FHA in a livable
condition. Therefore, the cost of repairs and/or the difference between
the current property value and the debt could become a cost to the Company
if the properties are not covered by special hazard earthquake insurance.
The same holds true for VA loans where the maximum reimbursement to the
Company will be the VA guaranty amount. The amount of loss is not known at
this date, as government relief provisions are not clear.
24. RECLASSIFICATIONS
Certain accounts in the prior-period financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current year financial statements.
F-22
<PAGE>
Board of Directors
Directors Mortgage Loan Corporation
Riverside, California
We have compiled the accompanying balance sheet of Directors Mortgage Loan
Corporation as of September 30, 1994, and the related statements of operations,
retained earnings and cash flows for the nine month periods ended September 30,
1994 and 1993, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them. However, we did become aware
of departures from generally accepted accounting principles that are described
in the following paragraph.
The Company's financial statements do not disclose the following information
required by generally accepted accounting principles: Five-year schedule of
principal payments on long-term debt as of September 30, 1994; information on
capital leases; information on operating leases; long-term incentive plans;
related-party transactions; disclosure of fair value of financial instruments.
Management believes it is impracticable to develop the information.
The financial statements for the year ended December 31, 1993, were audited by
us and we expressed an unqualified opinion on them in our report dated March 3,
1994, but we have not performed any auditing procedures since that date.
/s/ Eadie and Payne
December 14, 1994
F-23
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
BALANCE SHEETS
SEE ACCOUNTANTS' COMPILATION REPORT
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 2,887,251 $ 25,763,960
Mortgage loans receivable held for sale 256,519,327 717,421,342
Accrued interest receivable 325,064 999,004
Other receivables 18,977,221 20,213,096
Notes receivable 7,011 201,529
Property held for sale 3,077,746 387,259
Prepaid expenses 5,504,667 8,855,797
Deferred charges 54,042 75,176
TOTAL CURRENT ASSETS 287,352,329 773,917,163
------------ ------------
PROPERTY AND EQUIPMENT
At cost - net of depreciation 25,842,400 25,132,785
------------ ------------
INVESTMENTS
Cash surrender value - life insurance 778,226 643,226
Investments in Common Stock
Mission Savings and Loan 769,957 737,811
Other 25,517 61,435
Joint venture and real estate partnerships 82,980 150,000
Investment in mortgages 552,993 94,342
------------ ------------
2,209,673 1,686,814
------------ ------------
OTHER ASSETS
Notes and term receivables 66,000 66,500
Capitalized purchased servicing - net of amortization 1,593,917 1,223,456
Capitalized excess servicing fees - net of amortization 1,161,000 1,341,000
------------ ------------
2,820,917 2,630,956
------------ ------------
TOTAL ASSETS $318,225,319 $803,367,718
============ ============
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - secured by mortgage loans receivable held
for sale $230,715,445 $685,955,615
Notes payable - foreclosure line 4,818,200 3,947,600
Notes payable - secured by GNMA/FNMA servicing rights 1,050,000 2,100,000
Notes payable - other 5,819,094 2,939,975
Obligations under capital leases 594,730 660,673
Accounts payable 6,809,517 14,541,384
Due to related parties 422,387
Commissions and bonuses payable 2,305,148 7,548,465
Accrued expenses 879,472 1,439,064
Deferred income 1,322,282 2,618,745
Other liabilities 1,716,700 1,239,188
Estimated liability on recourse obligations 3,534,747 2,740,642
Stockholder distribution payable 1,474,959 18,477,000
------------ ------------
TOTAL CURRENT LIABILITIES 261,040,294 744,630,738
------------ ------------
LONG-TERM LIABILITIES
Notes payable - secured by GNMA/FNMA servicing rights 350,000
Notes payable - other 29,431,157 12,036,607
Obligations under capital leases 668,717 968,360
Deferred compensation 6,152,782 5,793,000
Employee contract payable 347,625 350,445
------------ ------------
36,600,281 19,498,412
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 2,000,000 shares
authorized; 647,500 shares issued and outstanding 161,875
Series A common stock, no par value; authorized 1,000,000
shares, issued and outstanding 647,500 shares 80,938
Series B common stock, no par value; authorized 1,000,000
shares, issued and outstanding 436,295 shares 55,037
Paid-in capital 84,216 84,216
Retained earnings 20,364,553 38,992,477
------------ ------------
20,584,744 39,238,568
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $318,225,319 $803,367,718
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
STATEMENTS OF OPERATIONS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
REVENUE
Loan origination and processing $ 41,834,478 $ 52,870,141
Mortgage servicing 35,738,130 24,225,689
Sales of servicing 40,647,708 14,256,399
Gain (loss) on sale of loans, net of commitment fees (2,320,833) 61,947,846
Interest income 20,690,398 23,987,359
Escrow fees 590,637 833,443
Gain (loss) on investments (85,191)
Other 1,390,383 1,554,928
------------ ------------
TOTAL REVENUE 138,485,710 179,675,805
------------ ------------
EXPENSES
Salaries and related expenses 78,879,724 101,490,110
Interest expense 14,009,031 14,940,464
Other operating expenses 45,230,105 40,413,480
------------ ------------
TOTAL EXPENSES 138,118,860 156,844,054
------------ ------------
INCOME BEFORE INCOME TAXES 366,850 22,831,751
INCOME TAX EXPENSE 49,652 894,467
-------- ----------
NET INCOME $317,198 $ 21,937,284
======== ============
EARNINGS PER SHARE
Net income per share (1,083,795 and 647,500 shares,
respectively, outstanding) $0.29 $33.88
===== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
STATEMENTS OF RETAINED EARNINGS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND
THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
(UNAUDITED) DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
Beginning balance $ 38,992,477 $ 25,485,706
Net income 317,198 36,058,771
Retirement of stock (18,974,100)
Overaccrual of prior-year tax distribution
due to stockholder 1,009,000
Distribution To Stockholder
For payment of income taxes (280,022) (18,172,000)
Other (700,000) (4,380,000)
------------ ------------
ENDING BALANCE $ 20,364,553 $ 38,992,477
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
STATEMENTS OF CASH FLOWS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 317,198 $ 21,937,284
Adjustments to Reconcile Net Income to Net Cash
Provided By (Used In) Operating Activities
Depreciation on property and equipment 4,265,578 2,116,239
Amortization of excess of cost over net assets
acquired 40,114
Loss on disposal of assets and sale of investments 25,892 44,806
Increase in cash surrender value of officers' life
insurance policies (135,000) (90,000)
Increase (decrease) in loan purchase and sales
premiums/discounts 3,639,694 (6,192,638)
Increase (decrease) in reserve for losses and net
deferred fees (1,622,750) 325,000
(Increase) Decrease in Assets
Mortgage loans held for sale 459,987,321 (118,673,962)
Accrued interest receivable 673,940 (355,760)
Other receivables 1,235,775 (5,153,686)
Property held for sale (3,792,737)
Prepaid expenses 3,351,230 (5,531,380)
Deferred charges 21,134 (12,917)
Capitalized purchased servicing (370,461) (471,698)
Capitalized excess servicing fees 180,000 243,000
Increase (Decrease) in Liabilities
Accounts payable (7,731,867) 6,087,709
Due to related parties (223,083) (105,490)
Commissions and bonuses payable (5,243,317) 8,746,141
Accrued expenses (559,592) (1,160,409)
Deferred income (1,296,463) 110,632
Other liabilities 286,993 (227,668)
Estimated liability on recourse obligations 794,105 1,348,000
Deferred compensation 359,782 2,650,000
------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 454,163,372 (94,326,683)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets and investments 109,548 1,434,755
Proceeds from sale of real estate owned 71,184 256,545
Purchase of assets (283,752) (6,454,098)
Purchase of investments (529,835) (670,756)
Principal payments received on notes receivable 210,953 39,484
Disbursements on notes receivable (15,935) (64,867)
------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (437,837) (5,458,937)
------------ -------------
STATEMENTS OF CASH FLOWS (CONTINUED)
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
SEE ACCOUNTANTS' COMPILATION REPORT
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit $(454,369,570) $113,291,264
Principal payments under capital lease obligations (522,206) (427,814)
Principal payments on long-term debt (4,725,800) (2,744,901)
Contractual payments to employee (11,605) (16,105)
Distributions to stockholder (16,973,063) (7,853,005)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (476,602,244) 102,249,439
------------- ------------
NET INCREASE (DECREASE) IN CASH (22,876,709) 2,463,819
CASH AT BEGINNING OF PERIOD 25,763,960 8,630,505
------------- ------------
CASH AT END OF PERIOD $ 2,887,251 $ 11,094,324
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash Payments For
Interest $ 16,757,134 $ 17,862,758
Income taxes 235,750 883,700
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred for use of equipment $ 156,620
Furniture and equipment acquired through issuance of
long-term debt $ 4,599,469 $ 7,064,364
Long-term debt incurred to finance acquisition of
common stock from stockholder for the purpose
of retirement $ 19,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
DIRECTORS MORTGAGE LOAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEE ACCOUNTANTS' COMPILATION REPORT
SEPTEMBER 30, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
A. Mortgage loans receivable held for sale are valued at the lower of
cost or aggregate market, with market being based on outstanding commitments
that the Company has acquired from investors for the purchase of such
mortgages.
B. Commitment fees received are recorded as income when the related loans
are sold or when it becomes apparent the commitment will expire unused.
Commitment fees paid are recorded as an expense when the related loans are
sold to an investor or when it becomes apparent that the related commitment
will not be fulfilled.
C. Property and equipment are stated at cost and are depreciated using
the straight-line and declining-balance methods over the estimated useful
lives of the various assets. Capital leases are amortized over the lives of
the leases.
D. When the Company sells mortgage loans and retains the servicing
rights, the contractual sales price and resulting gain or loss on the sale is
adjusted to provide the recognition of a normal service fee over the
estimated life of the loan. The amount of the adjustment is equal to the
present value of the difference between the contractual service rate and
normal servicing fee. For calculating the adjustment the Company's normal
servicing fee for conventional fixed-rate loans is .25% for GNMA securities
.44%, and for adjustable-rate mortgages .375%.
E. Investments in common stock are stated at cost except for the
investment in Mission Savings and Loan which is stated using the equity
method.
F. Loan origination revenue consists primarily of fees received in
connection with making and processing residential loans. The Financial
Accounting Standards Board Statement No. 91, which prescribed accounting for
loan origination fees, has been adopted. Net deferred origination fees are
shown in Note 2 to the financial statements.
G. Mortgage servicing revenues, which are based on a percentage of the
outstanding principal balances of the serviced mortgages, are recorded as
income as the installment collections on the mortgages are received.
H. Gains on sales of mortgages are recorded at the time of sale to
investors.
F-29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
I. The Company, with the consent of its stockholders, has elected under
the Internal Revenue Code to be an S Corporation. In lieu of corporation
income taxes, the stockholders of an S Corporation are taxed on the Company's
taxable income. Therefore, no provision or liability for Federal income taxes
has been included in the financial statements. The Company continues to pays
state tax at a reduced rate.
Distributions for income taxes are provided to the stockholders at the
maximum individual income tax rates.
J. The Company enters into futures contracts to reduce the impact of
interest rate fluctuations. The gains or losses on these contracts are
included in income when the revenue from the sale of loans is recognized, or
when the contracts expire.
K. For purposes of reporting cash flows, the Company considers
certificates of deposit with maturities of three months or less when acquired
to be cash equivalents.
L. Statement of Financial Accounting Standards No. 105 (FAS 105),
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentration of Credit Risk," requires
disclosure of the face, contract, or notional amounts of off-balance-sheet
positions in order to illustrate the maximum loss that would occur if the
counterparty to the instrument failed to perform according to its terms. The
Company uses financial instruments having off-balance-sheet risk in the
normal course of business in order to reduce exposure to fluctuations in
interest rates and market prices. Included in the Notes to the Financial
Statements are disclosures relating to financial instruments having off-
balance-sheet risk. These disclosures indicate the magnitude of the Company's
involvement in such activities and reflect the instruments at their face,
contract, or notional amounts and are not intended to represent the much
smaller credit risk of such instruments.
2. MORTGAGE LOANS RECEIVABLE HELD FOR SALE
Mortgage loans receivable held for sale (pledged to secure notes payable to
bank) were secured by first and second trust deeds and are summarized as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 (UNAUDITED) 1993
--------------------------
<S> <C> <C>
Principal Balances
Mortgage loans $261,338,854 $714,761,588
Purchase and sales premium (discount) (2,947,777) 2,491,917
Advances due on reverse annuity mortgages (2,277,750) (1,163,163)
Net deferred origination (fees) costs 406,000 1,331,000
------------ ------------
TOTALS $256,519,327 $717,421,342
============ ============
</TABLE>
F-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
3. OTHER RECEIVABLES
Other receivables are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
Various accrued fees $ 21,110 $ 2,877,216
Bulk sales of servicing 3,754,230 4,165,715
Sale of loan participations 5,903 2,107,235
Advances on investor pools and impound accounts 3,598,238 2,962,503
Advances to employees 158,135 187,136
Advances on loans in foreclosure 7,917,313 7,370,593
Due from related parties 40,916
Other 3,522,292 501,782
----------- -----------
TOTALS $18,977,221 $20,213,096
=========== ===========
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
CURRENT TERM CURRENT TERM
------- ------- ------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Unsecured Notes
Officers $66,000 $66,000
Employees $7,011 $ 45,260
Other 156,269 500
------ ------- -------- -------
TOTALS $7,011 $66,000 $201,529 $66,500
====== ======= ======== =======
</TABLE>
5. PROPERTY HELD FOR SALE
Property held for sale consisted of real estate owned (net of reserve for
loss of $1,246,000 and $143,750) of $3,077,746 and $387,259, respectively.
F-31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
6. PREPAID EXPENSES
Prepaid expenses consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 (UNAUDITED) 1993
--------------------------
<S> <C> <C>
Unexpired commitment fees $ 248,692 $ 125,652
Unexpired hedging commitments 1,640,401 4,463,497
Prepaid insurance 774,342 388,669
Prepaid rent 1,051,211 431,839
Prepaid taxes 25,428
Deposits for hedging transactions 709,284 2,250,417
Deposits 519,565 360,622
Other 535,744 835,101
---------- ----------
TOTALS $5,504,667 $8,855,797
========== ==========
</TABLE>
7. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 (UNAUDITED) 1993
--------------------------
<S> <C> <C>
Land $ 750,000 $ 750,000
Building 5,778,641 5,686,142
Automobiles 21,748 21,748
Office furniture and equipment 27,362,632 22,563,344
Leasehold improvements 1,978,271 1,843,890
Capital leases 2,697,762 2,541,142
Equipment inventory 355,122 851,413
------------ -----------
38,944,176 34,257,679
Less: Accumulated depreciation (13,101,776) (9,124,894)
------------ -----------
TOTALS $ 25,842,400 $25,132,785
============ ===========
</TABLE>
Depreciation expense for the nine months ended September 30, 1994 and 1993
amounted to $4,265,578 and $2,116,239.
Equipment inventory consisted of equipment received but not delivered to its
final location and placed into service. No depreciation is recorded on this
equipment until placed into service.
F-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
8. NOTES PAYABLE - SECURED BY MORTGAGE LOANS RECEIVABLE
Held for sale and GNMA and FNMA servicing rights.
The Company had the following notes payable secured by mortgage loans
receivable:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
Commercial paper $134,718,953 $348,810,933
Revolving credit line 72,802,702 288,168,723
Loans in transit 23,193,790 48,975,959
------------ ------------
TOTALS $230,715,445 $685,955,615
============ ============
</TABLE>
The Company has an agreement with commercial banks to provide financing for
mortgage loans receivable held for sale. The revolving credit facilities
allowed the Company to borrow a maximum aggregate amount of $600,000,000 at
varying interest rates at September 30, 1994. The lines are secured by the
following:
A. Mortgage loans receivable held for sale;
B. All mortgage-backed securities and all mortgage notes, deeds of trust,
and other documents deposited with or held by the collateral agent;
C. All investor commitments covering the mortgage loans;
D. All deposit accounts maintained by the Company with the banks.
As of September 30, 1994, the facilities amounting to $600,000,000 provided
for borrowings under commercial paper up to $300,000,000. The Company issues
its commercial paper notes in denominations of not less than $100,000 and
having a maturity date of 270 days or less. The notes are issued to
institutional investors and are not advertised or sold to the general public.
The commercial paper notes are backed by letters of credit that expire 15
days after the note is due.
The note payable - secured by GNMA and FNMA servicing rights is secured by
the servicing rights to GNMA and FNMA pools amounting to $328,388,037 and
$439,327,229 at September 30, 1994 and December 31, 1993, respectively. At
September 30, 1994 and December 31, 1993 amounts outstanding under the
agreement amounted to $1,050,000 and $2,450,000, respectively.
F-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
The agreements provide for various financial and operating covenants
including liens on assets, mandatory commitments, indebtedness,
consolidation and merger, acquisitions, dividends, purchase or retirement
of stock, investments, advances to affiliates, sale of assets, minimum net
worth, and servicing portfolio. The covenants specify certain financial
ratios including the following:
<TABLE>
<CAPTION>
<S> <C>
Total debt to adjusted tangible net worth
(includes value of servicing portfolio
calculated at 1%) not to exceed 7:1
Total debt to GAAP net worth not to exceed 25:1
Maintain a servicing portfolio of at least $8,000,000,000
Maintain a Minimum
- Tangible net worth $4,000,000
- GAAP net worth $8,000,000
- Adjusted tangible net worth $135,000,000
- Working capital $20,000,000
</TABLE>
9. NOTES PAYABLE - FORECLOSURE LINE
The foreclosure line is a revolving credit facility maintained for the
purpose of financing up to 90% of the insurance claim on government agency
insured loans foreclosed in GNMA pools. The interest rate is variable at
1% over the bank reference rate. An advance is made for no more than 180
days. The outstanding balances were $4,818,200 and $3,947,600 at September
30, 1994, and December 31, 1993, respectively. The available unused credit
was $1,181,800 at September 30, 1994.
10. NOTES PAYABLE - OTHER
Other notes payable consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
-------------------
CURRENT TERM
------- ----
<S> <C> <C>
Secured Notes
Metlife Capital Corporation
Secured by equipment; three notes payable
in aggregate monthly installments of
$52,164, including interest ranging from
8.42% to 10.1% $298,331 $529,308
CIT Group
Secured by equipment; five notes payable in
aggregate monthly installments of $54,985,
including interest ranging from 9.43% to
21.51% 491,271 962,596
</TABLE>
F-34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
-----------------------
CURRENT TERM
---------- -----------
<S> <C> <C>
Randolph Computer Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $98,948,
including interest ranging from 6.38% to 6.84% $ 893,549 $ 3,269,005
Fleet Credit Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $232,774,
including interest ranging from 6.27% to 8.17% 2,082,895 3,974,198
AGA Foundation
Unsecured; payable in quarterly installments of
$475,000, plus interest at 10% 1,900,000 16,625,000
John Hancock Mutual Life Insurance Company
Secured by building; payable in monthly
installments of $43,082, including interest at 8.5% 153,048 4,071,050
---------- -----------
TOTALS $5,819,094 $29,431,157
========== ===========
DECEMBER 31, 1993
-----------------------
CURRENT TERM
---------- -----------
Secured Notes
Metlife Capital Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $55,629,
including interest ranging from 8.42% to 10.1% $ 475,300 $ 750,404
LB Credit Corporation
Secured by equipment; five notes payable in
aggregate monthly installments of $55,001,
including interest ranging from 9.43% to 11.98% 491,271 1,325,773
Randolph Computer Corporation
Secured by equipment; four notes payable in
aggregate monthly installments of $98,948,
including interest ranging from 6.38% to 6.85% 893,549 3,917,834
Fleet Credit Corporation
Secured by equipment; payable in monthly
installments of $89,580, including
interest at 6.27% 926,807 1,857,180
</TABLE>
F-35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<CAPTION>
<S> <C> <C>
John Hancock Mutual Life Insurance Company
Secured by building; payable in monthly
installments of $43,082, including
interest at 8.5% 153,048 4,185,416
---------- -----------
TOTALS $2,939,975 $12,036,607
========== ===========
</TABLE>
As of December 31, 1993, the note payments for the next five years were as
follows:
<TABLE>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ -----------
<S> <C>
1994 $ 2,939,975
1995 2,985,550
1996 2,831,779
1997 1,724,263
1998 1,048,591
Thereafter 3,446,424
-----------
TOTAL $14,976,582
===========
</TABLE>
11. DEFERRED INCOME
Deferred income is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
Commitment fees $1,311,296 $2,602,221
Lock-in fees 10,986 16,524
---------- ----------
TOTALS $1,322,282 $2,618,745
========== ==========
</TABLE>
12. INCOME TAXES
As discussed in Note 1 I, the Company elected S Corporation status.
Provision for state income taxes for the nine months ended September 30,
1994 and 1993 amounted to $49,652 and $894,467, respectively.
F-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
13. PROFIT-SHARING AND 401(K) PENSION PLANS
The Company has a profit-sharing plan and a 401(k) pension plan which cover
substantially all employees. Contributions to the profit-sharing plan are
at the sole discretion of the Board of Directors. Accrued contributions
for the nine months ended September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Profit-sharing plan $500,000 $1,000,000
401(k) pension plan 146,143 81,715
-------- ----------
TOTALS $646,143 $1,081,715
======== ==========
</TABLE>
14. LOANS SERVICED
Loans serviced for investors amounted to $12,788,898,786 at September 30,
1994 and $13,649,746,688 at December 31, 1993.
15. ESCROW AND CUSTODIAL FUNDS
Escrow and custodial funds amounted to $100,785,990 and $276,475,221 at
September 30, 1994 and December 31, 1993, respectively. These amounts
consisted of escrow funds of $31,200 and $4,279,439 and custodial funds of
$100,754,790, and $272,195,782 at September 30, 1994 and December 31, 1993,
respectively. These funds are maintained by the Company in special bank
accounts and are excluded from assets and liabilities in the balance
sheets.
16. ERRORS AND OMISSIONS INSURANCE AND FIDELITY BOND
The Company maintained errors and omissions and fidelity bond insurance
coverage of $17,000,000 and $19,000,000, respectively, for the nine months
ended September 30, 1994 and $16,000,000 each for the year ended December
31, 1993, which meets the requirements of investors.
17. CONTINGENCIES AND COMMITMENTS
REPURCHASE REQUIREMENTS
Mortgage loans and their related servicing rights are sold under agreements
that define certain criteria for the mortgage loan. If the criteria are
not met, the Company is required to repurchase the mortgage loan. The
Company attempts to sell all loans made on a nonrecourse basis. Conforming
conventional loans serviced by the Company are sold through Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage
Corporation (FHMLC) programs on a nonrecourse basis, whereby foreclosure
losses are generally the responsibility of FNMA or
F-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
FHLMC and not the Company. Similarly, the government loans serviced by the
Company are securitized through Government National Mortgage Association
programs, whereby the Company is insured against loss by the Federal
Housing Administration or partially guaranteed against loss by the Veterans
Administration. In addition, jumbo mortgage loans are also sold and
serviced on a nonrecourse basis. With respect to sale of loans, under
certain circumstances, the Company may become liable for the unpaid
principal and interest on defaulted recourse loans or other loans if there
has been a breach of representations or warranties. The Company produced
mortgage loans sold to the various agencies and investors that have
provisions for recourse in the event of foreclosure. At September 30,
1994, there were loans with outstanding principal balances of approximately
$13,000,000 remaining under these recourse obligations, of which
$10,500,000 is presently being serviced by the Company. In the opinion of
management, adequate reserves have been established for losses that may be
incurred as a result of these transactions.
FORWARD DELIVERY COMMITMENTS
The Company sells mortgage-backed securities through forward delivery
commitments with major dealers in such securities. Forward delivery
commitments outstanding at September 30, 1994 require the Company to
deliver pools of mortgages with coupon rates ranging from 5.5% to 9% and
with settlement dates from October 1994 to December 1994. The average
length of the forward delivery commitments is approximately 60 days. At
September 30, 1994, the total amount of mortgage-backed securities sold
through forward delivery commitments was $282,000,000, of which
approximately $186,000,000 represents mortgages which closed prior to
September 30, 1994. It is expected that the remaining forward delivery
commitments of approximately $96,000,000 at September 30, 1994 will be
satisfied from mortgage loans in process at September 30, 1994. In
management's opinion, the forward delivery commitments will settle without
a material adverse effect on the financial statements of the Company.
MORTGAGE COMMITMENTS
The Company had estimated mortgage commitments to extend credit aggregating
approximately $213,300,000 at September 30, 1994. Of this amount,
approximately $59,300,000 were at market rates. Risks arise from the
possible inability of counterparties to meet the terms of their contracts
and from movements in mortgage values and interest rates. In management's
opinion, the mortgage commitments will settle without a material adverse
effect on the financial statements of the Company.
F-38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
18. DIVISION OF COMMON STOCK
In July 1994, the Board of Directors approved the division of the Company's
common stock into two series - Series A (Voting) and Series B (Nonvoting),
thereby increasing the number of issued and outstanding shares to
1,295,000. Series A common stockholders are entitled to one vote per share.
Series B common stockholders are not entitled to voting privileges. All
other rights, preferences, privileges and restrictions are equal and
identical.
Changes in common stock shares were as follows:
<TABLE>
<CAPTION>
Common Series A Series B Total
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Common stock, 12/31/93 647,500 647,500
Division of stock (647,500) 647,500 647,500 647,500
Retirements (211,205) (211,205)
-------- -------- -------- ---------
Common stock, 9/30/94 - 647,500 436,295 1,083,795
======== ======= ======== =========
</TABLE>
19. SAN FERNANDO VALLEY EARTHQUAKE
On January 17, 1994, an earthquake struck the San Fernando Valley region of
Southern California. This earthquake caused damage to a small percentage
of properties securing loans in the Company's servicing portfolio,
including some mortgage loans receivable held for sale. In the event the
Company is forced to foreclose on any of these loans, it is exposed to the
possibility of incurring foreclosure losses. The FHA requires that a
damaged property be conveyed upon foreclosure to FHA in a livable
condition. Therefore, the cost of repairs and/or the difference between
the current property value and the debt could become a cost to the Company
if the properties are not covered by special hazard earthquake insurance.
The same is true for VA loans where the maximum reimbursement to the
Company will be the VA guaranty amount. As of September 30, 1994, costs
recognized by the Company have not been material to the financial
statements.
20. SUBSEQUENT EVENT
On December 7, 1994, Directors Mortgage Loan Corporation entered into an
agreement and plan of reorganization with Norwest Corporation, a Delaware
Corporation. To affect this reorganization, a wholly-owned subsidiary of
Norwest will merge with and into Directors Mortgage Loan Corpration.
Shares of common stock of Directors Mortgage Loan Corporation outstanding
immediately prior to the time of merger will be exchanged into voting
common stock of Norwest.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Directors Insurance Service
Riverside, California
We have audited the balance sheets of Directors Insurance Service as of December
31, 1993 and 1992, and the related statements of operations, retained earnings
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Directors Insurance Service as
of December 31, 1993 and 1992, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1993, in
accordance with generally accepted accounting principles.
/s/ Eadie and Payne
March 3, 1994
F-40
<PAGE>
DIRECTORS INSURANCE SERVICE
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 363,550 $ 12,661
Other receivables 601,965 485,563
Prepaid expenses 4,698 13,227
Income taxes receivable 4,055 199
---------- --------
TOTAL CURRENT ASSETS 974,268 511,650
---------- --------
PROPERTY AND EQUIPMENT
At cost - net of depreciation 80,450 56,303
---------- --------
TOTAL ASSETS $1,054,718 $567,953
========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,148 $ 10,304
Accrued expenses 4,000 3,600
Stockholder distribution payable 450,000 102,000
---------- --------
TOTAL CURRENT LIABILITIES 475,148 115,904
---------- --------
STOCKHOLDER'S EQUITY
Common stock, no par value; 10,000 shares authorized;
100 shares issued and outstanding 1 1
Retained earnings 579,569 452,048
---------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,054,718 $567,953
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE>
DIRECTORS INSURANCE SERVICE
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUE
Insurance commissions $1,808,382 $1,601,054 $1,504,118
Interest income 6,729 5,083 8,293
Other 608,693 206,027 32,675
---------- ---------- ----------
TOTAL REVENUE 2,423,804 1,812,164 1,545,086
---------- ---------- ----------
EXPENSES
Salaries and related expenses 897,472 835,418 788,304
Other operating expenses 523,667 437,646 378,551
---------- ---------- ----------
TOTAL EXPENSES 1,421,139 1,273,064 1,166,855
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,002,665 539,100 378,231
INCOME TAX EXPENSE 25,144 13,519 9,480
---------- ---------- ----------
NET INCOME $ 977,521 $ 525,581 $ 368,751
========== ========== ==========
EARNINGS PER SHARE
Net income per share $9,775.21 $5,255.81 $3,687.51
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE>
DIRECTORS INSURANCE SERVICE
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Beginning Balance $ 452,048 $ 456,467 $ 320,716
Net Income 977,521 525,581 368,751
Distribution To Stockholder
For payment of income taxes (450,000) (205,000) (137,000)
Other (400,000) (325,000) (96,000)
--------- --------- ---------
ENDING BALANCE $ 579,569 $ 452,048 $ 456,467
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
DIRECTORS INSURANCE SERVICE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 977,521 $ 525,581 $ 368,751
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation on property and equipment 20,523 20,570 24,486
Amortization of customer list 18,507
Loss on disposal of assets 9,325
(Increase) Decrease in Assets
Other receivables (116,402) 42,303 (254,655)
Prepaid expenses 8,529 (6,739) (2,781)
Income taxes receivable (3,856) 2,908 (1,520)
Increase (Decrease) in Liabilities
Accounts payable 10,844 (9,491) 7,504
Accrued expenses 400 282 318
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 897,559 575,414 169,935
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets (44,670) (9,173) (60,753)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (44,670) (9,173) (60,753)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obligations (1,970) (7,176)
Distributions to stockholder (502,000) (561,000) (100,000)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (502,000) (562,970) (107,176)
--------- --------- ---------
NET INCREASE IN CASH 350,889 3,271 2,006
CASH AT BEGINNING OF YEAR 12,661 9,390 7,384
--------- --------- ---------
CASH AT END OF YEAR $ 363,550 $ 12,661 $ 9,390
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Payment For
Interest $ 5 $ 577
Income taxes $ 29,000 $ 10,611 $ 11,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
DIRECTORS INSURANCE SERVICE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1. NATURE OF BUSINESS
Directors Insurance Service (the "Company") was incorporated in 1985 under
the laws of the State of California for the purpose of providing
residential property insurance to homeowners.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Property and equipment are stated at cost and are depreciated
using the straight-line and declining-balance methods over the
estimated useful lives of the various assets.
B. Directors Insurance Service, with the consent of its stockholder,
has elected under the Internal Revenue Code and the California Revenue
and Taxation Code to be an S Corporation. In lieu of corporation income
taxes, the stockholder of an S Corporation is taxed on the Company's
taxable income. Therefore, no provision or liability for Federal income
taxes has been included in the financial statements. The Company
continues to pay state tax at the reduced S Corporation rate.
Distributions for income taxes are provided to the stockholder at
the maximum individual income tax rates.
3. OTHER RECEIVABLES
Other receivables are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Various accrued fees $378,310 $305,947
Due from related parties 223,655 179,616
-------- --------
TOTALS $601,965 $485,563
======== ========
</TABLE>
4. PREPAID EXPENSES
Prepaid expenses consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------ -------
<S> <C> <C>
Prepaid insurance $3,303 $ 3,314
Deposits 8,578
Other 1,395 1,335
------ -------
TOTALS $4,698 $13,227
====== =======
</TABLE>
F-45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Office furniture and equipment $161,287 $116,618
Leasehold improvements 1,404 1,404
Capital leases 13,731 13,731
-------- --------
176,422 131,753
Less: Accumulated depreciation (95,972) (75,450)
-------- --------
TOTALS $ 80,450 $ 56,303
======== ========
</TABLE>
Depreciation expense for each of the three years ended December 31, 1993
amounted to $20,523, $20,570 and $24,486, respectively.
6. INCOME TAXES
As discussed in Note 2B, the Company elected S Corporation status. Provision
for state income taxes amounted to $25,144, $13,519 and $9,480 for the
years ended December 31, 1993, 1992 and 1991, respectively.
7. PROFIT-SHARING AND 401(K) PENSION PLANS
The Company participates in the Directors Mortgage Loan Corporation profit-
sharing and 401(k) pension plans which cover substantially all employees.
Contributions to the profit-sharing plan are at the sole discretion of the
Board of Directors. Contributions for each of the three years ended
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Profit-sharing plan $16,000 $10,000 $7,000
401(k) Pension plan 1,505 1,185 1,110
------- ------- ------
TOTALS $17,505 $11,185 $8,110
======= ======= ======
</TABLE>
F-46
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED-PARTY TRANSACTIONS
The Company shares common management and control with Directors Mortgage
Loan Corporation, Stan-Shaw Corporation, Allmark, Inc., and Anderson
Financial Corporation. Related-party transactions during each of the three
years ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Flood Determination Report Fees Received From
Directors Mortgage Loan Corporation $566,693 $164,018
======== ========
Insurance Referral Fees Paid To
Directors Mortgage Loan Corporation $116,880 $ 74,946 $ 72,009
======== ======== ========
Balance Due From Related Parties at December 31
Directors Mortgage Loan Corporation $223,655 $179,616 $253,165
======== ======== ========
</TABLE>
F-47
<PAGE>
Board of Directors
Directors Insurance Service
Riverside, California
We have compiled the accompanying balance sheet of Directors Insurance Service
as of September 30, 1994, and the related statements of operations, retained
earnings and cash flows for the nine month periods ended September 30, 1994 and
1993, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The financial statements for the year ended December 31, 1993, were audited by
us and we expressed an unqualified opinion on them in our report dated March 3,
1994, but we have not performed any auditing procedures since that date
/s/ Eadie and Payne
December 14, 1994
F-48
<PAGE>
DIRECTORS INSURANCE SERVICE
BALANCE SHEETS
SEE ACCOUNTANTS' COMPILATION REPORT
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30 DECEMBER 31
1994 1993
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 30,242 $ 363,550
Receivables 1,111,871 601,965
Prepaid expenses 8,699 4,698
Income taxes receivable 4,055
----------
Total Current Assets 1,150,812 974,268
---------- ----------
PROPERTY AND EQUIPMENT
At cost
$1,217,062 $1,054,718
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 19,141 $ 21,148
Accrued expenses 3,100 4,000
Stockholder distribution payable 242,000 450,000
---------- ----------
Total Current Liabilities 264,241 475,148
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000 shares
authorized; 100 shares issued and outstanding 1 1
Retained earnings 952,820 579,569
---------- ----------
952,821 579,570
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,217,062 $1,054,718
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE>
DIRECTORS INSURANCE SERVICE
STATEMENTS OF OPERATIONS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
REVENUE
Insurance commissions $1,663,202 $1,295,294
Interest income 9,965 3,886
Other 294,269 426,767
---------- ----------
TOTAL REVENUE 1,967,436 1,725,947
---------- ----------
EXPENSES
Salaries and related expenses 738,346 558,990
Other operating expenses 527,148 369,282
---------- ----------
TOTAL EXPENSES 1,265,494 928,272
---------- ----------
INCOME BEFORE INCOME TAXES 701,942 797,675
INCOME TAX EXPENSE 10,691 20,019
---------- ----------
NET INCOME $ 691,251 $ 777,656
========== ==========
EARNINGS PER SHARE
Net income per share $ 6,912.51 $ 7,776.56
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
DIRECTORS INSURANCE SERVICE
STATEMENTS OF RETAINED EARNINGS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND
THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Beginning Balance $ 579,569 $ 452,048
Net Income 691,251 977,521
Distribution To Stockholders
For payment of income taxes (318,000) (450,000)
Other (400,000)
---------
ENDING BALANCE $ 952,820 $ 579,569
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE>
DIRECTORS INSURANCE SERVICE
STATEMENTS OF CASH FLOWS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 691,251 $ 777,656
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation on property and equipment 19,118 14,790
Loss on disposal of assets 650
(Increase) Decrease in Assets
Other receivables (509,906) (295,098)
Prepaid expenses (4,001) 7,345
Income taxes receivable 4,055 199
Increase (Decrease) in Liabilities
Accounts payable (2,007) 6,409
Accrued expenses (900) (252)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 198,260 511,049
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets (5,568) (9,322)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (5,568) (9,322)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders (526,000) (502,000)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (526,000) (502,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH (333,308) (273)
CASH AT BEGINNING OF PERIOD 363,550 12,661
--------- ---------
CASH AT END OF PERIOD $ 30,242 $ 12,388
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Payment For
Income taxes $ 8,500 $ 20,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-52
<PAGE>
DIRECTORS INSURANCE SERVICE
NOTES TO FINANCIAL STATEMENTS
SEE ACCOUNTANTS' COMPILATION REPORT
SEPTEMBER 30, 1994
1. NATURE OF BUSINESS
Directors Insurance Service (the "Company") was incorporated in 1985 under
the laws of the State of California for the purpose of providing
residential property insurance to homeowners.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Property and equipment are stated at cost and are depreciated using the
straight-line and declining-balance methods over the estimated useful
lives of the various assets.
B. Directors Insurance Service, with the consent of its stockholders, has
elected under the Internal Revenue Code and the California Revenue and
Taxation Code to be an S Corporation. In lieu of corporation income taxes,
the stockholders of an S Corporation are taxed on the Company's taxable
income. Therefore, no provision or liability for Federal income taxes has
been included in the financial statements. The Company continues to pay state
tax at the reduced S Corporation rate.
Distributions for income taxes are provided to the stockholders at the
maximum individual income tax rates.
3. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
Various accrued fees $ 428,071 $378,310
Due from related parties 223,655
Other 683,800
---------- --------
TOTALS $1,111,871 $601,965
========== ========
4. PREPAID EXPENSES
Prepaid expenses consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
Prepaid insurance $4,881 $3,303
Prepaid taxes 1,864
Other 1,954 1,395
---------- --------
TOTALS $8,699 $4,698
========== ========
</TABLE>
F-53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
<TABLE>
<CAPTION>
<S> <C>
5. PROPERTY AND EQUIPMENT
</TABLE>
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 (UNAUDITED) 1993
---------------- -------------
<S> <C> <C>
Office furniture and equipment $ 166,855 $161,287
Leasehold improvements 1,404
Capital leases 13,731 13,731
--------- --------
180,586 176,422
Less: Accumulated depreciation (114,336) (95,972)
--------
TOTALS $ 66,250 $ 80,450
========= ========
</TABLE>
Depreciation expense for the nine months ended September 30, 1994 and 1993
amounted to $19,118 and $14,790, respectively.
6. INCOME TAXES
As discussed in Note 2B, the Company elected S Corporation status. Provision
for state income taxes for the nine months ended September 30, 1994 and
1993 amounted to $10,691 and $20,019, respectively.
7. PROFIT-SHARING AND 401(K) PENSION PLANS
The Company participates in the Directors Mortgage Loan Corporation profit-
sharing and 401(k) pension plans which cover substantially all employees.
Contributions to the profit-sharing plan are at the sole discretion of the
Board of Directors. Accrured contributions for the nine months ended
September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1994 (UNAUDITED) 1993 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Profit-sharing plan $18,000 $11,500
401(k) Pension plan 1,425 1,050
------- -------
TOTALS $19,425 $12,550
======= =======
</TABLE>
8. SUBSEQUENT EVENT
On December 7, 1994, Directors Insurance Service entered into an agreement
and plan of reorganization with Norwest Corporation, a Delaware
Corporation. To affect this reorganization a wholly-owned subsidiary of
Norwest will merge with and into Directors Insurance Service. Shares of
common stock of Directors Insurance Service outstanding immediatly prior to
the time of merger will be exchanged into voting common stock of Norwest.
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Stan-Shaw Corporation
Riverside, California
We have audited the balance sheets of Stan-Shaw Corporation as of December 31,
1993 and 1992, and the related statements of operations, retained earnings and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stan-Shaw Corporation as of
December 31, 1993 and 1992, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1993, in accordance
with generally accepted accounting principles.
/s/ Eadie and Payne
March 3, 1994
F-55
<PAGE>
STAN-SHAW CORPORATION
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 69,844 $ 33,540
Receivables 328,829 133,683
Prepaid expenses 17,693 5,040
-------- --------
TOTAL CURRENT ASSETS 416,366 172,263
-------- --------
PROPERTY AND EQUIPMENT
At Cost--net of depreciation 25,106 25,358
-------- --------
OTHER ASSETS
Excess of cost over net assets acquired--net of 2,250 3,250
-------- --------
TOTAL ASSETS $443,722 $200,871
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,484 $ 8,442
Bonuses payable 24,520 5,169
Accrued expenses 4,000 3,000
Other liabilities 183 1,377
Stockholder distribution payable 192,000 45,000
-------- --------
TOTAL CURRENT LIABILITIES 231,187 62,988
-------- --------
STOCKHOLDER'S EQUITY
Common stock, $10.00 par value, 2,500 shares
1,420 shares issued and outstanding 14,200 14,200
Retained earnings 198,335 123,683
-------- --------
212,535 137,883
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $443,722 $200,871
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE>
STAN-SHAW CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUE
Trustee and reconveyance fees $1,042,119 $851,106 $490,019
Interest income 2,936 1,687 323
Other 25,376 20,485 1,461
---------- -------- --------
TOTAL REVENUE 1,070,431 873,278 491,803
---------- -------- --------
EXPENSES
Salaries and related expenses 475,569 383,763 284,067
Other operating expenses 167,453 198,371 180,275
---------- -------- --------
TOTAL EXPENSES 643,022 582,134 464,342
---------- -------- --------
INCOME BEFORE INCOME TAXES 427,409 291,144 27,461
INCOME TAX EXPENSE 10,757 7,277 802
---------- -------- --------
NET INCOME $ 416,652 $283,867 $ 26,659
========== ======== ========
EARNINGS PER SHARE
Net income per share $293.42 $199.91 $18.77
======= ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE>
STAN-SHAW CORPORATION
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Beginning balance $ 123,683 $ 50,816 $ 34,157
Net income 416,652 283,867 26,659
Distribution to stockholder
For payment of income taxes (192,000) (111,000) (10,000)
Other (150,000) (100,000)
--------- --------- --------
ENDING BALANCE $ 198,335 $ 123,683 $ 50,816
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-58
<PAGE>
STAN-SHAW CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 416,652 $ 283,867 $ 26,659
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities
Depreciation on property and equipment 6,968 7,017 7,180
Amortization of excess of cost over net assets acquired 1,000 1,000 750
Loss on disposal of assets 570
(Increase) Decrease in Assets
Other receivables (195,146) (89,996) (17,845)
Prepaid expenses (12,653) 5,404 (10,444)
Income taxes receivable 1,000 (136)
Increase (Decrease) in Liabilities
Accounts payable 2,042 (8,250) 14,235
Commissions and bonuses payable 19,351 (9,443) 13,662
Accrued expenses 1,000 3,000 (500)
Other liabilities (1,194) 1,377
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 238,020 194,976 34,131
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 6,128
Purchase of assets (6,716) (16,782) (5,000)
Excess of cost over net assets acquired (19,018)
--------
NET CASH USED IN INVESTING ACTIVITIES (6,716) (16,782) (17,890)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholder (195,000) (176,000)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (195,000) (176,000) -
--------- --------- --------
NET INCREASE IN CASH 36,304 2,194 16,241
CASH AT BEGINNING OF YEAR 33,540 31,346 15,105
--------- --------- --------
CASH AT END OF YEAR $ 69,844 $ 33,540 $ 31,346
========= ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Payments for income taxes $ 11,951 $ 4,900 $ 802
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-59
<PAGE>
STAN-SHAW CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1. NATURE OF BUSINESS
Stan-Shaw Corporation (the "Company") was incorporated in 1958 under the
laws of the State of California for the purpose of providing real estate
trust deed foreclosure/reconveyance services.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Property and equipment are stated at cost and are depreciated using the
straight-line and declining-balance methods over the estimated useful lives
of the various assets.
B. Stan-Shaw Corporation, with the consent of its stockholder, has elected
under the Internal Revenue Code and the California Revenue and Taxation
Code to be an S Corporation. In lieu of corporation income taxes, the
stockholder of an S Corporation is taxed on the Company's taxable income.
Therefore, no provision or liability for Federal income taxes has been
included in the financial statements. The Company continues to pay state
tax at the reduced S Corporation rate.
Distributions for income taxes are provided to the stockholder at the
maximum individual income tax rates.
3. RECEIVABLES
Receivables are summarized as follows:
1993 1992
-------- --------
Various accrued fees $130,160 $115,578
Due from related parties 198,331 13,906
Other 338 4,199
-------- --------
TOTALS $328,829 $133,683
======== ========
4. PREPAID EXPENSES
Prepaid expenses consisted of the following:
1993 1992
-------- --------
Prepaid insurance $ 7,416
Prepaid rent 3,150 $ 3,150
Other 7,127 1,890
-------- --------
TOTALS $ 17,693 $ 5,040
======== ========
F-60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Office furniture and equipment $ 37,320 $ 30,605
Leasehold improvements 10,229 10,229
-------- --------
47,549 40,834
Less: Accumulated depreciation (22,443) (15,476)
-------- --------
TOTALS $ 25,106 $ 25,358
======== ========
</TABLE>
Depreciation expense for each of the three years ended December 31, 1993,
amounted to $6,968, $7,017 and $7,180, respectively.
6. INCOME TAXES
As discussed in Note 2B, the Company elected S Corporation status. Provision
for state income taxes amounted to $10,757, $7,277 and $802 for the years
ended December 31, 1993, 1992 and 1991, respectively.
7. PROFIT-SHARING AND 401(K) PENSION PLANS
The Company participates in the Directors Mortgage Loan Corporation profit-
sharing and 401(k) pension plans which cover substantially all employees.
Contributions to the profit-sharing plan are at the sole discretion of the
Board of Directors. Contributions for each of the three years ended December
31, 1993 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Profit-sharing plan $7,000 $3,000 $2,000
401(k) pension plan 800 710 330
------ ------ ------
TOTALS $7,800 $3,710 $2,330
====== ====== ======
</TABLE>
8. RELATED-PARTY TRANSACTIONS
The Company shares common management and control with Directors Mortgage Loan
Corporation, Directors Insurance Service, Allmark, Inc., and Anderson
Financial Corporation. Related-party balances as of December 31, 1993 and
1992 were as follows:
1993 1992
---- ----
Balance Due From Related Parties at December 31
Directors Mortgage Loan Corporation $198,331 $13,906
======== =======
F-61
<PAGE>
Board of Directors
Stan-Shaw Corporation
Riverside, California
We have compiled the accompanying balance sheet of Stan-Shaw Corporation as of
September 30, 1994, and the related statements of operations, retained earnings
and cash flows for the nine month periods ended September 30, 1994 and 1993, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The financial statements for the year ended December 31, 1993, were audited by
us and we expressed an unqualified opinion on them in our report dated March 3,
1994, but we have not performed any auditing procedures since that date
/s/ Eadie and Payne
December 14, 1994
F-62
<PAGE>
STAN-SHAW CORPORATION
BALANCE SHEETS
SEE ACCOUNTANTS' COMPILATION REPORT
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30 DECEMBER 31
1994 1993
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 55,511 $ 69,844
Receivables 510,218 328,829
Prepaid expenses 16,312 17,693
-------- --------
TOTAL CURRENT ASSETS 582,041 416,366
-------- --------
PROPERTY AND EQUIPMENT
At cost - net of depreciation 25,510 25,106
-------- --------
OTHER ASSETS
Excess of cost over net assets acquired -
net of amortization 1,500 2,250
-------- --------
TOTAL ASSETS $609,051 $443,722
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 18,801 $ 10,484
Bonuses payable 26,839 24,520
Accrued expenses 2,615 4,000
Other liabilities 183
Stockholder distribution payable 127,000 192,000
-------- --------
TOTAL CURRENT LIABILITIES 175,255 231,187
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $10.00 par value; 2,500 shares
authorized; 1,420 shares issued and outstanding 14,200 14,200
Retained earnings 419,596 198,335
-------- --------
433,796 212,535
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $609,051 $443,722
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
STAN-SHAW CORPORATION
STATEMENTS OF OPERATIONS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
REVENUE
Trustee and reconveyance fees $913,620 $759,753
Interest income 5,381 1,665
Other 584 24,336
-------- --------
TOTAL REVENUE 919,585 785,754
-------- --------
EXPENSES
Salaries and related expenses 373,931 341,565
Other operating expenses 129,109 116,937
-------- --------
TOTAL EXPENSES 503,040 458,502
-------- --------
INCOME BEFORE INCOME TAXES 416,545 327,252
INCOME TAX EXPENSE 6,284 8,243
-------- --------
NET INCOME $410,261 $319,009
======== ========
EARNINGS PER SHARE
Net income per share $ 288.92 $ 224.65
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-64
<PAGE>
STAN-SHAW CORPORATION
STATEMENTS OF RETAINED EARNINGS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
AND THE YEAR ENDED DECEMBER 31, 1993
SEPTEMBER 30, 1994
(UNAUDITED) DECEMBER 31, 1993
------------------ -----------------
Beginning Balance $ 198,335 $ 123,683
Net Income 410,261 416,652
Distribution To Stockholders
For payment of income taxes (189,000) (192,000)
Other (150,000)
--------- ---------
ENDING BALANCE $ 419,596 $ 198,335
========= =========
The accompanying notes are an integral part of the financial statements.
F-65
<PAGE>
STAN-SHAW CORPORATION
STATEMENTS OF CASH FLOWS
SEE ACCOUNTANTS' COMPILATION REPORT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 410,261 $ 319,009
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation on property and equipment 6,363 5,108
Amortization of excess of cost over net assets acquired 750 750
(Increase) Decrease in Assets
Other receivables (181,389) (153,711)
Prepaid expenses 1,381 (10,811)
Increase (Decrease) in Liabilities
Accounts payable 8,317 7,921
Commissions and bonuses payable 2,319 11,584
Accrued expenses (1,385) 91
Other liabilities (183) (1,377)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 246,434 178,564
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets (6,767) (4,496)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,767) (4,496)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholder (254,000) (195,000)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (254,000) (195,000)
--------- ---------
NET INCREASE (DECREASE) IN CASH (14,333) (20,932)
CASH AT BEGINNING OF YEAR 69,844 33,540
--------- ---------
CASH AT END OF YEAR $ 55,511 $ 12,608
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash Payment For
Income taxes $ 8,000 $ 10,451
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-66
<PAGE>
STAN-SHAW CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEE ACCOUNTANTS' COMPILATION REPORT
SEPTEMBER 30, 1994
1. NATURE OF BUSINESS
Stan-Shaw Corporation (the "Company") was incorporated in 1958 under the laws
of the State of California for the purpose of providing real estate trust
deed foreclosure/reconveyance services.
2. SIGNIFICANT ACCOUNTING POLICIES
A. Property and equipment are stated at cost and are depreciated using the
straight-line and declining-balance methods over the estimated useful lives
of the various assets.
B. Stan-Shaw Corporation, with the consent of its stockholders, has elected
under the Internal Revenue Code and the California Revenue and Taxation
Code to be an S Corporation. In lieu of corporation income taxes, the
stockholders of an S Corporation are taxed on the Company's taxable income.
Therefore, no provision or liability for Federal income taxes has been
included in the financial statements. The Company continues to pay state
tax at the reduced S Corporation rate.
Distributions for income taxes are provided to the stockholders at the
maximum individual income tax rates.
3. RECEIVABLES
Receivables are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 (UNAUDITED) 1993
---------------- ------------
<S> <C> <C>
Various accrued fees $ 88,378 $130,160
Due from related parties 198,331
Other 421,840 338
-------- --------
TOTALS $510,218 $328,829
======== ========
4. PREPAID EXPENSES
Prepaid expenses consisted of the following:
SEPTEMBER 30, DECEMBER 31,
1994 (UNAUDITED) 1993
---------------- ------------
Prepaid insurance $ 10,445 $ 7,416
Prepaid rent 3,150 3,150
Prepaid taxes 1,752
Other 965 7,127
-------- --------
TOTALS $ 16,312 $ 17,693
======== ========
</TABLE>
F-67
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
5. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
Office furniture and equipment $ 44,087 $ 37,320
Leasehold improvements 10,229 10,229
-------- --------
54,316 47,549
Less: Accumulated depreciation (28,806) (22,443)
-------- --------
TOTALS $ 25,510 $ 25,106
======== ========
</TABLE>
Depreciation expense for the nine months ended September 30, 1994 and 1993
amounted to $6,363 and $5,108, respectively.
6. LEASES
The Company is a party to an operating lease for office space at its office
location. The lease is for a term of fifteen years with one five year
renewal option. The net rent expense for the nine months ended September
30, 1994 and 1993 amounted to $28,266 and $24,376, respectively. The
remaining lease obligation is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1994 $ 2,877
1995 32,571
1996 34,008
1997 34,368
1998 34,368
Thereafter 283,536
--------
TOTAL $421,728
========
</TABLE>
7. INCOME TAXES
As discussed in Note 2B, the Company elected S Corporation status. Provision
for state income taxes for the nine months ended September 30, 1994 and 1993
amounted to $6,284 and $8,243, respectively.
F-68
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEE ACCOUNTANTS' COMPILATION REPORT
8. PROFIT-SHARING AND 401(K) PENSION PLANS
The Company participates in the Directors Mortgage Loan Corporation profit-
sharing and 401(k) pension plans which cover substantially all employees.
Contributions to the profit-sharing plan are at the sole discretion of the
Board of Directors. Accrued contributions for the nine months ended
September 30, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30
1994 (UNAUDITED) 1993 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Profit-sharing plan $7,200 $4,900
401(k) Pension plan 625 590
------ ------
TOTALS $7,825 $5,490
====== ======
</TABLE>
9. SUBSEQUENT EVENT
On December 7, 1994, Stan-Shaw Corporation entered into an agreement and
plan of reorganization with Norwest Corporation, a Delaware Corporation.
To affect this reorganization a wholly-owned subsidiary of Norwest will
merge with and into Stan-Shaw Corporation. Shares of common stock of
Stan-Shaw Corporation outstanding immediatly prior to the time of merger
will be exchanged into voting common stock of Norwest.
F-69
<PAGE>
APPENDIX A
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 7th day of December, 1994, by and between Directors Mortgage Loan
Corporation ("DMLC" or "Company" as the context may require), Directors
Insurance Service ("DIS" or "Company" as the context may require), Stan-Shaw
Corporation ("Stan-Shaw" or "Company" as the context may require), all
California corporations (together referred to herein as "Companies"), and
Norwest Corporation ("Norwest"), a Delaware corporation.
WHEREAS, Norwest and DMLC desire to effect a reorganization ("DMLC
Reorganization ") whereby a wholly-owned subsidiary of Norwest ("Merger Co. I")
will merge with and into DMLC (the " DMLC Merger" or the "Merger") pursuant to
an agreement and plan of merger (the "DMLC Merger Agreement") in substantially
the form attached hereto as Exhibit A, which provides, among other things, for
the conversion and exchange of the shares of common stock of DMLC of no par
value ("DMLC Common Stock") outstanding immediately prior to the time the DMLC
Merger becomes effective in accordance with the provisions of the DMLC Merger
Agreement into shares of voting common stock of Norwest of the par value of $1-
2/3 per share ("Norwest Common Stock"), and
WHEREAS, Norwest and DIS desire to effect a reorganization ("DIS
Reorganization ") whereby a wholly-owned subsidiary of Norwest ("Merger Co. II")
will merge with and into DIS (the " DIS Merger" or the "Merger") pursuant to an
agreement and plan of merger (the "DIS 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 common stock of DIS of no par value
("DIS Common Stock") outstanding immediately prior to the time the DIS Merger
becomes effective in accordance with the provisions of the DIS Merger Agreement
into shares of voting common stock of Norwest of the par value of $1-2/3 per
share ("Norwest Common Stock"), and
WHEREAS, Norwest and Stan-Shaw desire to effect a reorganization (" Stan-
Shaw Reorganization") whereby a wholly-owned subsidiary of Norwest ("Merger Co.
III") will merge with and into Stan-Shaw (the " Stan-Shaw Merger" or the
"Merger") pursuant to an agreement and plan of merger (the "Stan-Shaw Merger
Agreement") in substantially the form attached hereto as Exhibit C, which
provides, among other things, for the conversion and exchange of the shares of
common stock of Stan-Shaw of $10 par value per share ("Stan-Shaw Common Stock")
outstanding immediately
<PAGE>
prior to the time the Stan-Shaw Merger becomes effective in accordance with the
provisions of the Stan-Shaw Merger Agreement into shares of voting common stock
of Norwest of the par value of $1-2/3 per share ("Norwest Common Stock") ( the
DMLC Reorganization, the DIS Reorganization and the Stan-Shaw Reorganization are
together referred to herein as the "Reorganizations", the DMLC Merger Agreement,
the DIS Merger Agreement and the Stan-Shaw Merger Agreement are together
referred to herein as the Merger Agreements, the DMLC Merger, the DIS Merger and
the Stan-Shaw Merger are together referred to herein as the Mergers, and Merger
Co. I, Merger Co. II and Merger Co. III are together referred to herein as
Merger Cos.), and
NOW, THEREFORE, to effect the Reorganizations and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLANS OF REORGANIZATIONS
(a) DMLC Merger. Subject to the terms and conditions contained herein,
Merger Co. I will be merged by statutory merger with and into DMLC pursuant to
the DMLC Merger Agreement, with DMLC as the surviving corporation, in which
merger each share of DMLC Common Stock outstanding immediately prior to the
Effective Time of the Merger, as defined below (other than Dissenting Shares as
defined in subparagraph (d) below ) will be converted into and exchanged for the
number of shares of Norwest Common Stock determined (to the eighth decimal
place) by dividing 10,355,386 (Ten Million Three Hundred Fifty-Five Thousand
Three Hundred Eighty-Six), by the number of shares of DMLC Common Stock then
outstanding or subject to issuance upon the exercise of any subscriptions,
options, warrants, calls, commitments, or agreements.
(b) DIS Merger. Subject to the terms and conditions contained herein,
Merger Co. II will be merged by statutory merger with and into DIS pursuant to
the DIS Merger Agreement, with DIS as the surviving corporation, in which merger
each share of DIS Common Stock outstanding immediately prior to the Effective
Time of the Merger, as defined below (other than Dissenting Shares) will be
converted into and exchanged for the number of shares of Norwest Common Stock
determined by dividing 116,636 (One Hundred Sixteen Thousand Six Hundred Thirty
Six), by the number of shares of DIS Common Stock then outstanding or subject to
issuance upon the exercise of any subscriptions, options, warrants, calls,
commitments, or agreements.
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<PAGE>
(c) Stan-Shaw Merger. Subject to the terms and conditions contained
herein, Merger Co. III will be merged by statutory merger with and into Stan-
Shaw pursuant to the Stan-Shaw Merger Agreement, with Stan-Shaw as the surviving
corporation, in which merger each share of Stan-Shaw Common Stock outstanding
immediately prior to the Effective Time of the Merger, as defined below (other
than Dissenting Shares) will be converted into and exchanged for the number of
shares of Norwest Common Stock determined by dividing 73,772 (Seventy Three
Thousand Seven Hundred Seventy Two) by the number of shares of Stan-Shaw Common
Stock then outstanding or subject to issuance upon the exercise of any
subscriptions, options, warrants, calls, commitments, or agreements.
(d) Dissenting Shares. Notwithstanding any provision of this Agreement to
the contrary, shares of the DMLC Common Stock, Stan-Shaw Common Stock or DIS
Common Stock meeting the definition of "dissenting shares" set forth in Chapter
13 of the California General Corporation Law (the "CGCL")(the "Dissenting
Shares") shall not be converted into the right to receive the consideration
provided pursuant to subparagraphs (a), (b) or (c) above at or after the
Effective Time of the Merger and the holder thereof shall be entitled only to
such rights as are granted by the CGCL.
(e) Norwest Common Stock Adjustments. If, between the date hereof and the
Effective Time of the Mergers, shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment or similar transaction, or if a stock dividend thereon
shall be declared with a record date within such period (a "Common Stock
Adjustment"), then the number of shares of Norwest Common Stock into which
shares of DMLC Common Stock, DIS Common Stock or Stan-Shaw Common Stock
respectively 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 DMLC Common Stock, a
share of DIS Common Stock or a share of Stan-Shaw Common Stock respectively
shall be converted will equal the number of shares of Norwest Common Stock which
holders of shares of DMLC Common Stock, DIS Common Stock and Stan-Shaw Common
Stock respectively would have received pursuant to such Common Stock Adjustment
had the record date therefor been immediately following the Effective Time of
the 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 Norwest Measurement Price. The "Norwest
Measurement Price" is defined as the closing price of a share of Norwest Common
Stock as reported on the consolidated
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<PAGE>
tape of the New York Stock Exchange at the end of the fifth trading day
immediately preceding the Closing Date.
(g) Mechanics of Closing Mergers. Subject to the terms and conditions set
forth herein, the Merger Agreements shall be executed and shall be filed with
the Secretary of State of the State of California within ten (10) business days
following the satisfaction of the condition precedent set forth in paragraphs
6(e) and 7(e) of this Agreement unless any of the other conditions set forth in
paragraphs 6 and 7 of this Agreement shall not be satisfied or waived on such
date and in such case within ten business days after satisfaction or waiver of
the latest to occur of the conditions set forth in paragraphs 6 and 7, 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 Closing to be
completed as soon as practicable after the receipt of final regulatory approval
of the transactions contemplated by this Agreement and the expiration of all
required waiting periods. The time that the filing referred to in the first
sentence of this paragraph is made is herein referred to as the "Time of
Filing". The day on which such filing is made and accepted is herein referred
to as the "Effective Date of the Mergers" and the time of filing on the
Effective Date of the Mergers shall be the "Effective Time of the Mergers."
At the Effective Time of the Mergers on the Effective Date of the Mergers, the
separate existences of Merger Cos. shall cease and Merger Co. I will be merged
with and into DMLC and Merger Co. II will be merged with and into DIS and Merger
Co. III will be merged with and into Stan-Shaw pursuant to the respective Merger
Agreements.
The closing of the transactions contemplated by this 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 DMLC, STAN-SHAW AND DIS.
For purposes of this Agreement: "Mortgage Loan" means one-to-four family
residential mortgage loans as to which DMLC is the owner of the Servicing
Rights. "Investor" means (i) FNMA with respect to Mortgage Loans owned or
securitized by FNMA; (ii) FHLMC with respect to Mortgage Loans owned or
securitized by FHLMC; (iii) with respect to Mortgage Loans collateralizing
securities guaranteed by GNMA, either the party having issuer responsibility or
GNMA, as applicable and (iv) each owner and holder of Mortgage Loans serviced by
DMLC for Mortgage Loans other than those referred to in the preceding clauses
(i), (ii) or (iii); "Insurer" means (i) VA in the case of a Mortgage Loan
guaranteed by the VA under the provisions of Chapter 37 of Title 38 of the
United States Code, (ii) FHA with respect to a Mortgage Loan insured by the FHA
pursuant to the National Housing Act, and (iii) with respect to a conventional
Mortgage Loan, the issuer of the policy of primary mortgage
A-4
<PAGE>
guarantee insurance and/or pool insurance policy with respect to such Mortgage
Loan, if any; "Servicing Agreements" means any agreement, including applicable
guides, between DMLC and any Investor, under which DMLC services such Mortgage
Loan for such Investor; "Applicable Requirements" means, as applicable, (i) all
statutes, rules and regulations applicable to the origination and servicing of
Mortgage Loans in any applicable jurisdiction and (ii) all terms and conditions
of any Servicing Agreement as applicable to one or more Mortgage Loans.
"Servicing Rights" means all of the rights and obligations of DMLC pursuant to
Servicing Agreements to administer, collect the payments for the reduction of
principal and application of interest, collect payments on account of taxes and
insurance, pay taxes and insurance, remit collected payments, provide
foreclosure services, provide full escrow administration and any other
obligations required by any Investor or Insurer in, of, for or in connection
with the Mortgage Loans, together with the right to receive the servicing fee
and any ancillary fees arising from or connected to the Mortgage Loans, and all
rights, powers and privileges incident to any of the foregoing.
(I) DMLC represents and warrants to Norwest as follows:
(a) Organization and Authority. DMLC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
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 DMLC and has corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted.
DMLC has furnished Norwest true and correct copies of its articles of
incorporation and by-laws, as amended.
(b) DMLC's Subsidiaries. Except as set forth on Schedule 2(I)(b), DMLC
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 DMLC consists of
1,000,000 shares of Series A Voting common stock, no par value, of which as of
the close of business on September 30, 1994, 647,500 shares were outstanding and
no shares were held in the treasury and 1,000,000 shares of Series B Non-voting
common stock, no par value, of which as of the close of business on September
30, 1994, 436,295 shares were outstanding and no shares were held in the
treasury. The maximum number of shares of DMLC 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
1,083,795. All of the outstanding shares of capital stock of DMLC have been
duly and validly authorized and issued and are
A-5
<PAGE>
fully paid and nonassessable. Schedule 2(I)(c) sets forth ownership of DMLC
Common Stock as of the date of this Agreement. Except as set forth in Schedule
2(I)(c) there are no outstanding subscriptions, contracts, conversion
privileges, options, warrants, calls, preemptive rights or other rights
obligating DMLC to issue, sell or otherwise dispose of, or to purchase, redeem
or otherwise acquire, any shares of capital stock of DMLC. Since September 30,
1994 no shares of DMLC capital stock have been purchased, redeemed or otherwise
acquired, directly or indirectly, by DMLC and no dividends or other
distributions have been declared, set aside, made or paid to the shareholders of
DMLC other than as set forth on Schedule 2(I)(c).
(d) Authorization. DMLC has the corporate power and authority to enter
into this Agreement and the DMLC Merger Agreement and, subject to any required
approvals of its shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
DMLC Merger Agreement by DMLC and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of DMLC. Subject to such approvals of shareholders and of government
agencies and other governing boards having regulatory authority over DMLC as may
be required by statute or regulation, this Agreement and the DMLC Merger
Agreement are valid and binding obligations of DMLC enforceable against DMLC in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws or equitable principles
relating to or limiting creditors' rights generally.
Except as set forth on Schedule 2(I)(d), neither the execution, delivery
and performance by DMLC of this Agreement or the DMLC Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor compliance
by DMLC 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 DMLC 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 (with annual rental payments
aggregating in excess of $50,000), agreement or other instrument or obligation
to which DMLC is a party or by which it may be bound, or to which DMLC or any of
the properties or assets of DMLC may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, to the best
knowledge of DMLC, violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to DMLC or any of its 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
A-6
<PAGE>
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 Bank Holding Company Act ("BHC Act") or the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act"), and filings required to effect
the DMLC Merger under California law, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by DMLC of the transactions
contemplated by this Agreement and the DMLC Merger Agreement.
(e) DMLC Financial Statements. The combined balance sheets of DMLC and
affiliates as of December 31, 1993 and 1992 and related combined statements of
income, shareholders' equity and cash flows for the two years ended December 31,
1993, together with the notes thereto, certified by Eadie and Payne, and the
unaudited combined statements of financial condition of DMLC and affiliates as
of September 30, 1994 and the related unaudited combined statements of income,
shareholders' equity and cash flows for the nine months then ended
(collectively, the "DMLC 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 combined financial
position of DMLC, Stan-Shaw, DIS and affiliates at the dates and the combined
results of operations and cash flows of DMLC, Stan-Shaw, DIS and affiliates for
the periods stated therein.
(f) Reports. Since December 31, 1989, DMLC has filed all reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with any applicable state regulatory authorities.
All such reports and statements filed with any such regulatory body or authority
are collectively referred to herein as the "DMLC Reports". As of their
respective dates, the DMLC Reports complied in all material respects with all
the rules and regulations promulgated by the applicable state regulatory
authorities and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Copies of all the DMLC Reports have been made available
to Norwest by DMLC.
(g) Properties and Leases. Except as may be reflected in the DMLC
Financial Statements and except for any lien for current taxes not yet
delinquent, DMLC has good title free and clear of any material liens, claims,
charges, options, encumbrances or similar restrictions to all the real and
personal property owned by DMLC as reflected in DMLC's combined balance sheet as
of September 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.
A-7
<PAGE>
All leases of real property and all other leases (with annual payments
aggregating in excess of $50,000) pursuant to which DMLC, as lessee, leases real
or personal property, which leases are described on Schedule 2(I)(g), are valid
and effective in accordance with their respective terms, and there is not, under
any such lease, any material existing default by DMLC or any event which, with
notice or lapse of time or both, would constitute such a material default.
Substantially all DMLC'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. DMLC has filed all federal, state, county, local and foreign
tax returns, including information returns, required to be filed by it, and paid
all taxes owed by it, including those with respect to income, withholding,
social security, unemployment, workers compensation, franchise, ad valorem,
premium, excise and sales taxes, and no taxes shown on such returns to be owed
by it or assessments received by it are delinquent. DMLC is a Subchapter S
Corporation as defined in Section 1361 of the Internal Revenue Code of 1986 (the
"Code") and such status has been effective for DMLC for all tax years effective
as of May 1, 1990. Since May 1, 1990 DMLC has taken no action, nor failed to
take any action, which action or failure to act would result in the loss of its
Subchapter S election for any tax year beginning on or after May 1, 1990. The
federal income tax returns of DMLC 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(I)(h), (i) DMLC is not a party to any pending action
or proceeding, nor is any such action or proceeding threatened by any
governmental authority, for the assessment or collection of taxes, interest,
penalties, assessments or deficiencies and (ii) no issue has been raised by any
federal, state, local or foreign taxing authority in connection with an audit or
examination of the tax returns, business or properties of DMLC which has not
been settled, resolved and fully satisfied. DMLC has paid all taxes owed or
which it is required to withhold from amounts owing to employees, creditors or
other third parties. The combined balance sheet as of September 30, 1994,
referred to in paragraph 2(I)(e) hereof, includes adequate provision for all
accrued but unpaid federal, state, county, local and foreign taxes, interest,
penalties, assessments or deficiencies of DMLC with respect to all periods
through the date thereof.
(i) Absence of Certain Changes. Since September 30, 1994 there has been
no change in the business, financial condition or results of operations of DMLC,
Stan-Shaw or DIS which has had, or may reasonably be expected to have, a
material adverse effect on the business, financial condition or results of
operations of the Companies taken as a whole other than as a result of changes
in laws or regulations or in economic conditions, including but not limited to,
the level of interest rates,
A-8
<PAGE>
generally applicable to the mortgage or insurance industries, or as a result of
adjustments taken pursuant to paragraph 4(m) of this Agreement.
(j) Commitments and Contracts. Except as set forth on Schedule 2(I)(j),
DMLC is not a party or subject to any of the following (whether written or oral,
express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer,
director, employee or consultant (other than those which are terminable at
will by DMLC);
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business
containing covenants which limit the ability of DMLC 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, DMLC 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 $50,000.00 or
more.
(k) Litigation and Other Proceedings. DMLC has furnished Norwest copies
of (i) all attorney responses to the request of the independent auditors for
DMLC with respect to loss contingencies as of December 31, 1993 in connection
with the DMLC financial statements, and (ii) a written list of legal and
regulatory proceedings filed against DMLC since said date. DMLC is not a party
to any pending or, to the best knowledge of DMLC, 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 DMLC.
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<PAGE>
(l) Insurance. DMLC is presently insured, and during each of the past
five calendar years has been insured, for reasonable amounts with financially
sound and reputable insurance companies against such risks as companies engaged
in a similar business would, in accordance with good business practice,
customarily be insured and has maintained all insurance required by applicable
law and regulation.
(m) Compliance with Laws. DMLC 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 DMLC; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the best
knowledge of DMLC, no suspension or cancellation of any of them is threatened;
and all such filings, applications and registrations are current. The conduct
by DMLC 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. DMLC is not in default under any order,
license, regulation or demand of any federal, state, municipal or other
governmental agency or with respect to any order, writ, injunction or decree of
any court. Except for statutory or regulatory restrictions of general
application and except as set forth on Schedule 2(I)(m), no federal, state,
municipal or other governmental authority has placed any restriction on the
business or properties of DMLC which reasonably could be expected to have a
material adverse effect on the business or properties of DMLC.
(n) Labor. No work stoppage involving DMLC is pending or, to the best
knowledge of DMLC, threatened. DMLC is not involved in, or threatened with or
affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which could materially and adversely affect the business of DMLC.
Employees of DMLC 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(I)(o), to the best knowledge of DMLC no officer or director of DMLC,
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 DMLC.
Schedule 2(I)(o) sets forth a correct and complete list of any loan from
DMLC to any present executive officer, director, or any associated or related
interest of any such person, other than DIS and Stan-Shaw. For purposes of this
Agreement "executive officer" means vice-president or above. For purposes of
this subparagraph,
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<PAGE>
"loan" shall not mean advances made against commissions for loan officers and
employees.
(p) DMLC 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 DMLC 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 DMLC are those set forth on Schedule
2(I)(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(I)(p), DMLC has received favorable determination
letters from the Internal Revenue Service under the provisions of the Tax
Equity and Fiscal Responsibility Act ("TEFRA"), the Deficit Reduction Act
("DEFRA") and the Retirement Equity Act ("REA") for each of the Plans to
which the qualification requirements of Section 401(a) of the Code), apply.
DMLC knows of no reason that any Plan which is subject to the qualification
provisions of Section 401(a) of the Code is not "qualified" within the
meaning of Section 401(a) of the Code and that each related trust is not
exempt from taxation under Section 501(a) of the Code, except that any such
Plan may not have been amended to comply with the Tax Reform Act of 1986
(the "TRA") and other recent legislation and regulations, although each
such Plan is within the remedial amendment period during which retroactive
amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) Except as disclosed in Schedule 2(I)(p), and to the best
knowledge of DMLC, 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 DMLC,
such Plan or trust, or any trustee, fiduciary or administrator thereof, or
any party dealing with any such Plan or trust, to the tax
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or penalty on prohibited transactions imposed by said Section 4975 or would
result in material liability to DMLC 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(I)(p), neither the execution
and delivery of this Agreement and the DMLC 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 DMLC 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-Prospectus, etc. None of the information regarding
DMLC supplied or to be supplied by DMLC for inclusion in (i) a Registration
Statement on Form S-4, and the prospectus included therein, to be filed with the
SEC by Norwest for the purpose of registering all of the shares of Norwest
Common Stock that may be exchanged for shares of DMLC Common Stock pursuant to
the provisions of the DMLC Merger Agreement (the "Registration Statement"),(ii)
the joint proxy statement of DMLC and prospectus of Norwest included in the
Registration Statement to be mailed to DMLC's shareholders in connection with
the meeting (the "Shareholders' Meeting") to be called to consider the Merger
(the "Proxy Statement-Prospectus) and (iii) and any other documents to be filed
with the SEC or any regulatory authority in connection with the transactions
contemplated hereby or by the DMLC Merger Agreement will, at the respective
times such Registration Statement, Proxy Statement-Prospectus and other
documents are filed with the SEC or any regulatory authority and, in the case of
the Registration Statement (together with the Proxy Statement-Prospectus
included therein), when it becomes effective, and, with respect to the Proxy
Statement-Prospectus, when mailed, and, at the time of the Shareholders'
Meeting, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading. All documents which DMLC is responsible for filing with the SEC and
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any other regulatory authority in connection with the DMLC Merger will comply as
to form in all material respects with the provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(I)(r),
DMLC is not under any obligation, contingent or otherwise, which will survive
the DMLC Merger by reason of any agreement to register any of its securities
under the Securities Act.
(s) Brokers and Finders. Except as set forth on Schedule 2(I)(s) neither
DMLC nor any of its officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly in connection with this Agreement and the DMLC Merger Agreement or
the transactions contemplated hereby and thereby.
(t) Administration of Accounts. DMLC has properly administered in all
respects material and which could reasonably be expected to be material to the
financial condition of DMLC all accounts for which it acts as a fiduciary,
including, but not limited to, accounts for which it serves as a trustee, agent,
escrow 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 DMLC
nor any director, officer or employee of DMLC 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 DMLC 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. DMLC is not in default, nor has any event occurred which,
with the passage of time or the giving of notice, or both, would constitute a
default, under any material agreement, indenture, loan agreement or other
instrument to which it is a party or by which it or any of its assets is bound
or to which any of its assets is subject, the result of which has had or could
reasonably be expected to have a material adverse effect upon DMLC. To the best
of DMLC's knowledge, all parties with whom DMLC has material leases, agreements
or contracts other than with respect to those arising in the ordinary course of
the mortgage business of DMLC 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
result in the imposition of, on DMLC, any liability relating to the release of
hazardous substances as defined under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response,
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Compensation and Liability Act of 1980, as amended, pending or to the best of
DMLC's knowledge, threatened against DMLC the result of which has had or could
reasonably be expected to have a material adverse effect upon DMLC; to the best
of DMLC's knowledge there is no reasonable basis for any such proceeding, claim
or action; and to the best of DMLC's knowledge DMLC is not subject to any
agreement, order, judgment, or decree by or with any court, governmental
authority or third party imposing any such environmental liability. DMLC has
provided Norwest with copies of all environmental assessments, reports, studies
and other related information in its possession with respect to each location
owned or leased by it and with respect to each non-residential OREO property.
(w) Approvals and Compliance. DMLC is approved and in good standing with
each Investor and Insurer. DMLC is not in default in any material respect with
respect to DMLC's obligations under its Servicing Agreements, and DMLC is in
compliance in all material respects with the Applicable Requirements, and DMLC
is in compliance in all material respects with all statutes, orders, rules and
regulations with respect to its business and assets which are the subject of
this Agreement.
(x) Filing of Reports. DMLC has filed all reports required by its
Investors and Insurers with respect to the Mortgage Loans, and DMLC has complied
in all material respects with federal, state and municipal laws, regulations and
ordinances affecting the Mortgage Loans and the Servicing Rights. DMLC has
filed all IRS Forms, including but not limited to Forms 1041 K, 1041, 1099 INT,
1099 MISC, 1099A and 1098, as appropriate, which are required to be filed with
respect to the Servicing Rights..
(y) Related Escrow Accounts. All escrow accounts required to be maintained
by DMLC have been established and continuously maintained in accordance with
Applicable Requirements. Except as to payments which are past due under the
Mortgage Loans, all escrow account balances required by the Mortgage Loans and
paid to DMLC for the account of the mortgagors under the Mortgage Loans are on
deposit in the appropriate escrow accounts. Within the last twelve (12) months
prior to the Closing Date, DMLC has analyzed the payments required to be
deposited into the escrow accounts and adjusted the payment thereto in order to
correct within an appropriate time any deficiency between amounts actually
collected and amounts actually disbursed during the period covered by the
analysis that DMLC may have discovered, except with respect to Mortgage Loans
originated within the twelve (12) months preceding the Closing Date. With
regard to Mortgage Loans that provide for mortgage escrow payments, DMLC and
each originator and prior servicer has (i) computed the amount of such payments
in accordance with Applicable Requirements (ii) paid on a timely basis all
charges and other items to be paid out of the mortgage escrow payments, and when
required by the applicable Servicing Agreement has advanced its own funds to pay
such charges and items, and
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(iii) delivered to the related mortgagors the statements and notices required by
Applicable Requirements in connection with the escrow accounts, including
without limitation statements of taxes and other items paid out of the mortgage
escrow payments and notices of adjustments to the amount of the mortgage escrow
payments.
(z) Accounts Receivable.
DMLC's accounts receivable are valid and subsisting accounts owing to DMLC, and
DMLC has not received any notice from an Investor, Insurer, mortgagor or other
appropriate party in which the Investor, Insurer or party disputes or denies a
claim by DMLC for reimbursement in connection with an account receivable.
(aa) Investor Remittances and Reporting. Except for an aggregate out-of-
balance amount not in excess of $500,000 (the "Out-of-Balance Condition"), DMLC
and each originator and prior servicer has remitted or otherwise made available
to each investor (i) all principal and interest payments received to which the
investor is entitled under the applicable Servicing Agreements, including
without limitation any guaranty fees, and (ii) all advances of principal and
interest payments required by such Servicing Agreements. In accordance with the
Applicable Requirements, DMLC has prepared and submitted to each Investor all
reports in connection with such payments.
(bb) No Recourse. Except with respect to GNMA, and except as disclosed on
Schedule 2(I)(bb) as recourse loans, there is no agreement, whether contained in
Servicing Agreements or related documents or otherwise, which provides for
recourse to DMLC for ultimate credit losses incurred in connection with the
default or foreclosure of, or acceptance of a deed in lieu of foreclosure in
connection with any mortgage loan originated by or acquired by DMLC and
subsequently sold by or serviced by DMLC, nor do any such agreements contain a
requirement to make unrecoverable advances. For purposes of this Agreement
"unrecoverable advances" means those advances made in accordance with Applicable
Requirements which DMLC does not reasonably expect to recover from mortgagors,
Investors, Insurers or otherwise.
(cc) Any mortgage loan originated by or acquired by DMLC and subsequently
sold by DMLC complied with the Applicable Requirements at the time of its sale
by DMLC, except for such noncompliance as in the aggregate does not materially
and adversely affect the financial condition or operations of DMLC.
(dd) The Mortgage Loans.
(i) Investor/Insurer Requirements. Each Mortgage Loan conforms in all
material respects to Applicable Requirements and each Mortgage Loan was eligible
for sale to, insurance by, or pooling to back securities issued or guaranteed
by, the applicable Investor or Insurer upon such sale, issuance of insurance or
pooling.
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(ii) Enforceability of Each Mortgage Loan. With respect to a Mortgage
Loan, each mortgage note ("Mortgage Note") and the related mortgage instrument
("Mortgage Instrument") are genuine and each is the legal, valid and binding
obligation of the maker thereof, enforceable in accordance with its terms,
subject to bankruptcy, insolvency and similar laws affecting generally the
enforcement of creditor's rights and the discretion of a court to grant specific
performance. All parties to the Mortgage Note and the Mortgage Instrument had
legal capacity to execute the Mortgage Note and the Mortgage Instrument and each
Mortgage Note and Mortgage Instrument has been duly and properly executed by
such parties. None of the Mortgage Loans is subject to any valid, enforceable
right of rescission, set-off, counterclaim or defense against DMLC, including
the defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage Instrument, or the exercise of any right thereunder, render
either the Mortgage Note or the Mortgage Instrument unenforceable by DMLC, in
whole or in part, or subject to any right of rescission, set-off, counterclaim
or defense against DMLC, including the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with respect
thereto.
(iii) Disbursement. Except as set forth in Schedule 2(I)(dd)(iii), the
full original principal amount of each Mortgage Loan (net of any discounts) has
been fully advanced or disbursed to or for the benefit of the mortgagor named
therein, there is no requirement for future advances and except as disclosed on
Schedule 2(I)(dd)(iii) any and all requirements as to completion of any on-site
or off-site improvements and as to disbursements of any escrow funds for such
improvements have been satisfied. All costs, fees and expenses incurred in
making, closing or recording each Mortgage Loan was paid. There is no
obligation on the part of DMLC, or of any other party, to make supplemental
payments in addition to those made by the mortgagor.
(iv) Priority of Lien. Each Mortgage Instrument has been duly acknowledged
and recorded and is a valid and subsisting first or second lien as required by
the Applicable Requirements, and the mortgaged property is free and clear of all
encumbrances and liens having priority over the lien of the Mortgage
Instruments, except for (i) liens for real estate taxes and special assessments
not yet due and payable, (ii) covenants, conditions and restrictions, rights of
way, easements and other matters of the public record as of the date of
recording, acceptable to mortgage lending institutions or investors generally
and (iii) other matters to which like properties are commonly subject which do
not materially interfere with the benefits of the security intended to be
provided by the Mortgage Instrument or the use, enjoyment, value or
marketability of the related mortgage property. There are no mechanics or
similar liens or claims which have been filed for work, labor or material (and
no rights are outstanding that under law could give rise to such lien) affecting
the mortgaged property which are or may be liens prior to, or equal or
coordinate with, the
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lien of the Mortgage Instrument which are not insured against by the title
policy set forth herein. A valid and enforceable title policy has been issued
and is and shall remain in full force and effect for each such Mortgage Loan in
the amount not less than the original principal amount of such Mortgage Loan,
which title policy insures that the related Mortgage Instrument is a valid first
or second lien on the mortgaged property therein described and that the
mortgaged property is fee and clear of all encumbrances and liens having
priority over the lien of the Mortgage Instrument, subject to the exceptions set
forth in this section, and such title policy otherwise satisfies the Applicable
Requirements. All tax identifications and property descriptions are legally
sufficient. All intervening "Assignment of Mortgage Instruments" have been
recorded in the proper jurisdiction such that record title to the Mortgage Loan
is vested in DMLC or the appropriate Investor as required by the Applicable
Requirements.
(v) No Default/No Waiver. Except as set forth in the master servicing file
dated as of October 31, 1994, a copy of which has been provided to Norwest,
there is no default, breach, violation or event of acceleration existing under
any Mortgage Loan, and no event has occurred which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration, and DMLC has not waived any
default, breach, violation or event of acceleration. Except as set forth in
Schedule 2(I)(dd)(v), and except as approved in writing by the applicable
investor, a copy of which is in the mortgage file, and except for loss
mitigation and error correction activities taken in accordance with Applicable
Requirements, neither DMLC nor any originator or prior servicer has (i) agreed
to any modification, extension or forbearance in connection with a Mortgage Note
or Mortgage Instrument, (ii) released, satisfied or canceled any Mortgage Note
or Mortgage Instrument in whole or in part, (iii) subordinated any Mortgage
Instrument in whole or in part, or (iv) released any mortgaged property in whole
or in part from the lien of any Mortgage Instrument, and the written instrument
necessary to effect any of the foregoing has been recorded, if necessary, and is
held in the mortgage file and otherwise satisfies Applicable Requirements.
Except as required by the Applicable Requirements, DMLC has not advanced its
funds to cure a default or delinquency with respect to any such Mortgage Loans,
except for deficiencies in mortgage escrow payments, or induced, solicited or
knowingly received any advance of funds by a party other than the mortgagor,
directly or indirectly, for the payment of any amount required under the
Mortgage Loan.
(vi) Application of Funds. Other than the payments which may be subject to
the Out-of-Balance Condition, all payments received by DMLC with respect to any
Mortgage Loan have been remitted and properly accounted for as required by
Applicable Requirements, and all funds received by DMLC in connection with the
satisfaction of Mortgage Loans, including but not limited to foreclosure
proceeds and insurance proceeds from hazard losses, have been deposited in the
appropriate
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principal and interest account or taxes and insurance account, and all such
funds have been applied to reduce the principal balance of , or to pay interest
on, the Mortgage Loans in question, or for reimbursement of repairs to the
mortgaged property or as otherwise required by Applicable Requirements, or are
and will be in one of the related escrow accounts on the Closing Date. The
unpaid balances of the Mortgage Loans are as stated in the mortgage documents
and the loan servicing system.
(vii) Mortgage Insurance. Each Mortgage Loan which is represented by DMLC
to have FHA insurance is insured, pursuant to the National Housing Act. Each
Mortgage Loan which is represented by DMLC to be guaranteed by the VA is
guaranteed under the provisions of Chapter 37 of Title 38 of the United States
Code. If required by the Applicable Requirements, each conventional Mortgage
Loan is, or prior to the Closing Date will be, insured as to payment defaults by
a policy of primary mortgage guaranty insurance and, if applicable, pool
insurance, in the amount required, and by an Insurer approved by the Investor,
and all provisions of such primary mortgage guaranty insurance policy and pool
insurance policy have been and are being complied with, such policy is in full
force and effect and all premiums due thereunder have been paid. As to each
mortgage insurance or guaranty certificate, each of DMLC and any originator and
prior servicer, has complied with applicable provisions of the insurance or
guaranty contract and federal statutes and regulations, all premiums or other
charges due in connection with such insurance or guaranty have been paid, there
has been no act or omission which would or may invalidate any such insurance or
guaranty, and the insurance or guaranty is, or when issued, will be, in full
force and effect with respect to each Mortgage Loan. There are no valid and
enforceable defenses, counterclaims, or rights of set-off against DMLC affecting
the validity or enforceability of any mortgage insurance or guaranty with
respect to a Mortgage Loan.
(viii) Compliance with Laws. DMLC and each originator and prior servicer
have complied with any applicable federal, state, or local law, statute, and
ordinance, and any applicable rule, regulation, or order issued thereunder,
pertaining to the subject matter of this Agreement, including, without
limitation, fair housing, anti-redlining, equal credit opportunity, truth-in-
lending, real estate settlement procedures, fair credit reporting, and every
other prohibition against unlawful discrimination in residential or consumer
credit, and also including, without limitation, the Consumer Credit Reporting
Act, Equal Credit Opportunity Act of 1975 and Regulation B, Fair Credit
Reporting Act, Truth in Lending Law, in particular, Regulation Z as amended, the
Flood Disaster Protection Act of 1973, the Real Estate Settlement Procedures Act
of 1974, and Regulation X and state consumer credit codes and laws. Each
originator and prior servicer was qualified to do business, and had all
requisite licenses, permits and approvals, in the states in which the applicable
mortgaged properties are located, except where the failure to possess such
qualifications, licenses, permits and approvals
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would not materially and adversely affect the enforceability of the mortgage
loan documents by DMLC.
(ix) Taxes, Insurance. All taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments and ground
rents relating to the Mortgage Loans have been paid by DMLC to the extent such
items are required to be paid by DMLC pursuant to Applicable Requirements and as
herein provided.
(x) Insurance. All mortgaged properties are currently insured against loss
by fire, hazards or extended coverage insurance policies in conformity with
Applicable Requirements and in an amount at least equal to the outstanding
principal balance of the applicable Mortgage Loans or, where applicable, carry a
sufficient amount of guaranteed replacement cost coverage unless prohibited by
applicable state law. If required by Applicable Requirements, each such
property is covered by a flood insurance policy in an amount not less than the
lesser or (i) the outstanding principal balance of the applicable Mortgage Loan,
or (ii) the maximum amount of insurance that is available under such Act. All
such insurance policies are in full force and effect, and, to the extent DMLC
maintains related escrow accounts, all premiums with respect to such policies
have been paid. Except with the written consent of the applicable investor (a
copy of which is in the mortgage file) or otherwise in accordance with
Applicable Requirements, no casualty insurance proceeds for property damage have
been used to reduce Mortgage Loan balances or for any other purpose except to
make repairs to the mortgaged property. Each Mortgage Note or Mortgage
Instrument obligates the mortgagor thereunder to maintain all fire, hazard,
extended coverage and, if applicable, flood insurance at mortgagor's cost and
expense, and upon mortgagor's failure to do so, authorizes the holder of the
Mortgage Loan to obtain and maintain such insurance at mortgagor's cost and
expense and to seek reimbursement therefor from mortgagor. DMLC has provided
the appropriate insurer with such notice, or has obtained such consent, as is
necessary to designate DMLC or the related Investor as required by the
Applicable Requirements as loss payee on each such insurance policy. There are
no uninsured casualty losses or casualty losses where coinsurance has been
claimed by an Insurer or where the loss, exclusive of contents, is greater than
the recovery, less actual expenses incurred in such recovery from the Insurer.
(xi) Damage, Condemnation. Except as disclosed on Schedule
2(I)(dd)(xi) attached hereto, there exists no physical damage to any mortgaged
property from fire, flood, windstorm, earthquake, tornado, hurricane or any
other similar casualty, which physical damage would materially and adversely
affect the value or marketability of any Mortgage Loan, the Servicing Rights, or
the mortgaged property. There is no proceeding pending for the total or partial
condemnation of, or eminent domain with respect to, the mortgaged property. All
of the improvements that were included for the
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purpose of determining the appraised value of the mortgaged property for a
Mortgage Loan lie wholly within the boundaries and building restriction lines of
the mortgaged property, and no improvements on adjoining properties encroach
upon the mortgaged property.
(xii) Pools. Except as disclosed on Schedule 2(I)(dd)(xii) with respect
to pools which have not been finally certified, all mortgage pools have been
initially certified, finally certified and/or recertified as required by and
otherwise in accordance with Applicable Requirements. Each Mortgage Loan
included in a pool meets all eligibility requirements of the applicable investor
for inclusion in such pool.
(xiii) Mortgage File. The mortgage file contains each of the documents
and instruments specified to be included therein and required to be maintained
under the Applicable Requirements; and such document or instrument is duly
executed where applicable and in a form in compliance with the Applicable
Requirements.
(xiv) Good Title. Except as set forth on Schedule 2(I)(dd)(xiv), DMLC is
the sole owner and holder of all right, title and interest in and to the
Servicing Rights. The instruments required to be executed, or the consents
required to be obtained, by DMLC pursuant to the applicable Investor rules and
regulations or other contractual provisions in order to consummate the
transaction contemplated by this Agreement, are, or will be on the Closing Date,
valid and enforceable in accordance with their terms and will effectively vest
in DMLC after the Closing Date good and marketable title to the Servicing
Rights, free and clear of any and all liens, claims, or encumbrances, except for
those encumbrances required by applicable Investor rules and regulations.
(xv) Origination, Sale and Servicing Practices. The origination, sale and
servicing practices used by DMLC or any originator and prior servicer with
respect to each Mortgage Loan have been legal, proper, prudent and customary in
the mortgage lending business and in accordance with Applicable Requirements.
With respect to mortgage escrow payments, except for Mortgage Loans three or
more payments past due or as disclosed on Schedule 2(I)(dd)(xv) there exist no
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made, and no mortgage escrow payments or
principal and interest payments or other charges or prepayments due from
mortgagor have been capitalized under any Mortgage Instrument or the related
Mortgage Note.
(xvi) Appraisals, Loan to Value Ratio. The loan-to-value ratio of each
Mortgage Loan did not, at the time of origination, exceed the maximum amount
permitted by the Applicable Requirements for such Mortgage Loan. The appraisal
prepared in connection with each mortgaged property was prepared by a qualified
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appraiser with no direct or indirect interest in the mortgaged property, and
both the appraisal and the appraiser satisfied all Applicable Requirements.
(xvii) Fraud. No fraud occurred on the part of any person in connection
with the Mortgage Loan, that could materially and adversely affect DMLC or the
Servicing Rights.
(xviii) Mortgage Loan Characteristics. All Mortgage Loans are secured by
one-to four-family residential real property, and except as disclosed on
Schedule 2(I)(dd)(xviii) none of the Mortgage Loans are (i) coinsured, (ii)
subsidized, (iii) graduated payment loans that are still in the adjustment
period of the loan, (iv) reverse mortgage loans, (v) self insured, (vi) VA
Vendee loans, (vii) FNMA Timesaver Loans, (viii) Bi-weekly payment loans, (ix)
Texas "Vet" loans, or (x) housing authority loans. All Mortgage Loans that are
secured by a condominium, planned unit development or cooperative unit have and
had all necessary project acceptances, were underwritten using all special
property appraisal methods, and otherwise meet and met any and all other special
acceptance requirements under the Applicable Requirements at the time required
by the Applicable Requirements, or at such later time acceptable to the
applicable Investor. Each Mortgage Loan is secured by manufactured housing that
is affixed to a permanent structure and is deemed to be real property pursuant
to applicable state law.
(xix) Intentionally Omitted.
(xx) Notice of Relief Requested Pursuant to the Soldiers and Sailors Relief
Act of 1940. Except as disclosed on Schedule 2(I)(dd)(xx), DMLC has not
received notice from any mortgagor or other party with respect to the Mortgage
Loans of a request for relief pursuant to or invoking any of the provisions of
the Soldiers and Sailors Relief Act of 1940 or any similar law which would have
the effect of suspending or reducing the mortgagor's payment obligations under a
Mortgage Loan or which would prevent such loan from going into foreclosure.
(xxi) No Additional Collateral. Each Mortgage Note is not and has not
been secured by any collateral except the lien of the corresponding Mortgage
Instrument.
(xxii) Deeds of Trust. In the event the Mortgage Instrument constitutes a
deed of trust, a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in the
Mortgage Instrument or other recorded document, and no fees or expenses are or
will become payable by DMLC, or the applicable Investor, or their respective
successors and assigns, to the trustee under the deed of trust, except as
expressly provided in the Mortgage Loan documents for the performance of duties
by the trustee after a default by the mortgagor.
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(xxiii) No Inquiries. Except as disclosed on Schedule 2(I)(dd)(xxiii),
within the three (3) years immediately preceding the date of this Agreement,
DMLC has not been the subject of an audit by any of the VA, FHA, FNMA, FHLMC,
GNMA, other institutional investor or insurer, which audit included final
findings (or, if a current, not finalized audit, includes allegations) of a
failure to comply with Applicable Requirements, or resulted in a request for
repurchase of a Mortgage Loan or indemnification in connection with a Mortgage
Loan, or resulted in rescission of an insurance or guaranty contract or
agreement.
(xxiv) Customary Provisions. The Mortgage Instrument contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the mortgaged property of
the material benefits of the security provided thereby, including, (i) in the
case of a Mortgage Instrument designated as a deed of trust, by trustee's sale,
and (ii) otherwise by judicial foreclosure. There is no homestead or other
exemption available to a mortgagor, which would prevent the sale of the
mortgaged property by trustee's sale or the foreclosure of the mortgage.
(xxv) Consolidation of Advances. Any advances of principal made in
connection with a Mortgage Loan have been consolidated with the outstanding
principal amount secured by the Mortgage Instrument, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term.
The lien of the Mortgage Instrument securing the consolidated principal amount
is expressly insured by a title insurance policy as having the lien priority
identified in the Mortgage Instrument, and the endorsement to the policy
insuring the mortgagee's consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan.
(II) Stan-Shaw represents and warrants to Norwest as follows:
(a) Organization and Authority. Stan-Shaw is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, 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 Stan-Shaw and has corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted. Stan-Shaw has furnished Norwest true and correct copies of
its articles of incorporation and by-laws, as amended.
(b) Stan-Shaw's Subsidiaries. Except as set forth on Schedule 2(II)(b),
Stan-Shaw 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,
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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 Stan-Shaw consists of
2,500 shares of common stock, $10 par value, of which as of the close of
business on September 30, 1994, 1420 shares were outstanding and no shares were
held in the treasury. The maximum number of shares of Stan-Shaw 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 1420. All of the outstanding shares of capital stock of Stan-Shaw have been
duly and validly authorized and issued and are fully paid and nonassessable.
Schedule 2(II)(c) sets forth ownership of Stan-Shaw Common Stock as of the date
of this Agreement. Except as set forth in Schedule 2(II)(c) there are no
outstanding subscriptions, contracts, conversion privileges, options, warrants,
calls, preemptive rights or other rights obligating Stan-Shaw to issue, sell or
otherwise dispose of, or to purchase, redeem or otherwise acquire, any shares of
capital stock of Stan-Shaw. Since September 30, 1994 no shares of Stan-Shaw
capital stock have been purchased, redeemed or otherwise acquired, directly or
indirectly, by Stan-Shaw and no dividends or other distributions have been
declared, set aside, made or paid to the shareholders of Stan-Shaw other than as
set forth on Schedule 2(II)(c).
(d) Authorization. Stan-Shaw has the corporate power and authority to
enter into this Agreement and the Stan-Shaw Merger Agreement and, subject to any
required approvals of its shareholders, to carry out its obligations hereunder
and thereunder. The execution, delivery and performance of this Agreement and
the Stan-Shaw Merger Agreement by Stan-Shaw and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of Stan-Shaw. Subject to such approvals of shareholders and
of government agencies and other governing boards having regulatory authority
over Stan-Shaw as may be required by statute or regulation, this Agreement and
the Stan-Shaw Merger Agreement are valid and binding obligations of Stan-Shaw
enforceable against Stan-Shaw in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws or equitable principles relating to or limiting creditors rights
generally.
Except as set forth on Schedule 2(II)(d), neither the execution, delivery
and performance by Stan-Shaw of this Agreement or the Stan-Shaw Merger
Agreement, nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by Stan-Shaw 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
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interest, charge or encumbrance upon any of the properties or assets of Stan-
Shaw 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 (with annual payments aggregating in excess of
$25,000), agreement or other instrument or obligation to which Stan-Shaw is a
party or by which it may be bound, or to which Stan-Shaw or any of the
properties or assets of Stan-Shaw or may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the next paragraph,
to the best knowledge of Stan-Shaw, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Stan-Shaw or any
of its 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 HSR Act, and filings required to effect the
Stan-Shaw Merger under California law, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Stan-Shaw of the transactions
contemplated by this Agreement and the Stan-Shaw Merger Agreement.
(e) Stan-Shaw Financial Statements. The information relating to Stan-Shaw
contained in the DMLC Financial Statements has 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 Stan-Shaw at
the dates and the results of operations and cash flows of Stan-Shaw for the
periods stated therein.
(f) Reports. Stan-Shaw has not been required to file any reports,
registrations or statements with any state regulatory authorities.
(g) Properties and Leases. Except as may be reflected in the DLMC
Financial Statements and except for any lien for current taxes not yet
delinquent, Stan-Shaw has good title free and clear of any material liens,
claims, charges, options, encumbrances or similar restrictions to all the real
and personal property owned by Stan-Shaw as reflected in DMLC's combined
balance sheet as of September 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 (with annual payments aggregating in
excess of $25,000), material to Stan-Shaw pursuant to which Stan-Shaw, as
lessee, leases real or personal property, which leases are described on Schedule
2(II)(g), are valid and effective in accordance with their respective terms, and
there is not, under
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any such lease, any material existing default by Stan-Shaw or any event which,
with notice or lapse of time or both, would constitute such a material default.
Substantially all Stan-Shaw'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. Stan-Shaw has filed all federal, state, county, local and
foreign tax returns, including information returns, required to be filed by it,
and paid all taxes owed by it, including those with respect to income,
withholding, social security, unemployment, workers compensation, franchise, ad
valorem, premium, excise and sales taxes, and no taxes shown on such returns to
be owed by it or assessments received by it are delinquent. Stan-Shaw is a
Subchapter S Corporation as defined in Section 1361 of the Code and such status
has been effective for Stan-Shaw for all tax years effective as of May 1, 1989.
Since May 1, 1989 Stan-Shaw has taken no action, nor failed to take any action,
which action or failure to act would result in the loss of its Subchapter S
election for any tax year beginning on or after May 1, 1989. The federal
income tax returns of Stan-Shaw 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(II)(h), (i) Stan-Shaw is not a party to any pending
action or proceeding, nor is any such action or proceeding threatened by any
governmental authority, for the assessment or collection of taxes, interest,
penalties, assessments or deficiencies and (ii) no issue has been raised by any
federal, state, local or foreign taxing authority in connection with an audit or
examination of the tax returns, business or properties of Stan-Shaw which has
not been settled, resolved and fully satisfied. Stan-Shaw has paid all taxes
owed or which it is required to withhold from amounts owing to employees,
creditors or other third parties. The combined balance sheet as of September
30, 1994, referred to in paragraph 2(I)(e) hereof, as it relates to Stan-Shaw,
includes adequate provision for all accrued but unpaid federal, state, county,
local and foreign taxes, interest, penalties, assessments or deficiencies of
Stan-Shaw with respect to all periods through the date thereof.
(i)Intentionally Omitted.
(j) Commitments and Contracts. Except as set forth on Schedule 2(II)(j),
Stan-Shaw is not a party or subject to any of the following (whether written or
oral, express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer,
director, employee or consultant (other than those which are terminable at
will by Stan-Shaw);
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<PAGE>
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business
containing covenants which limit the ability of Stan-Shaw 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, Stan-Shaw may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $25,000.00 or
more.
(k) Litigation and Other Proceedings. Stan-Shaw has furnished Norwest
copies of (i) all attorney responses to the request of the independent auditors
for Stan-Shaw with respect to loss contingencies as of December 31, 1993 in
connection with the DMLC Financial Statements, and (ii) a written list of legal
and regulatory proceedings filed against Stan-Shaw since said date. Stan-Shaw
is not a party to any pending or, to the best knowledge of Stan-Shaw,
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 Stan-Shaw.
(l) Insurance. Stan-Shaw is presently insured, and during each of the
past five calendar years has been insured, for reasonable amounts with
financially sound and reputable insurance companies against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured and has maintained all insurance required by
applicable law and regulation.
(m) Compliance with Laws. Stan-Shaw 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
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<PAGE>
Stan-Shaw; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best knowledge of Stan-Shaw,
no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current. The conduct by Stan-Shaw 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. Stan-Shaw is not in default under any order, license, regulation or
demand of any federal, state, municipal or other governmental agency or with
respect to any order, writ, injunction or decree of any court. Except for
statutory or regulatory restrictions of general application and except as set
forth on Schedule 2(II)(m), no federal, state, municipal or other governmental
authority has placed any restriction on the business or properties of Stan-Shaw
which reasonably could be expected to have a material adverse effect on the
business or properties of Stan-Shaw.
(n) Labor. No work stoppage involving Stan-Shaw is pending or, to the
best knowledge of Stan-Shaw, threatened. Stan-Shaw is not involved in, or
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding which could materially and adversely affect the
business of Stan-Shaw. Employees of Stan-Shaw 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(II)(o), to the best knowledge of Stan-Shaw no officer or director of
Stan-Shaw, 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 Stan-Shaw.
Schedule 2(II)(o) sets forth a correct and complete list of any loan from
Stan-Shaw to any present executive officer, director, or any associate or
related interest of any such person.
(p) Stan-Shaw 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 Stan-Shaw 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 Stan-Shaw are those set forth on
Schedule 2(II)(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
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<PAGE>
set forth on Schedule 2(I)(p), Stan-Shaw has received favorable
determination letters from the Internal Revenue Service under the
provisions of the Tax Equity and Fiscal Responsibility Act ("TEFRA"), the
Deficit Reduction Act ("DEFRA") and the Retirement Equity Act ("REA") for
each of the Plans to which the qualification requirements of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), apply. Stan-
Shaw knows of no reason that any Plan which is subject to the qualification
provisions of Section 401(a) of the Code is not "qualified" within the
meaning of Section 401(a) of the Code and that each related trust is not
exempt from taxation under Section 501(a) of the Code, except that any such
Plan may not have been amended to comply with the Tax Reform Act of 1986
(the "TRA") and other recent legislation and regulations, although each
such Plan is within the remedial amendment period during which retroactive
amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) Except as disclosed in Schedule 2(II)(p), and to the best
knowledge of Stan-Shaw, 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 Stan-
Shaw, 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 Stan-Shaw 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(II)(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
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<PAGE>
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or employee or former employee of Stan-Shaw 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-Prospectus, etc. None of the information regarding
Stan-Shaw supplied or to be supplied by Stan-Shaw for inclusion in (i) a
Registration Statement on Form S-4, and the prospectus included therein, to be
filed with the SEC by Norwest for the purpose of registering the shares of
Norwest Common Stock that may be exchanged for shares of Stan-Shaw Common Stock
pursuant to the provisions of the Stan-Shaw Merger Agreement (the "Registration
Statement"),(ii) the joint proxy statement of Stan-Shaw and prospectus of
Norwest included in the Registration Statement to be mailed to Stan-Shaw's
shareholders in connection with the meeting (the "Shareholders' Meeting") to be
called to consider the Merger (the "Proxy Statement-Prospectus) and (iii) and
any other documents to be filed with the SEC or any regulatory authority in
connection with the transactions contemplated hereby or by the Stan-Shaw Merger
Agreement will, at the respective times such Registration Statement, Proxy
Statement-Prospectus and other documents are filed with the SEC or any
regulatory authority and, in the case of the Registration Statement (together
with the Proxy Statement-Prospectus included therein), when it becomes
effective, and, with respect to the Proxy Statement-Prospectus, when mailed, and
at the time of the Shareholders' Meeting, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. All documents which
Stan-Shaw is responsible for filing with the SEC and any other regulatory
authority in connection with the Stan-Shaw Merger will comply as to form in all
material respects with the provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(II)(r),
Stan-Shaw is not under any obligation, contingent or otherwise, which will
survive the Stan-Shaw Merger by reason of any agreement to register any of its
securities under the Securities Act.
(s) Brokers and Finders. Except as set forth on Schedule 2(II)(s) neither
Stan-Shaw nor any of its officers, directors or employees has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder has acted
directly or indirectly in connection with this Agreement and the Stan-Shaw
Merger Agreement or the transactions contemplated hereby and thereby.
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<PAGE>
(t) Administration of Accounts. Stan-Shaw has properly administered in
all respects material and which could reasonably be expected to be material to
the financial condition of Stan-Shaw all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, escrow 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 Stan-Shaw nor any director, officer or employee of Stan-Shaw 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 Stan-Shaw 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. Stan-Shaw is not in default, nor has any event occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default, under any material agreement, indenture, loan agreement or
other instrument to which it is a party or by which it or any of its assets is
bound or to which any of its assets is subject, the result of which has had or
could reasonably be expected to have a material adverse effect upon Stan-Shaw.
To the best of Stan-Shaw's knowledge, all parties with whom Stan-Shaw has
material leases or agreements or contracts other than with respect to those
arising in the ordinary course of the mortgage business of Stan-Shaw 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
result in the imposition of, on Stan-Shaw any liability relating to the release
of hazardous substances as defined under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or to the best of Stan-Shaw's knowledge, threatened
against Stan-Shaw the result of which has had or could reasonably be expected to
have a material adverse effect upon Stan-Shaw; to the best of Stan-Shaw's
knowledge there is no reasonable basis for any such proceeding, claim or action;
and to the best of Stan-Shaw's knowledge Stan-Shaw is not subject to any
agreement, order, judgment, or decree by or with any court, governmental
authority or third party imposing any such environmental liability. Stan-Shaw
has provided Norwest with copies of all environmental assessments, reports,
studies and other related information in its possession with respect to each
location owned or leased by it and with respect to each non-residential OREO
property.
(III) DIS represents and warrants to Norwest as follows:
(a) Organization and Authority. DIS is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
is duly
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<PAGE>
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 DIS and has corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. DIS has
furnished Norwest true and correct copies of its articles of incorporation and
by-laws, as amended.
(b) DIS's Subsidiaries. Except as set forth on Schedule 2(III)(b), DIS
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 DIS consists of
10,000 shares of common stock, no par value, of which as of the close of
business on September 30, 1994, 100 shares were outstanding and no shares were
held in the treasury. The maximum number of shares of DIS 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 100. All of the outstanding shares of capital stock of DIS have been duly
and validly authorized and issued and are fully paid and nonassessable. Schedule
2(III)(c) sets forth ownership of DIS Common Stock as of the date of this
Agreement. Except as set forth in Schedule 2(III)(c) there are no outstanding
subscriptions, contracts, conversion privileges, options, warrants, calls,
preemptive rights or other rights obligating DIS to issue, sell or otherwise
dispose of, or to purchase, redeem or otherwise acquire, any shares of capital
stock of DIS. Since September 30, 1994 no shares of DIS capital stock have been
purchased, redeemed or otherwise acquired, directly or indirectly, by DIS and no
dividends or other distributions have been declared, set aside, made or paid to
the shareholders of DIS other than as set forth on Schedule 2(III)(c).
(d) Authorization. DIS has the corporate power and authority to enter
into this Agreement and the DIS Merger Agreement and, subject to any required
approvals of its shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
DIS Merger Agreement by DIS and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of DIS. Subject to such approvals of shareholders and of government
agencies and other governing boards having regulatory authority over DIS as may
be required by statute or regulation, this Agreement and the DIS Merger
Agreement are valid and binding obligations of DIS enforceable against DIS in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws or equitable principles
relating to or limiting creditors' rights generally.
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<PAGE>
Except as set forth on Schedule 2(III)(d), neither the execution, delivery
and performance by DIS of this Agreement or the DIS Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor compliance
by DIS 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 DIS 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 (with annual payments
aggregating in excess of $25,000), agreement or other instrument or obligation
to which DIS is a party or by which it may be bound, or to which DIS or any of
the properties or assets of DIS or may be subject, or (ii) subject to compliance
with the statutes and regulations referred to in the next paragraph, to the best
knowledge of DIS, violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to DIS or any of its 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 BHC Act or the HSR Act, approvals necessary under the various
state laws regulating and licensing insurance agency activities in those states
where DIS is licensed (some of which may contain bank-affiliation restrictions),
and filings required to effect the DIS Merger under California law, no notice
to, filing with, exemption or review by, or authorization, consent or approval
of, any public body or authority is necessary for the consummation by DIS of the
transactions contemplated by this Agreement and the DIS Merger Agreement.
(e) DIS Financial Statements. The information relating to DIS contained
in the DMLC Financial Statements has 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 DIS at the dates and the
combined results of operations and cash flows of DIS for the periods stated
therein.
(f) Reports. Since December 31, 1989, DIS has filed all reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with any applicable state regulatory authorities.
All such reports and statements filed with any such regulatory body or authority
are collectively referred to herein as
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the "DIS Reports". As of their respective dates, the DIS Reports complied in all
material respects with all the rules and regulations promulgated by the
applicable state regulatory authorities and did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Copies of all the DIS
Reports have been made available to Norwest by DIS.
(g) Properties and Leases. Except as may be reflected in the DLMC
Financial Statements and except for any lien for current taxes not yet
delinquent, DIS has good title free and clear of any material liens, claims,
charges, options, encumbrances or similar restrictions to all the real and
personal property owned by DIS as reflected in DMLC's combined balance sheet as
of September 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 (with annual payments aggregating in excess of
$25,000.00) pursuant to which DIS, as lessee, leases real or personal property,
which leases are described on Schedule 2(III)(g), are valid and effective in
accordance with their respective terms, and there is not, under any such lease,
any material existing default by DIS or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all DIS'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. DIS has filed all federal, state, county, local and foreign tax
returns, including information returns, required to be filed by it, and paid all
taxes owed by it, including those with respect to income, withholding, social
security, unemployment, workers compensation, franchise, ad valorem, premium,
excise and sales taxes, and no taxes shown on such returns to be owed by it or
assessments received by it are delinquent. DIS is a Subchapter S Corporation as
defined in Section 1361 of the Code and such status has been effective for DIS
for all tax years effective as of May 1, 1989. Since May 1, 1989 DIS has taken
no action, nor failed to take any action, which action or failure to act would
result in the loss of its Subchapter S election for any tax year beginning on or
after May 1, 1989. The federal income tax returns of DIS 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(III)(h), (i) DIS is not a
party to any pending action or proceeding, nor is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies and (ii) no issue has
been raised by any federal, state, local or foreign taxing authority in
connection with an audit or examination of the tax returns, business or
properties of DIS which has not been settled, resolved and fully
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satisfied. DIS has paid all taxes owed or which it is required to withhold from
amounts owing to employees, creditors or other third parties. The combined
balance sheet as of September 30, 1994, referred to in paragraph 2(I)(e) hereof,
as it relates to DIS, includes adequate provision for all accrued but unpaid
federal, state, county, local and foreign taxes, interest, penalties,
assessments or deficiencies of DIS with respect to all periods through the date
thereof.
(i) Intentionally Omitted.
(j) Commitments and Contracts. Except as set forth on Schedule 2(III)(j),
DIS is not a party or subject to any of the following (whether written or oral,
express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer,
director, employee or consultant (other than those which are terminable at
will by DIS);
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business
containing covenants which limit the ability of DIS 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, DIS may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $25,000 or
more.
(k) Litigation and Other Proceedings. DIS has furnished Norwest copies of
(i) all attorney responses to the request of the independent auditors for DIS
with respect to loss contingencies as of December 31, 1993 in connection with
the DMLC Financial Statements, and (ii) a written list of legal and regulatory
proceedings filed against DIS since said date. DIS is not a party to any
pending or, to the best knowledge of DIS, threatened, claim, action, suit,
investigation or proceeding, or is subject to any order,
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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 DIS.
(l) Insurance. DIS is presently insured, and during each of the past five
calendar years has been insured, for reasonable amounts with financially sound
and reputable insurance companies against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable law and
regulation.
(m) Compliance with Laws. DIS 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 DIS; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the best
knowledge of DIS, no suspension or cancellation of any of them is threatened;
and all such filings, applications and registrations are current. The conduct
by DIS 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. DIS is not in default under any order,
license, regulation or demand of any federal, state, municipal or other
governmental agency or with respect to any order, writ, injunction or decree of
any court. Except for statutory or regulatory restrictions of general
application and except as set forth on Schedule 2(III)(m), no federal, state,
municipal or other governmental authority has placed any restriction on the
business or properties of DIS which reasonably could be expected to have a
material adverse effect on the business or properties of DIS.
(n) Labor. No work stoppage involving DIS is pending or, to the best
knowledge of DIS, threatened. DIS is not involved in, or threatened with or
affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which could materially and adversely affect the business of DIS.
Employees of DIS 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(III)(o), to the best knowledge of DIS no officer or director of DIS,
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 DIS.
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Schedule 2(III)(o) sets forth a correct and complete list of any loan from
DIS to any present executive officer, director, or any associate or related
interest of any such person.
(p) DIS 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 DIS 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 DIS are those set forth on Schedule
2(I)(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(III)(p), DIS has received favorable
determination letters from the Internal Revenue Service under the
provisions of the Tax Equity and Fiscal Responsibility Act ("TEFRA"), the
Deficit Reduction Act ("DEFRA") and the Retirement Equity Act ("REA") for
each of the Plans to which the qualification requirements of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), apply. DIS
knows of no reason that any Plan which is subject to the qualification
provisions of Section 401(a) of the Code is not "qualified" within the
meaning of Section 401(a) of the Code and that each related trust is not
exempt from taxation under Section 501(a) of the Code, except that any such
Plan may not have been amended to comply with the Tax Reform Act of 1986
(the "TRA") and other recent legislation and regulations, although each
such Plan is within the remedial amendment period during which retroactive
amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) Except as disclosed in Schedule 2(III)(p), and to the best
knowledge of DIS, 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 DIS,
such Plan or trust, or any trustee, fiduciary or administrator thereof, or
any party dealing with any such Plan or
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trust, to the tax or penalty on prohibited transactions imposed by said
Section 4975 or would result in material liability to DIS 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(III)(p), neither the
execution and delivery of this Agreement and the Merger Agreement nor the
consummation of the transactions contemplated hereby and thereby will (i)
result in any material payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to
any director or employee or former employee of DIS 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-Prospectus, etc. None of the information regarding DIS
supplied or to be supplied by DIS for inclusion in (i) a Registration Statement
on Form S-4, and the prospectus included therein, to be filed with the SEC by
Norwest for the purpose of registering the shares of Norwest Common Stock that
may be exchanged for shares of DIS Common Stock pursuant to the provisions of
the DIS Merger Agreement (the "Registration Statement"),(ii) the joint proxy
statement of DIS and prospectus of Norwest included in the Registration
Statement to be mailed to DIS's shareholders in connection with the meeting (the
"Shareholders' Meeting") to be called to consider the Merger (the "Proxy
Statement-Prospectus) and (iii) and any other documents to be filed with the SEC
or any regulatory authority in connection with the transactions contemplated
hereby or by the DIS Merger Agreement will, at the respective times such
Registration Statement, Proxy Statement-Prospectus and other documents are filed
with the SEC or any regulatory authority and, in the case of the Registration
Statement (together with the Proxy Statement-Prospectus included therein), when
it becomes effective, and, with respect to the Proxy Statement-Prospectus, when
mailed, and, at the time of the Shareholders' Meeting,contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. All documents
which DIS is responsible for filing with the SEC and any other regulatory
authority in connection
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with the DIS Merger will comply as to form in all material respects with the
provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(III)(r),
DIS is not under any obligation, contingent or otherwise, which will survive the
DIS Merger by reason of any agreement to register any of its securities under
the Securities Act.
(s) Brokers and Finders. Except as set forth on Schedule 2(III)(s)
neither DIS nor any of its officers, directors or employees has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder has acted
directly or indirectly in connection with this Agreement and the DIS Merger
Agreement or the transactions contemplated hereby and thereby.
(t) ) Administration of Accounts. DIS has properly administered in all
respects material and which could reasonably be expected to be material to the
financial condition of DIS all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
escrow 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 DIS nor
any director, officer or employee of DIS 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 DIS 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. DIS is not in default, nor has any event occurred which,
with the passage of time or the giving of notice, or both, would constitute a
default, under any material agreement, indenture, loan agreement or other
instrument to which it is a party or by which it or any of its assets is bound
or to which any of its assets is subject, the result of which has had or could
reasonably be expected to have a material adverse effect upon DIS. To the best
of DIS's knowledge, all parties with whom DIS has material leases, agreements or
contracts other than with respect to those arising in the ordinary course of the
mortgage business of DIS 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
result in the imposition of, on DIS any liability relating to the release of
hazardous substances as defined under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, pending or to the best of DIS's knowledge, threatened against DIS the
result of which has had or could reasonably be
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expected to have a material adverse effect upon DIS; to the best of DIS's
knowledge there is no reasonable basis for any such proceeding, claim or action;
and to the best of DIS's knowledge DIS is not subject to any agreement, order,
judgment, or decree by or with any court, governmental authority or third party
imposing any such environmental liability. DIS has provided Norwest with copies
of all environmental assessments, reports, studies and other related information
in its possession with respect to each location owned or leased by it and with
respect to each non-residential OREO property.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to DMLC, Stan-Shaw and DIS as follows:
(a) Organization and Authority. Norwest is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Norwest and its subsidiaries taken as a whole and has
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted. Norwest is registered as a bank
holding company with the Federal Reserve Board under the BHC Act.
(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
list as of December 31, 1993, of Norwest's Significant Subsidiaries (as defined
in Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary"
and collectively the "Norwest Subsidiaries"), all shares of the outstanding
capital stock of each of which, except as set forth in Schedule 3(b), are owned
directly or indirectly by Norwest. No equity security of any Norwest Subsidiary
is or may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (S) 55 (1982), all of such shares so owned by Norwest are
fully paid and nonassessable and are owned by it free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto. Each
Norwest Subsidiary is a corporation or national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted.
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(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 October 31, 1994, 1,127,125 shares of 10.24%
Cumulative Preferred Stock at $100 stated value and 1,143,675 shares of
Cumulative Convertible Preferred Stock, Series B, at $200 stated value and
22,471 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 October 31, 1994, 308,620,251
shares were outstanding and 14,464,223 shares were held in the treasury. All
outstanding shares of Norwest capital stock are duly authorized, validly issued,
fully paid and nonassessable.
(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
Agreements and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory authority over Norwest as may be required by statute or
regulation, this Agreement is and the Merger Agreement will be a valid and
binding obligation of Norwest enforceable against Norwest in accordance with its
terms and each Merger Agreement will be a valid and binding obligation of each
of the merger companies, enforceable against each company in accordance with its
terms.
Neither the execution, delivery and performance by Norwest of this
Agreement or the Merger Agreements or by the Merger Cos. of the Merger
Agreements, nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by Norwest or the Merger Cos. 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,
the Merger Cos. or any Norwest Subsidiary under any of the terms, conditions or
provisions of (x) certificates of incorporation or by-laws of Norwest or Merger
Cos. or (y) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Norwest,
the Merger Cos. or any Norwest Subsidiary is a party or by which it may be
bound, or to which Norwest, the Merger Cos. or any Norwest Subsidiary or any of
the properties or assets of Norwest, the Merger Cos. 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,
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<PAGE>
decree, statute, rule or regulation applicable to Norwest, the Merger Cos. 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
Merger under California law, no notice to, filing with, exemption or review by,
or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Norwest of the transactions contemplated by
this Agreement and the Merger Agreement.
(e) Norwest Financial Statements. The consolidated balance sheets of
Norwest and Norwest's subsidiaries as of December 31, 1992 and 1993 and related
consolidated statements of income, stockholders' equity and cash flows for the
three years ended December 31, 1993, together with the notes thereto, certified
by KPMG Peat Marwick and included in Norwest's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 as amended by Form 10-K/A dated May 13,
1994 (the "Norwest 10-K") as filed with the SEC, and the unaudited consolidated
balance sheets of Norwest and its subsidiaries as of September 30,1994 and the
related unaudited consolidated statements of income and cash flows for the nine
months then ended included in Norwest's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1994, as filed with the SEC (collectively,
the "Norwest Financial Statements"), have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
present fairly (subject, in the case of financial statements for interim
periods, to normal recurring adjustments) the consolidated financial position of
Norwest and its subsidiaries at the dates and the consolidated results of
operations, changes in financial position and cash flows of Norwest and its
subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1993, Norwest and each Norwest Subsidiary
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q and proxy statements, (ii) the
Federal Reserve Board, (iii) the FDIC, (iv) the Comptroller and (v) any
applicable state securities or banking authorities. All such reports and
statements filed with any such regulatory body or authority are collectively
referred to herein as the "Norwest Reports". As of their respective dates, the
Norwest Reports complied in all 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
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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 September 30,1994 included in Norwest's
Quarterly Report on Form 10-Q for the period then ended, and all real and
personal property acquired since such date, except such real and personal
property has been disposed of in the ordinary course of business. All leases of
real property and all other leases material to Norwest or any Norwest Subsidiary
pursuant to which Norwest or such Norwest Subsidiary, as lessee, leases real or
personal property, are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Norwest or such Norwest Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Norwest's and each Norwest Subsidiary's buildings and equipment in regular use
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries has filed all
material federal, state, county, local and foreign tax returns, including
information returns, required to be filed by it, and paid or made adequate
provision for the payment of all taxes owed by it, including those with respect
to income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Norwest and the Norwest Subsidiaries for the
fiscal year ended December 31, 1979, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Except only as set forth on Schedule 3(h), (i)
neither Norwest nor any Norwest Subsidiary is a party to any pending action or
proceeding, nor to Norwest's knowledge is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies which could reasonably
be expected to have any material adverse effect on Norwest and its subsidiaries
taken as a whole, and (ii) no issue has been raised by any federal, state, local
or foreign taxing authority in connection with an audit or examination of the
tax returns, business or properties of Norwest or any Norwest Subsidiary which
has not been settled, resolved and fully satisfied, or adequately reserved for.
Each of Norwest and the Norwest Subsidiaries has paid all taxes owed or which it
is required to withhold from amounts owing to employees, creditors or other
third parties.
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(i) Absence of Certain Changes. Since September 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 September 30,1994 neither Norwest nor any Norwest Subsidiary is a party or
subject to any of the following (whether written or oral, express or implied):
(i) any labor contract or agreement with any labor union;
(ii) any contract not made in the ordinary course of business
containing covenants which materially limit the ability of Norwest or any
Norwest Subsidiary to compete in any line of business or with any person or
which involve any material restriction of the geographical area in which,
or method by which, Norwest or any Norwest Subsidiary may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
(iii) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K.
(k) Litigation and Other Proceedings. Neither Norwest nor any Norwest
Subsidiary is a party to any pending or, to the best knowledge of Norwest,
threatened, claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or cannot reasonably be expected to have, a material adverse effect on
the business, financial condition or results of operations of Norwest and its
subsidiaries taken as a whole.
(l) Insurance. Norwest and each Norwest Subsidiary is presently insured
or self insured, and during each of the past five calendar years (or during such
lesser period of time as Norwest has owned such Norwest Subsidiary) has been
insured or self-insured, for reasonable amounts with 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
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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 September 1, 1994, the only "employee benefit plans" within
the meaning of Section 3(3) of ERISA for which Norwest or any Norwest
Subsidiary acts as plan sponsor as defined in ERISA Section 3(16)(B) with
respect to which any liability under ERISA or otherwise exists or may be
incurred by Norwest or any Norwest Subsidiary are those set forth on
Schedule 3(o) (the "Norwest Plans"). No Norwest Plan is a "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable
law. Except as set forth on Schedule 3(o), Norwest or the Norwest
Subsidiaries have received favorable determination letters from the
Internal Revenue Service under the provisions of the Tax Equity and Fiscal
Responsibility Act ("TEFRA"), the Deficit Reduction Act ("DEFRA") and the
Retirement Equity Act ("REA") for each of the Norwest Plans to which the
qualification requirements of Section 401(a) of the Code apply. Norwest
knows of no reason that any Norwest Plan which is subject to the
qualification provisions of
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Section 401(a) of the Code is not "qualified" within the meaning of Section
401(a) of the Code and that each related trust is not exempt from taxation
under Section 501(a) of the Code, except that any such Norwest Plan may not
have been amended to comply with TRA and other recent legislation and
regulations, although each such Norwest Plan is within the remedial
amendment period during which retroactive amendment may be made.
(iii) The present value of all benefits vested and all benefits
accrued under each Norwest Plan which is subject to Title IV of ERISA did
not, in each case, as determined for purposes of reporting on Schedule B to
the Annual Report on Form 5500 of each such Norwest Plan as of the end of
the most recent Plan year, exceed the value of the assets of the Norwest
Plans allocable to such vested or accrued benefits.
(iv) Except as set forth on Schedule 3(o), and to the best knowledge
of Norwest, no Norwest Plan or any trust created thereunder, nor any
trustee, fiduciary or administrator thereof, has engaged in a "prohibited
transaction", as such term is defined in Section 4975 of the Code or
Section 406 of ERISA or violated fiduciary standards under Part 4 of Title
I of ERISA, which could subject, to the best knowledge of Norwest, such
Norwest Plan or trust, or any trustee, fiduciary or administrator thereof,
or any party dealing with any such Norwest Plan or trust, to the tax or
penalty on prohibited transactions imposed by said Section 4975 or would
result in material liability to Norwest and its subsidiaries taken as a
whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other
than those events which may result from the transactions contemplated by
this Agreement and the Merger Agreement.
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including,
without limitation, severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or employee or former employee
of Norwest under any Norwest Plan or otherwise, (ii) materially increase
any
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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) Proxy Statement-Prospectus, 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-Prospectus, and
(iii) and 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 Registration Statement,
Proxy Statement-Prospectus and other documents are filed with the SEC or any
regulatory authority and, in the case of the Registration Statement (together
with the Proxy Statement-Prospectus included therein), when it becomes
effective, and, with respect to the Proxy Statement-Prospectus, when mailed,
and, in the case of the Registration Statement, and other documents, at the time
of the Shareholders' Meeting, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading. All documents which Norwest and the Norwest
Subsidiaries are responsible for filing with the SEC and any other regulatory
authority in connection with the Mergers 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 Agreements or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in
default, nor has any event occurred which, with the passage of time or the
giving of notice, or both, would constitute a default under any material
agreement, indenture, loan agreement or other instrument to which it is a party
or by which it or any of its assets is bound or to which any of its assets is
subject, the result of which has had or could reasonably be expected to have a
material adverse effect upon Norwest and its subsidiaries taken as a whole. To
the best of Norwest's knowledge, all parties with whom Norwest or any Norwest
Subsidiary has material leases, agreements or contracts or who owe to Norwest or
any Norwest Subsidiary material obligations other than with respect to those
arising in the ordinary course of the banking business of the Norwest
Subsidiaries are in compliance therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
result in the
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imposition, on Norwest or any Norwest Subsidiary of any liability relating to
the release of hazardous substances as defined under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or to the best of Norwest's knowledge, threatened
against Norwest or any Norwest Subsidiary, the result of which has had or could
reasonably be expected to have a material adverse effect upon Norwest and its
subsidiaries taken as a whole; to the best of Norwest's knowledge there is no
reasonable basis for any such proceeding, claim or action; and to the best of
Norwest's knowledge neither Norwest nor any Norwest Subsidiary is subject to any
agreement, order, judgment, or decree by or with any court, governmental
authority or third party imposing any such environmental liability.
(t) Knowledge as to Conditions. As of the date hereof Norwest knows of no
reason why the approvals, licenses or consents of governmental or regulatory
authorities referred to in paragraph 7(e) should not be obtained without the
imposition of any condition or requirement relating to the Companies or Norwest
or any of Norwest's affiliates that would be unreasonably burdensome to Norwest
or its affiliates.
(u) Merger Cos. As of the Closing Date, each of the Merger Cos. will be a
wholly owned subsidiary of Norwest, will be a corporation duly organized,
validly existing, duly qualified to do business and in good standing under the
laws of the jurisdiction of its incorporation, will have corporate power and
authority to own or lease its properties and assets and to carry on its business
and to enter into its respective Merger Agreement and carry out its obligations
thereunder.
4. COVENANTS OF DMLC, STAN-SHAW AND DIS. DMLC, Stan-Shaw and DIS, each
with respect to itself (referred to individually as "Company" in this paragraph
4), covenants and agrees with Norwest as follows:
(a) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Merger, Company 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, maintain proper business
and accounting records in accordance with generally accepted principles;
maintain its properties in good repair and condition, ordinary wear and tear
excepted; maintain in all material respects presently existing insurance
coverage; use its best efforts to preserve its business organization intact, to
keep the services of its present principal employees and to preserve its good
will and the good will of its suppliers, customers and others having business
relationships with it; use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect following the
Merger; comply in all material
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respects with all laws, regulations, ordinances, codes, orders, licenses and
permits applicable to the properties and operations of Company the non-
compliance with which reasonably could be expected to have a material adverse
effect on the Companies taken as a whole; and permit Norwest and its
representatives (including KPMG Peat Marwick, L.L.P.) to examine its books,
records and properties and to interview officers, employees and agents at all
reasonable times when it is open for business; maintain its election under
Section 1362 of the Code as a Subchapter S Corporation. 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 Merger, Company 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; mortgage, pledge or subject to lien or
other encumbrance any of its properties, except in the ordinary course of
business; enter into any agreement, contract or commitment in excess of
$500,000.00 (unless a lesser amount is applicable pursuant to other provisions
of this paragraph and this Agreement) except transactions in the ordinary course
of the mortgage business and in accordance with policies and procedures in
effect on the date hereof; enter into any material agreement, contract or
commitment for the acquisition of fixed assets or real property, leases,
investments, or maintenance contracts in excess of $20,000; amend or terminate
any Plan except as required by law; make any contributions to any Plan in excess
of $500,000 in the aggregate for all Companies 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 as
set forth on Schedule 2 (I)(c); 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 (provided however that payments may be made
under the Incremental Value Plan and the Value Creation Plan in the amount shown
on the books of DMLC as of September 30, 1994 plus accrued interest to the date
of payment at the rate set forth in such plans); 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 will duly call, and will cause to be
held as soon as practicable and as permitted by applicable law and regulation, a
meeting of its shareholders and will direct that this Agreement and the Merger
Agreement be submitted to a vote at such meeting. The Board of Directors of
Company will (i) cause proper notice of such meeting to be given to its
shareholders in
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compliance with the California General Corporation Law and other applicable law
and regulation, (ii) except to the extent legally required for the discharge of
the fiduciary duties of the Board of Directors, recommend by the affirmative
vote of the Board of Directors a vote in favor of approval of this Agreement and
the Merger Agreement, and (iii) except to the extent legally required for the
discharge of the fiduciary duties of the Board of Directors, use its best
efforts to solicit from its shareholders proxies in favor thereof. Norwest and
Companies will mutually agree upon the date of mailing of the Registration
Statement and proxy to the shareholders.
(d) Company will furnish or cause to be furnished to Norwest all the
information concerning Company required for inclusion in the Registration
Statement referred to in paragraph 5(c) hereof, or any statement or application
made by Norwest to any governmental body in connection with the transactions
contemplated by this Agreement. Any financial statement for any fiscal year
provided under this paragraph will to the extent required by applicable law or
regulation include the audit opinion and the consent of Eadie and Payne to use
such opinion in such Registration Statement.
(e) Company 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 to carry out the transactions contemplated
by this Agreement and will cooperate with Norwest to obtain all such approvals
and consents required of Norwest. DMLC shall use its best efforts to obtain
any and all consents or waivers from Investors and Insurers for the change in
control that results from the Merger.
(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 or 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 director, officer, representative or agent
thereof, will, directly or indirectly, solicit, authorize the solicitation of or
enter into any
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discussions with any corporation, partnership, person or other entity or group
(other than Norwest) concerning any offer or possible offer (i) to purchase any
shares of common stock, any option or warrant to purchase any shares of common
stock, any securities convertible into any shares of such common stock, or any
other equity security of Company, (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 except in the ordinary course
of business, or (iv) to merge, consolidate or otherwise combine with Company. If
any corporation, partnership, person or other entity or group makes an offer or
inquiry to Company concerning any of the foregoing, Company 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) Except as otherwise contemplated by this Agreement, Company will take
all action necessary or required to the extent permitted by the Code or ERISA
(i) to terminate or amend, if requested by Norwest, all qualified pension and
welfare benefit plans and all non-qualified benefit plans and compensation
arrangements as of the Effective Date of the Merger, (ii) to amend the Plans to
comply with the provisions of the TRA and regulations thereunder and other
applicable law, and (iii) to submit application to the Internal Revenue Service
for a favorable determination letter for each of the Plans which is subject to
the qualification requirements of Section 401(a) of the Code prior to the
expiration of the remedial amendment period set forth under Treasury Regulation
Section 1.401(b)-1(d)(3).
(k) Company shall not take any action prior to or as of the Effective
Date of the Merger which with respect to Company would disqualify the Merger as
a "pooling of interests" for accounting purposes.
(l) Company shall use its best efforts to obtain and deliver at least 32
days prior to the Effective Date of the Mergers signed representations
substantially in the form attached hereto as Exhibit D to Norwest by each
executive officer, director or shareholder of Company who may reasonably be
deemed an "affiliate" of Company within the meaning of such term as used in Rule
145 under the Securities Act.
(m) Prior to the Closing Date Company shall establish such additional
accruals and reserves as may be necessary to conform Company's accounting and
contingency reserve practices and methods to those of Norwest and Norwest's
plans with respect to the conduct of Company's business following the Merger and
to provide for the costs and expenses relating to the consummation by Company of
the Merger and the other transactions contemplated by this Agreement.
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(n) Intentionally Omitted.
(o)Intentionally Omitted.
(p) DMLC agrees to use its best efforts to negotiate new contracts with the
FNMA and with FHLMC to take effect upon expiration of current contracts with
such entities and DMLC agrees to consult with Norwest regarding terms and
conditions of said contracts.
(q) DMLC agrees not to settle any class action lawsuits related to its
servicing business without the prior written consent of Norwest.
(r) DMLC agrees to use its best efforts to reconcile all clearing, investor
and government agency banking accounts used in DMLC's loan servicing activity to
Norwest's satisfaction prior to the Closing Date
(s) DMLC agrees to use its best efforts to terminate the consulting
contract with Michael Van Daehle ("Van Daehle Contract") prior to the Closing
Date.
(t) DMLC agrees to use its best efforts to divest its interest in Mission
Savings and Loan, a Federal Association ("Mission Investment") and to terminate
its limited partnership with Anderson Financial, Inc. relating to the Corona
Homes limited partnership ("Anderson Partnership").
(u) Intentionally Omitted.
(v) DMLC shall use its best efforts to cause the employees listed on
Exhibit E1 and at least 80% of the employees listed on Exhibit E2 to execute
Non-Competition agreements substantially in the form of Exhibit F1 prior to the
Closing Date.
(w) The Companies agree that, effective as of the Closing Date, coverage of
the Companies under all insurance policies (the "Policies") protecting the
Companies and other entities owned by the Marital Trust of the A. Gary Anderson
Living Trust dated October 7, 1987, (the "Trust") will be canceled. To the
extent that the Policies provide defense and/or indemnity for claims or losses
which occurred with respect to the Companies prior to the Closing Date, Norwest
will have the right after the Closing Date to manage such claims or losses and
receive any protection afforded thereunder. After the Closing Date, Norwest
will receive an annual accounting of losses paid and/or reserved for on open
claims stemming from activities of the Trust or entities owned by the Trust
other than those pertaining to DMLC, DIS, Stan-Shaw, Directors Equity, Directors
Acceptance Corporation or Courtesy Funding Corporation.
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(x) The Companies agree to use their best efforts to collect all
receivables due from affiliates, other than Stan-Shaw, DIS, DMLC, Directors
Equity, Directors Acceptance Corporation or Courtesy Funding Corporation, prior
to the Closing Date.
(y) Intentionally Omitted.
(z) The Companies agree, if requested by Norwest prior to the Closing Date,
to cancel or, in the alternative, to transfer to employees in exchange for the
employee's payment to Companies of the cash value, the key man life insurance
policies maintained by Companies on their employees.
(aa) DMLC agrees not to make any payments under the Directors Mortgage Loan
Corporation Long-Term Incentive Bonus Plan (the "Bonus Plan") until one business
day following the Closing Date; and DMLC will obtain agreement from each person
entitled to payment under terms of the Bonus Plan that any payment to which that
person may be entitled will be paid one business day following the Closing Date.
(bb) Intentionally Omitted.
(cc) DMLC agrees to negotiate settlement with Independent National, FNMA
and FHLMC related to non conformity with contractual commitments specifying loan
volume and Loan to Value and DMLC agrees to consult with Norwest during the
process of negotiation.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with DMLC, Stan-
Shaw and DIS as follows:
(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 Companies all the information concerning
Norwest required for inclusion in a proxy statement or statements to be sent to
the shareholders of Companies, or in any statement or application made by any
Company to any governmental body in connection with the transactions
contemplated by this Agreement.
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(c) As promptly as practicable after the execution of this Agreement,
Norwest will file with the SEC a registration statement on Form S-4 (the
"Registration Statement") covering all the shares of Norwest Common Stock to be
issued on consummation of the Mergers under the Securities Act and any other
applicable documents, relating to the shares of Norwest Common Stock to be
delivered to the shareholders of Companies 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
Companies' shareholders, at the time of the Companies' 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, that none of the provisions of this subparagraph
shall apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information furnished by
any of the Companies for use in the Registration Statement or the Prospectus.
(d) As promptly as practicable after the execution of this Agreement,
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.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Companies 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 Companies pursuant to the Merger Agreements are and will be free
of any preemptive rights of the stockholders of Norwest
(f) As promptly as practicable after the execution of this Agreement,
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.
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(g) As promptly as practicable after the execution of this Agreement,
Norwest will take, and cause the Merger Cos. to take, all necessary corporate
and other action and file, and cause the Merger Cos. to file, all documents and
applications 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,
and cause the Merger Cos. to cooperate, with Companies to obtain all such
approvals and consents required by Companies. Norwest, as sole shareholder of
each of the Merger Cos. shall take all required actions to approve the Mergers.
(h) Norwest will hold in confidence all documents and information
concerning Companies 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
Companies (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
Companies.
(i) Norwest will file, and will cause each of the Merger Cos. to file, any
documents or agreements required to be filed in connection with the Mergers
under the California General Corporation Law.
(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 Companies 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 Companies written notice of receipt of the
regulatory approvals referred to in paragraph 7(e).
(m) Neither Norwest, the Merger Cos., nor any Norwest subsidiary shall
take any action which with respect to Norwest would disqualify the Mergers as a
"pooling of interests" for accounting purposes. Norwest shall use its best
efforts to obtain and deliver to Companies, prior to the Effective Date of the
Mergers, signed representations from the directors and executive officers of
Norwest to the effect that, except for de minimus dispositions which will not
disqualify the Mergers as a pooling of interests, they will not dispose of
shares of Norwest or Companies during the period
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commencing 30 days prior to the Effective Date of the Mergers and ending upon
publication by Norwest of financial results including at least 30 days of
combined operations of Companies and Norwest.
(n) Norwest agrees to cause DMLC to pay all amounts as required pursuant
to the Bonus Plan one business day following the Closing Date. The obligations
of Norwest under this subparagraph 5(n) shall survive the Effective Time of the
Merger.
(o) As promptly as practicable after the execution of this Agreement,
Norwest will take all actions necessary to organize each of the Merger Companies
as California corporations, and as wholly owned subsidiaries of Norwest, and to
cause the Merger Companies to take all corporate and other actions necessary to
enter into the Merger Agreements, carry out their obligations thereunder, and
consummate the Mergers.
(p) Upon receipt of notice that the Mergers have become effective, Norwest
shall deposit or shall cause to be deposited, with Norwest Bank Minnesota, N.A.
(the "Agent") for the benefit of the holders of certificates representing shares
of DLMC Common Stock, Stan-Shaw Common Stock and DIS Common Stock (the
"Certificates"), for exchange in accordance herewith and the respective Merger
Agreement, a certificate or certificates representing the shares of Norwest
Common Stock and the cash in lieu of fractional shares to be issued and paid
pursuant hereto and the respective Merger Agreement in exchange for outstanding
shares of DLMC Common Stock, Stan-Shaw Common Stock and DIS Common Stock.
In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Norwest, the
posting by such person of a bond in such amount as Norwest may reasonably direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Norwest Common Stock and cash in lieu of fractional
shares deliverable in respect thereof pursuant hereto and the Merger Agreement.
As soon as practicable after the Effective Date of the Mergers, the Agent
shall mail to each holder of record of a Certificate or Certificates, or to such
other party as may be designated by such holder, a form letter of transmittal
and instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Norwest Common Stock and the
cash in lieu of fractional shares into which the shares of Company Common Stock
represented by such certificates shall have been converted pursuant hereto and
the Merger Agreements. Norwest acknowledges that some Certificates may be
pledged and that shareholders may be required to take out new loans to pay off
loans secured by such pledges. Norwest agrees to cooperate with shareholders
and their brokers in making arrangements for shareholders to use the
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shares of Norwest Common Stock as collateral for these new loans. The
obligations of Norwest under this subparagraph 5(p) shall survive the Effective
Time of the Merger.
(q) From the date hereof to the Effective Date of the Merger, Norwest shall
deliver to the Companies when reasonably available, Norwest's Quarterly Reports
on Form 10-Q and Norwest's Annual Reports on Form 10-K as filed with the SEC
under the Exchange Act.
(r) From and after the Effective Date of the Merger, Norwest shall file all
reports with the SEC necessary to permit the stockholders of DMLC, Stan-Shaw and
DIS who may be deemed "underwriters" (within the meaning of Rule 145 under the
Securities Act) of DMLC Common Stock, Stan-Shaw Common Stock or DIS Common Stock
to sell Norwest Common Stock received by them in connection with the Mergers
pursuant to Rules 144 and 145(d) under the Securities Act if they would
otherwise be so entitled. The obligation of Norwest under this subparagraph
5(r) shall survive the Effective Time of the Merger.
(s) Norwest agrees to cause to be paid the loan owed by DMLC to the A. Gary
Anderson Family Foundation immediately after the Effective Time of the Merger.
The obligation of Norwest under this subparagraph 5(s) shall survive the
Effective Time of the Merger.
(t) Norwest agrees not to take any action which would cause the Mergers not
to constitute a tax-free reorganization within the meaning of Sections
368(a)(1)(A)and 368(a)(2)(E) of the Code. The obligation of Norwest under this
subparagraph 5(t) shall survive the Effective Time of the Merger.
6. CONDITIONS PRECEDENT TO OBLIGATION OF COMPANIES. The obligation of
Companies to effect the Mergers 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 Companies:
(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.
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(b) Norwest shall have, or shall have caused to be, performed and observed
in all material respects all covenants, agreements and conditions hereof to be
performed or observed by it and Merger Cos. at or before the Time of Filing.
(c) The Companies shall each 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 each Company required for approval of a plan of merger in accordance with the
provisions of that Company's Articles of Incorporation and the California
General Corporation Law.
(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.
(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, provided,
however, that, prior to invoking this condition, the Companies shall use all
reasonable efforts to have such order vacated.
(g) The shares of Norwest Common Stock to be delivered to the stockholders
of Companies 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) Each Company shall have received an opinion, dated the Closing Date,
of counsel to that Company, substantially to the effect that, for federal income
tax purposes: (i) the Mergers will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; (ii) no gain or
loss will be recognized by the holders of that Company's 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 that Company will be the same as the basis of that Company's common stock
exchanged therefor; and (iv) the holding period of the shares of Norwest Common
Stock received by the shareholders of that Company will include the holding
period for that Company's common stock,
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provided such shares of that Company's common stock were held as a capital asset
as of the Effective Time of the Mergers.
(i) The Registration Statement (as amended or supplemented) covering all
of the shares of Norwest Common Stock to be issued upon consummation of the
Mergers shall have become effective under the Securities Act and shall not be
subject to any stop order, and no action, suit, proceeding or investigation by
the SEC to suspend the effectiveness of the Registration Statement shall have
been initiated and be continuing, or have been threatened and be unresolved.
Norwest shall have received all state securities law or blue sky authorizations
necessary to carry out the transactions contemplated by this Agreement.
(j) All of the Mergers must be capable of being effected on the Closing
Date pursuant to the terms of this Agreement and the Merger Agreements, and all
of the Mergers must be so effected on the Closing Date, or none of the Mergers
will be effected.
(k) The Stock Purchase Agreement (the "Stock Purchase Agreement")
attached as Exhibit G hereto shall be in full force and effect and there shall
be no default by any party thereunder and all conditions precedent of the
parties' obligation to close such Stock Purchase Agreement (other than the
condition precedent that the Mergers shall have been closed) shall have been
satisfied.
(l) Since September 30,1994, no change shall have occurred and no
circumstances shall exist which has had or might reasonably be expected to have
a material adverse effect on the financial condition, results of operations,
business or prospects of Norwest and Subsidiaries taken as a whole
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of
Norwest to effect the Merger shall be subject to the satisfaction at or before
the Time of Filing of the following conditions, which may be waived in writing
by Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
or events occurring after the date of this Agreement made in the ordinary course
of business and not expressly prohibited by this Agreement, the representations
and warranties contained in paragraph 2 hereof shall be true and correct in all
respects material to the Companies taken as a whole as if made at the Time of
Filing.
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(b) Companies 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 them 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 each Company required for approval of a plan of merger in accordance with the
provisions of that Company's Articles of Incorporation and the California
General Corporation Law.
(d) Norwest shall have received favorable certificates dated as of the
Effective Date of the Merger signed by the Chairman or President and by the
Secretary or Assistant Secretary of each Company, as to the matters set forth in
subparagraphs (a) through (c) of this paragraph 7 as they relate to that
Company.
(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 Agreements 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 Companies or Norwest or any of Norwest's affiliates
that, in the good faith judgment of Norwest, is unreasonably burdensome to
Norwest or its affiliates.
(f) Each Company shall have obtained any and all material consents or
waivers from other parties to loan agreements, leases or other contracts
material to that Company's business required for the consummation of the Merger,
and each Company shall have obtained any and all material permits,
authorizations, consents, waivers and approvals required for the lawful
consummation by it of the Merger. DMLC shall have obtained any and all consents
or waivers from Investors and Insurers for the change in control that results
from 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, provided,
however, that, prior to invoking this condition, Norwest shall use all
reasonable efforts to have such order vacated.
(h) The Mergers shall qualify as a "pooling of interests" for accounting
purposes and Norwest shall have received from KPMG Peat Marwick and Eadie and
Payne opinions to that effect.
(i) At any time since the date hereof the total number of shares of DMLC
Common Stock outstanding and subject to issuance upon exercise of all warrants,
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options, conversion rights, phantom shares or other share-equivalents, shall not
have exceeded 1,083,795. At any time since the date hereof the total number of
shares of Stan-Shaw Common Stock outstanding and subject to issuance upon
exercise of all warrants, options, conversion rights, phantom shares or other
share-equivalents, shall not have exceeded 1420. At any time since the date
hereof the total number of shares of DIS Common Stock outstanding and subject to
issuance upon exercise of all warrants, options, conversion rights, phantom
shares or other share-equivalents, shall not have exceeded 100.
(j) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened or be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(k) Norwest shall have received from the Chief Executive Officer and Chief
Financial Officer of DMLC a letter, dated as of the effective date of the
Registration Statement and updated through the Closing Date, in form and
substance satisfactory to Norwest, to the effect that:
(i) the interim quarterly financial statements of DMLC 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 DMLC;
(ii) the amounts reported in the interim quarterly financial
statements of DMLC agree with the general ledger of DMLC;
(iii) the annual and quarterly financial statements of DMLC, Stan-
Shaw and DIS 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 September 30,1994 (or, if later, since the date of the most
recent unaudited consolidated financial statements of DMLC, Stan-Shaw and
DIS 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 DMLC, Stan-Shaw and
DIS, except in each case for changes, increases or decreases which the
Registration Statement
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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 DMLC, Stan-Shaw and DIS, in each
case as compared with the comparable period of the preceding year, except
in each case for changes, increases or decreases which the Registration
Statement discloses have occurred or may occur or which are described in
such letters, or resulting from adjustments taken pursuant to paragraph
4(m) of this Agreement;
(v) they have reviewed certain amounts, percentages, numbers of
shares and financial information which are derived from the general
accounting records of DMLC, Stan-Shaw and DIS, 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 DMLC, Stan-Shaw
and DIS and have found them to be in agreement with financial records and
analyses prepared by DMLC included in the annual and quarterly financial
statements, except as disclosed in such letters.
(l) The Companies considered as a whole shall not have sustained since
September 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.
(m) There shall be no reasonable basis for any proceeding, claim or action
of any nature seeking to impose, or that could result in the imposition on DMLC,
Stan-Shaw or DIS of, any liability relating to the release of hazardous
substances as defined under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended, which
has had or could reasonably be expected to have a material adverse effect upon
the Companies taken as a whole.
(n) Since September 30,1994, no change shall have occurred and no
circumstances shall exist which has had or might reasonably be expected to have
a material adverse effect on the financial condition, results of operations or
business of the Companies taken as a whole, other than as a result of changes in
laws or regulations or in economic conditions, including but not limited to the
level of interest rates, generally applicable to the mortgage and insurance
industries or as a result of adjustments taken pursuant to paragraph 4(m) of
this Agreement.
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(o) No employee loans of the Companies shall have been forgiven and all
affiliate receivables of the Companies, other than receivables owing by DMLC,
Stan-Shaw, DIS, Directors Equity, Directors Acceptance Corporation or Courtesy
Funding Corporation, shall have been collected.
(p) Intentionally Deleted.
(q) All of the Mergers must be capable of being effected on the Closing
Date pursuant to the terms of this Agreement and the Merger Agreements, and all
of the Mergers must be so effected on the Closing Date, or none of the Mergers
will be effected.
(r) The Stock Purchase Agreement shall be in full force and effect and
there shall be no default by any party thereunder and all conditions precedent
of the parties' obligation to close such Stock Purchase Agreement (other than
the condition precedent that the Mergers shall have been closed) shall have been
satisfied.
(s) The employees of DMLC listed on the attached Exhibit E1and at least
80% of the employees listed on Exhibit E2 shall have executed Non Competition
Agreements substantially in the form attached as Exhibit F1 and Frank O'Bryan
shall have signed a Non Solicitation Agreement substantially in the form
attached as Exhibit F2.
(t) DMLC shall have reconciled all clearing, investor and government agency
banking accounts used in DMLC's loan servicing activity, including, but not
limited to, the Out-of Balance Condition, to Norwest's satisfaction prior to
the Closing Date
(u) DMLC shall have terminated the Van Daehle Contract.
(v) DMLC shall have divested the Mission Investment and shall have
terminated the Anderson Partnership.
(w) Intentionally deleted.
(x) Except as waived by Norwest in writing, Company Employees shall have
resigned any officer or director positions they may hold with any company other
than Companies, Directors Equity, Directors Acceptance Corporation or Courtesy
Funding Corporation.
(y) Companies shall,to the extent required by Norwest, have canceled or
transferred to employees for cash value the key man life insurance policies
maintained by Companies on their employees.
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(z) DMLC shall have negotiated settlement with FNMA and FHLMC related to
non conformity with contractual commitments specifying loan volume and LTV and
shall have paid such settlement amounts or reserved for such payment prior to
the month-end prior to the Closing Date.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of DMLC, Stan-
Shaw or DIS as of the Effective Date of the Mergers ("Company Employees") shall
be eligible for participation in the employee welfare and retirement plans of
Norwest Mortgage, Inc., 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 and
Norwest Mortgage, Inc. listed below and the Norwest Mortgage, Inc. Severance Pay
Plan and Vacation Program subject to the terms of each such plan (except for the
new hire/rehire waiting period unless prohibited by federal or state law) but
not subject to any pre-existing conditions exclusions except for the Norwest
Long Term Care Plan, and shall enter each plan not later than the first day of
the calendar quarter which begins at least 32 days after the Effective Date of
the Merger; provided, however, that Norwest and Norwest Mortgage, Inc. shall
recognize each Company Employee's service with DMLC, Stan-Shaw or DIS for
purposes of eligibility and vesting under such plans and, provided further that
there shall be no gap in coverage for Company Employees between the time such
employees terminate participation under the Company's employee welfare benefit
plans and become covered under Norwest and Norwest Mortgage, Inc.'s employee
welfare plans:
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
For the purpose of determining each Company Employee's benefit for the year in
which the Merger occurs under the Norwest Mortgage, Inc. Vacation Program,
vacation taken by a Company Employee in the year in which the Merger occurs will
be deducted from the total Norwest Mortgage, Inc. benefit. Each Company
Employee
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will be credited under the Norwest Medical Plan for the amount of any deductible
already satisfied under the Company's Plan prior to Closing. After the Effective
Date of the Merger, Company Employees will be subject to Norwest Mortgage,
Inc's. Vacation Program in accordance with the terms of that Program, with full
credit for years of past service to DMLC, Stan-Shaw or DIS as the case may be.
For purposes of the Short Term Disability Plan employees will receive full
credit for years of past service with DMLC, Stan-Shaw or DIS as the case may be.
Company Employees shall not be entitled to past service credit with regard
to retiree medical benefits.
(b) Employee Retirement 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 (except for the new hire/rehire eligibility waiting
period and with full credit for years of past service to DMLC, Stan-Shaw or
DIS as the case may be to the extent past service credit was credited by
DMLC, Stan-Shaw or DIS as the case may be 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.
DMLC, Stan-Shaw and DIS agree to terminate theProfit Sharing Plan effective
prior to or as of the Closing Date and distribute vested account balances to
participants or allow direct rollover of said balances to a Norwest qualified
plan or other individual retirement accounts or qualified plans. DMLC, Stan-
Shaw and DIS further agree to cause the 401(k) savings plan to be merged into
the SIP as soon as practicable after the Closing Date.
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 DMLC or Norwest 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
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terminate to perform or observe in all material respects the covenants and
agreements hereof to be performed or observed by such party; or
(iii) by DMLC 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, any party hereto from any liability or
damage to the other party hereto arising out of the breaching party's willful
and material breach of the warranties and representations made by it, or willful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by DMLC, Stan-Shaw and DIS shall be borne by DMLC,
Stan-Shaw or DIS as the case may be, 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 any 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 except that the provisions of
paragraph 5(r) and 5(t) shall be for the benefit of shareholders of the common
stock of DMLC, Stan-Shaw and DIS, the provisions of subparagraph 5(n) shall be
for the benefit of the persons entitled to payment under the Bonus Plan, and the
provisions of subparagraph 5(s) shall be for the benefit of the A. Gary Anderson
Family Foundation.
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
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Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
With a copy to:
Norwest Mortgage, Inc.
405 S.W. 5th
Des Moines, IA 50309
Attention: Secretary
If to DMLC, Stan-Shaw or DIS:
Directors Mortgage Loan Corporation
1595 Spruce Street
Riverside, California 92507
Attention: Ray Crebs, Chairman
With a copy to:
Mr. Baldwin Tuttle, Attorney at law
Manatt, Phelps, Phillips
1501 M Street, N.W.
Washington, D.C. 20005
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 Agreements and any
other document executed contemporaneously herewith contain the complete
agreement between the parties hereto with respect to the Mergers 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.
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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 DMLC,
Stan-Shaw and DIS 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.
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreement shall survive the
Merger or except as set forth in paragraph 9(b), the termination of this
Agreement.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION DIRECTORS MORTGAGE LOAN
CORPORATION
By: /s/ John Ganoe By: /s/ Raymond Crebs
------------------------- ---------------------------------------
Its: Senior Vice President Its: President and Chief Executive Officer
------------------------ -------------------------------------
By: /s/ Gerald Horton
---------------------------------------
Its: Chief Financial Officer and Secretary
-------------------------------------
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STAN-SHAW CORPORATION DIRECTORS INSURANCE SERVICE
By: /s/ Raymond Crebs By: /s/ Raymond Crebs
------------------------------ ------------------------------
Its: President and Chief Executive Its: President and Chief Executive
Officer Officer
----------------------------- -----------------------------
By: /s/ Gerald Horton By: /s/ Gerald Horton
------------------------------ ------------------------------
Its: Chief Financial Officer and Its: Chief Financial Officer and
Secretary Secretary
----------------------------- -----------------------------
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EXHIBIT A
AGREEMENT OF MERGER
OF
DIRECTORS MORTGAGE LOAN CORPORATION
AND
MERGER CO. I
THIS AGREEMENT OF MERGER (the "Agreement of Merger") is made and
entered into as of this ____ day of ____________, 1995, by and between Directors
Mortgage Loan Corporation, a California corporation ("DMLC"), and Merger Co. I,
a California corporation ("Newco"), and Norwest Corporation, a Delaware
corporation ("Norwest").
WHEREAS, DMLC, Stan-Shaw Corporation, Directors Insurance Service and
Norwest have entered into an Agreement and Plan of Reorganization (the
"Acquisition Agreement"), dated as of _______________, 1994, pursuant to which
Newco will merge with and into DMLC, which, as the surviving corporation, will
become a wholly-owned subsidiary of Norwest.
WHEREAS, the respective Boards of Directors of Newco and DMLC have
approved as desirable and in the best interests of each corporation that Newco
be merged with and into DMLC by a statutory merger upon the terms and conditions
set forth in the Acquisition Agreement and this Agreement of Merger.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS
FIRST: Newco shall be merged with and into DMLC by a statutory merger
(the "Merger") in accordance with the General Corporation Law of the State of
California and on the terms and conditions hereinafter expressed. At the
Effective Time of the Merger (as hereinafter defined), the separate existence of
Newco shall cease and DMLC shall be the surviving entity (the "Surviving
Corporation").
SECOND: The Merger shall be effective (the "Effective Time of the
Merger") when this Agreement of Merger and appropriate certificates of its
approval and adoption shall have been filed with the Secretary of State of the
State of California in accordance with Section 1103 of the California General
Corporation Law (the "CGCL").
THIRD: From and after the Effective Time of the Merger, pursuant to
the CGCL, the separate existence of Newco will cease and the Surviving
Corporation shall succeed, without other transfer, to all the rights and
property of Newco and shall be subject to all the debts and liabilities of Newco
in the same manner as if the Surviving Corporation had itself incurred them.
All rights of creditors and all liens upon the property of each of Newco and
DMLC shall be preserved unimpaired, provided that such liens upon property of
Newco shall be limited to the property affected thereby immediately prior to the
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Effective Time of the Merger. Any action or proceeding pending by or against
Newco may be prosecuted to judgment, which shall bind the Surviving Corporation,
or the Surviving Corporation may be proceeded against or substituted in its
place.
FOURTH: The manner of converting the shares of the capital stock of
Newco and DMLC upon the Merger shall, by virtue of the Merger at the Effective
Time of the Merger and without any action on the part of the holders thereof, be
as follows:
(a) Each share of common stock, no par value, of Newco which shall be
outstanding immediately prior to the Effective Time of the Merger shall
automatically be converted to one share of Series A Voting common stock, no
par value, of the Surviving Corporation.
(b) Each share of Series A Voting common stock, no par value, of DMLC
and each share of Series B Non-Voting common stock, no par value, of DMLC
(collectively, the "Shares") which shall be outstanding immediately prior
to the Effective Time of the Merger, other than Shares which are dissenting
shares within the meaning of Section 1300(b) of the CGCL ("Dissenting
Shares"), shall, without any action on the part of the holder thereof,
cease to be outstanding and be converted into and exchanged for the right
to receive ___ fully paid and nonassessable shares of Norwest common stock,
par value, $1-2/3 per share, (the "Consideration"). Dissenting Shares
shall not be converted into the right to receive the Consideration at or
after the Effective Time of the Merger, and the holder thereof shall be
entitled only to such rights as are granted by the CGCL.
(c) No fractional shares of Norwest common stock, par value $1-2/3
per share, shall be issued in the Merger. In lieu thereof, each holder of
Shares who would otherwise be entitled to receive fractional shares (after
aggregating all fractional shares of Norwest common stock, par value
$1-2/3 per share, to be received by such holder) shall receive an amount in
cash equal to the product (calculated to the nearest whole cent), obtained
by multiplying the Norwest Measurement Price (as defined in the Acquisition
Agreement) by the fraction of the share of Norwest common stock, par value
$1-2/3 per share, to which such holder would otherwise be entitled.
FIFTH: The Articles of Incorporation of DMLC in effect immediately prior
to the Effective Time of the Merger shall continue to be the Articles of
Incorporation of the Surviving Corporation after the Effective Time of the
Merger.
SIXTH: The By-Laws of DMLC in effect immediately prior to the Effective
Time of the Merger shall continue to be the By-Laws of the Surviving Corporation
after the Effective Time of the Merger.
SEVENTH: The persons who are directors of Newco immediately prior to the
Effective Time of the Merger shall, after the Effective Time of the Merger,
serve as the
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directors of the Surviving Corporation, to serve until their successors have
been duly elected and qualified in accordance with the Articles of Incorporation
and By-Laws of the Surviving Corporation. The persons who are officers of DMLC
immediately prior to the Effective Time of the Merger shall, after the Effective
Time of the Merger, serve as the officers of the Surviving Corporation until
their successors have been duly elected and qualified.
EIGHTH: After the Effective Time of the Merger, as promptly as
practicable after the surrender by a holder of certificates representing one or
more Shares, Norwest Bank Minnesota, National Association, as exchange agent
(the "Agent") shall deliver to such holder in exchange for such certificates so
surrendered the Consideration and cash, if any, to which such holder is entitled
as specified in FOURTH above.
Until so surrendered each certificate which, immediately prior to the
Effective Time of the Merger, represented Shares shall not be transferable on
the books of the Surviving Corporation but shall be deemed to evidence the right
to receive (except for the payment of dividends as provided below) ownership of
the number of whole shares of Norwest common stock, par value $1-2/3 per share,
into which such Shares have been converted on the basis above set forth,
provided, however, until the holder of such certificate for Shares shall have
surrendered the same for exchange as above set forth, no dividend payable to
holders of record of Norwest common stock, par value $1-2/3 per share, as of any
date subsequent to the Effective Time of the Merger shall be paid to such holder
with respect to the Norwest common stock, par value $1-2/3 per share, if any,
represented by such certificate, but, upon surrender and exchange thereof as
herein provided, there shall be paid by Norwest or the Agent to the record
holder of such certificate for Norwest common stock, par value $1-2/3 per share,
issued in exchange therefore an amount with respect to such shares of Norwest
common stock, par value $1-2/3 per share, equal to all dividends that shall have
been paid or become payable to holders of record of Norwest common stock, par
value $1-2/3 per share, between the Effective Time of the Merger and the date of
such exchange.
NINTH: The filing of this Agreement of Merger as provided in SECOND above,
is conditioned on the fulfillment, prior to such filing, of all of the
conditions precedent to the Merger set forth in the Acquisition Agreement.
TENTH: The parties hereto shall execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments, and will take or
cause to be taken all further or other action as they may deem necessary or
desirable in order to vest in and confirm to the Surviving Corporation title to
and possession of all of Newco's and DMLC's property rights, privileges, powers
and franchises hereunder, and otherwise to carry out the intent and purpose of
this Agreement of Merger.
ELEVENTH: This Agreement of Merger shall be binding upon and enforceable
by the parties hereto and their respective successors, assigns and transferees,
but this
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Agreement of Merger may not be assigned by either party without the written
consent of the other.
TWELFTH: The laws of the State of California shall govern the validity and
interpretation hereof and the performance by the parties hereto.
THIRTEENTH: Prior to the filing of this Agreement of Merger with the
Secretary of State of the State of California, this Agreement of Merger may be
amended or terminated by the agreement of the Boards of Directors of Newco,
Norwest and DMLC notwithstanding approval of this Agreement of Merger by the
shareholders of DMLC, provided that no amendment hereof may change the
Consideration or change any other principal term hereof without shareholder
approval. This Agreement of Merger shall automatically be terminated and of no
further force and effect if, prior to the filing of an executed copy with the
Secretary of State of the State of California as provided in SECOND above, the
Acquisition Agreement is terminated in accordance with its terms.
IN WITNESS WHEREOF, Newco, Norwest and DMLC, pursuant to the approval and
authority duly given by resolutions adopted by their respective Boards of
Directors, have caused this Agreement of Merger to be executed by their
respective officers on the date first above written.
MERGER CO. I DIRECTORS MORTGAGE LOAN
CORPORATION
By: ______________________ By: ______________________
________________ ________________
President President
By: ______________________ By: ______________________
________________ ________________
Secretary Secretary
NORWEST CORPORATION
By:______________________
Its:_______________________
By:______________________
Its:_______________________
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EXHIBIT B
AGREEMENT OF MERGER
OF
DIRECTORS INSURANCE SERVICE
AND
MERGER CO. II
THIS AGREEMENT OF MERGER (the "Agreement of Merger") is made and
entered into as of this ____ day of ____________, 1995, by and between Directors
Insurance Service, a California corporation ("DIS"), Merger Co. II, a California
corporation ("Newco") and Norwest Corporation, a Delaware corporation
("Norwest").
WHEREAS, DIS, Directors Mortgage Loan Corporation, Stan-Shaw
Corporation and Norwest have entered into an Agreement and Plan of
Reorganization (the "Acquisition Agreement"), dated as of _______________, 1994,
pursuant to which Newco will merge with and into DIS, which, as the surviving
corporation, will become a wholly-owned subsidiary of Norwest.
WHEREAS, the respective Boards of Directors of Newco and DIS have
approved as desirable and in the best interests of each corporation that Newco
be merged with and into DIS by a statutory merger upon the terms and conditions
set forth in the Acquisition Agreement and this Agreement of Merger.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS
FIRST: Newco shall be merged with and into DIS by a statutory merger
(the "Merger") in accordance with the General Corporation Law of the State of
California and on the terms and conditions hereinafter expressed. At the
Effective Time of the Merger (as hereinafter defined), the separate existence of
Newco shall cease and DIS shall be the surviving entity (the "Surviving
Corporation").
SECOND: The Merger shall be effective (the "Effective Time of the
Merger") when this Agreement of Merger and appropriate certificates of its
approval and adoption shall have been filed with the Secretary of State of the
State of California in accordance with Section 1103 of the California General
Corporation Law (the "CGCL").
THIRD: From and after the Effective Time of the Merger, pursuant to
the CGCL, the separate existence of Newco will cease and the Surviving
Corporation shall succeed, without other transfer, to all the rights and
property of Newco and shall be subject to all the debts and liabilities of Newco
in the same manner as if the Surviving Corporation had itself incurred them.
All rights of creditors and all liens upon the property of each of Newco and DIS
shall be preserved unimpaired, provided that such liens upon property of Newco
shall be limited to the property affected thereby immediately prior to the
Effective Time of the Merger. Any action or proceeding pending by or against
Newco may be
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prosecuted to judgment, which shall bind the Surviving Corporation, or the
Surviving Corporation may be proceeded against or substituted in its place.
FOURTH: The manner of converting the shares of the capital stock of
Newco and DIS upon the Merger shall, by virtue of the Merger at the Effective
Time of the Merger and without any action on the part of the holders thereof, be
as follows:
(a) Each share of common stock, no par value, of Newco which shall be
outstanding immediately prior to the Effective Time of the Merger shall
automatically be converted to one share of common stock, no par value, of
the Surviving Corporation.
(b) Each share of common stock, no par value, of DIS (collectively,
the "Shares") which shall be outstanding immediately prior to the Effective
Time of the Merger, other than Shares which are dissenting shares within
the meaning of Section 1300(b) of the CGCL ("Dissenting Shares"), shall,
without any action on the part of the holder thereof, cease to be
outstanding and be converted into the right to receive ___ fully paid and
nonassessable shares of Norwest common stock, par value, $1-2/3 per
share, (the "Consideration"). Dissenting Shares shall not be converted
into the right to receive the Consideration at or after the Effective Time
of the Merger, and the holder thereof shall be entitled only to such rights
as are granted by the CGCL.
(c) No fractional shares of Norwest common stock, par value $1-2/3
per share, shall be issued in the Merger. In lieu thereof, each holder of
Shares who would otherwise be entitled to receive fractional shares (after
aggregating all fractional shares of Norwest common stock, par value
$1-2/3 per share, to be received by such holder) shall receive an amount in
cash equal to the product (calculated to the nearest whole cent), obtained
by multiplying the Norwest Measurement Price as defined in the Acquisition
Agreement by the fraction of the share of Norwest common stock, par value
$1-2/3 per share, to which such holder would otherwise be entitled.
FIFTH: The Articles of Incorporation of DIS in effect immediately prior to
the Effective Time of the Merger shall continue to be the Articles of
Incorporation of the Surviving Corporation after the Effective Time of the
Merger.
SIXTH: The By-Laws of DIS in effect immediately prior to the Effective
Time of the Merger shall continue to be the By-Laws of the Surviving Corporation
after the Effective Time of the Merger.
SEVENTH: The persons who are directors of Newco immediately prior to the
Effective Time of the Merger shall, after the Effective Time of the Merger,
serve as the directors of the Surviving Corporation, to serve until their
successors have been duly elected and qualified in accordance with the Articles
of Incorporation and By-Laws of the
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Surviving Corporation. The persons who are officers of DIS immediately prior to
the Effective Time of the Merger shall, after the Effective Time of the Merger,
serve as the officers of the Surviving Corporation until their successors have
been duly elected and qualified.
EIGHTH: After the Effective Time of the Merger, as promptly as
practicable after the surrender by a holder of certificates representing one or
more Shares, Norwest Bank Minnesota, National Association, as exchange agent
(the "Agent") shall deliver to such holder in exchange for such certificates so
surrendered the Consideration and cash, if any, to which such holder is entitled
as specified in FOURTH above.
Until so surrendered each certificate which, immediately prior to the
Effective Time of the Merger, represented Shares shall not be transferable on
the books of the Surviving Corporation but shall be deemed to evidence the right
to receive (except for the payment of dividends as provided below) ownership of
the number of whole shares of Norwest common stock, par value $1-2/3 per share,
into which such Shares have been converted on the basis above set forth,
provided, however, until the holder of such certificate for Shares shall have
surrendered the same for exchange as above set forth, no dividend payable to
holders of record of Norwest common stock, par value $1-2/3 per share, as of any
date subsequent to the Effective Time of the Merger shall be paid to such holder
with respect to the Norwest common stock, par value $1-2/3 per share, if any,
represented by such certificate, but, upon surrender and exchange thereof as
herein provided, there shall be paid by Norwest or the Agent to the record
holder of such certificate for Norwest common stock, par value $1-2/3 per share,
issued in exchange therefore an amount with respect to such shares of Norwest
common stock, par value $1-2/3 per share, equal to all dividends that shall have
been paid or become payable to holders of record of Norwest common stock, par
value $1-2/3 per share, between the Effective Time of the Merger and the date of
such exchange.
NINTH: The filing of this Agreement of Merger as provided in SECOND above,
is conditioned on the fulfillment, prior to such filing, of all of the
conditions precedent to the Merger set forth in the Acquisition Agreement.
TENTH: The parties hereto shall execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments, and will take or
cause to be taken all further or other action as they may deem necessary or
desirable in order to vest in and confirm to the Surviving Corporation title to
and possession of all of Newco's and DIS's property rights, privileges, powers
and franchises hereunder, and otherwise to carry out the intent and purpose of
this Agreement of Merger.
ELEVENTH: This Agreement of Merger shall be binding upon and enforceable
by the parties hereto and their respective successors, assigns and transferees,
but this Agreement of Merger may not be assigned by either party without the
written consent of the other.
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TWELFTH: The laws of the State of California shall govern the validity and
interpretation hereof and the performance by the parties hereto.
THIRTEENTH: Prior to the filing of this Agreement of Merger with the
Secretary of State of the State of California, this Agreement of Merger may be
amended or terminated by the agreement of the Boards of Directors of Newco,
Norwest and DIS notwithstanding approval of this Agreement of Merger by the
shareholders of DIS, provided that no amendment hereof may change the
Consideration or change any other principal term hereof without shareholder
approval. This Agreement of Merger shall automatically be terminated and of no
further force and effect if, prior to the filing of an executed copy with the
Secretary of State of the State of California as provided in SECOND above, the
Acquisition Agreement is terminated in accordance with its terms.
IN WITNESS WHEREOF, Newco, Norwest and DIS, pursuant to the approval and
authority duly given by resolutions adopted by their respective Boards of
Directors, have caused this Agreement of Merger to be executed by their
respective officers on the date first above written.
MERGER CO. II DIRECTORS INSURANCE SERVICE
By: ________________________ By: ________________________
_________________ _________________
President President
By: ________________________ By: ________________________
_________________ _________________
Secretary Secretary
NORWEST CORPORATION
By: _________________________
Its:__________________________
By:_________________________
Its:_________________________
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EXHIBIT C
AGREEMENT OF MERGER
OF
STAN-SHAW CORPORATION
AND
MERGER CO. III
THIS AGREEMENT OF MERGER (the "Agreement of Merger") is made and
entered into as of this ____ day of ____________, 1995, by and between Stan-Shaw
Corporation, a California corporation ("Stan-Shaw"), Merger Co. III, a
California corporation ("Newco") and Norwest Corporation, a Delaware corporation
("Norwest").
WHEREAS, Stan-Shaw, Directors Mortgage Loan Corporation, Directors
Insurance Service and Norwest have entered into an Agreement and Plan of
Reorganization (the "Acquisition Agreement"), dated as of _______________, 1994,
pursuant to which Newco will merge with and into Stan-Shaw, which, as the
surviving corporation, will become a wholly-owned subsidiary of Norwest.
WHEREAS, the respective Boards of Directors of Newco and Stan-Shaw
have approved as desirable and in the best interests of each corporation that
Newco be merged with and into Stan-Shaw by a statutory merger upon the terms and
conditions set forth in the Acquisition Agreement and this Agreement of Merger.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS
FIRST: Newco shall be merged with and into Stan-Shaw by a statutory
merger (the "Merger") in accordance with the General Corporation Law of the
State of California and on the terms and conditions hereinafter expressed. At
the Effective Time of the Merger (as hereinafter defined), the separate
existence of Newco shall cease and Stan-Shaw shall be the surviving entity (the
"Surviving Corporation").
SECOND: The Merger shall be effective (the "Effective Time of the
Merger") when this Agreement of Merger and appropriate certificates of its
approval and adoption shall have been filed with the Secretary of State of the
State of California in accordance with Section 1103 of the California General
Corporation Law (the "CGCL").
THIRD: From and after the Effective Time of the Merger, pursuant to
the CGCL, the separate existence of Newco will cease and the Surviving
Corporation shall succeed, without other transfer, to all the rights and
property of Newco and shall be subject to all the debts and liabilities of Newco
in the same manner as if the Surviving Corporation had itself incurred them.
All rights of creditors and all liens upon the property of each of Newco and
Stan-Shaw shall be preserved unimpaired, provided that such liens upon property
of Newco shall be limited to the property affected thereby immediately prior to
the Effective Time of the Merger. Any action or proceeding pending by or
against Newco
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<PAGE>
may be prosecuted to judgment, which shall bind the Surviving Corporation, or
the Surviving Corporation may be proceeded against or substituted in its place.
FOURTH: The manner of converting the shares of the capital stock of
Newco and Stan-Shaw upon the Merger shall, by virtue of the Merger at the
Effective Time of the Merger and without any action on the part of the holders
thereof, be as follows:
(a) Each share of common stock, no par value, of Newco which shall be
outstanding immediately prior to the Effective Time of the Merger shall
automatically be converted to one share of common stock, $10 par value, of
the Surviving Corporation.
(b) Each share of common stock, $10 par value, of Stan-Shaw
(collectively, the "Shares") which shall be outstanding immediately prior
to the Effective Time of the Merger, other than Shares which are dissenting
shares within the meaning of Section 1300(b) of the CGCL ("Dissenting
Shares"), shall, without any action on the part of the holder thereof,
cease to be outstanding and be converted into the right to receive ___
fully paid and nonassessable shares of Norwest common stock, par value,
$1-2/3 per share, (the "Consideration"). Dissenting Shares shall not be
converted into the right to receive the Consideration at or after the
Effective Time of the Merger, and the holder thereof shall be entitled only
to such rights as are granted by the CGCL.
(c) No fractional shares of Norwest common stock, par value $1-2/3
per share, shall be issued in the Merger. In lieu thereof, each holder of
Shares who would otherwise be entitled to receive fractional shares (after
aggregating all fractional shares of Norwest common stock, par value
$1-2/3 per share, to be received by such holder) shall receive an amount in
cash equal to the product (calculated to the nearest whole cent), obtained
by multiplying the Norwest Measurement Price as defined in the Acquisition
Agreement by the fraction of the share of Norwest common stock, par value
$1-2/3 per share, to which such holder would otherwise be entitled.
FIFTH: The Articles of Incorporation of Stan-Shaw in effect immediately
prior to the Effective Time of the Merger shall continue to be the Articles of
Incorporation of the Surviving Corporation after the Effective Time of the
Merger.
SIXTH: The By-Laws of Stan-Shaw in effect immediately prior to the
Effective Time of the Merger shall continue to be the By-Laws of the Surviving
Corporation after the Effective Time of the Merger.
SEVENTH: The persons who are directors of Newco immediately prior to the
Effective Time of the Merger shall, after the Effective Time of the Merger,
serve as the directors of the Surviving Corporation, to serve until their
successors have been duly elected and qualified in accordance with the Articles
of Incorporation and By-Laws of the
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<PAGE>
Surviving Corporation. The persons who are officers of Stan-Shaw immediately
prior to the Effective Time of the Merger shall, after the Effective Time of the
Merger, serve as the officers of the Surviving Corporation until their
successors have been duly elected and qualified.
EIGHTH: After the Effective Time of the Merger, as promptly as
practicable after the surrender by a holder of certificates representing one or
more Shares, Norwest Bank Minnesota, National Association, as exchange agent
(the "Agent") shall deliver to such holder in exchange for such certificates so
surrendered the Consideration and cash, if any, to which such holder is entitled
as specified in FOURTH above.
Until so surrendered each certificate which, immediately prior to the
Effective Time of the Merger, represented Shares shall not be transferable on
the books of the Surviving Corporation but shall be deemed to evidence the right
to receive (except for the payment of dividends as provided below) ownership of
the number of whole shares of Norwest common stock, par value $1-2/3 per share,
into which such Shares have been converted on the basis above set forth,
provided, however, until the holder of such certificate for Shares shall have
surrendered the same for exchange as above set forth, no dividend payable to
holders of record of Norwest common stock, par value $1-2/3 per share, as of any
date subsequent to the Effective Time of the Merger shall be paid to such holder
with respect to the Norwest common stock, par value $1-2/3 per share, if any,
represented by such certificate, but, upon surrender and exchange thereof as
herein provided, there shall be paid by Norwest or the Agent to the record
holder of such certificate for Norwest common stock, par value $1-2/3 per share,
issued in exchange therefore an amount with respect to such shares of Norwest
common stock, par value $1-2/3 per share, equal to all dividends that shall have
been paid or become payable to holders of record of Norwest common stock, par
value $1-2/3 per share, between the Effective Time of the Merger and the date of
such exchange.
NINTH: The filing of this Agreement of Merger as provided in SECOND above,
is conditioned on the fulfillment, prior to such filing, of all of the
conditions precedent to the Merger set forth in the Acquisition Agreement.
TENTH: The parties hereto shall execute and deliver, or cause to be
executed and delivered, all such deeds and other instruments, and will take or
cause to be taken all further or other action as they may deem necessary or
desirable in order to vest in and confirm to the Surviving Corporation title to
and possession of all of Newco's and Stan-Shaw's property rights, privileges,
powers and franchises hereunder, and otherwise to carry out the intent and
purpose of this Agreement of Merger.
ELEVENTH: This Agreement of Merger shall be binding upon and enforceable
by the parties hereto and their respective successors, assigns and transferees,
but this Agreement of Merger may not be assigned by either party without the
written consent of the other.
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<PAGE>
TWELFTH: The laws of the State of California shall govern the validity and
interpretation hereof and the performance by the parties hereto.
THIRTEENTH: Prior to the filing of this Agreement of Merger with the
Secretary of State of the State of California, this Agreement of Merger may be
amended or terminated by the agreement of the Boards of Directors of Newco,
Norwest and Stan-Shaw notwithstanding approval of this Agreement of Merger by
the shareholders of Stan-Shaw, provided that no amendment hereof may change the
Consideration or change any other principal term hereof without shareholder
approval. This Agreement of Merger shall automatically be terminated and of no
further force and effect if, prior to the filing of an executed copy with the
Secretary of State of the State of California as provided in SECOND above, the
Acquisition Agreement is terminated in accordance with its terms.
IN WITNESS WHEREOF, Newco, Norwest and Stan-Shaw, pursuant to the approval
and authority duly given by resolutions adopted by their respective Boards of
Directors, have caused this Agreement of Merger to be executed by their
respective officers on the date first above written.
MERGER CO. III STAN-SHAW CORPORATION
By: ________________________ By: _________________________
__________________ ___________________
President President
By: ________________________ By: _________________________
__________________ ___________________
Secretary Secretary
NORWEST CORPORATION
By:_____________________________
Its:_____________________________
By:_____________________________
Its:_____________________________
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<PAGE>
APPENDIX B
CALIFORNIA GENERAL CORPORATION LAW, SECTION 13
SECTION 1300. Reorganization or short form merger; dissenting shares;
corporate purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-
form merger either (A) listed on any national securities exchange certified
by the Commissioner of Corporations under subdivision (o) of Section 25100
or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with which there exists any restriction on
transfer imposed by the corporation or by any law or regulation; and
provided, further, that this provision does not apply to any class of
shares described in subparagraph (A) or (B) if demands for payment are
filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with Section
1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
<PAGE>
SECTION 1301. Notice to holders of dissenting shares in
reorganizations; demand for purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain as statement of what such shareholder claims to be
the fair market value of those shares as of the day before the announcement of
the proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. Submission of share certificates for endorsement;
uncertified securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denominations so stamped or
endorsed or (b) if the shares are uncertificated securities, written notice of
the number of shares which the shareholder demands that the corporation
purchase. Upon subsequent transfers of the dissenting shares on the books of
the corporation, the new certificates, initial transaction statement, and other
written statements issued therefor shall bear a like statement, together with
the name of the original dissenting holder of the shares.
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<PAGE>
SECTION 1303. Payment of agreed price with interest; agreement
fixing fair market value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1305, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SECTION 1304. Action to determine whether shares are dissenting
shares or fair market value; limitation; joinder; consolidation; determination
of issues; appointment of appraisers
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. Report of appraisers; confirmation; determination by
court; judgment; payment; appeal; costs
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
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<PAGE>
(c) Subject to the provisions of Section 1305, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. Prevention of immediate payment; status as creditors;
interest
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. Dividends on dissenting shares
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation thereof.
SECTION 1308. Rights of dissenting shareholders pending valuation;
withdrawal of demand for payment
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
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SECTION 1309. Termination of dissenting share and shareholder
status
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. Suspension of right to compensation or valuation
proceedings; litigation of shareholders' approval
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SECTION 1311. Exempt shares
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. Right of dissenting shareholder to attack, set aside or
rescind merger or reorganization; restraining order or injunction; conditions
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to
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subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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