<PAGE>
As filed with the Securities and Exchange Commission on January 9, 1996
Registration No. 033-64715
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
__________________________
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 6711 41-0449260
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
__________________________
Stanley S. Stroup
Executive Vice President and General Counsel Copy to:
Norwest Corporation Robert J. Kaukol
Norwest Center Norwest Corporation
Sixth and Marquette Norwest Center
Minneapolis, Minnesota 55479-1026 Sixth and Marquette
612-667-8858 Minneapolis, Minnesota 55479-1026
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
__________________
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
<PAGE>
NORWEST CORPORATION
-------------------
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Heading
------------- ------------------
<S> <C> <C>
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Available Information;
Pages of Prospectus Incorporation of Certain
Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary Information
Charges, and Other Information
4. Terms of the Reorganization The Merger
5. Pro Forma Financial Information *
6. Material Contracts with the Company The Merger
Being Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Opinion
9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Summary Information--
Registrants Comparative Per Common
Share Data; Summary
Information--Selected Financial
Data; Certain Regulatory
Considerations
11. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference;
Management and Additional
Information
</TABLE>
<PAGE>
NORWEST CORPORATION
-------------------
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
Form S-4 Item Prospectus Heading
------------- ------------------
12. Information with Respect to S-2 or *
S-3 Registrants
13. Incorporation of Certain Documents *
by Reference
14. Information with Respect to *
Registrants Other Than S-2 or S-3
Registrants
15. Information with Respect to S-3 *
Companies
16. Information with Respect to *
S-2 or S-3 Companies
17. Information with Respect to Companies Summary Information--
Other Than S-2 or S-3 Companies Comparative Per Common Share
Data; Summary Information--
Selected Financial Data;
Information About Canton
18. Information If Proxies, Consents, Meeting Information; The Merger
or Authorizations Are to Be Solicited --Interests of Certain Persons
in the Merger; The Merger--
Rights of Dissenting Shareholders
19. Information If Proxies, Consents, or *
Authorizations Are Not to Be Solicited
in an Exchange Offer
- ---------------------------
*Item is omitted because answer is negative or item is inapplicable.
<PAGE>
CANTON BANCSHARES, INC.
2 NORTH MAIN STREET
CANTON, ILLINOIS 61520
January 11, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Canton Bancshares, Inc. ("Canton") to be held at the Elks Club, 61 West Elm,
Canton, Illinois, on Monday, February 12, 1996, at 10:00 a.m., local time.
The purpose of the Special Meeting is to consider and vote upon the
Agreement and Plan of Reorganization, dated as of July 25, 1995, between Canton
and Norwest Corporation ("Norwest"), and the related Agreement and Plan of
Merger (together, the "Reorganization Agreement"), providing for the merger of
a wholly owned subsidiary of Norwest into Canton (the "Merger").
If the Merger is consummated, each share of Canton Common Stock
outstanding immediately prior to the time the Merger becomes effective will be
converted into a number of shares of Norwest Common Stock determined in
accordance with the provisions of the Reorganization Agreement, which are
described in the enclosed Proxy Statement-Prospectus for the Special Meeting.
The Proxy Statement-Prospectus contains a more complete description of the
terms of the Merger. You are urged to read the Proxy Statement-Prospectus
carefully.
The Board of Directors believes that the proposed merger is in the best
interests of Canton and its shareholders and has unanimously approved the
proposed Merger. The Board has also received the opinion of Alex Sheshunoff &
Co. Investment Banking to the effect that the terms of the proposed merger are
fair, from a financial point of view, to the shareholders of Canton.
In order to ensure that your vote is represented at the Special Meeting,
PLEASE DATE, SIGN, AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If
you attend the meeting, you may vote in person if you wish, even though you
have previously returned your proxy.
Very truly yours,
Otto G. Stephenitch
President
<PAGE>
CANTON BANCSHARES, INC.
2 NORTH MAIN STREET
CANTON, ILLINOIS 61520
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON FEBRUARY 12, 1996
---------------------------------------------
A special meeting of shareholders (the "Special Meeting") of Canton
Bancshares, Inc. ("Canton"), an Illinois corporation, will be held at
the Elks Club, 6l West Elm, Canton, Illinois, on Monday, February 12,
1996, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization,
dated as of July 25, 1995, (including the Agreement and Plan of Merger
attached thereto) (together, the "Reorganization Agreement") by and between
Canton and Norwest Corporation ("Norwest"), a Delaware corporation, a copy
of which is included in the accompanying Proxy Statement-Prospectus as
Appendix A, under the terms of which (a) a wholly owned subsidiary of
Norwest would be merged with Canton (the "Merger"), with Canton as the
surviving corporation, and each outstanding share of common stock, par value
$1.00 per share, of Canton would be converted into a number of shares of
common stock, par value $1 2/3 per share, of Norwest determined in
accordance with the Reorganization Agreement; and to authorize such further
action by the Board of Directors and proper officers of Canton as may be
necessary or appropriate to carry out the intent and purposes of the Merger.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record on the books of Canton at the close of business
on January 10, 1996, will be entitled to receive notice of and to vote at the
Special Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement-Prospectus accompanying
this notice for a more complete statement regarding the matters to be acted
upon at the Special Meeting.
By Order of the Board of Directors
Janice M. Dowell
__________________________
Secretary
January 11, 1996
HOLDERS OF CANTON COMMON STOCK ARE URGED TO COMPLETE, SIGN, DATE, AND MAIL THE
ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY, IF
YOU WISH, REVOKE YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE REVOKED AT
ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROXY STATEMENT-
PROSPECTUS.
<PAGE>
PROXY STATEMENT OF
------------------
CANTON BANCSHARES, INC.
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 12, 1996
____________
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
----------------------
This Prospectus of Norwest Corporation ("Norwest") relates to the issuance of
up to 400,000 shares of the common stock, par value $1 2/3 per share, of Norwest
("Norwest Common Stock") to the stockholders of Canton Bancshares, Inc.
("Canton") upon consummation of the proposed merger (the "Merger") of a wholly
owned subsidiary of Norwest with Canton, with Canton as the surviving
corporation, pursuant to the terms of the Agreement and Plan of Reorganization,
dated as of July 25, 1995, by and among Canton and Norwest (together with the
Agreement and Plan of Merger attached thereto, the "Reorganization Agreement").
The Reorganization Agreement is set forth in Appendix A to this Proxy Statement-
Prospectus and is incorporated by reference herein.
This Prospectus also serves as the Proxy Statement of Canton for a special
meeting of its stockholders to be held on February 12, 1996 (the "Special
Meeting").
Except as described herein, upon consummation of the Merger, each outstanding
share of common stock of Canton ("Canton Common Stock") will be converted into
shares of common stock, par value $1 2/3 per share, of Norwest ("Norwest Common
Stock"), determined by dividing the "Adjusted Norwest Shares" by the number of
shares of Canton Common Stock then outstanding. The "Adjusted Norwest Shares"
will be that number of shares of Norwest Common Stock calculated by dividing the
sum of $9,400,000 less an escrow amount of $250,000 (the "Escrow Amount") by the
"Norwest Measurement Price". The Norwest Measurement Price will be equal to the
average of the closing prices of a share of Norwest Common Stock as reported on
the consolidated tape of the New York Stock Exchange during the period of 20
trading days ending on the day immediately preceding the Special Meeting.
Assuming the Special Meeting were held on January 2, 1996 (the most recent
practicable date for purposes of this assumption prior to the date of this
Proxy Statement-Prospectus), the Norwest Measurement Price would be $33.58, the
Adjusted Norwest Shares would be 272,484, and the number of shares of Norwest
Common Stock (including cash in lieu of fractional shares) issuable to each
stockholder of Canton for each share of Canton Common Stock held would equal
5.4976 shares (based on 49,564 shares of Canton Common Stock currently
outstanding). Also upon consummation of the Merger, that number of shares of
Norwest Common Stock equal to the Escrow Amount divided by the Norwest
Measurement Price (the "Escrowed Shares") will be deposited into escrow pursuant
to the terms of an Escrow Agreement (the "Escrow Agreement") among Canton,
Norwest, and Norwest Bank Minnesota, National Association, as escrow agent to be
entered into in connection with the Merger. The Escrowed Shares will be held in
escrow and distributed to Canton stockholders and Norwest as provided in the
Escrow Agreement. Assuming the Norwest Measurement Price is $33.58,
approximately 7,445 shares of Norwest Common Stock would be deposited and held
in escrow pursuant to the Escrow Agreement.
For a more complete description of the Reorganization Agreement and the terms
of the Merger, see "THE MERGER."
This Proxy Statement-Prospectus and the form of proxy for the Special Meeting
are first being mailed to stockholders of Canton and to stockholders of the Bank
on or about January 11, 1996.
---------------------
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 SHARES OF NORWEST COMMON STOCK OFFERED BY THIS PROXY STATEMENT-
PROSPECTUS ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
---------------------
The date of this Proxy Statement-Prospectus is January __, 1996.
<PAGE>
AVAILABLE INFORMATION
Norwest is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, Norwest files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission").
Reports, proxy statements, and other information concerning Norwest can be
inspected and copied at the public reference facilities of the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. Reports, proxy statements, and other information
filed by Norwest also may be inspected at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005 and at the offices of the
Chicago Stock Exchange at One Financial Place, 440 South LaSalle Street,
Chicago, Illinois 60605.
This Proxy Statement-Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and the exhibits thereto (the
"Registration Statement") covering the securities offered hereby that Norwest
has filed with the Commission. Certain portions of the Registration Statement
have been omitted pursuant to the rules and regulations of the Commission.
Reference is hereby made to such omitted portions for further information with
respect to Norwest and the securities offered hereby. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission or attached as an
appendix hereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO NORWEST,
EXCLUDING EXHIBITS, UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO LAUREL A. HOLSCHUH, SECRETARY,
NORWEST CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE, MINNEAPOLIS,
MINNESOTA 55479-1026, TELEPHONE (612) 667-8655. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 5, 1996.
The following documents filed with the Commission by Norwest (File No. 1-
2979) are incorporated by reference in, and made a part of, this Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1994; (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30,
1995, and September 30, 1995; and (iii) Current Reports on Form 8-K dated
January 9, 1995, January 27, 1995, February 17, 1995, April 21, 1995, July 3,
1995, September 13, 1995, October 4, 1995 and November 1, 1995.
All documents filed by Norwest with the Commission pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of such filing. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part hereof.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION........................................................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 2
SUMMARY...................................................................... 5
Parties to the Merger.................................................... 5
Terms of the Merger...................................................... 6
Special Meeting and Vote Required........................................ 6
Reasons for the Merger................................................... 7
Recommendation of the Board of Directors................................. 7
Opinion of Canton's Financial Advisor.................................... 7
Effective Date and Time of the Merger.................................... 7
Conditions and Termination............................................... 8
Accounting Treatment..................................................... 8
Regulatory Approvals..................................................... 8
Management and Operations After the Merger............................... 8
Interests of Certain Persons in the Merger............................... 8
Rights of Dissenting Stockholders........................................ 9
Certain Federal Income Tax Considerations................................ 9
Markets and Market Prices................................................ 9
Certain Differences in Rights of Stockholders............................ 9
Comparative Per Common Share Data........................................ 10
Selected Consolidated Financial Data..................................... 12
MEETING INFORMATION.......................................................... 16
General.................................................................. 16
Date, Place, and Time.................................................... 16
Record Date; Vote Required............................................... 16
Principal Stockholders and Security Ownership of Management of Canton.... 17
Voting and Revocation of Proxies......................................... 19
Solicitation of Proxies.................................................. 19
THE MERGER................................................................... 20
Background of and Reasons for the Merger................................. 20
Opinion of Canton's Financial Advisor.................................... 20
Terms of the Merger...................................................... 21
Effective Date and Time of the Merger.................................... 23
Surrender of Certificates................................................ 23
Conditions to the Merger................................................. 24
Regulatory Approvals..................................................... 25
Conduct of Business Pending the Merger................................... 25
Certain Covenants........................................................ 26
No Solicitation.......................................................... 27
Waiver, Amendment, and Termination....................................... 27
Effect on Employee Benefit Plans......................................... 27
Management and Operations After the Merger............................... 28
Interests of Certain Persons in the Merger............................... 28
Rights of Dissenting Stockholders........................................ 28
Certain Federal Income Tax Considerations................................ 30
Resale of Norwest Common Stock........................................... 32
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dividend Reinvestment and Optional Cash Payment Plan..................... 33
Accounting Treatment..................................................... 33
Expenses................................................................. 33
INFORMATION ABOUT CANTON..................................................... 34
General.................................................................. 34
Business................................................................. 34
Markets and Dividends.................................................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 36
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS................................ 50
CERTAIN REGULATORY CONSIDERATIONS............................................ 59
General................................................................. 59
Dividend Restrictions................................................... 59
Holding Company Structure............................................... 59
Capital Requirements.................................................... 60
Federal Deposit Insurance Corporation Improvement Act of 1991........... 61
FDIC Insurance.......................................................... 63
EXPERTS...................................................................... 64
LEGAL OPINION................................................................ 64
MANAGEMENT AND ADDITIONAL INFORMATION........................................ 64
FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION
AND AGREEMENT AND PLAN OF MERGER;
FORM OF ESCROW AGREEMENT
APPENDIX B OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
APPENDIX C ILLINOIS STATUTES, SECTIONS 5/11.65 and 5/11.70.
---------------------
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 CANTON SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
4
<PAGE>
SUMMARY
The following summary of certain information relating to the Merger is not
intended to be complete and is qualified in all respects by the more detailed
information included in this Proxy Statement-Prospectus, the Appendices hereto,
and the documents incorporated by reference herein. As used in this Proxy
Statement-Prospectus, the terms "Norwest" and "Canton" 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 Canton included in this Proxy Statement-Prospectus has been
furnished by Canton to Norwest for incorporation herein.
PARTIES TO THE MERGER
NORWEST CORPORATION
Norwest Corporation is a diversified financial services 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"). Norwest owns
subsidiaries engaged in banking and in a variety of 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 agency services, computer and data processing services, trust
services, and venture capital investment.
At September 30, 1995, Norwest had consolidated total assets of $71.4
billion, total deposits of $39.7 billion, and total stockholders' equity of
$4.9 billion. Based on total assets at September 30, 1995, Norwest was the
11th largest commercial banking organization in the United States.
Norwest regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of Norwest does not
make a public announcement about an acquisition until a definitive agreement
has been signed. Norwest has entered into definitive agreements for the
acquisition of various financial institutions, including Canton, having
aggregate total assets at September 30, 1995, of $4.1 billion. Certain of
these acquisitions were consummated subsequent to September 30, 1995, and the
others remain subject to regulatory approval and are expected to be completed
by the end of the first quarter of 1996. None of these acquisitions is
individually significant or material to the financial statements of Norwest.
Norwest's principal executive offices are located at Norwest Center, Sixth
and Marquette, Minneapolis, Minnesota 55479-1000, and its telephone number is
612-667-1234.
Additional information concerning Norwest is included in the Norwest
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
5
<PAGE>
CANTON BANCSHARES, INC.
Canton is a bank holding company organized under the laws of Illinois in
1986. Its principal executive offices are located at 2 North Main Street,
Canton, Illinois 61520, and its telephone number is 309-647-5380. It holds
100% of the issued and outstanding capital stock of Canton State Bank (the
"Bank"), a full service commercial bank chartered under the laws of the State
of Illinois. The Bank offers a full range of commercial and consumer banking
services in the area. At September 30, 1995, Canton had total assets on a
consolidated basis of $50.6 million and total stockholders' equity of $6.5
million. See "INFORMATION ABOUT CANTON."
TERMS OF THE MERGER
The Reorganization Agreement provides for the merger of a wholly owned
subsidiary of Norwest with Canton, with Canton as the surviving corporation.
Upon consummation of the Merger, the outstanding shares of Canton 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. The exact number of shares of Norwest Common Stock for which each
outstanding share of Canton Common Stock will be determined by dividing the
"Adjusted Norwest Shares" by the number of shares of Canton Common Stock then
outstanding. The "Adjusted Norwest Shares" will be that number of shares of
Norwest Common Stock calculated by dividing the sum of $9,400,000 less an
escrow amount of $250,000 (the "Escrow Amount") by the "Norwest Measurement
Price". The Norwest Measurement Price will be equal to the average of the
closing prices of a share of Norwest Common Stock as reported on the
consolidated tape of the New York Stock Exchange during the period of 20
trading days ending on the day immediately preceding the Special Meeting.
Assuming the Special Meeting were held on January 2, 1996 (the most recent
practicable date for purposes of this assumption prior to the date of this
Proxy Statement-Prospectus), the Norwest Measurement Price would be $33.58, the
Adjusted Norwest Shares would be 272,484, and the number of shares of Norwest
Common Stock (including cash in lieu of fractional shares) issuable to each
stockholder of Canton per share of Canton Common Stock held would equal 5.4976
shares (based on 49,564 shares of Canton Common Stock currently outstanding).
Also upon consummation of the Merger, that number of shares of Norwest Common
Stock equal to the Escrow Amount divided by the Norwest Measurement Price will
be deposited into escrow pursuant to the terms of an Escrow Agreement among
Canton, Norwest, and Norwest Bank Minnesota, National Association, as escrow
agent (the "Escrow Agent") to be entered into in connection with the Merger.
The Escrowed Shares will be held in escrow and distributed to Canton
Stockholders and Norwest as provided in the Escrow Agreement. Assuming the
Norwest Measurement Price is $33.58, approximately 7,445 shares of Norwest
Common Stock would be deposited and held in escrow pursuant to the Escrow
Agreement. See "THE MERGER--Terms of the Merger."
SPECIAL MEETING AND VOTE REQUIRED
The Special Meeting of Canton stockholders to consider and vote on the
Merger will be held on Monday, February 12, 1996, at 10:00 a.m., local time,
at the Elks Club, 61 W. Elm, Canton, Illinois. Only holders of record
of Canton Common Stock at the close of business on January 10, 1996, will be
entitled to vote at the Special Meeting. At such date, there were 49,564
shares of Canton Common Stock outstanding. Each share of Canton Common Stock
is entitled to one vote. For additional information relating to the Special
Meeting, see "MEETING INFORMATION."
6
<PAGE>
Approval of the Reorganization Agreement requires the affirmative vote of
the holders of not less than two-thirds of the outstanding shares of Canton
Common Stock. As of the record date for the Special Meeting, directors and
officers of Canton and persons who may be deemed to be their affiliates owned
beneficially or controlled the voting of 46.12% of the shares of Canton Common
Stock outstanding on that date. Canton's directors and officers have informed
Canton that they intend to vote all of their shares in favor of the
Reorganization Agreement. At the record date, directors and executive officers
of Norwest did not own beneficially any shares of Canton Common Stock. See
"MEETING INFORMATION--Record Date; Vote Required" and "MEETING INFORMATION--
Principal Stockholders and Security Ownership of Management of Canton."
REASONS FOR THE MERGER
The Board of Directors of Canton has concluded that the Merger is in the
best interests of the holders of Canton Common Stock, who will receive, in a
tax-free exchange, stock of a much larger and a more diversified enterprise
that is actively traded on national exchanges. In addition to the greater
liquidity provided to stockholders, the Merger will provide customers of the
Bank with access to a broader range of services and will provide the Bank with
increased financial strength. This should allow the Bank to compete more
effectively with its competitors in the Central Illinois market area, several
of which are part of larger, multibank holding companies. See "THE MERGER--
Background of and Reasons for the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CANTON UNANIMOUSLY RECOMMENDS THAT CANTON
STOCKHOLDERS VOTE FOR THE MERGER. For information concerning the interests of
certain members of the Canton Board of Directors and management in the Merger,
see "THE MERGER--Interests of Certain Persons in the Merger."
OPINION OF CANTON'S FINANCIAL ADVISOR
The Canton Board of Directors retained Alex Sheshunoff & Co. Investment
Banking ("Sheshunoff") to act as financial advisor in connection with the
Merger. Sheshunoff has delivered its written opinion to the Canton Board dated
as of the date of this Proxy Statement-Prospectus, to the effect that the terms
of the Merger are fair, from a financial point of view, to the holders of
Canton Common Stock. The opinion of Sheshunoff is attached as Appendix B to
this Proxy Statement-Prospectus. Stockholders are urged to read such opinion in
its entirety for a description of the procedures followed, matters considered,
and limitations on the reviews undertaken in connection therewith. For
additional information, see "THE MERGER--Opinion of Canton's Financial
Advisor."
EFFECTIVE DATE AND TIME OF THE MERGER
Subject to the terms and conditions of the Reorganization Agreement, the
Merger will be effective on the date on which the appropriate filing is made
with the Secretary of State of the State of Illinois (the "Effective Date of
the Merger") at 11:59 p.m., Canton, Illinois time (the "Effective
Time of the Merger"). That filing will be made within ten business days
following the satisfaction
7
<PAGE>
or waiver of all conditions set forth in the Reorganization Agreement or on
such other date upon which the parties may agree. The closing of the Merger
will occur on the Effective Date of the Merger (the "Closing Date"). The
parties expect the Merger to become effective in the first quarter of 1996.
See "THE MERGER--Effective Date and Time of the Merger" and "THE MERGER--
Conditions to the Merger."
CONDITIONS AND TERMINATION
The respective obligations of Norwest and Canton to consummate the Merger
are subject to certain conditions, including the receipt of regulatory
approvals without unduly burdensome conditions; approval of the Reorganization
Agreement by the stockholders of Canton; receipt by Canton of certain tax
opinions; and certain other conditions customary in transactions of this
nature. See "THE MERGER--Conditions to the Merger" and "THE MERGER--Regulatory
Approvals."
The Reorganization Agreement may be terminated at any time prior to the
Effective Date of the Merger, whether prior to or after approval by Canton's
stockholders, by either party under specified conditions, including if the
Merger shall not have been consummated by March 31, 1996, 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 MERGER--Waiver, Amendment, and Termination."
ACCOUNTING TREATMENT
Management of Norwest anticipates that the Merger will be accounted for as
a purchase under generally accepted accounting principles. See "THE MERGER--
Accounting Treatment."
REGULATORY APPROVALS
The Merger is subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and the approval of the
Commissioner of Banks and Trust Companies for the State of Illinois (the
"Illinois Commissioner"). Receipt of such approvals is a condition to the
consummation of the Merger. Norwest filed applications for approval of the
Merger with the Federal Reserve Board on September 18, 1995 and with the
Illinois Commissioner on October 2, 1995. See "THE MERGER--Regulatory
Approvals."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Merger, the Bank will continue to operate at its present
locations and will offer products and services offered by Norwest affiliates.
See "THE MERGER--Management and Operations After the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All of the current directors and certain executive officers of Canton are
stockholders of Canton and can be expected, upon consummation of the Merger, to
receive shares of Norwest Common Stock in exchange for their shares of Canton
Common Stock. See "THE MERGER--Interests of Certain Persons in the Merger."
8
<PAGE>
RIGHTS OF DISSENTING STOCKHOLDERS
Under Illinois law, Canton stockholders who dissent from the Merger are
entitled to obtain payment of the fair value of their shares instead of
receiving Norwest Common Stock in the Merger. The failure of those Canton
stockholders who dissent from the Merger to comply with statutory procedures in
the exercise of dissenters' rights may nullify such rights. See "THE MERGER--
Rights of Dissenting Stockholders."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The consummation of the Merger is conditioned upon, among other things, the
opinion of Husch & Eppenberger, counsel to Canton, that the Merger will qualify
as a "tax free" reorganization for federal income tax purposes. Accordingly,
no gain or loss (other than with respect to cash received in lieu of fractional
shares or in satisfaction of dissenters' rights) generally will be recognized
by Canton stockholders upon the exchange of their Canton Common Stock for
Norwest Common Stock. However, the federal income tax considerations related
to the Merger may be different to particular types of Canton stockholders or in
light of each Canton shareholder's personal investment circumstances.
CONSEQUENTLY, CANTON STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS
CONCERNING THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE RELEVANT
TO THEM IN CONNECTION WITH THE MERGER, AS WELL AS THE APPLICATION TO THEM OF
ANY STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS. See "THE MERGER--Certain Federal
Income Tax Considerations."
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the Chicago Stock Exchange (the "CHX"). On July 24, 1995, the last trading
day preceding public announcement of the proposed Merger, the closing price per
share of Norwest Common Stock was $28.25 and on January __, 1996, the price
was $_______. There is no established trading market for Canton Common Stock,
excluding limited trading as a result of private negotiations not involving any
broker or dealer. Between January 1, 1993 and the date of this Proxy
Statement-Prospectus 504.44 shares of Canton Common Stock were traded as a
result of private negotiations in nine separate transactions. Canton is not
aware of the sale and purchase prices of those transactions other than a
transaction which occurred on June 15, 1994, in which Canton re-purchased 190
shares of Canton Common Stock at a price of $90.83 per share.
Stockholders of Canton are advised to obtain current market quotations for
Norwest Common Stock. The market price for Norwest Common Stock will fluctuate
between the date of this Proxy Statement-Prospectus and the Closing Date, which
will not occur until after the Special Meeting, a period of several weeks. As
a result, the market value of the Norwest Common Stock that stockholders of
Canton ultimately receive in the Merger could be more or less than its market
value on the date of this Proxy Statement-Prospectus. No assurances can be
given concerning the market price of Norwest Common Stock before or after the
Closing.
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
Upon consummation of the Merger, stockholders of Canton will become
stockholders of Norwest. As a result, such stockholders' rights will change
significantly. See "CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS."
9
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
The following table presents selected comparative per common share data for
Norwest Common Stock on a historical and pro forma combined basis and for
Canton Common Stock on a historical and a pro forma equivalent basis giving
effect to the Merger using the purchase method of accounting. See "THE MERGER-
-Accounting Treatment." This information is derived from the consolidated
historical financial statements of Norwest, including the related notes
thereto, incorporated by reference into this Proxy Statement-Prospectus and the
consolidated historical financial statements of Canton, including the notes
thereto, appearing elsewhere in this Proxy Statement-Prospectus. This
information should be read in conjunction with such historical financial
statements and the related notes thereto. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "INFORMATION ABOUT CANTON."
This data is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have
occurred had the Merger been consummated prior to the periods indicated.
10
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
<TABLE>
<CAPTION>
Norwest Common Stock Canton Common Stock
--------------------- ----------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
September 30, 1995 $13.73 13.73 131.81 75.48
December 31, 1994 10.79 10.79 109.01 59.32
DIVIDENDS DECLARED (2):
Nine Months Ended
September 30, 1995 0.660 0.660 2.000 3.628
Year Ended
December 31, 1994 0.765 0.765 4.000 4.206
NET INCOME (3):
Nine Months Ended
September 30, 1995 2.01 2.00 9.37 11.00
Year Ended
December 31, 1994 2.41 2.41 14.58 13.25
</TABLE>
(1) The pro forma combined book value per share of Norwest Common Stock is
based upon the historical total combined common stockholders' equity for Norwest
and Canton divided by total pro forma common shares of the combined entities
assuming exchange of the outstanding Canton Common Stock at an assumed ratio of
5.4976 shares of Norwest Common Stock for each share of Canton Common Stock.
The pro forma equivalent book value per share of Canton represents the pro forma
combined amount multiplied by this assumed ratio. This ratio assumes that, had
the Special Meeting occurred on January 2, 1996, the average of the closing
prices of Norwest Common Stock as reported on the consolidated tape of the New
York Stock Exchange during the period of 20 trading days (December 1, 1995 to
December 29, 1995) ending on the day before the Special Meeting would result in
a Norwest Measurement Price of $33.58 per share and the Adjusted Norwest Shares
assumed to be issued would be 272,484. The actual ratio may differ from the
assumed ratio due to fluctuations in the closing prices of Norwest Common Stock
up until the date of the Special Meeting. The adjusted Norwest Shares assumed
to be issued do not include, and the assumed exchange ratio does not reflect,
those shares of Norwest Common Stock equal to $250,000 divided by the Norwest
Measurement Price to be deposited into escrow pursuant to the Escrow Agreement
described in this Proxy Statement-Prospectus that may be distributed in whole or
in part, to former Canton stockholders subsequent to the Merger. The Escrow
Agreement will be entered into by Norwest and Canton upon consummation of the
Merger to provide for certain liabilities related to certain environmental
matters affecting Canton, and there can be no assurance that any such escrowed
shares will be distributed to former Canton stockholders. See "THE MERGER--
Consideration to be Received in the Merger."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Canton Common Stock represent cash dividends declared per
share of Norwest Common Stock multiplied by the Exchange Ratio.
(3) The pro forma combined net income per share of Norwest Common Stock (based
on fully diluted net income and weighted average shares outstanding) is based
upon the combined historical net income for Norwest and Canton divided by the
average pro forma common shares of the combined entities. The historical net
income per share of Canton Common Stock is based on fully diluted income from
continuing operations, after the cumulative effect of a change in accounting
principle. The pro forma equivalent net income per share of Canton Common Stock
represents the pro forma combined net income per share multiplied by the
Exchange Ratio.
11
<PAGE>
SELECTED FINANCIAL DATA
The following tables sets forth certain selected historical consolidated
financial information for Norwest and Canton. The income statement and balance
sheet data included in the selected financial data for the five years ended
December 31, 1994, are derived from the audited consolidated financial
statements of Norwest and Canton for such five-year period. The financial data
for the nine-month periods ended September 30, 1995 and 1994, are derived from
the unaudited historical consolidated financial statements of Norwest and
Canton. All financial information derived from unaudited financial statements
reflects, in the respective opinions of management of Norwest and Canton, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. Results for the nine months ended September
30, 1995, are not necessarily indicative of the results that may be expected
for any other interim period or for the year as a whole. This information
should be read in conjunction with the consolidated financial statements of
Norwest and the related notes thereto, included in documents incorporated
herein by reference, and in conjunction with consolidated financial statements
of Canton, including the notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
and "INFORMATION ABOUT CANTON."
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
NORWEST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------- ------------------------------------------------------
1995 1994 1994 1993(1) 1992(2) 1991 1990(3)
--------- -------- -------- ----------- ----------- -------- --------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------
Interest income $ 4,153.3 3,197.3 4,393.7 3,946.3 3,806.4 4,025.9 3,885.8
Interest expense 1,771.6 1,128.3 1,590.1 1,442.9 1,610.6 2,150.3 2,320.1
--------- -------- -------- -------- -------- -------- --------
Net interest income 2,381.7 2,069.0 2,803.6 2,503.4 2,195.8 1,875.6 1,565.7
Provision for credit losses 216.5 101.6 164.9 158.2 270.8 406.4 433.0
Non-interest income 1,337.3 1,200.4 1,638.3 1,585.0 1,273.7 1,064.0 896.3
Non-interest expenses 2,458.8 2,288.6 3,096.4 3,050.4 2,553.1 2,041.5 1,744.5
--------- -------- -------- -------- -------- -------- --------
Income before income taxes 1,043.7 879.2 1,180.6 879.8 645.6 491.7 284.5
Income tax expense 347.4 283.7 380.2 266.7 175.6 73.4 115.1
--------- -------- -------- -------- -------- -------- --------
Income before cumulative effect
of a change in accounting method 696.3 595.5 800.4 613.1 470.0 418.3 169.4
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- -- (76.0) -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 696.3 595.5 800.4 613.1 394.0 418.3 169.4
========= ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA
- ---------------------
Net income per share:
Primary:
Before cumulative effect of a
change in accounting method $ 2.04 1.82 2.45 1.89 1.44 1.33 0.59
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- -- (0.25) -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 2.04 1.82 2.45 1.89 1.19 1.33 0.59
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Before cumulative effect of a
change in accounting method $ 2.01 1.79 2.41 1.86 1.42 1.32 0.59
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- -- (0.23) -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 2.01 1.79 2.41 1.86 1.19 1.32 0.59
========= ======== ======== ======== ======== ======== ========
Dividends declared per common share $ 0.660 0.555 0.765 0.640 0.540 0.470 0.423
BALANCE SHEET DATA
- ------------------
At period end:
Total assets $71,411.9 56,565.4 59,315.9 54,665.0 50,037.0 45,974.5 43,523.0
Long-term debt 12,686.3 8,310.1 9,186.3 6,850.9 4,553.2 3,686.6 3,066.0
Total stockholders' equity 4,940.1 3,824.3 3,846.4 3,760.9 3,371.8 3,192.3 2,434.0
</TABLE>
13
<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 of interests 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 of interests 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 of interests 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.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
CANTON BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 YEAR ENDED DECEMBER 31
---------------- ----------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------ ------ ------ ------ ------ ------ ------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------
Interest income $ 2,672 2,524 3,388 3,533 3,782 4,137 4,252
Interest expense 1,068 970 1,287 1,408 1,731 2,240 2,441
------- ------ ------ ------ ------ ------ ------
Net interest income 1,604 1,554 2,101 2,125 2,051 1,897 1,811
Provision for credit losses - - - 30 45 15 -
Other operating income 268 306 381 423 287 129 211
Other operating expenses 1,238 1,157 1,559 1,583 1,583 1,443 1,468
------- ------ ------ ------ ------ ------ ------
Income before income taxes 634 703 923 935 710 568 554
Income tax expense 170 196 199 213 153 67 146
------- ------ ------ ------ ------ ------ ------
Income before cumulative effect
of a change in accounting method 464 507 724 722 557 501 408
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- -- 44 -- --
------- ------ ------ ------ ------ ------ ------
Net income $ 464 507 724 722 601 501 408
======= ====== ====== ====== ====== ====== ======
PER COMMON SHARE DATA
- ---------------------
Net income per share:
Before cumulative effect of a
change in accounting principle $ 9.37 10.20 14.58 14.51 11.88 10.02 8.16
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- -- -- 0.14 --
------- ------ ------ ------ ------ ------ ------
Net income $ 9.37 10.20 14.58 14.51 12.02 10.02 8.16
======= ====== ====== ====== ====== ====== ======
Dividends declared per common share $ 2.00 2.00 4.00 4.00 4.00 4.00 2.00
BALANCE SHEET DATA
- ------------------
At period end:
Total assets $50,640 50,417 49,991 51,739 49,109 47,658 47,234
Long-term debt -- -- -- -- -- -- --
Total stockholders' equity 6,533 5,684 5,403 5,784 5,261 4,879 4,578
</TABLE>
15
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Canton
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Canton for use at the Special Meeting to be held on Monday,
February 12, 1996, and any adjournments thereof, to consider and take action
upon a proposal to approve the Reorganization Agreement and such other business
as may properly come before the Special Meeting or any adjournments thereof.
Each copy of this Proxy Statement-Prospectus mailed to holders of Canton Common
Stock is accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also being furnished by Norwest to the
stockholders of Canton as a prospectus in connection with the issuance by
Norwest of shares of Norwest Common Stock upon consummation of the Merger.
This Proxy Statement-Prospectus, the attached Notice of Special Meeting,
and the form of proxy for Canton stockholders enclosed herewith are first being
mailed to stockholders of Canton on or about January 11, 1995.
DATE, PLACE, AND TIME
The Special Meeting will be held at the Elks Club, 61 West Elm, Canton,
Illinois, on Monday, February 12, 1996, at 10:00 a.m., local time.
RECORD DATE; VOTE REQUIRED FOR SPECIAL MEETING
The close of business on January 10, 1996 has been fixed as the record date
for the determination of stockholders of Canton entitled to receive notice of
and to vote at the Special Meeting. On the record date there were 49,564 shares
of Canton Common Stock outstanding. Approval of the Reorganization Agreement
requires the affirmative vote of the holders of not less than two-thirds of the
outstanding shares of Canton Common Stock. The Merger cannot be consummated
without stockholder approval of the Reorganization Agreement.
As of the record date for the Special Meeting, directors and officers of
Canton and certain persons who may be deemed to be their affiliates owned
beneficially or controlled the voting of an aggregate of 46.12% of the shares
of Canton Common Stock outstanding on that date. Canton's directors and
officers have informed Canton that they intend to vote all of their shares in
favor of the Reorganization Agreement. Information regarding the shares of
Canton Common Stock beneficially owned, directly or indirectly, by certain
stockholders, by each director and executive officer of Canton, and by all
directors and officers as a group is set forth in the table under the heading
"Principal Stockholders and Security Ownership of Management of Canton" below.
At the record date, directors and executive officers of Norwest did not own
beneficially any shares of Canton Common Stock.
16
<PAGE>
PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF CANTON
Principal Stockholders. Set forth below are the names and addresses of and
the number of shares held as of the record date for the Special Meeting of each
person known to Canton who may be deemed to beneficially own, directly or
indirectly, 5% or more of the outstanding shares of Canton Common Stock. Each
stockholder named below has sole voting and investment power over the shares
shown in the table, unless otherwise indicated.
<TABLE>
<CAPTION>
Nature of and Number of
Name and Address Shares Beneficial Ownership Percent of Class
---------------- --------------------------- -----------------
<S> <C> <C>
Elaine Feinner 11,061 (1) 22.3%
321 W. Westwood Drive
Peoria, IL 61614
Stanley J. Feinner 7,525 (2) 15.2%
321 W. Westwood Drive
Peoria, IL 61614
Marilyn Gavenda 4,987 (3) 10.1%
5719 Braesheather
Houston, TX 77096
Bette Siegel 5,087 10.3%
21650 Burbank Blvd., Apt 211
Woodland Hills, CA 91367
</TABLE>
(1) Excludes 7,725 shares of Canton Common Stock beneficially owned by
Stanley J. Feinner, who is a director of Canton and the husband of Elaine
Feinner. Mrs. Feinner disclaims beneficial ownership of all shares held by
her husband.
(2) Excludes 11,061 shares held by Mr. Feinner's wife, Elaine Feinner, as to
which shares Mr. Feinner disclaims beneficial ownership. The shares of
Canton Common Stock reported above include 3,619 shares held by the Ruth
Gavenda Trust, for which Mr. Feinner acts as trustee with sole voting and
investment power. Mr. Feinner also serves as a director of Canton.
(3) Includes 4,921 shares in the Estate of David Gavenda. Mrs. Gavenda and her
son, Lionel Gavenda, are co-executors of the estate and share voting and
investment power.
Security Ownership of Management of Canton. Set forth below are the
number of shares of Canton Common Stock beneficially owned as of the record
date for the Special Meeting by each director and executive officer of Canton
and by all directors and executive officers as a group (other than those shares
beneficially owned by Stanley J. Feinner, a director of Canton, which are
reported in the above table under "--Principal Stockholders." Each person
named in the following table has sole voting and investment power over the
shares shown in the table, unless otherwise indicated.
17
<PAGE>
<TABLE>
<CAPTION>
NAME AND TITLE SHARES OWNED BENEFICIALLY PERCENT OF CLASS
-------------- ------------------------- ----------------
<S> <C> <C>
Gary E. Barnhart 794 (1) 1.60%
Director
Guy E. Coleman 100 *
Director
Marlow K. Hauber 240 (2) *
Director
Edward R. Lewis, Jr. 1,010 (3) 2.04%
Director
William L. Lockard 100 *
Director
Edward L. Michalec 200 (4) *
Director
E. Eugene Sanders 100 *
Director
James E. Van Sickle 200 *
Director
Otto G. Stephenitch 1,186 (5) 2.39%
Director and President
Jared K. Lane 20 (6) *
Vice President
Leslie E. Carl 260 (7) *
Vice President
All Directors and Executive 11,735 (8) 23.68% (8)
Officers as a Group (12 persons)
</TABLE>
- -------------------
*Less than 1% of outstanding Canton Common Stock
(1) Excludes 63 shares held by Mr. Barnhart's spouse, as to which shares Mr.
Barnhart disclaims beneficial ownership.
(2) Includes 140 shares as to which Mr. Hauber shares voting and investment
power with his spouse.
(3) Includes 395 shares held in the Corrine O. Lewis Trust, for which the Bank
acts as trustee. Mr. Lewis is a beneficiary of such trust.
(4) Includes 100 shares as to which Dr. Michalec shares voting and investment
power with his spouse.
(5) Includes 466 shares held in Mr. Stephenitch's individual retirement
account, and 440 shares held in the Betty A. Stephenitch Trust No. 1. Mr.
Stephenitch is the Trustee of such trust with sole voting and investment
power with respect to these shares.
(6) Mr. Lane shares voting and investment power for the indicated shares with
his spouse.
(7) Includes 60 shares held in Mr. Carl's individual retirement account, and
200 shares as to which Mr. Carl shares voting and investment power with his
spouse.
18
<PAGE>
(8) Includes 7,525 shares of Canton Common Stock beneficially owned by
Stanley J. Feinner, a director of Canton, reported in the table under
"--Principal Stockholders" above.
VOTING AND REVOCATION OF PROXIES
Shares of Canton Common Stock represented by a proxy properly signed and
received at, or prior to, the Special Meeting, unless subsequently revoked,
will be voted at the Special Meeting in accordance with the instructions
thereon. If a proxy is signed and returned without indicating any voting
instructions, shares of Canton Common Stock represented by such proxy will be
voted FOR approval of the Reorganization Agreement. Any proxy given pursuant
to this solicitation may be revoked by the person giving it at any time before
the proxy is voted by filing either an instrument revoking it or a duly
executed proxy bearing a later date with the Secretary of Canton prior to or at
the Special Meeting or by voting the shares subject to the proxy in person at
the Special Meeting. Attendance at the Special Meeting will not in and of
itself constitute a revocation of a proxy.
A proxy may indicate that all or a portion of the shares represented
thereby are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in
street name on certain proposals in the absence of instructions from the
beneficial owner. Shares that are not voted with respect to a specific
proposal will be considered as not present for such proposal, even though such
shares will be considered present for purposes of determining a quorum and
voting on other proposals. Abstentions on a specific proposal will be
considered as present, but not as voting in favor of such proposal. The
proposal to adopt the Reorganization Agreement must be approved by the holders
of not less than two-thirds of the outstanding Canton Common Stock. Because
this proposal requires the affirmative vote of a specified percentage of
outstanding shares, the nonvoting of shares or abstentions with regard to this
proposal will have the same effect as votes against the proposal.
The Board of Directors of Canton is not aware of any business to be acted
upon at the Special Meeting other than the business described herein. If,
however, other matters are properly brought before the Special Meeting, or any
adjournments thereof, the persons appointed as proxies will have discretion to
vote or act on such matters according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers, and employees of
Canton may solicit proxies from the stockholders of Canton, 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. Canton will bear its own expenses in connection with any solicitation
of proxies for the Special Meeting. See "THE MERGER--Expenses."
HOLDERS OF CANTON COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CANTON IN THE ENCLOSED POSTAGE-
PREPAID ENVELOPE.
19
<PAGE>
THE MERGER
This section of the Proxy Statement-Prospectus describes certain
aspects of the Merger. The following description does not purport to be
complete and is qualified in its entirety by reference to the Reorganization
Agreement, which is attached as Appendix A, to this Proxy Statement-Prospectus
and is incorporated by reference herein. ALL STOCKHOLDERS ARE URGED TO READ
THE REORGANIZATION AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF AND REASONS FOR THE MERGER
During late 1994 and early 1995, representatives of Norwest held a number
of discussions with the Canton Board of Directors regarding Norwest's interest
in acquiring Canton. Following these discussions, the Board of Directors of
Canton concluded that a merger with Norwest was in the best interest of the
stockholders of Canton. This conclusion was based upon the amount of
consideration to be paid by Norwest in the Merger, the tax-free nature of the
Merger to the stockholders of Canton, and the increased liquidity associated
with receiving stock of a company that is publicly traded on national
exchanges. Accordingly, Canton and Norwest proceeded to negotiate the terms of
the Merger and entered into the Reorganization Agreement on July 25, 1995.
The Board of Directors of Canton has concluded that the Merger is in the
best interests of the holders of Canton Common Stock. The holders of Canton
Common Stock will receive, in a tax-free exchange, stock of a much larger and
more diversified enterprise, which is listed on the NYSE and CHX, freely
tradable (subject to certain restrictions described herein), and much more
widely held than Canton Common Stock. See "SUMMARY--Comparative Per Common
Share Data," "--Markets and Market Prices," and "Certain Federal Income Tax
Considerations."
Further, after the Merger, the Bank will have access to a broader range of
services to provide to its customers and to the greater resources of Norwest in
several important operational areas. The Board of Directors believe that
affiliation with Norwest will increase the Bank's financial strength and
provide greater geographic diversity. See "Management and Operations After the
Merger."
THE BOARD OF DIRECTORS OF CANTON UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
OF CANTON VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT.
OPINION OF FINANCIAL ADVISOR
In April 1995, Canton Bancshares, Inc., Canton, Illinois ("Canton")
retained Alex Sheshunoff & Co. Investment Banking ("Sheshunoff"), an investment
banking firm based in Austin, Texas, on the basis of its experience, to render a
written fairness opinion (the "Opinion") to the Board of Directors of Canton.
Sheshunoff has been in the business of consulting for the banking industry for
twenty years, including the appraisal and valuation of banking institutions and
their securities in connection with mergers and acquisitions and equity
offerings. Sheshunoff has a long history of familiarity and involvement with the
banking industry nationwide, as well as familiarity with the Illinois market and
recent transactions in this market. Sheshunoff did review the negotiated terms
of the Agreement and Plan of Reorganization, including corporate governance
matters. Prior to being retained for this assignment, Sheshunoff has provided
professional services and products to Canton and Norwest Corporation,
Minneapolis, Minnesota ("Norwest"). The revenues derived from such services and
products are insignificant when compared to the firm's total gross revenues.
On May 16, 1995, in connection with their consideration of a draft of the
Agreement and Plan of Reorganization dated March 15, 1995, Sheshunoff issued its
Opinion to the Board of Directors of Canton that, in its opinion as investment
bankers, the terms of the Merger as provided in the Agreement and Plan of
Reorganization are fair and equitable, from a financial perspective, to Canton
and its stockholders. This Opinion was updated on January 2, 1996. The updated
Opinion is based upon conditions as they existed on September 30, 1995. A copy
of the Opinion is attached as an exhibit to this Proxy Statement/Prospectus and
should be read in its entirety by Canton stockholders. Sheshunoff's written
opinion does not constitute an endorsement of the merger or a recommendation to
any stockholder as to how such stockholder should vote.
In rendering its updated Opinion, Sheshunoff reviewed certain publicly
available information concerning Canton and Norwest. Sheshunoff considered many
factors in making its evaluation. In arriving at its Opinion regarding the
fairness of the transaction, Sheshunoff reviewed: (i) the Agreement and Plan of
Reorganization dated July 25, 1995; (ii) the external auditor's reports to the
Board of Directors of Canton and the internal audit function of Norwest; (iii)
the September 30, 1995 balance sheet and income statement for each organization
and the audited December 31, 1994 and December 31, 1993 balance sheet and income
statement for each organization; (iv) each organization's rate sensitivity
analysis reports; (v) each organization's listing of marketable securities
showing rate, maturity and market value as compared to book value; (vi) each
organization's internal loan classification list; (vii) a listing of other real
estate owned for each organization; (viii) the budget and long range operating
plan of each organization; (ix) a listing of unfunded letters of credit and any
other off-balance sheet risks for each organization; (x) the minutes of the
Board of Directors meetings of each organization; (xi) the Board report for each
organization; (xii) the listing and description of significant real properties
for each organization; (xiii) the directors and officers liability and blanket
bond insurance policies for each organization; and (xiv) market conditions and
current trading levels of outstanding equity securities of both organizations.
Sheshunoff conducted an on-site review of each organization's historical
performance and current financial condition.
In reaching its Opinion, Sheshunoff analyzed the total purchase price on a
cash equivalent fair market value basis using standard evaluation techniques (as
discussed below) including comparable sales multiples (market value), net
present value, cash flow analysis, return on investment and the price as a
percentage of total assets based on certain assumptions of projected growth,
earnings and dividends and a range of discount rates from 10% to 15%. Sheshunoff
also considered as one of the methods of determining the fairness of the
transaction, the projected pro forma impact on Canton's earnings per share and
equity per share (appreciation/dilution analysis), which was based upon stand-
alone financial projections for both Canton and Norwest compared with pro forma
financial projections.
The projections furnished to Sheshunoff and used by it were prepared by the
managements of Canton and Norwest. Canton and Norwest do not publicly disclose
internal management projections of the type provided to Sheshunoff in connection
with its review of the Merger. Such projections were not prepared with a view
towards public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections.
In addition, Sheshunoff discussed with the management of Canton and Norwest
the relative operating performance and future prospects of each organization,
primarily with respect to the current level of their earnings and future
expected operating results, giving weight to Sheshunoff's assessment of the
future of the banking industry and each organization's performance within the
industry. Sheshunoff compared the results of operation of Canton with the
results of operation of a peer group comprised of all Illinois banks with total
assets of $50 to $100 million (208 banks). Sheshunoff compared the results of
operation of Norwest with the results of operation of a peer group comprised of
all holding companies with total assets of over $10 billion (63 holding
companies).
Many variables affect the value of banks, not the least of which is the
uncertainty of future events, so that the relative importance of the valuation
variables differs in different situations, with the result that appraisal
theorists argue about which variables are the most appropriate ones on which to
focus. However, most appraisers agree that the primary financial variables to be
considered are earnings, equity, dividends or dividend-paying capacity, asset
quality and cash flow. In addition, in most instances, if not all, value is
further tempered by non-financial factors such as marketability, voting rights
or block size, history of past sales of the banking company's stock, nature and
relationship of the other shareholdings in the bank, and special ownership or
management considerations.
Net asset value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes liquidation on the
date of appraisal with the recognition of securities gains or losses, real
estate appreciation or depreciation, adjustments to the loan loss reserve,
discounts to the loan portfolio and changes in the net value of other assets. As
such, it is not the best approach to use when valuing a going concern, because
it is based on historical costs and varying accounting methods. Even if the
assets and liabilities are adjusted to reflect prevailing prices and yields
(which is often of limited accuracy because readily available data is often
lacking), it still results in a liquidation value for the concern. Furthermore,
since this method does not take into account the values attributable to the
going concern such as the interrelationship among the company's assets and
liabilities, customer relations, market presence, image and reputation, and
staff expertise and depth, little weight is given by Sheshunoff to the net asset
value method of valuation.
Market value is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The market value is frequently used to determine the price of a minority
block of stock when both the quantity and the quality of the "comparable" data
are deemed sufficient. However, the relative thinness of the specific market for
the stock of the banking company being appraised may result in the need to
review alternative markets for comparative pricing purposes. The "hypothetical"
market value for a small bank with a thin market for its stock is normally
determined by comparison to the average price to earnings, price to equity and
dividend yield of local or regional publicly-traded bank issues, adjusting for
significant differences in financial performance criteria and for any lack of
marketability or liquidity. The market value in connection with the evaluation
of control of a bank is determined by the previous sales of banks in the state
or region. In valuing a business enterprise, when sufficient comparable trade
data is available, the market value deserves greater weighting than the net
asset value and similar emphasis as the investment value as discussed below.
Sheshunoff maintains substantial files concerning the prices paid for
banking institutions nationwide. The database includes transactions involving
Illinois banking organizations with assets less than $500 million and banking
organizations in the Midwest region of the United States in 1995 and over the
past five years. The database provides comparable pricing and financial
performance data for banking organizations sold or acquired. Organized by
different peer groups, the data presents averages of financial performance and
purchase price levels, thereby facilitating a valid comparative purchase price
analysis. In analyzing the transaction value of Canton, Sheshunoff has
considered the market approach and has evaluated price to equity and price to
earnings multiples of Illinois banking organizations with total assets less than
$500 million that sold from November 28, 1994 through November 28, 1995. The
following table provides the 12 banking organizations with total assets less
than $500 million that sold in Illinois from November 28, 1994 through November
28, 1995.
<TABLE>
<CAPTION>
PURCHASE PRICE PURCHASE PRICE PURCHASE PRICE TO
SELLER CITY STATE TO EQUITY (x) TO EARNINGS (x) TOTAL ASSETS (%)
<S> <C> <C> <C> <C> <C>
Du Quoin Bancorp Du Quoin IL 1.87 13.21 15.10
River Bend Bcshrs East Alton IL 1.95 12.36 15.93
FNB of Lockport Lockport IL 0.90 N/M 15.32
First Sterling Bcp Sterling IL 1.32 13.80 14.02
Naperville Bank Naperville IL 1.96 N/M 10.02
Valley Banc Services St. Charles IL 2.28 N/M 15.05
GN Bancorp, Inc. Chicago IL 1.92 14.33 17.81
Shawnee Bancorp Harrisburg IL 2.03 15.71 16.76
Maroa Bancshares Maroa IL 1.44 14.52 11.93
M L Quinn Properties Mount Sterling IL 1.19 12.04 11.97
Chillicothe State Bp Chillicothe IL 1.59 11.54 13.73
Pleasant Plains St Pleasant Plains IL 0.87 7.69 7.75
WEIGHTED AVERAGES 1.56x 13.16x 14.90%
</TABLE>
Comparable Sales Multiples. Sheshunoff calculated an "Adjusted Book Value"
of $205.62 per share based on Canton's September 30, 1995 equity and the average
price to equity multiple of 1.56x for Illinois banking organizations with total
assets less than $500 million that sold from November 28, 1994 through November
28, 1995. Sheshunoff calculated an "Adjusted Earnings Value" of $164.37 per
share based on Canton's estimated 1995 earnings and the average price to
earnings multiple of 13.16x for Illinois banking organizations with total assets
less than $500 million that sold from November 28, 1994 through November 28,
1995. The financial performance characteristics of the regional banking
organizations vary, sometimes substantially, from those of Canton. When the
variance is significant for relevant performance factors, adjustments to the
price multiples are appropriate when comparing them to the transaction
value.
The investment value is sometimes referred to as the income value or
earnings value. One investment value method frequently used estimates the
present value of an enterprise's future earnings or cash flow. Another popular
investment value method is to determine the level of current annual benefits
(earnings, cash flow, dividends, etc.), and then capitalize one or more of the
benefit types using an appropriate capitalization rate such as an earnings or
dividend yield. Yet another method of calculating investment value is a cash
flow analysis of the ability of a banking company to service acquisition debt
obligations (at a certain price level) while providing sufficient earnings for
reasonable dividends and capital adequacy requirements. In connection with the
cash flow analysis, the return on investment that would accrue to a prospective
buyer at the transaction value is calculated. The investment value methods which
were analyzed in connection with this transaction were the net present value
analysis, the cash flow analysis and the return on investment analysis, which
are discussed below.
Net Present Value Analysis. The investment or earnings value of any banking
organization's stock is an estimate of the present value of the future benefits,
usually earnings, cash flow or dividends, which will accrue to the stock. An
earnings value is calculated using an annual future earnings stream over a
period of time of not less than ten years and the residual value of the earnings
stream after ten years, assuming no earnings growth, and an appropriate
capitalization rate (the net present value discount rate). Sheshunoff's
computations were based on an analysis of the banking industry, the economic and
competitive situations in Canton's market area, its current financial condition
and historical levels of growth and earnings. Using a net present value discount
rate of 12%, an acceptable discount rate considering the risk-return
relationship most investors would demand for an investment of this type as of
the valuation date, the "Net Present Value of Future Earnings" equaled
$126.54 per share.
Cash Flow Analysis. The cash flow method assumes the formation of a bank
holding company with maximum leverage according to Federal Reserve System
guidelines and analyzes the ability of the bank to retire holding company
acquisition debt within a reasonable period of time while maintaining adequate
capital. Using this method Sheshunoff arrived at a value of $170.00 per
share.
Return on Investment Analysis. Return on investment analysis (ROI) also
assumes the formation of a bank holding company using maximum regulatory
leverage and analyzes the ten year ROI of a 33.33% equity investment at the
transaction value of $184.61 per share for Canton compared to a liquidation at
book value in the year 2004 and a sale at ten times projected earnings for the
year 2004. This ROI analysis provides a benchmark for assessing the validity of
the transaction value of a majority block of stock. The ROI analysis is one
approach to valuing a going concern, and is directly impacted by the earnings
stream, dividend payout levels and levels of debt, if any. Other financial and
nonfinancial factors indirectly affect the ROI; however, these factors more
directly influence the level of ROI an investor would demand from an investment
in a majority block of stock of a specific bank at a certain point in time. The
ROI assuming liquidation at book value in 2004 equaled 7.60%, and the ROI
assuming sale at ten times projected earnings in 2004 equaled 9.50%.
Transaction Value as a Percentage of Total Assets. Furthermore, a price
level indicator, the transaction value as a percentage of total assets, may be
used to confirm the validity of the transaction value. The transaction value as
a percentage of total assets facilitates a truer price level comparison with
comparable banking organizations, regardless of the differing levels of equity
capital and earnings. In this instance, a transaction value of $184.61 per share
results in a transaction value as a percentage of total assets of 18.07%.
Finally, another test of appropriateness for the transaction value of a
majority block of stock is the net present value-to-transaction value ratio.
Theoretically, an earnings stream may be valued through the use of a net present
value analysis. In Sheshunoff's experience with majority block community bank
stock valuations, it has determined that a relationship does exist between the
net present value of an "average" community banking organization and the
transaction value of a majority block of the banking organization's stock. The
net present value-to-transaction value ratio equals 68.54% for Canton. There
are many other factors to consider, when valuing a going concern, which do not
directly impact the earnings stream and the net present value but which do exert
a degree of influence over the fair market value of a going concern. These
factors include, but are not limited to, the general condition of the industry,
the economic and competitive situations in the market area and the expertise of
the management of the organization being valued.
Projected Impact on Canton Stockholders. Sheshunoff considered this
transaction as a merger rather than a purchase. Consideration was given to the
levels of book value and earnings per share appreciation or dilution percentages
between the merger partners over the next three to five years after
consummation. To justify the fairness of the transaction for Canton
stockholders, it is important to project, based upon realistic projections of
future performance, a positive impact for Canton stockholders. It is important
to note that the appreciation/dilution analysis is one of the methods utilized
by Sheshunoff to determine the fairness of the transaction and it focuses on the
projected appreciation/dilution as of the date of the Opinion. This analysis
does not address future stockholder transactions involving Norwest stock after
consummation of the transaction.
Neither Canton nor Norwest imposed any limitations upon the scope of the
investigation to be performed by Sheshunoff in formulating such Opinion. In
rendering its Opinion, Sheshunoff did not independently verify the asset quality
and financial condition of Canton or Norwest, but instead relied upon the data
provided by or on behalf of Canton and Norwest to be true and accurate in all
material respects.
For its services as independent financial analyst for the merger, including
the rendering of its Opinion referred to above, Canton has paid Sheshunoff
aggregate fees of $17,500. Prior to being retained for this assignment,
Sheshunoff has provided professional services and products to Canton and
Norwest. The revenues derived from such services and products are insignificant
when compared to the firm's total gross revenues.
20
<PAGE>
TERMS OF THE MERGER
IN GENERAL. At the Effective Time of the Merger, a wholly owned
subsidiary of Norwest will merge into Canton, with Canton as the surviving
corporation, and the outstanding shares of Canton 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.
Each outstanding share of common stock of Canton ("Canton Common Stock") will
be converted into shares of common stock, par value $1 2/3 per share, of
Norwest ("Norwest Common Stock"), determined by dividing the Adjusted Norwest
Shares by the number of shares of Canton Common Stock then outstanding. The
Adjusted Norwest Shares will be that number of shares of Norwest Common Stock
calculated by dividing the sum of $9,400,000 less an escrow amount of $250,000
(the "Escrow Amount"), to be deposited and held pursuant to an Escrow Agreement
described below, under the heading "Escrow Agreement," by the Norwest
Measurement Price. The Norwest Measurement Price will be equal to the average
of the closing prices of a share of Norwest Common Stock as reported on the
consolidated tape of the New York Stock Exchange during the period of 20
trading days ending on the day immediately preceding the Special Meeting.
Assuming the Special Meeting were held on January 2, 1996 (the most recent
practicable date for purposes of this assumption prior to the date of this
Proxy Statement-Prospectus) the Norwest
21
<PAGE>
Measurement Price would be $33.58, the Adjusted Norwest Shares would be
272,484, and the assumed number of shares of Norwest Common Stock (including
cash in lieu of fractional shares) issuable to each stockholder of Canton per
share of Canton Common Stock held would equal 5.4976 shares (based on 49,564
shares of Canton Common Stock currently outstanding). If the Merger had been
consummated on January 2, 1996, and based on the foregoing assumptions, each
Canton stockholder would have received for each share of Canton Common Stock
held, 5.4976 shares of Norwest Common Stock having an aggregate market value of
$180.73, based on a closing price of $32.875 for one share of Norwest Common
Stock as reported on the consolidated tape of the New York Stock Exchange on
January 2, 1996. The foregoing information is being provided for purposes of
illustration only. The market price of a share of Norwest Common Stock, on
which the Norwest Measurement Price and the number of shares of Norwest Common
Stock issuable to stockholders of Canton in the Merger will be computed, will
fluctuate between January 2, 1996 and the date of the Special Meeting, and will
fluctuate between the date of Special Meeting and the Effective Date of the
Merger, both of which periods will total not less than four weeks. As a result,
the actual number of shares of Norwest Common Stock each stockholder of Canton
will ultimately receive in the Merger for each share of Canton Common Stock
held, and the aggregate market value thereof, could be more or less than as
indicated in the above illustration. See "SUMMARY INFORMATION--Markets and
Market Prices."
No fractional shares of Norwest Common Stock will be issued in the Merger.
Instead, Norwest will pay to each holder of Canton Common Stock who would
otherwise be entitled to a fractional share an amount of cash equal to the
fraction of a share of Norwest Common Stock to which the stockholders of Canton
would otherwise be entitled multiplied by the Norwest Measurement Price.
Shares of Norwest Common Stock issued and outstanding immediately prior to
the Effective Time of the Merger will remain issued and outstanding.
ESCROW AGREEMENT. At the Closing and as a condition to the consummation
of the Merger, Canton, on behalf of its stockholders, will enter into an Escrow
Agreement with Norwest and the Escrow Agent. A copy of the Escrow Agreement,
in the form proposed to be executed on the Closing Date of the Merger, is
attached as Exhibit B to the Reorganization Agreement included as Appendix A to
this Proxy Statement-Prospectus. Under the terms of the Escrow Agreement, at
the Effective Time of the Merger, Norwest shall deposit in escrow with the
Escrow Agent that number of shares of Norwest Common Stock equal to the Escrow
Amount divided by the Norwest Measurement Price. Assuming the Norwest
Measurement Price is $33.58, approximately 7,445 shares of Norwest Common Stock
would be deposited and held in escrow pursuant to the Escrow Agreement.
Under the terms of the Escrow Agreement, the Escrowed Shares will be held
to provide for the cost of remediation to be undertaken by Norwest of, and any
potential damages that may result from, certain environmental contamination in,
on, or emanating from drive-up bank property in the city of Canton. The
Escrowed Shares will be held in escrow by the Escrow Agent until the Escrow
Agent receives a joint notice from Norwest and a representative of the Canton
stockholders appointed pursuant to the Escrow Agreement (the "Shareholder
Representative") that such remediation has been completed and the aggregate
dollar amount of the cost of such remediation and any damages (which damages
may be an estimated amount) have been determined as provided in the Escrow
Agreement. Upon receipt of such notice, the Escrow Agent will distribute to
Norwest that number of Escrowed Shares determined by dividing the remediation
costs and damages by the Norwest Measurement Price, and rounding to the nearest
whole share. The balance of the Escrowed Shares, if any after such
distribution to Norwest, will be distributed to the Shareholder Representative
for distribution to the former stockholders of Canton based on their
proportionate interests in Canton at the Effective Time of the Merger. If no
such notice is received by the Escrow Agent by December 31, 2000, the Escrowed
Shares will be distributed to Norwest.
22
<PAGE>
EFFECTIVE DATE AND TIME OF THE MERGER
Subject to the terms and conditions of the Reorganization Agreement, the
Effective Date of the Merger will be the date on which Articles of Merger are
filed with the Secretary of State of the State of Illinois. That filing will
be made within ten business days following the satisfaction or waiver of all
conditions of the Reorganization Agreement or on such other date upon which the
parties agree, and the time at which such filing will be made is hereinafter
referred to as the "Time of Filing." The Effective Time of the Merger will be
11:59 p.m., Canton, Illinois time, on the Effective Date of the Merger.
Norwest and Canton anticipate that the closing of the Merger will occur in the
first quarter of 1996. See "Conditions to the Merger" and "Regulatory
Approvals."
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Merger, Norwest Bank
Minnesota, National Association, acting in the capacity of exchange agent for
Norwest (the "Exchange Agent"), will mail to each former holder of record of
shares of Canton Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's stock certificates for a
certificate representing Norwest Common Stock.
STOCKHOLDERS OF CANTON 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 Canton
Common Stock, together with a properly completed letter of transmittal, there
will be issued and mailed to the holder a certificate representing the number
of whole shares of Norwest Common Stock to which such holder is entitled and,
where applicable, a check for the amount representing any fractional share. A
certificate for Norwest Common Stock may be issued in a name other than the
name in which the surrendered certificate is registered only if (i) the
certificate surrendered is properly endorsed and otherwise in proper form for
transfer and (ii) the person requesting the issuance of such certificate either
pays to the Exchange Agent any transfer or other taxes required by reason of
the issuance of a certificate for such shares in a name other than the
registered holder of the certificate surrendered or establishes to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
All Norwest Common Stock issued pursuant to the Merger will be deemed
issued as of the Effective Time of the Merger. No dividends with a record date
after the Effective Time of the Merger will be paid to stockholders of Canton
entitled to receive certificates for shares of Norwest Common Stock until such
stockholders surrender their certificates representing shares of Canton Common
Stock. Upon such surrender, there shall be paid to the holder in whose name
the certificates representing such shares of Norwest Common Stock are issued
any dividends the record and payment dates of which shall have been after the
Effective Time of the Merger and before the date of such surrender. After such
surrender, there shall be paid to the person in whose name the certificate
representing such shares of Norwest Common Stock is issued, on the appropriate
dividend payment date, any dividend on such shares of Norwest Common Stock
which shall have a record date after the Effective Time of the Merger and prior
to the date of surrender, but a payment date subsequent to the surrender. In
no event shall the persons entitled to receive such dividends be entitled to
receive interest on amounts payable as dividends.
23
<PAGE>
CONDITIONS TO THE MERGER
The Merger will occur only if the Reorganization Agreement is approved by
the requisite vote of the stockholders of Canton. Consummation of the Merger
is subject to the satisfaction of certain other conditions, any of which may be
waived to the extent waiver is permitted by applicable law. Such conditions to
the obligations of both parties to consummate the Merger include, but are not
limited to, (i) the receipt of all necessary regulatory approvals, including
the approval of the Merger by the Federal Reserve Board and the Illinois
Commissioner, and the expiration of all applicable waiting and approval
periods, (ii) the continued effectiveness of the Registration Statement of
which this Proxy Statement-Prospectus is a part and receipt by Norwest of all
state securities law or blue sky authorizations necessary for the Merger, (iii)
the absence of any order of a court or agency of competent jurisdiction
restraining, enjoining, or otherwise prohibiting consummation of the Merger,
(iv) the continued accuracy of representations and warranties by the other
party, (v) the performance by the other party of its obligations under the
Reorganization Agreement, and (vi) the receipt of certain certificates from the
other party.
Canton's obligation to consummate the Merger is also subject to (i)
authorization for listing on the NYSE and CHX upon official notice of issuance
of the shares of Norwest Common Stock issuable pursuant to the Merger and (ii)
the receipt of an opinion of counsel to Canton to the effect that for federal
income tax purposes the Merger will be a tax-free Merger.
Norwest's obligation to consummate the Merger is also subject to (i) the
receipt by Canton and its subsidiary of any and all material consents or
waivers from third parties to loan agreements, leases, or other material
contracts required for the consummation of the Merger, and the receipt by
Canton and its subsidiary of any and all material permits, authorizations,
consents, waivers, and approvals required for the consummation of the Merger;
(ii) the total number of shares of Canton Common Stock outstanding and subject
to issuance upon exercise of all warrants, options, conversion rights, phantom
shares, or other share equivalents not having exceeded 49,564; (iii) the
receipt of a certificate signed by Canton's Chief Executive Officer and Chief
Financial Officer concerning the accuracy and completeness of certain of
Canton's financial statements and related information as of a date subsequent
to the date of such financial statements; (iv) the absence since December 31,
1994, of any material loss or interference with the business of Canton and its
subsidiary considered as a whole from any civil disturbance or any fire,
explosion, flood, or other calamity, whether or not covered by insurance; (v)
except as contemplated by the Escrow Agreement described above under the
heading "Terms of the Merger--Escrow Agreement," the absence of any reasonable
basis for the imposition on Canton or any of its subsidiaries 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 Canton and it
subsidiaries taken as a whole; (vi) the absence of any change which might
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business, or prospects of Canton and its
subsidiary taken as a whole, other than changes in banking laws or regulations,
or interpretations thereof, that affect the banking industry generally or
changes in the general level of interest rates; and (vii) the establishment of
such additional accruals and reserves as may be necessary to conform Canton's
accounting and credit loss reserve practices and methods to those of Norwest
and Norwest's plans for the conduct of Canton's business after the Merger and
to provide for the costs and expenses of consummating the Merger contemplated
by the Reorganization Agreement.
24
<PAGE>
REGULATORY APPROVALS
Transactions such as the Merger are subject to prior approval by the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended,
(the "BHC Act") which requires that the Federal Reserve Board take into
consideration the financial and managerial resources and future prospects of
the existing and proposed institutions and the convenience and needs of the
communities to be served. The Merger is also subject to the prior approval of
the Illinois Commissioner pursuant to the Illinois Holding Company Act of 1957,
as amended (the "Illinois Holding Company Act"). Under the Illinois Holding
Company Act, an out-of-state bank holding company may acquire more than 5% of
the voting shares of or control of an Illinois bank holding company, provided
that the acquiror files an application with the Illinois Commissioner, which
contains information satisfactory to such Commissioner that the bank's already
controlled by the acquiror adequately meet the convenience and needs of the
communities served by them in accordance with the federal Community
Reinvestment Act of 1977.
Norwest filed applications for approval of the Merger with, the Federal
Reserve Board and the Illinois Commissioner on, respectively, September 18,
1995 and October 2, 1995, but has not yet received such approvals.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the Merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, stockholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed Mergers.
Neither Norwest nor Canton is aware of any governmental approvals or
compliance with banking laws and regulations that are required for consummation
of the Merger other than those described above. Should any other approval or
action be required, it is presently contemplated that such approval or action
would be sought. There can be no assurance that any such approval or action,
if needed, could be obtained and, if such approvals or actions are obtained,
there can be no assurance as to the timing thereof. The Merger cannot proceed
in the absence of all requisite regulatory approvals. See "Conditions to the
Merger," "Effective Date and Time of the Merger," and "Waiver, Amendment, and
Termination."
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Reorganization Agreement, each of Canton and its subsidiary is
generally obligated to maintain its corporate existence in good standing; to
maintain the general character of its business and conduct its business in the
ordinary and usual manner; extend credit in accordance with existing lending
policies; maintain proper business and accounting records in accordance with
generally accepted principles; maintain its properties in good repair and
condition, ordinary wear and tear excepted; maintain in all material respects
presently existing insurance coverage; use its best efforts to preserve its
business organization intact, to keep the services of its present principal
employees, and to preserve its goodwill and the goodwill of its suppliers,
customers, and others having business relationships with it; use its best
efforts to obtain any approvals or consents required to maintain existing
leases and other contracts in effect following the Merger; comply in all
material respects with all laws, regulations, ordinances, codes, orders,
licenses, and permits applicable to the properties and operations of Canton and
each of its subsidiaries the noncompliance with which reasonably could be
expected to have a material adverse effect on Canton and its subsidiary taken
as a whole; and permit Norwest and its representatives to examine
25
<PAGE>
its and its subsidiaries' books, records, and properties, and to interview
officers, employees, and agents at all reasonable times when it is open for
business. The Reorganization Agreement also provides that, prior to the Closing
Date, neither Canton nor the Bank may, without the prior written consent of
Norwest, among other things: (i) make any new loan or modify, restructure, or
renew any existing loan (except pursuant to commitments made prior to the date
of the Reorganization Agreement) to any borrower if the amount of the resulting
loan, when aggregated with all other loans or extensions of credit to such
person, would exceed $100,000; (ii) amend or otherwise change its articles of
incorporation or association or bylaws; (iii) issue or sell, or authorize for
issuance or sale, or grant any options or make other agreements with respect to
the issuance or sale, or conversion of, any shares of its capital stock,
phantom shares, or other share equivalents, or any other of its securities;
(iv) authorize or incur any long-term debt (other than deposit liabilities);
(v) mortgage, pledge, or subject to lien or other encumbrance any of its
properties, except in the ordinary course of business; (vi) enter into any
material agreement, contract, or commitment in excess of $10,000 except banking
transactions in the ordinary course of business and in accordance with policies
and procedures in effect on the date of the Reorganization Agreement; (vii)
make any investments except investments made by bank subsidiaries in the
ordinary course of business for terms of up to one year and in amounts of
$100,000 or less; (viii) amend or terminate any "employee benefit plan" within
the meaning of the Employee Retirement Income Security Act of 1974, as amended,
except as described below under the heading "Effect on Employee Benefit Plans"
or as required by law; (ix) make any contributions to any such plan except as
required by the terms of such plan in effect as of the date of the
Reorganization Agreement, subject to certain enumerated exceptions; (x)
declare, set aside, make, or pay any dividend or other distribution with
respect to its capital stock, except that between June 1, 1995 and the
Effective Date of the Merger, Canton may declare and pay dividends to its
stockholders in an amount not to exceed $6.00 per share of Canton Common Stock;
(xi) redeem, purchase, or otherwise acquire, directly or indirectly, any of the
capital stock of Canton; (xii) increase the compensation of any officers,
directors, or executive employees, except pursuant to existing compensation
plans and practices; (xiii) sell or otherwise dispose of any shares of the
capital stock of any subsidiary; or (xiv) sell or otherwise dispose of any of
its assets or properties other than in the ordinary course of business.
CERTAIN COVENANTS
The Reorganization Agreement provides that prior to the Effective Date of
the Merger, Canton will (i) establish such additional accruals and reserves as
may be necessary to conform Canton's accounting and credit loss reserve
practices to those of Norwest and Norwest's plans with respect to the conduct
of Canton's business following the Merger and to provide for costs and expenses
related to the consummation of the transactions contemplated by the
Reorganization Agreement; (ii) obtain, at its own expense, and deliver
environmental assessment reports on certain properties and title insurance
commitments and boundary surveys for each bank facility; and (iii) take all
necessary corporate and other action and use its best efforts to obtain all
approvals of regulatory authorities, consents, and other approvals to carry out
the transactions contemplated by the Reorganization Agreement. In addition,
Canton has agreed to demolish the building located on the potential expansion
site immediately north of the main office of the Bank in order to protect
Canton from liability arising out of the condition of the building, and to
obtain certain environmental surveys and tests of the building prior to such
demolition.
The Reorganization Agreement also provides that, prior to the Effective
Date, Norwest will (i) give Canton notice of the receipt of all regulatory
approvals; (ii) permit Canton and its
26
<PAGE>
representatives to examine Norwest's books, records, and properties, and to
interview Norwest's officers, employees, and agents, for a period of up to 15
days prior to the Effective Date of the Merger; (iii) file all documents
necessary to list the Norwest Common Stock to be issued in the Merger on the
NYSE and the CHX and use its best efforts to effect such listings; and (iv)
take all necessary corporate and other action and use its best efforts to
obtain all approvals of regulatory authorities, consents, and other approvals
to carry out the transactions contemplated by the Reorganization Agreement.
NO SOLICITATION
Neither Canton nor its subsidiary, nor any director, officer, or
representative thereof, will, directly or indirectly, solicit, authorize the
solicitation of, or enter into any discussions with any party or group (other
than Norwest) concerning any offer or possible offer (i) to purchase any shares
of Canton Common Stock, any option or warrant to purchase any shares of Canton
Common Stock, any securities convertible into any shares of Canton Common
Stock, or any other equity security of Canton or its subsidiary; (ii) to make a
tender or exchange offer for any shares of Canton Common Stock or other equity
security; (iii) to purchase, lease, or otherwise acquire the assets of Canton
or its subsidiary, except in the ordinary course of business; or (iv) to merge,
consolidate, or otherwise combine with Canton or its subsidiary. Any offer or
inquiry to Canton or its subsidiary concerning any of the foregoing must be
promptly disclosed, along with the terms thereof, to Norwest.
WAIVER, AMENDMENT, AND TERMINATION
The parties may, in writing, waive any inaccuracies in the representations
and warranties of the other party or compliance by the other party with any of
the covenants and conditions in the Reorganization Agreement.
At any time before the Time of Filing the parties may amend the
Reorganization Agreement by action of their respective Boards of Directors or
pursuant to authority delegated by their respective Boards of Directors;
provided, however, that no such amendment occurring after approval of the
Merger by the Canton stockholders may adversely affect the consideration to be
received by the Canton stockholders.
The Reorganization Agreement provides that it may be terminated at any time
prior to the Time of Filing (i) by mutual written consent of the parties; (ii)
by either party by written notice to the other if the Merger shall not have
been consummated by March 31, 1996, unless such failure of consummation is due
to the failure of the party seeking termination to perform or observe in all
material respects the covenants and agreements to be performed or observed by
it under the Reorganization Agreement; or (iii) by either party by written
notice to the other if any court or governmental authority of competent
jurisdiction shall have issued a final order restraining, enjoining, or
otherwise prohibiting the consummation of the transactions contemplated by the
Reorganization Agreement.
EFFECT ON EMPLOYEE BENEFIT PLANS
The Reorganization Agreement provides that, subject to any eligibility
requirements applicable to such plans, employees of Canton shall be entitled to
participate in those Norwest employee benefit and welfare plans specified in
the Reorganization Agreement. The eligible
27
<PAGE>
employees of Canton shall enter each of such plans no later than the first day
of the calendar quarter which begins at least 32 days after the Effective Date.
Canton employees will receive credit for past service for the purpose of
determining eligibility for, and vesting of certain benefits under certain of
Norwest's benefit plans.
Canton has also agreed, if requested by Norwest, and as a condition to the
consummation of the Merger, to terminate or amend, certain non-qualified
benefit plans and programs and to cooperate with Norwest in obtaining any
required consents of plan participants to such termination or amendment.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
As of the Effective Time of the Merger, Canton and the Bank will become
indirect subsidiaries of Norwest. Subsequent to the Merger, Norwest will
operate at the Bank at its present locations, providing products and services
offered by Norwest affiliates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
All of the directors and certain executive officers of Canton are
stockholders of Canton and will receive, upon consummation of the Merger, to
receive shares of Norwest Common Stock in exchange for their shares of Canton
Common Stock, on the same basis as each other stockholder of Canton.
RIGHTS OF DISSENTING STOCKHOLDERS
All stockholders of Canton are entitled to exercise dissenters' rights
pursuant to the provisions of Sections 11.65 and 11.70 of the Illinois Business
Corporation Act (the "IBCA"). In accordance with these sections, such
stockholders have the right to dissent from the Merger and to be paid the fair
value of their shares. The term "fair value" means the value of the shares of
a corporation immediately before the effective date of various corporate
actions, including mergers, excluding any appreciation or depreciation in
anticipation of the corporate action, unless exclusion would be inequitable.
Where a transaction is to be submitted for approval at the meeting of
stockholders, the corporation must notify each of its stockholders of the right
to dissent and include in such notice a copy of Sections 11.65 and 11.70 or
otherwise providing adequate notice of the procedure to dissent. This Proxy
Statement-Prospectus shall constitute such notice to the stockholders of
Canton.
The following discussion is not a complete statement of the laws
pertaining to a dissenting shareholder's rights under Illinois law and is
qualified in its entirety by the full text of Sections 11.65 and 11.70 attached
as Appendix C to this Proxy Statement-Prospectus. Any shareholder who wishes to
preserve the right to do so, should review the following discussion and
Appendix C carefully. DISSENTERS' RIGHTS WILL BE LOST IF THE PROCEDURAL
REQUIREMENTS ARE NOT FULLY AND PRECISELY SATISFIED.
A holder of Canton Common Stock wishing to exercise the right to demand
the fair value of such shareholder's shares must first file, BEFORE the vote of
the stockholders is taken at the Special Meeting, a written notice to the
corporation of intent to demand the fair value of such shareholder's shares and
must, in addition, not vote the shares in favor of the proposal to approve
28
<PAGE>
the Reorganization Agreement. Because a proxy which does not contain voting
instructions will, unless revoked, be voted FOR approval of the Reorganization
Agreement, a shareholder of Canton who votes by proxy and who wishes to
exercise dissenters' rights must (i) vote AGAINST approval of the
Reorganization Agreement or (ii) ABSTAIN from voting on approval of the
Reorganization Agreement. A vote against the Reorganization Agreement, whether
in person or by proxy, will not in and of itself satisfy the requirement of a
written notice of intent to demand the fair value of a shareholder's common
stock.
A shareholder may not assert dissenters' rights as to less than all of the
shares registered in the name of the shareholder, unless the shareholder
dissents with respect to all the shares that are beneficially owned by another
person but registered in the name of the shareholder and discloses the name and
address of each beneficial owner on whose behalf the shareholder dissents. In
that event, the rights of the dissenter must be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different stockholders. The beneficial owner of shares who is not
the record owner may assert dissenters' rights with respect to shares held on
behalf of the beneficial owner, if the beneficial owner submits to the
corporation at the time of or before the assertion of the rights a written
consent of the record owner.
Stockholders of Canton who elect to exercise dissenters' rights and demand
fair value should mail or deliver their written demand to Canton. The written
demand should specify the shareholder's name and mailing address, the number of
shares owned, and that the shareholder is thereby demanding the fair value of
such shareholder's shares.
After the Reorganization Agreement has been approved, Canton will cause to
be mailed to each of the stockholders of Canton who has properly asserted
dissenters' rights a notice that contains (i) Canton's closing balance sheet
and statement of income for a fiscal year ending not more than sixteen months
before the effective date of the Merger, together with the latest available
interim financial statements; (ii) the opinion of Canton of the estimated fair
value of the shares; and (iii) Canton's commitment to pay for the shares at the
estimated fair value thereof upon transmittal to Canton of the certificate(s)
evidencing the shares. To receive the fair value of the common stock a
dissenting shareholder must deposit the certificates representing such shares,
but the dissenter retains all other rights of a shareholder until the proposed
action takes effect. Upon consummation of the Merger, Canton will cause to be
remitted to the dissenter the estimated fair value, plus accrued interest
accompanied by a statement of how interest was calculated.
If the dissenting shareholder does not agree with Canton's estimate of
fair value or the amount of interest due, such dissenting shareholder may give
written notice to Canton of such shareholder's own estimate of the fair value
for the shares plus interest and demand a supplemental payment for the
difference. Any written demand for supplemental payment must be made within 30
days after delivery of Canton's statement of value. Otherwise, a dissenter is
entitled only to the amount remitted by the corporation.
Within 60 days after receiving a demand for supplemental payment, Canton,
as the surviving entity, must either pay the amount of the supplemental payment
demanded (or agreed to between the dissenting shareholder and Canton) or file a
petition in the Circuit Court of Fulton County, Illinois requesting that the
court determine the fair value of the shares plus interest. A petition so
filed must name as parties all dissenting stockholders who have demanded
supplemental payments and who have been unable to reach an agreement with
Canton concerning the fair value of their shares. The court may appoint
appraisers, with such power and authority as the court
29
<PAGE>
deems proper, to receive evidence on and recommend the amount of the fair value
of the shares. The jurisdiction of the court is plenary and exclusive. A
dissenting shareholder, if successful, is entitled to a judgment for the amount
by which the fair value of such shareholder's shares as determined by the
court, plus interest, exceeds the amount originally remitted by Canton, but
shall not be liable to Canton for the amount, if any, by which the amount, if
any, remitted to the dissenter exceeds the fair value of the shares as
determined by the court, plus interest.
Costs associated with the court proceeding, including the reasonable
compensation and expenses of any appraisers, will be determined by the court.
If the fair value of the shares as determined by the court materially exceeds
the amount which Canton estimated to be the fair value of the shares, then all
or any part of the cost may be assessed against Canton. If the amount which
any dissenter estimated to be the fair value of the shares materially exceeds
the fair value of the shares as determined by the court, then all or any part
of the costs may be assessed against that dissenter. The court may also assess
the fees and expenses of counsel and experts for the parties in amounts that
the court finds equitable, as follows: (i) against Canton and in favor of any
or all dissenters if the court finds that Canton did not substantially comply
with the requirements of Section 11.70 of the IBCA; or (ii) against either
Canton or a dissenter and in favor of any other party if the court finds that
the party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights provided by
Section 11.70 of the IBCA. The court may, in its discretion, award attorneys'
fees to any attorney representing dissenting stockholders out of any amount
awarded to such dissenters.
Failure to follow the steps required by the IBCA for asserting dissenters'
rights may result in the loss of a shareholder's right to demand the fair value
of such shareholder's shares of Canton Common Stock. Stockholders considering
seeking appraisal should realize that the fair value of their shares, as
determined under the IBCA in the manner outline above, could be more than, the
same as, or less than the value of the Norwest Common Stock they would be
entitled to as a result of the Merger if they did not seek appraisal of their
shares.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary contains a description of the material United States
federal income tax considerations for Canton and Canton stockholders with
respect to the Merger, in reliance upon the opinion of Husch & Eppenberger,
counsel for Canton, as to certain federal income tax matters with respect to
the Merger. The conclusions discussed herein are based, in part, on certain
representations made by the management and principal stockholders of Canton, by
the management of Norwest, and on the Internal Revenue Code of 1986, as amended
(the "Code" or the "IRC"), regulations, rulings and decisions in effect on the
date of this Proxy Statement-Prospectus, all of which are subject to change.
All section references herein are to the Code, unless stated otherwise. This
summary does not discuss any aspect of state, local, or foreign taxation and
does not discuss all the tax considerations that may be relevant to particular
Canton stockholders in light of their personal investment circumstances, or to
certain types of stockholders that may be subject to special tax rules, such as
financial institutions, tax-exempt organizations, insurance companies, dealers
in stock or securities, foreign corporations, and individuals who are not
citizens or residents of the United States. The discussion with respect to
Canton stockholders is limited to those stockholders who have held Canton
Common Stock and who will hold the Norwest Common Stock received in the Merger
as "capital assets" within the meaning of Section 1221 of the Code.
30
<PAGE>
CANTON STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS IN DETERMINING
THE TAX CONSIDERATIONS THAT MAY BE RELEVANT IN CONNECTION WITH THE PROPOSED
MERGER, INCLUDING THE APPLICATION TO THEIR PARTICULAR SITUATION OF THE TAX
CONSIDERATIONS DISCUSSED BELOW, AS WELL AS THE APPLICATION OF STATE, LOCAL,
FOREIGN, OR OTHER TAX LAWS.
THE PROPOSED MERGER
The merger of a wholly owned subsidiary of an acquiring corporation, such
as Norwest, with another corporation that will survive the merger, such as
Canton, in exchange for voting stock of the acquiring corporation, will be
treated as a "tax-free" reverse triangular merger for federal income tax
purposes under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, provided the
transaction meets the requirements of a valid reverse triangular merger. The
two most significant requirements of a valid reverse triangular merger are (i)
that after the transaction the surviving corporation holds substantially all
its properties and the properties of the merged corporation and (ii) that in
the transaction former stockholders of the surviving corporation exchange at
least 80% of the stock of the surviving corporation for voting stock of the
acquiring corporation. Based on the information contained in this Proxy
Statement-Prospectus, the Reorganization Agreement, and certain representations
made by the management of Canton, the Merger of Norwest's wholly owned
subsidiary with Canton will constitute a "tax-free" reverse triangular merger
under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
EFFECT OF THE MERGER ON CANTON
For purposes of a reverse triangular merger, the surviving corporation is
treated as having received the stock of the acquiring corporation and any
additional money or property distributed by the acquiring corporation. If the
surviving corporation distributes all the stock, money, and other property
received in the Merger to its stockholders in exchange for their stock of the
surviving corporation, Section 361 of the Code provides that the surviving
corporation will not recognize any gain or loss pursuant to the Merger.
Accordingly, Canton will be treated as having received the Norwest Common Stock
and any cash paid in satisfaction of dissenters' rights, and as having
distributed the stock and cash received to Canton stockholders, so that Canton
will recognize no gain or loss pursuant to the Merger.
EFFECT OF THE MERGER ON CANTON STOCKHOLDERS
Canton stockholders will recognize no gain or loss upon the receipt of the
Norwest Common Stock (including fractional share interests, if any, to which
they are entitled) in exchange for their Canton Common Stock. (IRC Section
354(a)(1)) The basis of the Norwest Common Stock (including fractional share
interests, if any) received by the Canton stockholders will be the same as the
basis of the Canton Common Stock surrendered in exchange therefor. (IRC
Section 358(a)(1)) The holding period of the Norwest Common Stock (including
fractional share interests, if any) received by Canton stockholders will
include the holding period of the Canton Common Stock surrendered in exchange
therefor, provided that such stock was held as a capital asset in the hands of
Canton stockholders on the date of the Merger. (IRC Section 1223(1))
The receipt of cash in lieu of fractional share interests of Norwest Common
Stock will be treated as if the fractional shares were distributed as part of
the exchange and then were redeemed
31
<PAGE>
by Norwest. Depending on the personal investment circumstances of each
shareholder, such cash payments will be treated as either having been received
as a distribution in full payment in exchange for the stock redeemed or as
having been received as a dividend, as provided in Section 302 of the Code. If
the cash payment is treated as having been received by a Canton stockholder as
a distribution in full payment in exchange for the fractional share redeemed,
such stockholder will recognize gain or loss to the extent that the amount of
cash received exceeds, or is less than, the basis allocable to the fractional
share. (IRC Section 1001) Such gain or loss will be capital gain or loss,
provided that the fractional share is a capital asset in the hands of the
Canton shareholder. If the cash payment is treated as having been received by a
Canton shareholder as a dividend, the shareholder generally will recognize
ordinary income in the amount of the cash payment received.
Canton stockholders who exercise dissenters' rights and receive cash in the
Merger in lieu of Norwest Common Stock will be treated as having received the
cash as a distribution in redemption of their Canton Common Stock as provided
in Section 302 of the Code (Treasury Regulation 1.354-1(d), Example 3). Such
stockholders generally will recognize capital gain or loss measured by the
difference between the amount of cash received and their aggregate adjusted tax
basis in the Canton Common Stock, provided the Canton Common Stock was a
capital asset in the hands of the stockholder. (IRC Section 1001) Stockholders
exercising dissenters' rights who also own Norwest Common Stock, or who are
deemed for federal income tax purposes to own constructively Norwest Common
Stock actually owned by other persons or entities, may recognize dividend
income, taxable as ordinary income, equal to the amount of the cash received.
CANTON STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO THEM IN CONNECTION
WITH THE MERGER, INCLUDING THE APPLICATION TO THEIR PARTICULAR SITUATION OF THE
RECEIPT OF CASH IN LIEU OF FRACTIONAL SHARES OR THE EXERCISE OF DISSENTERS'
RIGHTS, AS WELL AS THE OTHER TAX CONSIDERATIONS DISCUSSED ABOVE, AND THE
APPLICATION OF ANY STATE, LOCAL, FOREIGN, OR OTHER TAX LAWS.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to stockholders of Canton upon
consummation of the Merger have been registered under the Securities Act of
1933 (the "Securities Act"). Such shares may be traded freely and without
restriction by those stockholders not deemed to be "affiliates" of Canton or
Norwest as that term is defined in the rules under the Securities Act. Norwest
Common Stock received by those stockholders of Canton who are deemed to be
"affiliates" of Canton may be resold without registration as provided for by
Rule 145, or as otherwise permitted under the Securities Act. In the
Reorganization Agreement, Canton has agreed to use its best efforts to cause
each Canton shareholder who is an executive officer or director of Canton or
who may otherwise reasonably be deemed to be an affiliate of Canton to enter
into an agreement, in the form attached as Exhibit C to the Reorganization
Agreement included as Appendix A to this Proxy Statement-Prospectus, with
Norwest providing that such affiliate will not sell, transfer, or otherwise
dispose of the shares of Norwest Common Stock to be received by such person in
the Merger except in compliance with the applicable provisions of the
Securities Act and the rules and regulations promulgated thereunder. This
Proxy Statement-Prospectus does not cover any resales of Norwest Common Stock
received by affiliates of Canton.
32
<PAGE>
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 Merger. It is a condition to the
consummation of the Merger that such shares of Norwest Common Stock shall have
been authorized for listing on the NYSE and the CHX effective upon official
notice of issuance.
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
Norwest currently has an automatic Dividend Reinvestment and Optional Cash
Payment Plan which provides in substance, for those stockholders who elect to
participate, that dividends on Norwest Common Stock will be reinvested in
shares of Norwest Common Stock at market price (as defined). The plan also
permits participants to invest through voluntary cash payments, within certain
dollar limitations, in additional shares of Norwest Common Stock at the market
price (as defined) of such stock at the time of purchase. It is anticipated
that after the Effective Time of the Merger, Norwest will continue to offer its
Dividend Reinvestment and Optional Cash Payment Plan and that stockholders of
Canton who receive Norwest Common Stock in the Merger will have the right to
participate therein.
ACCOUNTING TREATMENT
Notwithstanding any provision in the Reorganization Agreement to the
contrary, management of Norwest anticipates that the Merger will be accounted
for as a "purchase" in accordance with generally accepted accounting
principles.
EXPENSES
Norwest and Canton will each pay their own expenses in connection with the
Merger, including fees and expenses of their respective accountants and
counsel.
33
<PAGE>
INFORMATION ABOUT CANTON
GENERAL
Canton is a registered one bank holding company headquartered in Canton,
Illinois. Canton State Bank is Canton's wholly-owned subsidiary. Canton was
organized under the laws of the State of Illinois in 1986 and its principal
executive offices are at 2 North Main Street, Canton, Illinois 61520 (Telephone
No. (309) 647-5380).
Canton's consolidated net income, derived primarily from the operations of
the Bank, for the year ended December 31, 1994 was approximately $724,000, and
for the nine months ended September 30, 1994 was $464,000. The total assets of
Canton, on a consolidated basis as of September 30, 1995, were approximately
$50.6 million and total stockholders' equity was approximately $6.5 million.
BUSINESS
Substantially all of Canton's business operations are conducted through the
Bank. The Bank, which is an Illinois banking association and is not a member
of the Federal Reserve System, is a full service commercial bank which has a
primary market area of the City of Canton, Illinois and rural and township
areas located within thirty miles of the city limits of Canton, Illinois.
Deposits are insured, to the extent provided by law, by the FDIC. The Bank has
its main office located at 2 North Main Street, Canton, Illinois, and a drive-
up facility located at First and Pine in Canton, Illinois.
MARKETS AND DIVIDENDS
There is no established trading market for Canton Common Stock, excluding
limited trading as a result of private negotiations not involving any broker or
dealer. Between January 1, 1993 and the date of this Proxy Statement-
Prospectus, 504.44 shares of Canton Common Stock were traded as a result of
private negotiations in nine separate transactions. Canton is not aware of the
sale and purchase prices of those transactions other than a transaction which
occurred on June 15, 1994, in which Canton repurchased 190 shares of Canton
Common Stock at a price of $90.83 per share.
There are approximately 129 holders of record of Canton Common Stock.
Canton paid a $2.00 per share cash dividend semi-annually during fiscal
years ended December 31, 1994 and 1993, paid a $2.00 per share cash dividend to
its stockholders of record as of June 30, 1995, and has declared a $4.00 per
share cash dividend to stockholders of record as of December 31, 1995.
The principal source of Canton's revenues are dividends from the Bank.
Various federal and state statutes and regulations limit the amount of
dividends the Bank can pay to Canton without regulatory approval. A state 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 on which interest is past due and unpaid
for a period of six months or more unless they are well secured and in the
process of collection.
34
<PAGE>
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 and the FDIC have issued policy statements which provide that
FDIC-insured banks, such as the Bank, and bank holding companies should
generally pay dividends only out of current operating earnings. For more
discussion of the banking regulations generally applicable to the payment of
dividends by Canton, as well as Norwest, see "CERTAIN REGULATORY
CONSIDERATIONS--Dividend Restrictions."
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discusses the significant factors affecting Canton and its
subsidiary's consolidated financial position and results of operations.
Consolidated earnings are derived primarily from the operations of the Bank,
Canton's wholly-owned subsidiary, Canton State Bank. The selected financial
data as of December 31, 1990, 1991, 1992, 1993 and 1994, and for the years then
ended have been audited by McGladrey & Pullen, LLP, independent accountants.
The selected financial data as of September 30, 1995 and 1994, and for the
nine-month periods then ended have been derived from Canton's unaudited
internal financial statements and reflect all adjustments which management
considers necessary for a fair and consistent presentation of the financial
position and results of operations of those periods. The results of operations
for the nine-month period ended September 30, 1995, are not necessarily
indicative of results to be expected for the entire year ending December 31,
1995. The purpose of this discussion is to focus on information about Canton's
financial condition and results of operations that are not otherwise apparent
from the consolidated financial statements included in this Proxy Statement-
Prospectus. The following should be read in conjunction with the consolidated
financial statements and notes thereto of Canton included herein.
36
<PAGE>
<TABLE>
<CAPTION>
EARNINGS SUMMARY AND SELECTED FINANCIAL DATA
(In thousands, except per share and ratio data)
As of and for the
Nine Months
Ended September 30, As of and for the Year Ended December 31,
--------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
- ----------------------
Interest Income $ 2,672 $ 2,524 $ 3,388 $ 3,533 $ 3,782 $ 4,137 $ 4,252
Interest Expense 1,068 970 1,287 1,408 1,731 2,240 2,441
--------------------------------------------------------------------------
Net Interest Income 1,604 1,554 2,101 2,125 2,051 1,897 1,811
--------------------------------------------------------------------------
Provision for Loan Losses - - - 30 45 15 -
Security Gains (Losses), Net (1) 82 82 143 7 (177) (54)
Other Operating Income 269 224 299 280 280 306 265
Other Operating Expenses 1,238 1,157 1,559 1,583 1,583 1,443 1,468
--------------------------------------------------------------------------
Income before Income Taxes
and Accounting Change 634 703 923 935 710 568 554
Income Tax Expense 170 196 199 213 153 67 146
--------------------------------------------------------------------------
Income before Accounting Change 464 507 724 722 557 501 408
Cumulative Effect of a Change
in Accounting Method - - - - 44 - -
Net Income $ 464 $ 507 $ 724 $ 722 $ 601 $ 501 $ 408
==========================================================================
Per Common Share Data:
- ----------------------
Income before cumulative effect
of a change in accounting principle $ 9.37 $ 10.20 $ 14.58 $ 14.51 $ 11.14 $ 10.02 $ 8.16
Cumulative effect of a change in
accounting principle - - - - .88 - -
--------------------------------------------------------------------------
Net Income Per Share $ 9.37 $ 10.20 $ 14.58 $ 14.51 $ 12.02 $ 10.02 $ 8.16
==========================================================================
Cash Dividends Per Share $ 2.00 $ 2.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 2.00
Weighted Average Shares Outstanding 49,564 49,680 49,651 49,754 49,990 50,000 50,000
Balance Sheet Data:
- -------------------
Average Total Assets $50,316 $51,708 $50,865 $50,424 $48,384 $47,491 $46,573
Gross Loans 18,652 16,941 17,564 16,425 16,837 16,594 16,891
Allowance for Loan Losses 225 212 189 211 178 247 264
Total Deposits 42,878 43,984 43,839 45,109 43,031 41,915 41,931
Average Stockholders' Equity 5,968 5,734 5,594 5,523 5,070 4,729 4,424
Key Financial Ratios
- --------------------
Return on Average Assets 1.23% 1.31% 1.42% 1.43% 1.24% 1.05% 0.88%
Return on Average Equity 10.37% 11.79% 12.94% 13.07% 11.85% 10.59% 9.22%
Average Equity to Average Total Assets 11.86% 11.09% 11.00% 10.95% 10.48% 9.96% 9.50%
Book Value Per Share $131.81 $114.24 $109.01 $116.25 $105.74 $ 97.58 $ 91.56
Dividend Payout Ratio 21.34% 19.53% 27.35% 27.56% 33.28% 39.92% 24.51%
</TABLE>
37
<PAGE>
RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Canton reported net income for the three quarters ended September 30, 1995, of
$464,000 ($9.37 per share), down from $507,000 ($10.20 per share) for the
comparable period in 1994. The decrease primarily resulted from recognizing
securities gains in 1994 of $82,000 compared to a $1,000 loss in 1995.
Otherwise, net interest income increased by $50,000 and other operating income
increased by $45,000. Also, other operating expenses increased by $81,000,
primarily due to expenses related to the planned merger. Average assets
decreased 2.7% to $50,316,000 during the three quarters of 1995, compared to
$51,708,000 in 1994. Deposits similarly decreased 2.5% to $42,878,000 at
September 30, 1995, compared to $43,984,000 at September 30, 1994. Gross loans
increased 10.1%, or $1,711,000, from September 30, 1994 to 1995. The allowance
for loan losses increased by $13,000 as a result of net recoveries, and no
provision was determined to be required in 1995 or 1994.
OVERVIEW
For the year ended December 31, 1994, Canton recognized net income of $724,000,
compared to net income of $722,000 and $601,000 in 1993 and 1992, respectively.
The higher reported income for 1994 and 1993 resulted from improved net interest
income, as described below, recognition of securities gains of $82,000 and
$143,000 in 1994 and 1993, respectively, and maintaining other operating
expenses at a stable level. During the three years ended December 31, 1994,
average assets increased from $48,384,000 to $50,865,000 (5.1%). Deposits
increased 4.6% from $41,915,000 at the beginning of 1992 to $43,839,000 at
December 31, 1994.
See the following sections for discussion of Canton's financial condition and
results of operations.
NET INTEREST INCOME
Net Interest Income is the amount by which interest generated from interest-
earning assets exceeds the expenses associated with funding those assets. Net
interest income for the year ended December 31, 1994, was $2,101,000, compared
to $2,125,000 for the same period of 1993, a decrease of 1.1%, as net interest
margins contracted. Net interest income for the year ended December 31, 1992,
was $2,051,000. The increase from 1992 in net interest income was largely due to
the increase of lower cost deposits and the general reduction in rates paid on
deposits prior to the maturities and repricing of existing securities
investments and loans. Interest rate spread (the difference between average
rates earned and paid) increased from 3.76% in 1992 to 3.80% in 1993 and
decreased to 3.55% in 1994.
38
<PAGE>
<TABLE>
<CAPTION>
AVERAGE INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(In thousands, except ratios)
Year Ended December 31,
----------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Interest-Bearing Balances with Banks $ 316 $ 18 5.70% $ 289 $ 13 4.50% $ - $ - - %
Investment Securities:
Taxable 25,746 1,331 5.17 23,788 1,393 5.86 21,563 1,548 7.18
Non-Taxable 5,606 344 6.14 5,726 361 6.30 4,691 305 6.15
Federal Funds Sold 808 29 3.59 1,543 44 2.85 1,734 58 3.34
Gross Loans(1) 17,782 1,666 9.37 17,281 1,722 9.96 17,712 1,871 10.56
----------------------------------------------------------------------------------
Total Interest-Earning Assets $50,258 $3,388 6.74% $48,627 $3,533 7.23% $45,700 $3,782 8.28%
==================================================================================
LIABILITIES
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Savings Deposits $13,216 $ 352 2.66% $13,037 $ 377 2.89% $11,880 $ 487 4.10%
Money Market & NOW Accounts 8,902 195 2.19 8,479 224 2.64 7,943 245 3.08
Time Deposits over $100,000 437 18 4.12 472 19 4.03 393 22 5.60
Other Time Deposits 17,795 722 4.06 18,033 788 4.37 18,083 977 5.40
----------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $40,350 $1,287 3.19% $40,021 $1,408 3.52% $38,299 $1,731 4.52%
==================================================================================
Net-Interest-Earning Assets $ 9,908 $ 8,608 $ 7,401
======= ======= =======
Net Interest Income $2,101 $2,125 $2,051
====== ====== ======
Net Interest Rate Spread 3.55% 3.80% 3.76%
===== ===== =====
Net Yield on Interest-Earning Assets 4.18% 4.37% 4.49%
===== ===== =====
</TABLE>
(1) Non-accruing loans have been included in the average balances.
39
<PAGE>
The following table reflects the change in interest income and interest expense
due to both rate and volume allocated in proportion to the relationship to the
dollar amounts of the change in each.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS
(In thousands)
1994 compared to 1993, 1993 compared to 1992,
increase (decrease) due to increase (decrease) due to
------------------------------------------------------------
Volume Rate Net Volume Rate Net
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 47 $(103) $ (56) $(43) $(106) $(149)
Investment Securities:
Taxable 101 (163) (62) 130 (285) (155)
Nontaxable (7) (10) (17) 65 (9) 56
Interest-Bearing Deposits with Other Banks 2 3 5 13 - 13
Federal Funds Sold (26) 11 (15) (5) (9) (14)
------------------------------------------------------------
Total Earning Assets $117 $(262) $(145) $160 $(409) $(249)
------------------------------------------------------------
Interest Expense:
Savings Deposits $ 5 $ (30) $ (25) $ 33 $(143) $(110)
Money Market and NOW 9 (38) (29) 14 (35) (21)
Accounts
Time Deposits over $100,000 (1) - (1) 3 (6) (3)
Other Time Deposits (10) (56) (66) (2) (187) (189)
------------------------------------------------------------
Total Interest-Bearing Liabilities $ 3 $(124) $(121) $ 48 $(371) $(323)
------------------------------------------------------------
Net Interest Earnings $114 $(138) $ (24) $122 $ (38) $ 74
============================================================
</TABLE>
PROVISION FOR LOAN LOSS
The allowance for possible loan losses is maintained to cover estimated losses
in the loan portfolio based on management's assessment of factors affecting the
loan portfolio in light of circumstances known or anticipated at that time. In
evaluating and establishing the allowance, consideration is given to such
factors as management's evaluation of specific loans, historical loss
experience, asset quality and delinquency trends, current and anticipated
economic conditions and their impact on particular industries and borrowers,
results of examinations by regulatory agencies and internal loan review
personnel, level and composition of classified loans, loan concentration and
other factors.
Management has used a loan loss reserve methodology that incorporates the
historical as well as current review process within the calculation. As
management examines the loan portfolio, loans are assigned specific reserves
that might be required for each specified loan. In addition to these specific
allocations of reserve, an amount is provided which is deemed appropriate to
recognize the likelihood that there are loans in the portfolio which present a
risk of becoming uncollectible, but which risks cannot yet be specifically
identified.
40
<PAGE>
The following schedule presents an analysis of the allocation of the allowance
for loan losses for the three years ended December 31, 1994.
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(In thousands, except ratios)
Year Ended December 31,
----------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------
% of loans in % of loans in % of loans in
Balance at end of each category each category each category
period applicable to: Amount to total loans Amount to total loans Amount to total loans
- --------------------- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans (1) $ 78 41.3% $ 81 38.4% $ 69 38.8%
Real Estate - Residential 15 7.9 30 14.2 13 7.3
Installment Loans 35 18.5 18 8.5 17 9.5
Unallocated 61 32.3 82 38.9 79 44.4
---------------------------------------------------------------------------
$189 100.0% $211 100.0% $178 100.0%
===========================================================================
</TABLE>
(1) Commercial Loans Include Commercial and Commercial Real Estate
Management currently reviews the loan portfolio and market conditions on a
regular basis and makes appropriate adjustments to the allowance, which
adjustments are reflected in the results of operations on a current basis. As
loans are determined to be uncollectible, they are charged against the allowance
for loan losses. Recoveries of loans previously charged-off are added back to
the allowance. Provisions are charged as appropriate against current operations
to restore the allowance to an appropriate level.
41
<PAGE>
The following schedule presents an analysis of the allowance for loan losses for
the five years ended December 31, 1994.
SUMMARY OF LOAN LOSS EXPERIENCE
(In thousands, except ratios)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 211 $ 178 $ 247 $ 264 $ 198
-------------------------------------------------------
Loans Charged-off:
Commercial Loans (1) $ - $ - $ 93 $ 31 $ 75
Real Estate - Residential - - - - 16
Installment Loans and Other 27 37 29 2 11
-------------------------------------------------------
Total Loans Charged-Off $ 27 $ 37 $ 122 $ 33 $ 102
-------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial Loans (1) $ - $ 27 $ 3 $ - $ 151
Real Estate - Residential - - - - 4
Installment Loans and Other 5 13 5 1 13
-------------------------------------------------------
Total Recoveries 5 40 8 1 168
-------------------------------------------------------
Net (Charge-Offs) Recoveries $ (22) $ 3 $ (114) $ (33) $ 66
-------------------------------------------------------
Period Provision for Loan Losses $ - $ 30 $ 45 $ 15 $ -
-------------------------------------------------------
Balance at End of Period $ 189 $ 211 $ 178 $ 247 $ 264
=======================================================
Gross Loans at Period End $17,564 $16,425 $16,837 $16,594 $16,891
Gross Average Loans for the Period 17,782 17,281 17,712 16,743 16,389
Ratio of Net (Charge-offs) Recoveries During the
Period to Gross Average Loans (For the Period) (0.12)% 0.02% (0.64)% (0.20)% 0.40%
Percent of Allowance for Loan Losses to Gross
Loans (at Period End) 1.08% 1.28% 1.06% 1.49% 1.56%
Ratio of Allowance for Loan Losses to Net
(Charge-offs) Recoveries (859)% 7,033% (156)% (748)% 400%
</TABLE>
(1) Commercial Loans includes Commercial and Commercial Real Estate
42
<PAGE>
NON-PERFORMING LOANS
Non-performing loans at December 31, 1994, were $78,000, or 0.44% of gross
loans, compared to $147,000, or 0.89% of gross loans at December 31, 1993, and
$256,000, or 1.52% of total gross loans at December 31, 1992. These loans are
subject to heightened management scrutiny and their classifications are reviewed
on a regular basis.
Non-accrual loans are those of which the recognition of interest has been
suspended. Loans are placed on non-accrual status when they become 90 or more
days past due and are not well collateralized and in the process of collection
or when, in the judgment of management, the ability to collect the loans or
accrued interest thereon becomes doubtful. As of December 31, 1994, management
believes that there are no potential problem loans which would require
disclosure. The following schedule presents a summary of the non-performing
loans at the end of each of the five years preceding December 31, 1994.
PAST DUE AND NON-PERFORMING LOANS AT YEAR END
(In thousands, except ratios)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1994 1993 1992 1991 1990
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross loans at Period End $17,564 $16,425 $16,837 $16,594 $16,891
===================================================
Non-Performing Loans
Non-Accrual Loans $ 26 $ 26 $ 36 $ 59 $ 207
Accrual Loans Over 90 Days Past Due 52 121 220 306 185
---------------------------------------------------
Total Non-Performing Loans $ 78 $ 147 $ 256 $ 365 $ 392
===================================================
Ratio of Non-Performing Loans to Gross
Loans at Period End 0.44% 0.89% 1.52% 2.20% 2.32%
Ratio of Allowance for Loan Losses to
Non-Performing Loans at Period End 242.31% 143.54% 69.53% 67.67% 67.35%
Allowance for Loan Losses $ 189 $ 211 $ 178 $ 247 $ 264
Other Real Estate Owned $ 28 $ 75 $ 161 $ 305 $ 531
</TABLE>
Non-accrual of interest on non-accrual loans had the effect of reducing interest
income by $2,300, $2,300 and $3,000 for the years ended December 31, 1994, 1993
and 1992, respectively.
OTHER INCOME
Other income is composed primarily of deposit account service charges, fees for
trust services, gains from disposition of assets, including investment
securities, and other various fees and commissions. Other income was $381,000
for the year ended December 31, 1994, compared to $423,000 for the year ended
December 31, 1993, a decrease of $42,000 or 9.9% resulting primarily from a
decrease of $61,000 in securities gains. Other income of $423,000 for 1993,
increased from the $287,000 in 1992, an increase of $136,000, or 47%, resulting
primarily from $143,000 of securities gains.
43
<PAGE>
The following is a summary of the other income components for the three years
ending December 31, 1994. Recurring noninterest income categories of trust fees,
service charges and other operating income increased over the period as
indicated in the following table. The majority of the increase reported for
total Other Income was the security gains of $82,000 and $143,000 in 1994 and
1993, respectively.
OTHER INCOME
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
-----------------------
<S> <C> <C> <C>
Trust Department Income $ 88 $ 68 $ 68
Service Charges and Fees on Deposit
Accounts 152 148 143
Other Operating Income 59 64 69
Security Gains 82 143 7
--------------------
Total Other Income $381 $423 $287
====================
</TABLE>
OTHER EXPENSES
Other expenses showed a slight decrease from 1993 to 1994. Total other expenses
remained stable for 1993 as compared to 1992. No significant changes were
implemented during the period with respect to staffing, facilities, equipment or
operating procedures.
OTHER EXPENSES
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1994 1993 1992
---------------------------
<S> <C> <C> <C>
Salaries and Employee Benefits $ 739 $ 780 $ 750
Director fees 67 67 60
Occupancy 130 132 124
Equipment 76 71 76
Real Estate Owned Expense 2 8 26
Professional Fees 36 55 50
Data Processing Fees 104 100 85
FDIC Insurance Premium 112 107 104
Stationary and supplies 32 37 28
Correspondent bank service charges 42 37 23
Postage 37 31 38
Other Operating Expenses 182 158 219
--------------------------
Total Other Expenses $1,559 $1,583 $1,583
==========================
</TABLE>
INCOME TAXES
Canton files a consolidated federal income tax return. Income tax expense
decreased from $213,000 in 1993 to $199,000 in 1994, primarily due to the
decrease in income before income taxes.
FINANCIAL CONDITION
GENERAL
Canton's assets decreased $1,700,000 or 3.3% from 1993 to 1994 and increased
$2,600,000 or 5.4% from 1992 to 1993 due in part to the factors discussed above.
44
<PAGE>
INVESTMENT SECURITIES
The following schedule summarizes Canton's investment securities portfolio as of
December 31, 1994. The weighted average yields for tax-exempt obligations have
not been computed on a tax equivalent basis.
INVESTMENT PORTFOLIO
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------------------
Weighted
Amortized Average
Cost Fair Value Interest Rate
---------------------------------------
<S> <C> <C> <C>
Total U.S. Treasury and Government Agency Securities $11,659 $11,105 6.02%
Total Obligations of State and Political Subdivisions 5,823 5,788 6.37
Total Mortgage-Backed Securities 12,717 11,936 5.82
--------------------------------------
Total Securities $30,199 $28,829 6.07%
======================================
</TABLE>
At December 31, 1994, Canton's investment portfolio did not contain securities,
other than U.S. Treasury and government agency securities, of any single issuer
that were payable from and secured by the same source of revenue or taxing
authority where the aggregate book value of such securities exceeded 10% of
stockholders' equity.
45
<PAGE>
LOANS
Gross loans were $17,564,000 at December 31, 1994, compared to $16,425,000 and
$16,837,000 at December 31, 1993 and 1992, respectively. The increase reflects
management's intention to expand the loan portfolio and the improved local loan
demand.
ANALYSIS OF LOAN PORTFOLIO
(In thousands, except ratios)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------------------------
Amount % Amount % Amount % Amount % Amount %
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Category Commercial
Loans (1) $ 5,676 32.3% $ 4,832 29.4% $ 4,585 27.2% $ 4,899 29.5% $ 4,812 28.5%
Real Estate Residential 6,519 37.1 6,691 40.7 7,105 42.2 6,436 38.8 6,412 38.0
Installment Loans 5,369 30.6 4,902 29.9 5,147 30.6 5,259 31.7 5,667 33.5
-------------------------------------------------------------------------------------------------------
Gross Loans $17,564 100.0% $16,425 100.0% $16,837 100.0% $16,594 100.0% $16,891 100.0%
=======================================================================================================
</TABLE>
(1) Commercial Loans include Commercial and Commercial Real Estate.
The following table summarizes the categories of loans outstanding at the end of
each of the five years preceding December 31, 1994, and indicates the
portfolio's sensitivity to interest rate changes, based upon the loan maturity
date and repricing terms as of December 31, 1994.
LOAN MATURITY DISTRIBUTION
(In thousands, except ratios)
<TABLE>
<CAPTION>
At December 31, 1994
--------------------------------------
Under 1 Year to Over
1 Year 5 Years 5 years Total
--------------------------------------
<S> <C> <C> <C> <C>
Maturity Period (1)
Fixed Rate $1,264 $ 7,408 $1,974 $10,646
Variable Rate 3,883 3,035 - 6,918
--------------------------------------
Total for Period $5,147 $10,443 $1,974 $17,564
======================================
29.3% 59.5 11.2% 100.0%
</TABLE>
(1) Demand loans, past due loans and overdrafts are reported in the Under 1 Year
category.
ALLOWANCE FOR LOAN LOSS
At December 31, 1994, the allowance for loan losses was $189,000, or 1.08% of
gross loans, compared to $211,000, $178,000, $247,000 and $264,000, or 1.28%,
1.06%, 1.49% and 1.56%, to gross loans, at December 31, 1993, 1992, 1991 and
1990, respectively. Changes noted during the period reflect management's
response to internal loan review, regulatory classifications and the current
loan loss methodology analysis.
46
<PAGE>
DEPOSITS
Year end deposits for December 31, 1994, were $43,800,000, a decrease of
$1,300,000 or 2.9% from $45,100,000 in 1993 and an increase of $2,100,000 or
4.9% from $43,000,000 in 1992 to 1993.
The change in total deposits from 1993 to 1994 was caused primarily by decreases
of $860,000 in demand deposits, $825,000 in other time deposits and were
somewhat offset by the $483,000 increase in NOW and money market accounts. At
December 31, 1994, time certificates of deposit in denominations of $100,000 or
more were $300,000, which represents 0.7% of total deposits. These time deposits
are rate-sensitive. The Bank's policy is to pay competitive rates in the markets
it serves.
AVERAGE DEPOSIT DISTRIBUTION
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Noninterest Bearing Demand Deposits $ 4,598 $ 4,077 $ 8,066
Savings Deposits 13,216 13,037 11,880
Money Market and NOW Deposits 8,902 8,479 7,943
CD's over $100,000 437 472 393
Other Time Deposits 17,795 18,033 18,083
----------------------------------
Total Deposits $44,948 $44,098 $46,365
==================================
</TABLE>
<TABLE>
<CAPTION>
Average Rates
Paid on Deposits
Year Ended December 31,
----------------------------------------
1994 1993 1992
----------------------------------------
<S> <C> <C> <C>
Savings Deposits 2.66% 2.89% 4.10%
Money Market and NOW Deposits 2.19 2.64 3.08
CD's over $100,000 4.12 4.03 5.60
Other Time Deposits 4.06 4.37 5.40
Total Interest Bearing Deposits 3.19 3.52 4.52
</TABLE>
<TABLE>
<CAPTION>
Maturity of At December 31,
Time Deposits 1994
Over $100,000 (In thousands)
- ------------------------------------------------------------------------------------
<S> <C>
Due within Three Months $ -
Three to Twelve Months 200
After Twelve Months 100
----
$300
====
</TABLE>
The Bank continues to experience strong competition for deposits in its markets.
This is true for both the business and retail segments of the market. During
1994, the Bank offered a number of different products with specific features and
competitive pricing. The deposit products were designed to retain core deposit
accounts, attract new customers, and create opportunities for providing other
bank services or relationships.
47
<PAGE>
NOTES PAYABLE
The Company did not have any notes payable outstanding during the five year
period ended December 31, 1994.
COMMON STOCK ISSUED
No additional common stock was issued during the five years ended December 31,
1994. There were 190 and 246 shares purchased and retired in 1994 and 1992,
respectively.
LIQUIDITY
The overall liquidity of the Bank is maintained through the continual review and
control of the maturity structure of the balance sheet. Liquidity is obtained
through access to financial markets and by holding appropriate amounts of liquid
assets, which provide Canton with the ability to meet financial obligations to
depositors and loan customers.
Liquid assets are composed of cash and near-cash items, including deposits with
other banks, federal funds sold, obligations of the U.S. Treasury and government
agency securities, obligations of states and political subdivisions, and short-
term investments which can be readily converted to cash.
The fair value of the Bank's investment securities portfolio of $28,829,000 at
December 31, 1994, which included securities classified as available for sale
with a fair value of $22,488,000 that were available to meet liquidity needs.
Prior to the adoption on January 1, 1994, of Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments In Debt and Equity
Securities," the Bank's entire investment securities portfolio, with a fair
value of $29,850,000 at December 31, 1993, could have been available to meet
liquidity needs.
ASSET AND LIABILITY MANAGEMENT
Net interest income is subject to wide fluctuations arising from changes in
market interest rates because the average yield on assets responds differently
to such changes than does the average cost of funds. In an effort to minimize
the effects of changes in the general level of market interest rates, the Bank
actively manages the repricing characteristics of its assets and liabilities to
control net interest rate sensitivity. For purposes of measurement of rate
sensitive deposit balances, management has determined that Other Savings of
$12,871,000, as of December 31, 1994, should be considered as core deposits and
are subject to repricing as one-third based on movement due to rate change
within a 6 month duration or less horizon, and the remaining two-thirds subject
to repricing within the 1-5 year duration.
An interest rate sensitivity ratio position is a relative measure of the
differences in the repricing of assets and liabilities within specified time
periods. A positive rate sensitive ratio exists when rate-sensitive assets
exceed rate-sensitive liabilities. Generally, when a positive gap position
exists, net interest income should increase during periods of rising interest
rates. When a negative gap exists (when rate-sensitive liabilities exceed rate-
sensitive assets), net interest income generally should increase during the
periods of declining interest rates. The interest rate sensitivity table as of
December 31, 1994, shows that the cumulative position was positive for all of
the reporting periods.
48
<PAGE>
The Bank's relative position of interest rate-sensitive assets and liabilities
as of December 31, 1994, is shown in the following table.
INTEREST RATE SENSITIVITY ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------------------------
Interest Sensitivity Period
-----------------------------------------------------------
6 Months 6 Months 1 Year 5 Years
or Less to 1 Year to 5 Years and Over Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS
Loans $ 4,679 $ 468 $10,443 $ 1,974 $17,564
Investment Securities - HTM - 799 1,747 3,816 6,362
Investment Securities - AFS 22,488 - - - 22,488
-----------------------------------------------------------
Total Earning Assets $27,167 $ 1,267 $12,190 $ 5,790 $46,414
-----------------------------------------------------------
Cumulative $27,167 $28,434 $40,624 $46,414
----------------------------------------------
INTEREST SENSITIVE LIABILITIES
NOW Accounts 8,250 - - - 8,250
Money Market Deposits 1,000 - - - 1,000
Other Savings Accounts 4,290 - 8,581 - 12,871
Other Time $100,000 and Over 200 - 100 - 300
Other Time Deposits 8,627 3,385 5,463 - 17,475
-----------------------------------------------------------
Total Liabilities $22,367 $ 3,385 $14,144 $ - $39,896
-----------------------------------------------------------
Cumulative $22,367 $25,752 $39,896 $39,896
---------------------------------------------
---------------------------------------------
Net position per Period $ 4,800 $(2,118) $(1,954) $ 5,790
---------------------------------------------
Net Asset Position - Cumulative $ 4,800 $ 2,682 $ 728 $ 6,518 $ 6,518
===========================================================
Rate Sensitive Assets as a % of a Rate
Sensitive Liabilities 121.46% 110.41% 101.82% 116.34%
</TABLE>
CAPITAL AND REGULATORY MATTERS
Canton's bank subsidiary continues to maintain capital at levels which meet the
regulatory capital guidelines to be classified as "Well Capitalized."
No regulatory actions or limitations exist or are pending.
49
<PAGE>
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
If the holders of Canton Common Stock approve the Reorganization Agreement
and the Merger is subsequently consummated, stockholders of Canton will become
stockholders of Norwest. Canton is a corporation organized under and governed
by the Illinois Business Corporation Act (the "IBCA"). Norwest is a
corporation organized and governed by the Delaware General Corporation Law (the
"DGCL"). The following summary describes certain differences between the
rights of stockholders of Canton and the rights of stockholders of Norwest to
the extent such differences arise because of differences between the DGCL and
the IBCA and between Norwest's Restated Certificate of Incorporation (the
"Norwest Certificate"), By-Laws, and Norwest's Rights Plans (as defined below)
and Canton's Articles of Incorporation (the "Canton Articles") and By-Laws.
This summary is qualified in its entirety by reference to the DGCL, the Norwest
Certificate, and By-Laws, the IBCA, and the Canton Articles and By-Laws.
AUTHORIZED STOCK
CANTON. The Canton Articles authorize the issuance of 100,000 shares of
common stock, par value $1.00 per share. As of September 30, 1995, there were
49,564 shares of Canton Common Stock issued and outstanding. The Canton
Articles do not authorize the issuance of preferred stock.
NORWEST. The Norwest Certificate authorizes the issuance of 500,000,000
shares of common stock, par value $1 2/3 per share, 5,000,000 shares of
preferred stock, without par value, and 4,000,000 shares of preference stock.
At September 30, 1995, 342,699,461 shares of Norwest Common Stock were issued,
of which 337,931,133 were outstanding and 4,768,328 were held as treasury
shares, and 2,129,168 shares of preferred stock were outstanding, consisting of
1,127,125 shares of 10.24% Cumulative Preferred Stock, 980,000 shares of
Cumulative Tracking Preferred Stock (of which 25,000 shares are held by a
subsidiary of Norwest), 13,311 shares of ESOP Plan Cumulative Convertible
Preferred Stock, and 33,732 shares of 1995 ESOP Plan Cumulative Convertible
Preferred Stock. In addition, 1,250,000 shares of preferred stock are reserved
for issuance under the Rights Agreement dated as of November 22, 1988, between
Citibank, N.A. as Rights Agent, and Norwest (the "Rights Agreement"). Norwest
has also authorized for issuance from time to time and registered with the
Commission an additional 1,700,000 shares of preferred stock. Norwest has also
authorized for issuance from time to time and registered or filed for
registration with the SEC, pursuant to two universal shelf registration
statements, an indeterminate number of securities (the "Shelf Securities") with
an aggregate initial offering price, as of September 30, 1995, not to exceed
$2,800,000,000. The Shelf Securities may be issued as preferred stock or as
securities convertible into shares of preferred stock or common stock. Based
on the current number of shares of preferred stock and preference stock
authorized for issuance under the Norwest Certificate, the maximum number of
shares of preferred stock, preference stock, and common stock, respectively,
that could be issued pursuant to the effective shelf registration statements,
when added to shares of preferred stock and common stock already reserved for
issuance, issued, or outstanding, could not exceed, respectively, 5,000,000
shares of preferred stock, 4,000,000 shares of preference stock, and
500,000,000 shares of common stock. All or any portion of the authorized but
unissued preferred stock, preference stock, or Shelf Securities issuable as
preferred stock or convertible into preferred stock or common stock, may be
issued by the Board of Directors of Norwest without further action by
stockholders. Holders of preferred stock or preference stock have certain
rights and preferences with respect to dividends and upon liquidation that are
superior to those of holders of common stock. The relative rights and
50
<PAGE>
preferences of any preferred stock or preference stock issued in the future may
be established by the Board of Directors of Norwest (the "Norwest Board")
without stockholder action, provided that each share of preference stock will
not be entitled to more than one vote per share. Although Norwest has no
current plans for the issuance of any shares of preferred stock or preference
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 common stock.
Subject to any prior rights of any preferred stock or preference stock
then outstanding, holders of common stock are entitled to receive such
dividends as are declared by the Norwest Board 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 or preference stock then outstanding, all voting rights are vested in the
holders of common stock, each share being entitled to one vote. Subject to any
prior rights of any preferred stock or preference stock, in the event of
liquidation, dissolution, or winding up of Norwest, holders of shares of common
stock are entitled to receive pro rata any assets distributable to stockholders
in respect of shares held by them. Holders of shares of common stock do not
have any preemptive right to subscribe for any additional securities which may
be issued by Norwest. The outstanding shares of Norwest Common Stock are, and
the shares offered hereby will be, fully paid and nonassessable. The transfer
agent and registrar for Norwest Common Stock is Norwest Bank Minnesota, N.A.
Each share of common stock also includes, and each share offered hereby will
include, a right to purchase certain preferred stock. See "Rights Plans--
Norwest" below.
The foregoing description of the material terms of Norwest Common Stock
does not purport to be complete and is qualified in its entirety by reference
to Article Fourth of the Norwest Certificate.
ELECTION AND REMOVAL OF DIRECTORS
CANTON. Canton currently has 10 directors, who serve for one-year terms.
Under the IBCA, cumulative voting for directors is required unless the
corporation's articles of incorporation provide otherwise. Canton's Articles
do not eliminate cumulative voting in the election of directors. Cumulative
voting means that each shareholder in electing directors has the right to cast
as many votes in the aggregate as equals the number of shares held multiplied
by the number of directors to be elected at the election.
Under the IBCA, the entire Canton Board of Directors may be removed, with
or without cause, at a meeting of stockholders by the affirmative vote of the
holders of a majority of the outstanding shares then entitled to vote at an
election of directors; provided, however, that no director may be removed at a
meeting of stockholders unless the notice of the meeting shall state the
purpose of the meeting is to vote upon the removal of directors named in the
notice. If less than the entire Board of Directors is to be removed, no
director may be removed, with or without cause, 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.
Vacancies on the Canton Board by reason of death, resignation, or increase
in the number of directors are filled by a majority vote of the directors then
in office, even though the number of directors then in office is less than a
quorum of the whole Canton Board. Vacancies resulting from
51
<PAGE>
removal by a vote of the stockholders may be filled by the stockholders at the
same meeting at which removal occurs.
NORWEST. Norwest currently has 14 directors, who serve for one-year
terms. Under the DGCL, cumulative voting in the election of directors is
permitted if the corporation's certificate of incorporation so provides.
Norwest's Certificate does not so provide. Under Norwest's By-Laws, any or all
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. Vacancies on
the Norwest Board may be filled by a majority vote of the directors then in
office.
RIGHTS PLANS
CANTON. Unlike Norwest, Canton has not adopted any shareholder rights
plan or issued any similar rights to the holders of Canton Common Stock. One
Norwest Right (as defined below) will be attached to each share of Norwest
Common Stock issued in the Merger to Canton stockholders.
NORWEST. On November 22, 1988, the Norwest Board declared a dividend of
one preferred share purchase right (collectively, the "Norwest 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 the Merger, receive the Norwest Rights with their shares. The
Norwest Rights trade automatically with the shares of Norwest Common Stock and
become exercisable only under certain circumstances. The Norwest Rights are
designed to protect the interests of Norwest and its stockholders against
coercive takeover tactics. The purpose of the Norwest Rights is to encourage
potential acquirors to negotiate with Norwest's Board of Directors prior to
attempting a takeover and to give the Norwest Board leverage in negotiating on
behalf of all stockholders the terms of any proposed takeover. The Norwest
Rights may, but are not intended to, deter takeover proposals.
Until exercised, the Norwest Rights, in and of themselves, do not confer
any rights on their holders as stockholders of Norwest including, without
limitation, the right to vote or receive dividends. Upon becoming exercisable,
each Norwest 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 purchase
price for each one four-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 Norwest Rights outstanding and the number of Junior
Preferred Shares issuable upon exercise of the Norwest Rights are subject to
adjustment in the event of a stock split of, or a stock dividend on, Norwest
Common Stock.
The Norwest 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 Norwest Board prior to the time the Norwest Rights become
exercisable. The Norwest Rights have certain additional features that will be
triggered upon the occurrence of specified events:
52
<PAGE>
(1) If a person or group acquires at least the triggering percentage
of Norwest Common Stock, the Norwest Rights permit holders of the Norwest
Rights, other than such person or group, to acquire shares of Norwest
Common Stock at 50% of such shares' 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 Norwest
Right, other than Norwest 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
Norwest Rights permit holders of the Norwest Rights to purchase the stock
of the acquiror at 50% of such shares' 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 Norwest Rights in whole, but not
in part, at a price of $.0025 per Norwest Right (the "Redemption Price"). The
redemption of the Norwest 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 Norwest Rights, the
right to exercise such Rights will terminate and the only remaining right of
the holders of Norwest Rights will be to receive the Redemption Price.
The Norwest Rights will expire on November 23, 1998, unless extended or
earlier redeemed by Norwest. Generally, the terms of the Norwest Rights may be
amended by the Board of Directors without the consent of the holders of the
Norwest Rights.
AMENDMENT TO CORPORATE CHARTER AND BY-LAWS
CANTON. Generally, under the IBCA, amendments to articles of
incorporation require the affirmative vote of the holders of two-thirds of the
outstanding shares entitled to vote on the
53
<PAGE>
proposed amendment. Under the IBCA, amendments to Canton's By-Laws may be made
by Canton's stockholders or the Canton Board.
NORWEST. Generally, under the DGCL, amendments to the certificate of
incorporation require the affirmative vote of a majority of the outstanding
stock entitled to vote thereon. Norwest's By-Laws provide that they may be
altered or amended by the affirmative vote of a majority of the Norwest Board
or the holders of a majority of the outstanding Norwest stock entitled to vote
on the amendment under the DGCL.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
In addition to being subject to the laws of Illinois and Delaware,
respectively, both Canton and Norwest, as bank holding companies, are subject
to various provisions of federal law with respect to mergers, consolidations,
and certain other corporate transactions. See "CERTAIN REGULATORY
CONSIDERATIONS."
CANTON. Under Illinois law, the vote of two-thirds of the outstanding
shares of Canton Common Stock entitled to vote thereon is required to approve a
merger or exchange involving Canton or the sale, lease, transfer, or other
disposition of all or substantially all of Canton's property and assets. With
respect to a merger or exchange, no vote is required if (i) the articles of
incorporation of the corporation will not be amended in the transaction; (ii)
each holder of shares outstanding immediately before the effective date of the
transaction will hold the same number of shares with identical rights
immediately thereafter; and (iii) the number of shares entitled to vote or to
participate without limitation in distributions by the corporation immediately
after the merger or exchange, plus the number of shares entitled to vote
issuable upon conversion of securities or exercise of rights issued in the
transaction, will not exceed by more than 20% the number of shares entitled to
vote or to participate without limitation in distributions by the corporation
immediately before the transaction.
NORWEST. The vote of a majority of the outstanding shares of Norwest
Common Stock entitled to vote thereon is required to approve a merger or
consolidation involving Norwest or the sale, lease, or exchange of
substantially all of Norwest's corporate assets. However, no vote of the
stockholders of Norwest is required in connection with a merger if Norwest is
the survivor and (i) the related agreement of merger does not amend Norwest's
Certificate, (ii) each share of capital stock outstanding immediately before
the merger is to be an identical outstanding or treasury share of Norwest after
the merger, and (iii) the number of shares of capital 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's capital
stock outstanding immediately before the merger.
APPRAISAL RIGHTS
CANTON. Under the IBCA, a holder of shares of an Illinois corporation is
generally entitled to dissent from amendments to the corporation's articles
which have a material adverse effect on certain rights or preferences of such
shares, a sale, lease, transfer, or other disposition, not made in the ordinary
course of business, of all or substantially all of the corporation's property
and assets, or a plan of merger or exchange, and to receive payment of the fair
value of such shareholder's shares. See "Rights of Dissenting Stockholders."
54
<PAGE>
NORWEST. Pursuant to Section 262 of the DGCL, a holder of capital stock
of a Delaware corporation is generally entitled to receive payment of the
appraised value of his or her shares if such shareholder dissents from a merger
or consolidation and complies with the procedures set forth in Section 262 of
the DGCL for exercising such rights. However, appraisal rights are not
available in merger or consolidation transactions to holders of (i) shares
either listed on a national stock exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 persons, or
(ii) shares of the corporation surviving a merger unless, in either case,
holders of such stock are required by the terms of the merger or consolidation
to accept anything other than (a) shares of the surviving or resulting
corporation; (b) shares of stock of another corporation so listed or held of
record by not fewer than 2,000 persons; and/or (c) cash in lieu of fractional
shares of such corporations. Appraisal rights are not available for a sale of
assets or an amendment to the certificate. Because shares of Norwest Common
Stock are listed on the NYSE and the CHX and because Norwest currently has more
than 2,000 stockholders of record, holders of Norwest Common Stock are not,
subject to the express exceptions noted above, entitled to any rights of
appraisal in connection with proposed mergers or consolidations involving
Norwest.
SPECIAL MEETING
CANTON. Canton's By-Laws provide that a special meeting of stockholders
may be called by the President, the Board of Directors, or by one or more
stockholders holding in the aggregate twenty percent or more of the shares
entitled to vote at the special meeting.
NORWEST. The By-Laws of Norwest provide that 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. Accordingly, holders
of Norwest Common Stock do not have the right to call a special meeting.
DIRECTORS' DUTIES
CANTON. Under the IBCA, in discharging their duties, the directors, in
considering the best long term and short term interests of the corporation, may
consider the effects of any action upon employees, suppliers, and customers,
communities in which its offices are located, and all other pertinent factors.
NORWEST. Unlike the IBCA, the DGCL does not contain any provision
specifying what factors a director may consider in determining a corporation's
best interests.
LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION.
CANTON. The IBCA provides that a corporation may indemnify a present or
former director who is made or threatened to be made a party to a threatened,
pending, or completed civil, criminal, administrative, arbitration, or
investigative proceeding, including a proceeding by or in the right of the
corporation, or "derivative action," against judgments, penalties, fines
(including excise taxes assessed with respect to an employee benefit plan),
settlements, and reasonable expenses, including attorneys' fees incurred by the
director in connection with the proceeding. Such indemnification is available
if, with respect to the acts or omissions which are the subject of the
proceeding, the director has not been indemnified by another party; acted in
good faith; received
55
<PAGE>
no improper personal benefit; in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and, depending upon the
nature of the acts or omissions, reasonably believed that the conduct was in,
or not opposed to, the best interests of the corporation. The termination of a
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent does not alone establish that the director failed
to meet the criteria for indemnification. Expenses incurred in defending an
action may be paid by the corporation in advance of the final disposition of
such action upon receipt of an undertaking by or on behalf of the director to
repay such amount if it is ultimately determined that the director is not
entitled to be indemnified by the corporation. To the extent that a director
has been successful, on the merits or otherwise, in the defense of any action,
suit, or proceeding, or in defense of any claim, issue or matter therein, the
director shall be entitled to be indemnified against expenses actually and
reasonably incurred. Any other indemnification authorized by the IBCA shall be
made if ordered by the court, or if a determination is made that the director's
standard of conduct was satisfied. Such determination shall be made by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding, or by independent legal
counsel in a written opinion if a quorum of disinterested directors so direct,
or by the stockholders.
A corporation that indemnifies or advances expenses under the IBCA must
give a written report thereon to its stockholders no later than at the next
meeting of stockholders.
The IBCA provides that an Illinois corporation may maintain insurance to
protect directors or other persons in their official capacity against any
liability, regardless of whether the corporation would be required to indemnify
that person against liability under the IBCA.
The IBCA provides that a corporation's articles may limit or eliminate a
director's personal liability to the corporation for breach of fiduciary duty.
The Canton Articles do not include such a provision. The right to
indemnification is not exclusive of any other right which any person may have
or acquire under any statute, corporate documents, agreement, vote of
stockholders, or disinterested directors, or otherwise.
NORWEST. The Norwest Certificate provides that a director (including an
officer who is also a director) of Norwest shall not be liable personally to
Norwest or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability arising out of (a) any breach of the
director's duty of loyalty to Norwest or its stockholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) payment of a dividend or approval of a stock
repurchase in violation of Section 174 of the DGCL, or (d) any transaction from
which the director derived an improper personal benefit. This provision
protects Norwest directors against personal liability for monetary damages from
breaches of their duty of care. However, it does not eliminate the director's
duty of care. For example, this provision in the Norwest Certificate has no
effect on the availability of equitable remedies, such as an injunction or
rescission, based upon a director's breach of his duty of care.
The Norwest Certificate further provides that Norwest must indemnify, to
the fullest extent authorized by the DGCL, each person who was or is made a
party to, is threatened to be made a party to, or is involved in, any action,
suit, or proceeding because he is or was a director or officer of Norwest (or
was serving at the request of Norwest as a director, trustee, officer,
employee, or agent of another entity) while serving in such capacity against
all expenses, liabilities, or loss incurred by such person in connection
therewith, provided that indemnification in connection with a
56
<PAGE>
proceeding brought by such person will be permitted only if the proceeding was
authorized by the Norwest Board. The Norwest Certificate also provides that
Norwest must pay expenses incurred in defending the proceedings specified above
in advance of their final disposition, provided that if so required by the
DGCL, such advance payments for expenses incurred by a director or officer may
be made only if he undertakes to repay all amounts so advanced if it is
ultimately determined that the person receiving such payments is not entitled
to be indemnified.
The Norwest Certificate authorizes Norwest to provide similar
indemnification to employees or agents of Norwest.
Pursuant to the Norwest Certificate, Norwest may maintain insurance, at
its expense, to protect itself and any directors, officers, employees, or
agents of Norwest or another entity against any expense, liability, or loss,
regardless of whether Norwest has the power or obligation to indemnify that
person against such expense, liability, or loss under the DGCL.
The right to indemnification is not exclusive of any other right which any
person may have or acquire under any statute, provision of the Norwest
Certificate or By-Laws, agreement, vote of stockholders, or disinterested
directors, or otherwise.
ACTION WITHOUT A MEETING
CANTON. Section 7.10 of the IBCA permits any action required or permitted
to be taken at a stockholders' meeting to be taken by written consent signed by
the holders of the number of shares that would have been required to effect the
action at an actual meeting of the stockholders. The IBCA also provides that a
corporation's articles of incorporation may restrict or even prohibit
stockholders' actions without a meeting. The Canton Articles do not restrict
or prohibit stockholders' actions without a meeting.
NORWEST. Section 228 of the DGCL permits action by written consent
similar to the provisions of the IBCA set forth above. The Norwest Certificate
also does not restrict or prohibit stockholders' actions without a meeting.
DIVIDENDS
CANTON. An Illinois corporation may pay dividends only if the board
determines that (i) the corporation will be able to pay its debts in the
ordinary course of business after making the distribution, and (ii) the assets
of the corporation will exceed its liabilities and the maximum amount payable
at the time of the dividend to stockholders having preferential rights in
liquidation if the corporation were then to be liquidated.
NORWEST. Delaware corporations may pay dividends out of surplus or, if
there is no surplus, out of net profits for the fiscal year in which declared
and for the preceding fiscal year. Section 170 of the DGCL also provides that
dividends may not be paid out of net profits if, after the payment of the
dividend, capital is less than the capital represented by the outstanding stock
of all classes having a preference upon the distribution of assets.
Norwest and Canton are subject to the same Federal Reserve Board policies
regarding payment of dividends, which generally limit dividends to operating
earnings. See
57
<PAGE>
"INFORMATION ABOUT CANTON AND ITS SUBSIDIARY" and "CERTAIN REGULATORY
CONSIDERATIONS."
PROPOSAL OF BUSINESS, NOMINATION OF DIRECTORS
CANTON AND NORWEST. The Norwest By-Laws contain detailed advance notice
and informational procedures which must be complied with in order for a
shareholder to nominate a person to serve as a director. The Norwest By-Laws
generally require a shareholder to give notice of a proposed nominee in advance
of a stockholder's meeting at which directors will be elected. In addition,
the Norwest By-Laws contain detailed advance notice and informational
procedures which must be followed in order for a Norwest stockholder to propose
an item of business for consideration at a meeting of Norwest stockholders.
There are no similar provisions in the Canton By-Laws.
58
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, Norwest is subject to supervision and
examination by the Federal Reserve Board. Norwest's banking subsidiaries are
subject to supervision and examination by applicable federal and state banking
agencies. The deposits of Norwest's banking subsidiaries are primarily insured
by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC") except for deposits attributable to certain savings associations
previously acquired by Norwest, which are insured by the Savings Association
Insurance Fund ("SAIF"). As a result, such banking subsidiaries are subject to
regulation by the FDIC. In addition to the impact of regulation, commercial
banks are affected significantly by the actions of the Federal Reserve Board as
it attempts to control the money supply and credit availability in order to
influence the economy.
DIVIDEND RESTRICTIONS
Various federal and state statutes and regulations limit the amount of
dividends the subsidiary banks can pay to Norwest without regulatory approval.
The approval of the OCC is required for any dividend by a national bank if the
total of all dividends declared by the bank in any calendar year would exceed
the total of its net profits, as defined by regulation, for that year combined
with its retained net profits for the preceding two years less any required
transfers to surplus or a fund for the retirement of any preferred stock. In
addition, a national bank may not pay a dividend in an amount greater than its
net profits then on hand after deducting its losses and bad debts. For this
purpose, bad debts are defined to include, generally, loans which have matured
and are in arrears with respect to interest by six months or more, other than
such loans which are well secured and in the process of collection. Under
these provisions Norwest's national bank subsidiaries could have declared, as
of September 30, 1995, aggregate dividends of at least $270.7 million without
obtaining prior regulatory approval and without reducing the capital of the
banks below minimum regulatory 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
59
<PAGE>
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 nonbank subsidiaries, whether in the form of loans, extensions of credit,
investments, or asset purchases. Such transfers by any subsidiary bank to
Norwest or any nonbank subsidiary are limited in amount to 10% of the bank's
capital and surplus and, with respect to Norwest and all such nonbank
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 stockholders 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 stockholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed stockholder 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 stockholder of most 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 the
allowance for credit losses. In addition, the Federal Reserve Board's 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
60
<PAGE>
holding companies that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies are
required to maintain a leverage ratio of 3% plus an additional cushion of 1% to
2%. The guidelines also provide that banking organizations experiencing
internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the guidelines indicate
that the Federal Reserve Board will continue to consider a "tangible Tier 1
leverage ratio" in evaluating proposals for expansion or new activities. The
tangible Tier 1 leverage ratio is the ratio of a banking organization's Tier 1
capital, less all intangibles, to total assets, less all intangibles. Each of
Norwest's banking subsidiaries is also subject to capital requirements adopted
by applicable regulatory agencies which are substantially similar to the
foregoing. At September 30, 1995, Norwest's Tier 1 and total capital (the sum
of Tier 1 and Tier 2 capital) to risk-adjusted assets ratios were 8.01% and
10.10%, respectively, and Norwest's leverage ratio was 5.74%. Neither Norwest
nor any subsidiary bank has been advised by the appropriate federal regulatory
agency of any specific leverage ratio applicable to it.
As a result of a federal law enacted in 1991 that required each federal
banking agency to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of nontraditional activities, each of the federal banking
agencies has revised the risk-based capital guidelines described above to take
account of concentration of credit risk and risk of nontraditional activities.
In addition, the Federal Reserve Board, the FDIC and the OCC recently adopted a
new rule that amends, effective September 1, 1995, the capital standards to
include explicitly a bank's exposure to declines in the economic value of its
capital due to changes in interest rates as a factor to be considered in
evaluating a bank's interest rate exposure. Such agencies have issued for
comment a joint policy statement that describes the process to be used to
measure and assess the exposure of a bank's net economic value to changes in
interest rates. These agencies have indicated that in the second step of this
regulation process they intend to issue a proposed rule that would propose to
establish an explicit minimum capital charge for interest rate risk based on
the level of a bank's measured interest rate exposure. The agencies intend to
implement the second step after the agencies and the banking industry have had
more experience with the proposed supervisory and measurement process. Neither
Norwest or Canton believes that these recent proposals and revisions to the
capital guidelines will materially impact its operations.
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
61
<PAGE>
undercapitalized if it fails to meet any minimum required measure,
significantly undercapitalized if it has a risk-adjusted total capital ratio of
less than 6%, risk-adjusted Tier 1 capital ratio of less than 3%, or a leverage
ratio of less than 3%, and critically undercapitalized if it fails to maintain
a level of tangible equity equal to at least 2% of total assets. An insured
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to a
wide range of limitations on operations and activities, including growth
limitations, and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of (i) an amount equal to 5% of
the depository institution's total assets at the time it became
undercapitalized and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDICIA, as amended by the Reigle Community Development and Regulatory
Improvement Act of 1994 enacted on August 22, 1994, directs that each federal
banking agency prescribe standards, by regulation or guideline, for depository
institutions relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, asset quality, earnings, stock valuation, and such other
operational and managerial 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 internal and external 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. On July 10, 1995, the federal banking
agencies published the final rules implementing three of the safety and
soundness standards required by FDICIA, including operational and managerial
standards, asset quality and earnings standards, and compensation standards.
The impact of such standards on Norwest has not yet been fully determined, but
management does not believe it will be material.
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.
62
<PAGE>
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 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, 1995, all of Norwest's banking subsidiaries were
well capitalized and therefore were not subject to these restrictions.
FDIC INSURANCE
Each BIF member institution pays FDIC insurance premiums based on the
institution's annual assessment rate assigned to it by the FDIC. The
assessment rate is based on the institution's capitalization risk category and
"supervisory subgroup." An institution's capitalization risk category is based
on the FDIC's determination of whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. An institution's
supervisory subgroup is based on the FDIC's assessment of the financial
condition of the institution and the probability that FDIC intervention or
other corrective action will be required. 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. For the 1995 calendar year,
the assessment rate ranges from 4 cents per $100 of domestic deposits (for well
capitalized Subgroup A institutions) to 31 cents (for undercapitalized Subgroup
C institutions). Norwest's subsidiary banks have been assigned an assessment
rate of 4 cents per $100 of domestic deposits for the 1995 calendar year. The
FDIC announced recently that, for well capitalized Subgroup A institutions, it
would eliminate insurance premiums altogether for the 1996 calendar year.
Norwest incurred $79.2 million of FDIC insurance expense in 1994 and, as of
September 30, 1995, had received $20.6 million in FDIC insurance premium
refunds.
Deposits insured by SAIF held by Norwest bank subsidiaries as a result of
previous savings association acquisitions by Norwest continue to be assessed at
the applicable SAIF insurance premium rate. Current federal law provides that
the SAIF assessment rate may not be less than 0.18% from January 1, 1994
through December 31, 1997. After December 31, 1997, the SAIF assessment rate
must be a rate determined by the FDIC to be appropriate to increase the SAIF's
reserve ratio to 1.25% of insured deposits or such higher percentage as the
FDIC determines to be appropriate, but the assessment rate may not be less than
0.15%. In order to mitigate the potential effects of a BIF/SAIF premium
disparity, Congress recently proposed legislation that would, among other
things, recapitalize the SAIF by imposing a special one-time assessment on SAIF
deposits. The proposed legislation also contemplates the merger of the BIF and
the SAIF into one insurance fund after the SAIF is recapitalized. As a result
of such pending legislation and to provide for such special assessment when and
if imposed, Norwest has established a reserve of $23.5 million based on an
estimated insurance premium rate of 66 cents per $100 of insured deposits,
which reserve has been funded primarily by the refund of BIF
63
<PAGE>
insurance premiums. The effect of this legislation, if adopted, is not
anticipated to be material to Norwest.
EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1994 and 1993, and for each of the years in the three-year period
ended December 31, 1994, incorporated by reference herein, have been
incorporated herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Canton as of December 31, 1994 and
1993, and for each of the years in the three-year period ended December 31,
1994, incorporated by reference in the Proxy Statement of Canton, which is
referred to and made a part of this Registration Statement, have been audited
by McGladrey & Pullen, LLP, independent auditors, as set forth in their report
thereon included therein, and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL OPINION
A legal opinion to the effect that the shares of Norwest Common Stock
offered hereby, when issued in accordance with the Reorganization Agreement,
will be validly issued and fully paid and nonassessable, has been rendered by
Stanley S. Stroup, Executive Vice President and General Counsel of Norwest
Corporation. At September 30, 1995, Mr. Stroup was the owner of 108,053 shares
and held options to acquire 247,410 additional shares of Norwest Common Stock.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and related
transactions, and other related matters concerning Norwest is included or
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1994, which are incorporated in this Proxy Statement-Prospectus by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Stockholders
of Canton desiring copies of such documents may contact Norwest at its address
or phone number indicated under "AVAILABLE INFORMATION" above.
64
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
CONTENTS
Independent Auditors Report.......................... F-2
Consolidated Financial Statements
Consolidated balance sheets....................... F-3
Consolidated statements of income................. F-4
Consolidated statements of cash flows............. F-6
Notes to consolidated financial statements........ F-8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Canton Bancshares, Inc. and Subsidiary
Canton, Illinois
We have audited the accompanying consolidated balance sheets of Canton
Bancshares, Inc. and subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Canton Bancshares,
Inc. and subsidiary as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As described in Notes 3 and 6 to the consolidated financial statements, the
Company changed its method of accounting for certain debt and marketable equity
securities in 1994 and its method of accounting for income taxes in 1992.
Peoria, Illinois
February 8, 1995
F-2
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30 December 31,
-------------------------------------
ASSETS 1994 1995 1994 1993
- -------------------------------------------------------------------------------
(Unaudited)
Cash and due from banks $ 1,320 $ 1,472 $ 901 $ 3,148
Securities available for sale 22,694 23,545 22,488 --
Securities held to maturity, estimated
fair value at September 30, 1995 and
1994, of $6,575 and $6,534, and $6,341
at December 31, 1994 6,267 6,388 6,362 --
Investment securities, estimated fair -- -- -- 29,105
value of $29,850 Federal funds sold -- 100 400 1,300
Loans, net of allowance for loan losses
of $225 and $212 at September 30, 1995
and 1994, and $189 and $211 at
December 31, 1994 and 1993 18,427 16,729 17,375 16,214
Cash value of life insurance 405 345 405 342
Bank premises and equipment 910 983 967 998
Accrued interest receivable 413 409 457 439
Other real estate owned 26 28 28 75
Deferred tax assets 102 303 497 50
Other assets 76 115 111 68
-------------------------------------
$50,640 $50,417 $49,991 $51,739
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 3,634 $ 4,326 $ 3,943 $ 4,803
Interest-bearing demand 7,916 7,613 8,250 7,541
Money market 901 1,061 1,000 1,226
Savings 11,194 12,720 12,871 12,839
Time $100,000 and over 700 500 300 400
Other time 18,533 17,764 17,475 18,300
-------------------------------------
TOTAL DEPOSITS 42,878 43,984 43,839 45,109
Federal funds purchased 400 -- -- --
Accrued interest payable 185 135 159 172
Other liabilities 644 614 590 674
-------------------------------------
44,107 44,733 44,588 45,955
-------------------------------------
Commitments and Credit Risk (Note 10)
Stockholders' Equity:
Common stock, $1 par value; authorized
100,000 shares, issued and outstanding
September 30, 1995 and 1994 49,564 and
49,754 shares, respectively;
December 31, 1994 and 1993 49,564 and
49,754 shares, respectively 50 50 50 50
Surplus 1,437 1,437 1,437 1,443
Retained earnings 5,171 4,687 4,806 4,291
Unrealized (loss) on securities
available for sale, net (125) (490) (890) --
-------------------------------------
6,533 5,684 5,403 5,784
-------------------------------------
$50,640 $50,417 $49,991 $51,739
=====================================
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Quarters Ended Years Ended
September 30, December 31,
--------------------------------------------------
1995 1994 1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
Interest income:
Interest and fees on loans $1,376 $1,230 $1,666 $1,722 $1,871
Interest on securities:
U.S. Treasury 363 362 486 463 518
U.S. Government agencies and corporations 585 586 780 869 893
States and political subdivisions 274 256 344 361 305
Other 50 49 65 61 137
Interest on federal funds sold 17 26 29 44 58
Interest on deposits 7 15 18 13 --
--------------------------------------------------
2,672 2,524 3,388 3,533 3,782
Interest expense on deposits 1,068 970 1,287 1,408 1,731
--------------------------------------------------
Net interest income 1,604 1,554 2,101 2,125 2,051
Provision for loan losses -- -- -- 30 45
--------------------------------------------------
Net interest income after provision
for loan losses 1,604 1,554 2,101 2,095 2,006
--------------------------------------------------
Other income:
Service charges and fees on deposit accounts 114 113 152 148 143
Trust fees 65 70 88 68 68
Securities gains (losses) (1) 82 82 143 7
Other 90 41 59 64 69
--------------------------------------------------
268 306 381 423 287
--------------------------------------------------
Other expenses:
Salaries and wages 407 380 563 573 479
Employee benefits 180 164 176 207 271
Occupancy 94 98 130 132 124
Equipment rentals, depreciation and maintenance 59 56 76 71 76
FDIC insurance 55 85 112 107 104
Other operating expenses 443 374 502 493 529
--------------------------------------------------
1,238 1,157 1,559 1,583 1,583
--------------------------------------------------
Income before income taxes and cumulative
effect of a change in accounting principle 634 703 923 935 710
Income taxes 170 196 199 213 153
--------------------------------------------------
Income before the cumulative effect of a
change in accounting principle 464 507 724 722 557
Cumulative effect of prior years of adopting
FASB Statement No. 109, Accounting for
Income Taxes -- -- -- -- 44
--------------------------------------------------
Net income $ 464 $ 507 $ 724 $ 722 $ 601
==================================================
Earnings per share:
Income before cumulative effect of a change
in accounting principle $ 9.37 $10.20 $14.58 $14.51 $11.14
Cumulative effect of a change in accounting
principle -- -- -- -- .88
--------------------------------------------------
Net income $ 9.37 $10.20 $14.58 $14.51 $12.02
==================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
(Loss)
on
Securities
Available
Common Retained For Sale,
Stock Surplus Earnings Net Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $50 $1,450 $3,379 $ -- $4,879
Net income -- -- 601 -- 601
Retirement of 246 shares of
common stock for $77 per share -- (7) (12) -- (19)
Cash dividends, $4 per share -- -- (200) -- (200)
--------------------------------------------
Balance, December 31, 1992 50 1,443 3,768 -- 5,261
Net income -- -- 722 -- 722
Cash dividends, $4 per share -- -- (199) -- (199)
--------------------------------------------
Balance, December 31, 1993 50 1,443 4,291 -- 5,784
Effect of change in accounting
principle (Note 3) -- -- -- (35) (35)
Net income -- -- 724 -- 724
Cash dividends, $4 per share -- -- (198) -- (198)
Retirement of 190 shares of
common stock -- (6) (11) -- (17)
Net change in inrealized (loss)
on securities available
for sale -- -- -- (855) (855)
--------------------------------------------
Balance, December 31, 1994 50 1,437 4,806 (890) 5,403
Net income (unaudited) -- -- 464 -- 464
Cash dividends, $2 per share
(unaudited) -- -- (99) -- (99)
Net change in unrealized (loss)
on securities available for
sale (unaudited) -- -- -- 765 765
--------------------------------------------
Balance, September 30, 1995
(unaudited) $50 $1,437 $5,171 $(125) $6,533
============================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Quarters Ended Years Ended
September 30, December 31,
------------------------------------------------------
1995 1994 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 464 $ 507 $ 724 $ 722 $ 601
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 65 60 86 77 76
Provision for loan losses - - - 30 45
Deferred income taxes - - 12 (36) 3
Securities (gains) losses 1 (82) (82) (143) (7)
(Gain) loss on sale of equipment - - - (5) (14)
(Gain) loss on sale of real estate owned - - - (3) 10
(Accretion) amortization of bond premium (discount) 119 165 210 220 123
Cumulative effect on prior years of adopting FASB 109,
Accounting for Income Taxes - - - - (44)
(Increase) decrease in interest receivable and other assets 79 (17) (61) 93 5
Increase (decrease) in interest payable and other liabilities 179 3 (97) 28 (20)
------------------------------------------------------
Net cash provided by operating activities 907 636 792 983 778
------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of securities available for sale 502 4,643 4,643 - -
Proceeds from maturities of securities available for sale 2,183 1,985 2,395 - -
Purchase of securities available for sale (1,810) (8,068) (8,068) - -
Proceeds from maturities of securities held to maturity 56 291 314 - -
Purchase of securities held to maturity - (506) (506) - -
Proceeds from sales of investment securities - - - 7,284 1,063
Proceeds from maturities of investment securities - - - 5,203 7,845
Purchase of investment securities and interest-bearing deposits - - - (14,309) (12,785)
Net decrease in federal funds sold 400 1,200 900 400 2,175
Investment in cash value of life insurance - (3) (63) (78) (29)
Net (increase) decrease in loans (1,052) (515) (1,161) 495 (233)
Purchase of premises and equipment (8) (45) (55) (90) (144)
Proceeds from sales of premises and equipment - - - 15 23
Proceeds from sales of real estate owned - 47 47 9 10
------------------------------------------------------
Net cash (used in) investing activities 271 (971) (1,554) (1,071) (2,075)
------------------------------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in demand deposits (309) (477) (860) 255 2,378
Net increase (decrease) in interest-bearing deposits (652) (648) (410) 1,823 (1,262)
Net increase in federal funds purchased 400 - - - -
Dividends paid (198) (199) (198) (199) (200)
Repurchase of common stock - (17) (17) - (19)
------------------------------------------------------
Net cash provided by (used in) financing activities (759) (1,341) (1,485) 1,879 897
------------------------------------------------------
</TABLE>
(Continued)
F - 6
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Three Quarters Ended Year Ended
September 30, December 31,
----------------------------------------------
1995 1994 1994 1993 1992
- -------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease) in
cash and due from banks $ 419 $(1,676) $(2,247) $1,791 $ (400)
Cash and due from banks:
Beginning 901 3,148 3,148 1,357 1,757
---------------------------------------------
Ending $1,320 $ 1,472 $ 901 $3,148 $1,357
=============================================
Supplemental Disclosures of
Cash Flow Information
Cash Payment for:
Interest paid to depositors $1,403 $ 1,007 $ 1,300 $1,412 $1,828
Income taxes 102 177 235 165 155
Supplemental Schedule of
Noncash Investing and
Financing Activities
Loans made in conjunction
with sale of other real
estate owned - - - 81 124
Change in unrealized gains
on securities available
for sale (1,160) 743 1,349 - -
Deferred in unrealized
gains and losses on
securities available
for sale 395 (253) (459) - -
Dividends declared not paid - - 99 100 100
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Banking Activities: Most of the Bank's business activities, including
granting agribusiness, commercial, residential and personal loans, are to
customers who reside in Fulton County. Collateral requirements are established
based on credit risk of each loan as assessed by Bank management.
Significant Accounting Policies:
Principles of consolidation: The consolidated financial statements include the
accounts of Canton Bancshares, Inc. (Canton) and its wholly-owned subsidiary,
Canton State Bank (Bank). All material intercompany accounts and transactions
are eliminated in consolidation.
Presentation of cash flows: For purposes of reporting cash flows, cash and due
from banks includes cash on hand and amounts due from banks including cash items
in process of clearing. Cash flows from loans originated by the Bank, deposits
and federal funds sold are reported net.
Trust assets: Assets held by the trust department, as fiduciary, are not
included within these consolidated financial statements because they are not
assets of the Bank.
Unaudited financial statements: The unaudited financial statements as of and for
the nine months ended September 30, 1995 and 1994, furnished by management
reflect all adjustments, consisting solely of normal recurring accruals, which
are, in the opinion of management, necessary for a fair presentation of the
financial position as of September 30, 1995 and 1994, and the results of
operations and cash flows for the nine months then ended. The results of
operations for the nine months ended September 30, 1995 and 1994, are not
necessarily indicative of the operating results of Canton for the entire year.
Securities: Effective January 1, 1994, Canton adopted Financial Accounting
Standards Board Statement No. 115 which prescribes the following accounting
treatment for investment securities. Prior to adoption, all Canton's securities
were accounted for in a manner similar to securities held to maturity.
Securities held to maturity: Securities classified as held to maturity
are those debt securities Canton has both the intent and ability to hold
to maturity regardless of changes in market conditions, liquidity needs
or changes in general economic conditions. These securities are carried
at cost adjusted for amortization of premium and accretion of discount,
computed by the interest method over their contractual lives.
Securities available for sale: Securities classified as available for
sale are those debt securities that Canton intends to hold for an
indefinite period of time, but not necessarily to maturity and those
equity securities with readily determinable fair values not classified
as trading securities. Any decision to sell a security classified as
available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity mix of
Canton's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale
are carried at fair value. Unrealized gains or losses are reported as
increases or decreases in stockholders' equity, net of the related
deferred tax effect. Realized gains or losses, determined on the basis
of the cost of specific securities sold, are included in earnings.
Trading securities: Trading securities, which are generally held for the
short-term, usually under 30 days, in anticipation of market gains, are
carried at fair value. Realized and unrealized gains or losses on
trading account assets are included in interest income. Canton has no
securities categorized as trading securities.
F-8
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 1. NATURE OF BANKING ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Loans: Loans are stated at the amount of unpaid principal, reduced by unearned
interest and an allowance for loan losses.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. The allowance is
increased by provisions charged to operating expense and is reduced by net
charge-offs. The Bank makes continuous credit reviews of the loan portfolio and
considers current economic conditions, historical loan loss experience, review
of specific problem loans and other factors in determining the adequacy of the
allowance balance.
Unearned interest on discounted loans is amortized to income over the life of
the loans, using the interest method. For all other loans, interest is accrued
daily on the outstanding balances. Accrual of interest is discontinued on a loan
when management believes that the financial condition of the borrower is such
that collection of interest or principal is doubtful.
Bank premises and equipment: Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is charged to operations over the
estimated useful lives of the assets using primarily the straight-line method.
Other real estate owned: Other real estate owned represents specific real
property to which the Bank has acquired title in settlement of loan balances.
The property is recorded at the carrying amount of the predecessor loans or at
the fair value at the date of acquisition, whichever is lower. Permanent
declines in the fair value, based on changes in market conditions, are charged
to expense when the changes occur. Gains or losses on the disposition of other
real estate are recognized in operating income or expense in the period they are
realized.
Income taxes: Deferred income taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Pension plan: The Bank has a 401(k) defined-contribution plan covering
substantially all full-time employees. Employees may contribute up to 6% of
their salary. The Bank makes discretionary contributions and matches 25% of
employees' contributions.
Earnings per share: Earnings per share is based on dividing net income by the
weighted average number of shares of common stock outstanding during the period.
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Federal Reserve Bank required the Bank to maintain balances of $222,000,
$197,000, $224,000 and $182,000 as a reserve requirement as of September 30,
1995 and 1994, and December 31, 1994 and 1993, respectively.
F-9
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 3. SECURITIES
Effective January 1, 1994, Canton adopted Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities. In accordance with Statement 115, the 1993 comparative financial
statements have not been restated for the change in accounting principle. The
January 1, 1994, balance of stockholders' equity was decreased by $35,000, net
of the $18,000 related deferred tax effect, to recognize the net unrealized loss
on securities available for sale at that date.
The amortized cost and fair value of securities available for sale and held to
maturity as of September 30, 1995 and 1994, and as of December 31, 1994, and
investment securities as of December 31, 1993, are summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
------------------------------------------------
Available for Sale
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
September 30, 1995
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,571 $ 6 $ 80 $ 9,497
U.S. Government agencies 1,988 28 - 2,016
States and political
subdivisions 300 12 - 312
Mortgage-backed securities 10,994 1 156 10,839
Other 30 - - 30
------------------------------------------------
Totals $22,883 $ 47 $236 $22,694
================================================
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
September 30, 1995
------------------------------------------------
<S> <C> <C> <C> <C>
States and political
subdivisions $ 5,808 $286 $ 2 $ 6,092
Mortgage-backed securities 459 24 - 483
------------------------------------------------
Totals $ 6,267 $310 $ 2 $ 6,575
================================================
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
September 30, 1994
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $10,149 $ - $333 $ 9,816
U.S. Government agencies 1,522 10 5 1,527
Mortgage-backed securities 12,617 - 415 12,202
------------------------------------------------
Totals $24,288 $ 10 $753 $23,545
================================================
</TABLE>
NOTE 3. SECURITIES (Continued)
F-10
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- -------------------------------------------------------------------------------
(in thousands)
------------------------------------------------
Held to Maturity
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
September 30, 1994
------------------------------------------------
States and political
subdivisions $ 5,829 $165 $ 47 $ 5,947
Mortgage-backed securities 559 28 -- 587
------------------------------------------------
Totals $ 6,388 $193 $ 47 $ 6,534
================================================
Available for Sale
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
December 31, 1994
------------------------------------------------
U.S. Treasury securities $10,127 $ -- $ 510 $ 9,617
U.S. Government agencies 1,532 -- 44 1,488
Mortgage-backed securities 12,178 -- 795 11,383
------------------------------------------------
Totals $23,837 $ -- $1,349 $22,488
================================================
Held to Maturity
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
December 31, 1994
------------------------------------------------
States and political
subdivisions $ 5,823 $ 92 $ 127 $ 5,788
Mortgage-backed securities 539 15 1 553
------------------------------------------------
Totals $ 6,362 $107 $ 128 $ 6,341
================================================
Investment Securities
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
December 31, 1993
------------------------------------------------
U.S. Treasury securities $ 6,729 $107 $ 1 $ 6,835
U.S. government agencies
and corporations 3,040 127 -- 3,167
Obligations of states and
political subdivisions 5,397 394 -- 5,791
Mortgage-backed securities 13,939 160 42 14,057
------------------------------------------------
Totals $29,105 $788 $ 43 $29,850
================================================
F-11
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 3. SECURITIES (CONTINUED)
The amortized cost and fair value of debt securities at December 31, 1994, by
contractual maturity are shown below. Expected maturities will differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without any penalties.
Therefore, these securities are not included in the maturity categories in the
following maturity summary.
<TABLE>
<CAPTION>
(in thousands)
--------------------------
Amortized Cost Fair Value
--------------------------
Available for Sale
--------------------------
<S> <C> <C>
Due in one year or less $ 1,002 $ 986
Due after one year through 5 years 10,147 9,616
Due after 5 years through 10 years 510 503
---------------------------
11,659 11,105
Mortgage-backed securities 12,178 11,383
---------------------------
$23,837 $22,488
===========================
Held to Maturity
----------------------------
Due after one year through 5 years $ 799 $ 828
Due after 5 years through 10 years 1,747 1,770
Due after 10 years 3,277 3,190
---------------------------
5,823 5,788
Mortgage-backed securities 539 553
---------------------------
$ 6,362 $ 6,341
===========================
</TABLE>
Gross realized gains on sale of available for sale securities for the three
quarters ended September 30, 1995 and 1994, were none and $82,000, respectively,
and for the year ended December 31, 1994, were $82,000. Gross realized gains on
the sale of investment securities for the years ended December 31, 1993 and 1992
were $143,000 and $7,000, respectively. The only realized loss in either year
was $1,000 during the three quarters ended September 30, 1995.
Securities with carrying amounts of approximately $2,871,000 and $2,877,000 at
September 30, 1995 and 1994, respectively, and $2,903,000 and $2,911,000 at
December 31, 1994 and 1993, respectively, were pledged as collateral for public
deposits and for other purposes as required or permitted by law.
F-12
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 4. LOANS
The composition of loans is as follows:
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
------------------------------------
1995 1994 1994 1993
------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 6,120 $ 5,093 $ 5,676 $ 4,832
Real estate 6,928 6,638 6,519 6,691
Installment 5,604 5,210 5,369 4,902
------------------------------------
18,652 16,941 17,564 16,425
Deduct allowance for loan losses 225 212 189 211
------------------------------------
Loans, net $18,427 $16,729 $17,375 $16,214
====================================
</TABLE>
The Bank had a loan of $26,000 at September 30, 1995 and 1994 and at December
31, 1994 and 1993, on which accrual of interest had been discontinued. If
interest on this loan had been accrued, such income would have approximated
$1,725 for the three quarters ended September 30, 1995 and 1994, respectively,
and $2,300 for the years ended December 31, 1994 and 1993, respectively.
The Bank had loans of approximately $149,000 and $125,000 at September 30, 1995
and 1994, respectively, and $52,000 and $121,000 at December 31, 1994 and 1993,
respectively, that were over 90 days past due and which are not classified as
nonperforming loans. Interest income has continued to be recognized on these
loans.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
(in thousands)
Nine Months Ended Years Ended
September 30, December 31,
----------------------------------------
1995 1994 1994 1993 1992
----------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning $189 $211 $211 $178 $247
Provision charged to operating
expense - - - 30 45
Recoveries of amounts charged-off 62 5 5 40 8
----------------------------------------
251 216 216 248 300
Less loan balances charged-off 26 4 27 37 122
----------------------------------------
Balance, ending $225 $212 $189 $211 $178
========================================
</TABLE>
In the ordinary course of business, loans are made to directors, principal
officers, their immediate families and affiliated companies in which they have
10% or more beneficial interest. In the opinion of management, the terms of
these loans, including interest rates and collateral, are similar to those
prevailing at the time for comparable transactions with other customers. These
loans were approximately $341,000 and $246,000 at September 30, 1995 and 1994,
respectively, and $518,000 and $304,000 at December 31, 1994 and 1993,
respectively.
F-13
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 5. BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
----------------------------------
1995 1994 1994 1993
----------------------------------
<S> <C> <C> <C> <C>
Land $ 337 $ 337 $ 337 $ 337
Buildings and improvements 1,510 1,506 1,510 1,504
Furniture and equipment 601 587 593 544
----------------------------------
2,448 2,430 2,440 2,385
Less accumulated 1,538 1,447 1,473 1,387
depreciation
----------------------------------
$ 910 $ 983 $ 967 $ 998
==================================
</TABLE>
NOTE 6. INCOME TAXES
Effective January 1, 1992, the Bank adopted Financial Accounting Standards Board
(FASB) Statement No. 109, Accounting for Income Taxes. Statement 109 requires
that deferred tax assets and liabilities be measured based on a tax rate
convention under which the reversal of temporary differences, including
operating loss and tax credit carryovers, are expected to be taxed.
The cumulative effect of adopting FASB Statement No. 109 at the beginning of the
year ended December 31, 1992, is reported in the accompanying 1992 Consolidated
Statement of Income as a credit of $44,000. The adoption of FASB Statement 109
did not have a material effect on income before the cumulative effect of a
change in accounting principle in 1992.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
(in thousands)
Nine Months Ended Years Ended
September 30, December 31,
-----------------------------------------------
1995 1994 1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal:
Current $170 $196 $187 $249 $150
Deferred - - 12 (36) 3
-----------------------------------------------
$170 $196 $199 $213 $153
===============================================
</TABLE>
Income taxes are less than would normally be expected on income before income
taxes because interest earned on securities of states and political subdivisions
is exempt from federal income taxes.
F-14
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 6. INCOME TAXES (CONTINUED)
The net deferred tax asset includes the following amounts of deferred tax assets
and liabilities:
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
----------------------------------
1995 1994 1994 1993
----------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets $ 216 $ 394 $ 615 $ 144
Deferred tax liabilities (114) (91) (118) (94)
----------------------------------
Net deferred tax assets $ 102 $ 303 $ 497 $ 50
==================================
</TABLE>
The tax effects of principal temporary differences are shown in the following
table:
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
----------------------------------
1995 1994 1994 1993
----------------------------------
<S> <C> <C> <C> <C>
Unrealized loss on securities available
for sale $ 64 $ 253 $ 459 $ -
Deferred compensation 152 141 152 141
Cash basis accounting for income
tax purposes (78) (65) (78) (65)
Bank premises and equipment (28) (24) (28) (24)
Other, net (8) (2) (8) (2)
----------------------------------
$ 102 $ 303 $ 497 $ 50
==================================
</TABLE>
NOTE 7. DEFERRED COMPENSATION PLANS
The Bank has deferred compensation plans with certain officers and directors
under separate plans formally referred to as the Directors' Deferred Income
(DDI) Plan and the Executive Supplemental Income (ESI) Plan. The ESI plan also
provides preretirement death benefits. The actuarial present value of plan
benefits at December 31, 1994 and 1993, was approximately $448,000 and $415,000,
respectively, and the related expense for each of the three quarters ended
September 30, 1995 and 1994, was approximately $31,500, and the related expense
for the years ended December 31, 1994, 1993 and 1992, was approximately $43,000,
$51,000 and $145,000, respectively.
The Bank is the owner and beneficiary of life insurance policies which provide
an aggregate coverage of approximately $1,351,000 at December 31, 1994. These
policies had a cash value of approximately $405,000 and $342,000 at December 31,
1994 and 1993, respectively.
NOTE 8. RETIREMENT PLAN
Retirement plan expense for the 401(k) defined-contribution plan was
approximately $45,000 and $39,000 for the three quarters ended September 30,
1995 and 1994, respectively, and approximately $52,000, $32,000 and $70,000 for
the years ended December 31, 1994, 1993 and 1992, respectively.
F-15
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 9. REGULATORY CAPITAL REQUIREMENTS
Bank regulatory agencies have adopted various capital standards for banks,
including risk-based capital standards. The main objective of the risk-based
capital framework is to provide a more consistent system for comparing capital
positions of banks and to take into account the different risks among banks'
assets and off-balance-sheet items.
A comparison of the bank's capital as of December 31, 1994, with the minimum
requirements for an adequately capitalized bank is presented below:
<TABLE>
<CAPTION>
Approximate Minimum
Ratio Requirements
--------------------------
<S> <C> <C>
Tier 1 Risk-Based Capital 21% 4%
Total Risk-Based Capital 21% 8%
Leverage Ratio 12% 4%
</TABLE>
According to FDIC guidelines for capital, the Bank is considered to be "Well
Capitalized," which is the highest capital category.
Canton's principal asset is its investment in the subsidiary bank. The primary
source of funds for Canton are dividends from the subsidiary. The Bank would not
be allowed to pay dividends that would result in its capital levels being
reduced below the minimum requirements shown above. There are no such
restriction regarding Canton, subject to maintaining prudent capital levels.
NOTE 10. COMMITMENTS AND CREDIT RISK
Financial instruments with off-balance-sheet risk: The Bank is a party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the commitments and
stand-by letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet financial instruments.
A summary of the contractual amounts of the Bank's exposure to off-balance-sheet
risk is as follows:
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
----------------------------------
1995 1994 1994 1993
----------------------------------
<S> <C> <C> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $917 $589 $822 $478
Stand-by letters of credit 11 10 - 10
</TABLE>
F-16
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CREDIT RISK (CONTINUED)
Concentrations of credit risk: Substantially all of the Bank's loans,
commitments to extend credit and standby letters of credit have been granted to
customers in the Bank's market area. The Bank does not extend credit to any
single borrower or group of related borrowers in excess of $300,000. Management
considers the portfolio to be well diversified.
NOTE 11. FUTURE REPORTING REQUIREMENTS
Fair value disclosure: Financial Accounting Standards Board Statement No. 107,
"Disclosures About Fair Value of Financial Instruments," (FASB 107) requires
disclosures of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value. FASB 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Canton will be required to adopt
FASB 107 for the year ending December 31, 1995.
Accounting by creditors for the impairment of a loan: Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for the Impairment
of a Loan," (FASB 114) defines a loan as impaired if, based on current
information and events, it is probable that the Bank will not be able to collect
all amounts (principal and interest) due in accordance with the terms of the
agreement. The statement requires financial institutions to take into account
the expected loss of interest income when valuing nonperforming loans. When a
loan is considered impaired, this rule involves the discounting of a loan's
future cash flows by using the loan's contractual interest rate adjusted for any
deferred loan fees or costs, premiums or discounts. Canton will be required to
adopt FASB 114 for the year ending December 31, 1995.
FASB Statement No. 118, "Accounting for Creditors for Impairment of a Loan -
Income Recognition and Disclosures," allows creditors to use existing methods
for recognizing interest income on an impaired loan. This statement amends
certain requirements of FASB Statement No. 114 specifically related to income
recognition and disclosure issues. Canton believes the adoption of FASB 114 and
118 will not have a material effect on Canton's consolidated financial
statements.
Disclosures about derivative financial instruments: FASB Statement No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments," requires expanded disclosures about derivative financial
instruments including amounts, nature and terms of the instruments. Canton will
be required to adopt FASB 119 for the year ending December 31, 1995.
Accounting for mortgage servicing rights: Financial Accounting Standards Board
Statement No. 122, "Accounting for Mortgage Servicing Rights," (FASB 122)
requires the Bank to recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. If the bank
acquires mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing rights
retained, the Bank should allocate the total cost of the mortgage loans to
mortgage servicing rights and the loans (without the mortgage servicing rights)
based on their relative fair values. The mortgage servicing rights should be
amortized in proportion to and over the period of estimated net servicing
income.
Canton will be required to adopt Statement 122 for the fiscal year ending
December 31, 1996. Canton believes the adoption of Statement 122 will not have a
material impact on the financial statements.
F-17
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to the nine months ended September 30, 1995 and 1994,
is unaudited.
- ------------------------------------------------------------------------------
NOTE 12. SUBSEQUENT EVENT
On July 25, 1995, the Board of Directors approved the Agreement and Plan of
Reorganization between Norwest Corporation ("Norwest") and Canton providing for
the merger of Canton with and into Norwest.
NOTE 13. PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
--------------------------------------
ASSETS 1995 1994 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 7 $ 20 $ 20 $ 36
Receivable from subsidiary - - 100 100
Investment in all of the common
stock of Canton State Bank 6,524 5,664 5,382 5,747
Other assets 2 - - -
--------------------------------------
TOTAL ASSETS $6,533 $5,684 $5,502 $5,883
======================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Dividends payable $ - $ - $ 99 $ 99
--------------------------------------
TOTAL LIABILITIES - - 99 99
--------------------------------------
Stockholders' equity:
Common stock 50 50 50 50
Surplus 1,437 1,437 1,437 1,443
Retained earnings 5,171 4,687 4,806 4,291
Unrealized (loss) on securities
available for sale (125) (490) (890) -
--------------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,533 5,684 5,403 5,784
--------------------------------------
TOTAL LIABILITIES AND STOCK-
HOLDERS' EQUITY $6,533 $5,684 $5,502 $5,883
======================================
</TABLE>
F-18
<PAGE>
CANTON BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994,
IS UNAUDITED.
- -------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-----------------------------------------------------
1995 1994 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income:
Equity in net income of subsidiary:
Undistributed net income $ 377 $ 407 $ 525 $ 522 $ 373
Distributed dividend income 125 100 200 200 240
-----------------------------------------------------
502 507 725 722 613
-----------------------------------------------------
Expenses:
Professional services and fees 38 - 1 - 16
Amortization - - - - 3
-----------------------------------------------------
38 - 1 - 19
-----------------------------------------------------
INCOME BEFORE INCOME TAX BENEFIT 464 507 724 722 594
Income tax benefit - - - - 7
-----------------------------------------------------
NET INCOME $ 464 $ 507 $ 724 $ 722 $ 601
=====================================================
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-----------------------------------------------------
1995 1994 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income $ 464 $ 507 $ 724 $ 722 $ 601
Adjustments to reconcile net income to net
cash provided by operating activities
Undistributed earnings of subsidiary (377) (407) (525) (522) (373)
Amortization - - - - 3
(Increase) decrease in receivable from
subsidiary 100 100 - (100) 100
(Increase) decrease in other assets (2) - - 6 2
-----------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 185 200 199 106 333
-----------------------------------------------------
Financing Activities
Purchase of treasury stock - (17) (17) - (19)
Cash dividends paid (198) (199) (199) (199) (200)
-----------------------------------------------------
NET CASH (USED IN) FINANCING ACTIVITIES (198) (216) (216) (199) (219)
-----------------------------------------------------
NET INCREASE (DECREASE) IN CASH (13) (16) (16) (93) 114
Cash:
Beginning 20 36 36 129 15
-----------------------------------------------------
Ending $ 7 $ 20 $ 20 $ 36 $ 129
=====================================================
</TABLE>
F-19
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF MERGER
FORM OF ESCROW AGREEMENT
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 25th day of July, 1995, by and between CANTON BANCSHARES, INC. ("Canton"), a
Illinois corporation, and NORWEST CORPORATION ("Norwest"), a Delaware
corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest will merge with and into Canton (the
"Merger") pursuant to an agreement and plan of merger (the "Merger Agreement")
in substantially the form attached hereto as Exhibit A, which provides, among
other things, for the conversion and exchange of the shares of Common Stock of
Canton of the par value of $1.00 per share ("Canton Common Stock") outstanding
immediately prior to the time the Merger becomes effective in accordance with
the provisions of the Merger Agreement into shares of voting Common Stock of
Norwest of the par value of $1-2/3 per share ("Norwest Common Stock"),
NOW, THEREFORE, to effect such reorganization and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLAN OF REORGANIZATION
(a) Merger. Subject to the terms and conditions contained herein, a
wholly-owned subsidiary of Norwest (the "Merger Co.") will be merged by
statutory merger with and into Canton pursuant to the Merger Agreement, with
Canton as the surviving corporation, in which merger each share of Canton Common
Stock outstanding immediately prior to the Effective Time of the Merger (as
defined below)(other than shares as to which statutory dissenters' appraisal
rights have been exercised) will be converted into and exchanged for the number
of shares of Norwest Common Stock determined by dividing the Adjusted Norwest
Shares by the number of shares of Canton Common Stock then outstanding. The
"Adjusted Norwest Shares" shall be a number equal to (i) $9,400,000 less the
Escrow Amount (as defined below) divided by (ii) the Norwest Measurement Price.
The "Norwest Measurement Price" is defined as the average of the closing prices
of a share of Norwest Common Stock as reported on the consolidated tape of the
New York Stock Exchange during the period of 20 trading days ending on the day
immediately preceding the meeting of shareholders required by paragraph 4(c) of
this Agreement. The "Escrow Amount" shall be equal to $250,000. Immediately
following the Effective Time of the Merger, a number of shares of Norwest Common
Stock equal to $250,000 divided by the Norwest Measurement Price shall be
deposited into escrow and held in accordance with the terms of an escrow
agreement substantially in the form attached hereto as Exhibit B (the "Escrow
Agreement").
(b) Norwest Common Stock Adjustments. If, between the date hereof and the
Effective Time of the Merger, shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared with a
record date within such period (a "Common Stock Adjustment"), then the number of
shares of Norwest Common Stock into which a share of Canton Common Stock shall
be converted
A-1
<PAGE>
pursuant to subparagraph (a), above, will be appropriately and proportionately
adjusted so that the number of such shares of Norwest Common Stock into which a
share of Canton Common Stock shall be converted will equal the number of shares
of Norwest Common Stock which holders of shares of Canton Common Stock would
have received pursuant to such Common Stock Adjustment had the record date
therefor been immediately following the Effective Time of the Merger.
(c) Fractional Shares. No fractional shares of Norwest Common Stock and no
certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest to
which such holder is entitled by the Norwest Measurement Price.
(d) Mechanics of Closing Merger. Subject to the terms and conditions set
forth herein, the Merger Agreement shall be executed and it or Articles of
Merger or a Certificate of Merger shall be filed with the Secretary of State of
the State of Illinois within ten (10) business days following the satisfaction
or waiver of all conditions precedent set forth in Sections 6 and 7 of this
Agreement or on such other date as may be agreed to by the parties (the "Closing
Date"). Each of the parties agrees to use its best efforts to cause the Merger
to be completed as soon as practicable after the receipt of final regulatory
approval of the Merger and the expiration of all required waiting periods. The
time that the filing referred to in the first sentence of this paragraph is made
is herein referred to as the "Time of Filing". The day on which such filing is
made and accepted is herein referred to as the "Effective Date of the Merger".
The "Effective Time of the Merger" shall be 11:59 p.m. Canton, Illinois time on
the Effective Date of the Merger. At the Effective Time of the Merger on the
Effective Date of the Merger, the separate existence of Merger Co. shall cease
and Merger Co. will be merged with and into Canton pursuant to the Merger
Agreement.
The closing of the transactions contemplated by this Agreement and the
Merger Agreement (the "Closing") shall take place on the Closing Date at the
offices of Norwest, Norwest Center, Sixth and Marquette, Minneapolis, Minnesota.
2. REPRESENTATIONS AND WARRANTIES OF CANTON. Canton represents and
warrants to Norwest as follows:
(a) Organization and Authority. Canton is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois,
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 Canton and the Canton 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. Canton is registered as a
bank holding company with the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). Canton has furnished Norwest
true and correct copies of its articles of incorporation and by-laws, as
amended.
(b) Canton's Subsidiaries. Schedule 2(b) sets forth a complete and correct
list of all of Canton's subsidiaries as of the date hereof (individually a
"Canton Subsidiary" and collectively the "Canton Subsidiaries"), all shares of
the outstanding capital stock of each of which, except as set forth on Schedule
2(b), are owned directly or indirectly by Canton. No equity security of any
Canton Subsidiary is or may be required to be issued by reason of any option,
warrant, scrip, preemptive right, right to subscribe to, call or commitment of
any character whatsoever relating to,
A-2
<PAGE>
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 Canton Subsidiary is bound to issue additional shares
of its capital stock, or any option, warrant or right to purchase or acquire any
additional shares of its capital stock. Subject to the Illinois Business
Corporation Act, all of such shares so owned by Canton 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 Canton Subsidiary is
a corporation duly organized, validly existing, duly qualified to do business
and in good standing under the laws of its jurisdiction of incorporation, and
has corporate power and authority to own or lease its properties and assets and
to carry on its business as it is now being conducted. Except as set forth on
Schedule 2(b), Canton 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 Canton consists of
100,000 shares of common stock, $1.00 par value, of which as of the close of
business on December 31, 1994, 49,564 shares were outstanding and no shares were
held in the treasury. The maximum number of shares of Canton Common Stock
(assuming for this purpose that phantom shares and other share-equivalents
constitute Canton 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 49,564. All of the outstanding shares of
capital stock of Canton have been duly and validly authorized and issued and are
fully paid and nonassessable. Except as set forth in Schedule 2(c), there are no
outstanding subscriptions, contracts, conversion privileges, options, warrants,
calls, preemptive rights or other rights obligating Canton or any Canton
Subsidiary to issue, sell or otherwise dispose of, or to purchase, redeem or
otherwise acquire, any shares of capital stock of Canton or any Canton
Subsidiary. Since December 31, 1994 no shares of Canton capital stock have been
purchased, redeemed or otherwise acquired, directly or indirectly, by Canton or
any Canton Subsidiary and, except as set forth in Schedule 2(c), no dividends or
other distributions have been declared, set aside, made or paid to the
shareholders of Canton.
(d) Authorization. Canton has the corporate power and authority to enter
into this Agreement and the Merger Agreement and, subject to any required
approvals of its shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
Merger Agreement by Canton and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of
Canton. Subject to such approvals of shareholders and of government agencies
and other governing boards having regulatory authority over Canton as may be
required by statute or regulation, this Agreement and the Merger Agreement are
valid and binding obligations of Canton enforceable against Canton in accordance
with their respective terms, except as enforceability may be limited by the
effect of bankruptcy, insolvency, reorganization, moratorium, and other similar
laws and court decisions of general application relating to, limiting or
affecting the enforcement of creditors' rights generally, and by general
principles of equity.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by Canton of this Agreement or the Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor compliance
by Canton 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,
A-3
<PAGE>
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 Canton or any Canton Subsidiary under any of the terms,
conditions or provisions of (x) its articles of incorporation or by-laws or (y)
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Canton or any Canton
Subsidiary is a party or by which it may be bound, or to which Canton or any
Canton Subsidiary or any of the properties or assets of Canton or any Canton
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 Canton,
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Canton or any Canton Subsidiary or any of their
respective properties or assets.
Other than in connection or in compliance with the provisions of the
Securities Act of 1933 and the rules and regulations thereunder (the "Securities
Act"), the Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act"), the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act or the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 ("HSR Act"), the Illinois Banking Act, the Illinois Bank Holding Company
Act of 1957 and filings required to effect the Merger under Illinois 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
Canton of the transactions contemplated by this Agreement and the Merger
Agreement.
(e) Canton Financial Statements. The consolidated balance sheets of Canton
and Canton's Subsidiaries as of December 31, 1994 and 1993 and related
consolidated statements of income, stockholders' equity and cash flows for the
three years ended December 31, 1994, together with the notes thereto, certified
by McGladrey & Pullen, LLP (collectively, the "Canton 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 Canton and Canton's Subsidiaries at the dates
and the consolidated results of operations and cash flows of Canton and Canton's
Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1989, Canton and each Canton Subsidiary
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the Securities and
Exchange Commission (the "SEC"), including, but not limited to, Forms 10-K,
Forms 10-Q and proxy statements, (ii) the Federal Reserve Board, (iii) the
Federal Deposit Insurance Corporation (the "FDIC"), (iv) the United States
Comptroller of the Currency (the "Comptroller") and (v) any applicable state
securities or banking authorities. All such reports and statements filed with
any such regulatory body or authority are collectively referred to herein as the
"Canton Reports". As of their respective dates, the Canton Reports complied in
all material respects with all the rules and regulations promulgated by the SEC,
the Federal Reserve Board, the FDIC, the Comptroller and applicable state
securities or banking authorities, as the case may be, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Copies of all
the Canton Reports have been made available to Norwest by Canton.
A-4
<PAGE>
(g) Properties and Leases. Except as may be reflected in the Canton
Financial Statements and except for any lien for current taxes not yet
delinquent, Canton and each Canton Subsidiary have good title free and clear of
any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Canton's
consolidated balance sheet as of December 31, 1994 for the period then ended,
and all real and personal property acquired since such date, except such real
and personal property as has been disposed of in the ordinary course of
business. All leases of real property and all other leases material to Canton
or any Canton Subsidiary pursuant to which Canton or such Canton Subsidiary, as
lessee, leases real or personal property, which leases are described on Schedule
2(g), are valid and effective in accordance with their respective terms, and
there is not, under any such lease, any material existing default by Canton or
such Canton Subsidiary or any event which, with notice or lapse of time or both,
would constitute such a material default. Substantially all Canton's and each
Canton 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 Canton and the Canton Subsidiaries has filed all
federal, state, county, local and foreign tax returns, including information
returns, required to be filed by it, and paid all taxes owed by it, including
those with respect to income, withholding, social security, unemployment,
workers compensation, franchise, ad valorem, premium, excise and sales taxes,
and no taxes shown on such returns to be owed by it or assessments received by
it are delinquent. The federal income tax returns of Canton and the Canton
Subsidiaries for the fiscal year ended December 31, 1991, and for all fiscal
years prior thereto, are for the purposes of routine audit by the Internal
Revenue Service closed because of the statute of limitations, and no claims for
additional taxes for such fiscal years are pending. Except only as set forth on
Schedule 2(h), (i) neither Canton nor any Canton Subsidiary is a party to any
pending action or proceeding, nor is any such action or proceeding threatened by
any governmental authority, for the assessment or collection of taxes, interest,
penalties, assessments or deficiencies and (ii) no issue has been raised by any
federal, state, local or foreign taxing authority in connection with an audit or
examination of the tax returns, business or properties of Canton or any Canton
Subsidiary which has not been settled, resolved and fully satisfied. Each of
Canton and the Canton Subsidiaries has paid all taxes owed or which it is
required to withhold from amounts owing to employees, creditors or other third
parties. The consolidated balance sheet as of December 31, 1994, referred to in
paragraph 2(e) hereof, includes adequate provision for all accrued but unpaid
federal, state, county, local and foreign taxes, interest, penalties,
assessments or deficiencies of Canton and the Canton Subsidiaries with respect
to all periods through the date thereof.
(i) Absence of Certain Changes. Since December 31, 1994, there has been no
change in the business, financial condition or results of operations of Canton
or any Canton 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 Canton and the Canton Subsidiaries taken as a whole.
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
neither Canton nor any Canton Subsidiary is a party or subject to any of the
following (whether written or oral, express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with
A-5
<PAGE>
any present or former officer, director, employee or consultant (other than
those which are terminable at will by Canton or such Canton Subsidiary);
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business
containing covenants which limit the ability of Canton or any Canton
Subsidiary to compete in any line of business or with any person or which
involve any restriction of the geographical area in which, or method by
which, Canton or any Canton Subsidiary may carry on its business (other
than as may be required by law or applicable regulatory authorities);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $10,000 or
more.
(k) Litigation and Other Proceedings. Canton has furnished Norwest
copies of (i) all attorney responses to the request of the independent auditors
for Canton with respect to loss contingencies as of December 31, 1994 in
connection with the Canton financial statements, and (ii) a written list of
legal and regulatory proceedings filed against Canton or any Canton Subsidiary
since said date. Neither Canton nor any Canton Subsidiary is a party to any
pending or, to the best knowledge of Canton, 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 Canton and the Canton Subsidiaries taken
as a whole.
(l) Insurance. Canton and each Canton Subsidiary is presently insured, and
during each of the past five calendar years (or during such lesser period of
time as Canton has owned such Canton Subsidiary) has been insured, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance required by applicable law and regulation.
(m) Compliance with Laws. Canton and each Canton Subsidiary has all
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to own
or lease its properties and assets and to carry on its business as presently
conducted and that are material to the business of Canton or such Canton
Subsidiary; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best knowledge of Canton, no
suspension or cancellation of any of them is threatened; and all such filings,
applications and registrations are current. The conduct by Canton and each
Canton 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 Canton nor any Canton Subsidiary is in
default under any order, license, regulation or demand of any federal, state,
municipal or other
A-6
<PAGE>
governmental agency or with respect to any order, writ, injunction or decree of
any court. Except for statutory or regulatory restrictions of general
application and except as set forth on Schedule 2(m), no federal, state,
municipal or other governmental authority has placed any restriction on the
business or properties of Canton or any Canton Subsidiary which reasonably could
be expected to have a material adverse effect on the business or properties of
Canton and the Canton Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Canton or any Canton Subsidiary is
pending or, to the best knowledge of Canton, threatened. Neither Canton nor any
Canton 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 Canton or such Canton
Subsidiary. Employees of Canton and the Canton Subsidiaries are not represented
by any labor union nor are any collective bargaining agreements otherwise in
effect with respect to such employees.
(o) Material Interests of Certain Persons. Except as set forth on Schedule
2(o), to the best knowledge of Canton no officer or director of Canton or any
Canton Subsidiary, or any "associate" (as such term is defined in Rule l4a-1
under the Exchange Act) of any such officer or director, has any interest in any
material contract or property (real or personal), tangible or intangible, used
in or pertaining to the business of Canton or any Canton Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from Canton
or any Canton Subsidiary to any present officer, director, employee or any
associate or related interest of any such person which was required under
Regulation O of the Federal Reserve Board to be approved by or reported to
Canton's or such Canton Subsidiary's Board of Directors.
(p) Canton 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 Canton or any Canton Subsidiary acts as the plan
sponsor as defined in ERISA Section 3(16)(B), and with respect to which any
liability under ERISA or otherwise exists or may be incurred by Canton or
any Canton Subsidiary are those set forth on Schedule 2(p) (the "Plans").
No Plan is a "multi-employer plan" within the meaning of Section 3(37) of
ERISA.
(ii) Each Plan is and has been in all material respects operated and
administered in accordance with its provisions and applicable law. Except
as set forth on Schedule 2(p), Canton or the Canton subsidiaries have
received favorable determination letters from the Internal Revenue Service
under the provisions of the Tax Equity and Fiscal Responsibility Act
("TEFRA"), the Deficit Reduction Act ("DEFRA") and the Retirement Equity
Act ("REA") for each of the Plans to which the qualification requirements
of Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), apply. Canton 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.
A-7
<PAGE>
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) Except as disclosed in Schedule 2(p), and to the best knowledge
of Canton, 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 Canton,
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 Canton and the Canton Subsidiaries taken as a whole.
(v) No Plan which is subject to Title IV of ERISA or any trust
created thereunder has been terminated, nor have there been any "reportable
events" as that term is defined in Section 4043 of ERISA, with respect to
any Plan, other than those events which may result from the transactions
contemplated by this Agreement and the Merger Agreement.
(vi) No Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), since the effective date of ERISA.
(vii) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement nor the consummation of
the transactions contemplated hereby and thereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or employee or former employee of Canton or any Canton Subsidiary under any
Plan or otherwise, (ii) materially increase any benefits otherwise payable
under any Plan or (iii) result in the acceleration of the time of payment
or vesting of any such benefits to any material extent.
(q) Proxy Statement, etc. None of the information regarding Canton and the
Canton Subsidiaries supplied or to be supplied by Canton for inclusion in (i) a
Registration Statement on Form S-4 to be filed with the SEC by Norwest for the
purpose of registering the shares of Norwest Common Stock to be exchanged for
shares of Canton Common Stock pursuant to the provisions of the Merger Agreement
(the "Registration Statement"), (ii) the proxy statement to be mailed to
Canton's shareholders in connection with the meeting to be called to consider
the Merger (the "Proxy Statement") and (iii) any other documents to be filed
with the SEC or any regulatory authority in connection with the transactions
contemplated hereby or by the Merger Agreement will, at the respective times
such documents are filed with the SEC or any regulatory authority and, in the
case of the Registration Statement, when it becomes effective and, with respect
to the Proxy Statement, when mailed, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the meeting of
shareholders referred to in paragraph 4(c), be false or misleading with respect
to any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
any proxy for such meeting. All documents which Canton and
A-8
<PAGE>
the Canton Subsidiaries are responsible for filing with the SEC and any other
regulatory authority in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(r),
neither Canton nor any Canton Subsidiary is under any obligation, contingent or
otherwise, which will survive the Merger by reason of any agreement to register
any of its securities under the Securities Act.
(s) Brokers and Finders. Neither Canton nor any Canton 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 Canton or any Canton Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(t) Administration of Trust Accounts. Canton and each Canton Subsidiary
has properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of Canton and the Canton
Subsidiaries taken as a whole all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law. Neither Canton, any Canton
Subsidiary, nor any director, officer or employee of Canton or any Canton
Subsidiary has committed any breach of trust with respect to any such fiduciary
account which is material to or could reasonably be expected to be material to
the financial condition of Canton and the Canton Subsidiaries taken as a whole,
and the accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
(u) No Defaults. Neither Canton nor any Canton 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 Canton and the Canton Subsidiaries, taken as a whole. To the
best of Canton's knowledge, all parties with whom Canton or any Canton
Subsidiary has material leases, agreements or contracts or who owe to Canton or
any Canton Subsidiary material obligations other than with respect to those
arising in the ordinary course of the banking business of the Canton
Subsidiaries are in compliance therewith in all material respects.
(v) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
result in the imposition of, on Canton or any Canton Subsidiary, 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 Canton's knowledge,
threatened against Canton or any Canton Subsidiary the result of which has had
or could reasonably be expected to have a material adverse effect upon Canton
and Canton's Subsidiaries taken as a whole; to the best of Canton's knowledge
there is no reasonable basis for any such proceeding, claim or action; and to
the best of Canton's knowledge neither Canton nor any Canton Subsidiary is
subject to any agreement, order, judgment, or decree by or with any court,
governmental authority or third party imposing any such
A-9
<PAGE>
environmental liability. Canton has provided Norwest with copies of all
environmental assessments, reports, studies and other related information in its
possession with respect to each bank facility and each non-residential OREO
property.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Canton 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, 1994, of Norwest's Significant Subsidiaries (as defined
in Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary"
and collectively the "Norwest Subsidiaries"), all shares of the outstanding
capital stock of each of which, except as set forth in Schedule 3(b), are owned
directly or indirectly by Norwest. No equity security of any Norwest Subsidiary
is or may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (S) 55 (1982), all of such shares so owned by Norwest are
fully paid and nonassessable and are owned by it free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto. Each
Norwest Subsidiary is a corporation or national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted.
(c) Norwest Capitalization. The authorized capital stock of Norwest
consists of (i) 5,000,000 shares of Preferred Stock, without par value, of which
as of the close of business on December 31, 1994, 1,127,125 shares of 10.24%
Cumulative Preferred Stock at $100 stated value, 980,000 shares of Cumulative
Tracking Preferred Stock, 1,143,675 shares of Cumulative Convertible Preferred
Stock, Series B, at $200 stated value and 14,265 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 December 31, 1994, 309,144,857 shares were outstanding and
13,939,617 shares were held in the treasury.
(d) Authorization. Norwest has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Norwest and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Norwest. No approval or consent by the stockholders of Norwest is
necessary for the execution and delivery of this Agreement and the
A-10
<PAGE>
Merger Agreement and the consummation of the transactions contemplated hereby
and thereby. Subject to such approvals of government agencies and other
governing boards having regulatory authority over Norwest as may be required by
statute or regulation, this Agreement is a valid and binding obligation of
Norwest enforceable against Norwest in accordance with its terms.
Neither the execution, delivery and performance by Norwest of this Agreement
or the Merger Agreement, nor the consummation of the transactions contemplated
hereby and thereby, nor compliance by Norwest with any of the provisions hereof
or thereof, will (i) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of, any lien, security
interest, charge or encumbrance upon any of the properties or assets of Norwest
or any Norwest Subsidiary under any of the terms, conditions or provisions of
(x) its certificate of incorporation or by-laws or (y) any material note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Norwest or any Norwest Subsidiary is a party
or by which it may be bound, or to which Norwest or any Norwest Subsidiary or
any of the properties or assets of Norwest or any Norwest Subsidiary may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of Norwest, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Norwest or any Norwest Subsidiary or any of their respective
properties or assets.
Other than in connection with or in compliance with the provisions of the
Securities Act, the Exchange Act, the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act or the HSR Act, and filings required to effect the
Merger under Illinois 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, 1994 and 1993 and related
consolidated statements of income, stockholders' equity and cash flows for the
three years ended December 31, 1994, together with the notes thereto, certified
by KPMG Peat Marwick LLP and included in Norwest's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (the "Norwest 10-K") 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, 1989, 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
A-11
<PAGE>
and regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and any applicable state securities or banking authorities, as the
case may be, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Properties and Leases. Except as may be reflected in the Norwest
Financial Statements and except for any lien for current taxes not yet
delinquent, Norwest and each Norwest Subsidiary has good title free and clear of
any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Norwest's
consolidated balance sheet as of December 31, 1994 included in Norwest's Annual
Report on Form 10-K for the period then ended, and all real and personal
property acquired since such date, except such real and personal property has
been disposed of in the ordinary course of business. All leases of real
property and all other leases material to Norwest or any Norwest Subsidiary
pursuant to which Norwest or such Norwest Subsidiary, as lessee, leases real or
personal property, are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Norwest or such Norwest Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Norwest's and each Norwest Subsidiary's buildings and equipment in regular use
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries has filed all
material federal, state, county, local and foreign tax returns, including
information returns, required to be filed by it, and paid or made adequate
provision for the payment of all taxes owed by it, including those with respect
to income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Norwest and the Norwest Subsidiaries for the
fiscal year ended December 31, 1979, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Except only as set forth on Schedule 3(h), (i)
neither Norwest nor any Norwest Subsidiary is a party to any pending action or
proceeding, nor to Norwest's knowledge is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies which could reasonably
be expected to have any material adverse effect on Norwest and its subsidiaries
taken as a whole, and (ii) no issue has been raised by any federal, state, local
or foreign taxing authority in connection with an audit or examination of the
tax returns, business or properties of Norwest or any Norwest Subsidiary which
has not been settled, resolved and fully satisfied, or adequately reserved for.
Each of Norwest and the Norwest Subsidiaries has paid all taxes owed or which it
is required to withhold from amounts owing to employees, creditors or other
third parties.
(i) Absence of Certain Changes. Since December 31, 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
December 31, 1994 neither Norwest nor any Norwest Subsidiary is a party or
subject to any of the following (whether written or oral, express or implied):
A-12
<PAGE>
(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 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
A-13
<PAGE>
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 July 10, 1995, the only "employee benefit plans" within the
meaning of Section 3(3) of ERISA for which Norwest or any Norwest
Subsidiary acts as plan sponsor as defined in ERISA Section 3(16)(B) with
respect to which any liability under ERISA or otherwise exists or may be
incurred by Norwest or any Norwest Subsidiary are those set forth on
Schedule 3(o) (the "Norwest Plans"). No Norwest Plan is a "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable
law. Except as set forth on Schedule 3(o), Norwest or the Norwest
Subsidiaries have received favorable determination letters from the
Internal Revenue Service under the provisions of TEFRA, DEFRA and REA for
each of the Norwest Plans to which the qualification requirements of
Section 401(a) of the Code apply. Norwest knows of no reason that any
Norwest Plan which is subject to the qualification provisions of Section
401(a) of the Code is not "qualified" within the meaning of Section 401(a)
of the Code and that each related trust is not exempt from taxation under
Section 501(a) of the Code, except that any such Norwest Plan may not have
been amended to comply with TRA and other recent legislation and
regulations, although each such Norwest Plan is within the remedial
amendment period during which retroactive amendment may be made.
(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.
A-14
<PAGE>
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including,
without limitation, severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or employee or former employee
of Norwest under any Norwest Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Norwest Plan or (iii) result in
the acceleration of the time of payment or vesting of any such benefits to
any material extent.
(p) Registration Statement, etc. None of the information regarding Norwest
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Merger Agreement will, at
the respective times such documents are filed with the SEC or any regulatory
authority and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the meeting of shareholders referred to in paragraph 4(c), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for such meeting. All documents which Norwest and
the Norwest Subsidiaries are responsible for filing with the SEC and any other
regulatory authority in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject, the
result of which has had or could 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 imposition, on Norwest or any Norwest Subsidiary of any liability
relating to the release of hazardous substances as defined under
A-15
<PAGE>
any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, pending or to the best of
Norwest's knowledge, threatened against Norwest or any Norwest Subsidiary, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole; to the best
of Norwest's knowledge there is no reasonable basis for any such proceeding,
claim or action; and to the best of Norwest's knowledge neither Norwest nor any
Norwest Subsidiary is subject to any agreement, order, judgment, or decree by or
with any court, governmental authority or third party imposing any such
environmental liability.
(t) Merger Co. As of the Closing Date, Merger Co. will be a corporation
duly organized, validly existing, duly qualified to do business and in good
standing under the laws of its jurisdiction of incorporation, and will have
corporate power and authority to own or lease its properties and assets and to
carry on its business.
4. COVENANTS OF CANTON. Canton 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, Canton, and each Canton
Subsidiary will: maintain its corporate existence in good standing; maintain
the general character of its business and conduct its business in its ordinary
and usual manner; extend credit in accordance with existing lending policies,
except that it shall not, without the prior written consent of Norwest, make any
new loan or modify, restructure or renew any existing loan (except pursuant to
commitments made prior to the date of this Agreement) to any borrower if the
amount of the resulting loan, when aggregated with all other loans or extensions
of credit to such person, would be in excess of $100,000; maintain proper
business and accounting records in accordance with generally accepted
principles; maintain its properties in good repair and condition, ordinary wear
and tear excepted; maintain in all material respects presently existing
insurance coverage; use its best efforts to preserve its business organization
intact, to keep the services of its present principal employees and to preserve
its good will and the good will of its suppliers, customers and others having
business relationships with it; use its best efforts to obtain any approvals or
consents required to maintain existing leases and other contracts in effect
following the Merger; comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable to the
properties and operations of Canton and each Canton Subsidiary the non-
compliance with which reasonably could be expected to have a material adverse
effect on Canton and the Canton Subsidiaries taken as a whole; and permit
Norwest and its representatives (including KPMG Peat Marwick LLP) to examine its
and its subsidiaries books, records and properties and to interview officers,
employees and agents at all reasonable times when it is open for business. No
such examination by Norwest or its representatives either before or after the
date of this Agreement shall in any way affect, diminish or terminate any of the
representations, warranties or covenants of Canton herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from
the date hereof until the Effective Time of the Merger, Canton and each Canton
subsidiary will not (without the prior written consent of Norwest): amend or
otherwise change its articles of incorporation or association or by-laws; issue
or sell or authorize for issuance or sale, or grant any options or make other
agreements with respect to the issuance or sale or conversion of, any shares of
its capital stock, phantom shares or other share-equivalents, or any other of
its securities; authorize or incur any long-term debt (other than deposit
liabilities); mortgage, pledge or subject to lien or other
A-16
<PAGE>
encumbrance any of its properties, except in the ordinary course of business;
enter into any material agreement, contract or commitment in excess of $10,000
except banking transactions in the ordinary course of business and in accordance
with policies and procedures in effect on the date hereof; make any investments
except investments made by bank subsidiaries in the ordinary course of business
for terms of up to one (1) year and in amounts of $100,000 or less; amend or
terminate any Plan except as required by law; make any contributions to any Plan
except as required by the terms of such Plan in effect as of the date hereof;
declare, set aside, make or pay any dividend or other distribution with respect
to its capital stock except any dividend declared by a subsidiary's Board of
Directors in accordance with applicable law and regulation, provided, however,
that between June 1, 1995 and the Effective Date of the Merger, Canton may
declare and pay dividends to its shareholders in an amount not to exceed $6.00
per share of Canton Common Stock; redeem, purchase or otherwise acquire,
directly or indirectly, any of the capital stock of Canton; increase the
compensation of any officers, directors or executive employees, except pursuant
to existing compensation plans and practices; sell or otherwise dispose of any
shares of the capital stock of any Canton Subsidiary; or sell or otherwise
dispose of any of its assets or properties other than in the ordinary course of
business.
(c) The Board of Directors of Canton will duly call, and will cause to be
held not later than twenty-five (25) business days following the effective date
of the Registration Statement referred to in paragraph 5(c) hereof, a meeting of
its shareholders and will direct that this Agreement and the Merger Agreement be
submitted to a vote at such meeting. The Board of Directors of Canton will (i)
cause proper notice of such meeting to be given to its shareholders in
compliance with the Illinois Business Corporation Act and other applicable law
and regulation, (ii) recommend by the affirmative vote of the Board of Directors
a vote in favor of approval of this Agreement and the Merger Agreement, and
(iii) use its best efforts to solicit from its shareholders proxies in favor
thereof.
(d) Canton will furnish or cause to be furnished to Norwest all the
information concerning Canton and its subsidiaries required for inclusion in the
Registration Statement referred to in paragraph 5(c) hereof, or any statement or
application made by Norwest to any governmental body in connection with the
transactions contemplated by this Agreement. Any financial statement for any
fiscal year provided under this paragraph must include the audit opinion and the
consent of McGladrey & Pullen, LLP to use such opinion in such Registration
Statement.
(e) Canton 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 Canton to carry out the transactions contemplated by
this Agreement and will cooperate with Norwest to obtain all such approvals and
consents required of Norwest.
(f) Canton 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) Canton will hold in confidence all documents and information concerning
Norwest and its subsidiaries furnished to Canton 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 Canton'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
A-17
<PAGE>
extent that such information can be shown to be previously known to Canton, in
the public domain, or later acquired by Canton 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 Canton, nor any Canton Subsidiary, nor any director, officer,
representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of or enter into any discussions with any
corporation, partnership, person or other entity or group (other than Norwest)
concerning any offer or possible offer (i) to purchase any shares of common
stock, any option or warrant to purchase any shares of common stock, any
securities convertible into any shares of such common stock, or any other equity
security of Canton or any Canton Subsidiary, (ii) to make a tender or exchange
offer for any shares of such common stock or other equity security, (iii) to
purchase, lease or otherwise acquire the assets of Canton or any Canton
Subsidiary except in the ordinary course of business, or (iv) to merge,
consolidate or otherwise combine with Canton or any Canton Subsidiary. If any
corporation, partnership, person or other entity or group makes an offer or
inquiry to Canton or any Canton Subsidiary concerning any of the foregoing,
Canton or such Canton Subsidiary will promptly disclose such offer or inquiry,
including the terms thereof, to Norwest.
(i) Canton 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) Canton and each Canton Subsidiary will take all action necessary or
required (i) (A) to terminate or amend, if requested by Norwest, all qualified
pension and welfare benefit plans to facilitate the merger of such plans with
Norwest plans without gaps in coverage for participants in the plans and without
duplication of costs caused by the continuation of such plans after coverage is
available under Norwest plans, (B) to terminate or amend, subject to required
consent of plan participants, if requested by Norwest, all non-qualified benefit
plans and compensation arrangements (including, but not limited to the following
plans and programs: Directors' Deferred Income Plan, Executive Supplemental
Income Plan, Executive Death Benefit Plan, and Directors' Medical Coverage
(collectively, the "Special Benefit Plans")) and, (C) to use its best efforts to
cooperate with Norwest in obtaining any required consents to such termination or
amendment from the participants in the Special Benefit Plans, all 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 Effective Date of the
Merger.
(k) Except as otherwise required or permitted by this Agreement, neither
Canton nor any Canton Subsidiary shall take any action which with respect to
Canton would disqualify the Merger as a "pooling of interests" for accounting
purposes.
(l) Canton shall use its best efforts to obtain and deliver at least 32
days prior to the Effective Date of the Merger signed representations
substantially in the form attached hereto as Exhibit C to Norwest by each
executive officer, director or shareholder of Canton who may reasonably be
deemed an "affiliate" of Canton within the meaning of such term as used in Rule
145 under the Securities Act.
A-18
<PAGE>
(m) Immediately prior to the Effective Time of the Merger, Canton shall
establish such additional accruals and reserves as may be necessary to conform
Canton's accounting and credit loss reserve practices and methods to those of
Norwest and Norwest's plans with respect to the conduct of Canton's business
following the Merger and to provide for the costs and expenses relating to the
consummation by Canton of the Merger and the other transactions contemplated by
this Agreement; provided, however, that the return on assets calculation upon
which benefits payable to participants in the Canton State Bank Incentive
Compensation Plan during 1995 are based shall be made as if such accruals and
reserves had not been taken.
(n) Canton shall obtain, at its sole expense, Phase I environmental
assessments for each bank facility and each non-residential OREO property for
which such assessments reports have not previously been obtained. Oral reports
of such environmental assessments shall be delivered to Norwest no later than
four (4) weeks and written reports shall be delivered to Norwest no later than
eight (8) weeks from the date of this Agreement. Canton shall obtain, at its
sole expense, Phase II environmental assessments for properties identified by
Norwest on the basis of the results of such Phase I environmental assessments.
(o) Canton shall obtain, at its sole expense, commitments for title
insurance and boundary surveys for each bank facility which shall be delivered
to Norwest no later than four (4) weeks from the date of this Agreement.
(p) Canton shall take such actions as may be necessary to secure and
demolish the building located on the potential expansion site immediately north
of the main office of Canton's bank subsidiary (the "Expansion Site") in order
to protect Canton from liability arising out of the condition of the building
(including, but not limited to, protecting the public from injury from falling
bricks due to the apparent deterioration of the brick veneer on the building or
from release of asbestos particles from asbestos containing materials resulting
from the demolition of the building). Prior to beginning such demolition,
Canton shall obtain an asbestos survey from a professional environmental
engineering firm acceptable to Norwest. The asbestos survey shall cover testing
of internal and external building materials (including the roof) and shall
specify, as to any asbestos containing materials found, an abatement plan which
is designed to be carried out in connection with demolition of the building in
compliance with all applicable laws and regulations. Any required abatement
done in connection with demolition of the building shall be conducted by fully
trained and qualified abatement contractors in accordance with the abatement
plan.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Canton as
follows:
(a) From the date hereof until the Effective Time of the Merger, Norwest
will maintain its corporate existence in good standing; conduct, and cause the
Norwest Subsidiaries to conduct, their respective businesses in compliance with
all material obligations and duties imposed on them by all laws, governmental
regulations, rules and ordinances, and judicial orders, judgments and decrees
applicable to Norwest or the Norwest Subsidiaries, their businesses or their
properties; maintain all books and records of it and the Norwest Subsidiaries,
including all financial statements, in accordance with the accounting principles
and practices consistent with those used for the Norwest Financial Statements,
except for changes in such principles and practices required under generally
accepted accounting principles.
(b) Norwest will furnish to Canton all the information concerning Norwest
required for inclusion in a proxy statement or statements to be sent to the
shareholders of Canton, or in any
A-19
<PAGE>
statement or application made by Canton to any governmental body in connection
with the transactions contemplated by this Agreement.
(c) As promptly as practicable after the execution of this Agreement,
Norwest will file with the SEC a registration statement on Form S-4 (the
"Registration Statement") under the Securities Act and any other applicable
documents, relating to the shares of Norwest Common Stock to be delivered to the
shareholders of Canton pursuant to the Merger Agreement, and will use its best
efforts to cause the Registration Statement to become effective. At the time
the Registration Statement becomes effective, the Registration Statement will
comply in all material respects with the provisions of the Securities Act and
the published rules and regulations thereunder, and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not false or
misleading, and at the time of mailing thereof to the Canton shareholders, at
the time of the Canton shareholders' meeting referred to in paragraph 4(c)
hereof and at the Effective Time of the Merger 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 Canton or any Canton
subsidiary for use in the Registration Statement or the Prospectus.
(d) Norwest will file all documents required to be filed to list the
Norwest Common Stock to be issued pursuant to the Merger Agreement on the New
York Stock Exchange and the Chicago Stock Exchange and use its best efforts to
effect said listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Canton pursuant to this Agreement and the Merger Agreement will,
upon such issuance and delivery to said shareholders pursuant to the Merger
Agreement, be duly authorized, validly issued, fully paid and nonassessable.
The shares of Norwest Common Stock to be delivered to the shareholders of Canton
pursuant to the Merger Agreement are and will be free of any preemptive rights
of the stockholders of Norwest.
(f) Norwest will file all documents required to obtain, prior to the
Effective Time of the Merger, all necessary Blue Sky permits and approvals, if
any, required to carry out the transactions contemplated by this Agreement, will
pay all expenses incident thereto and will use its best efforts to obtain such
permits and approvals.
(g) Norwest will take all necessary corporate and other action and file
all documents required to obtain and will use its best efforts to obtain all
approvals of regulatory authorities, consents and approvals required of it to
carry out the transactions contemplated by this Agreement and will cooperate
with Canton to obtain all such approvals and consents required by Canton.
(h) Norwest will hold in confidence all documents and information
concerning Canton and Canton's Subsidiaries furnished to it and its
representatives in connection with the transactions contemplated by this
Agreement and will not release or disclose such information to any other person,
except as required by law and except to its outside professional advisers in
connection with this Agreement, with the same undertaking from such professional
advisers. If the transactions contemplated by this Agreement shall not be
consummated, such confidence shall be maintained
A-20
<PAGE>
and such information shall not be used in competition with Canton (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 Canton.
(i) Norwest will file any documents or agreements required to be filed in
connection with the Merger under the Illinois Business Corporation Act.
(j) Norwest will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(k) Norwest shall consult with Canton 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 Canton written notice of receipt of the regulatory
approvals referred to in paragraph 7(e).
(m) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit Canton and its representatives to examine its books, records
and properties and interview officers, employees and agents of Norwest at all
reasonable times when it is open for business. No such examination by Canton or
its representatives shall in any way affect, diminish or terminate any of the
representations, warranties or covenants of Norwest herein expressed.
(n) Norwest agrees to cooperate with Canton in proposing reasonably
equivalent substitute benefits to those participants in the Special Benefit
Plans whose consent is required for the termination or amendment of the Special
Benefit Plans contemplated by paragraph 4(j) hereof.
6. CONDITIONS PRECEDENT TO OBLIGATION OF CANTON. The obligation of Canton
to effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following further conditions, which may be waived in writing by
Canton:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
after the date of this Agreement made in the ordinary course of business and not
expressly prohibited by this Agreement, the representations and warranties
contained in paragraph 3 hereof shall be true and correct in all respects
material to Norwest and its subsidiaries taken as a whole as if made at the Time
of Filing.
(b) Norwest shall have, or shall have caused to be, performed and observed
in all material respects all covenants, agreements and conditions hereof to be
performed or observed by it and Merger Co. at or before the Time of Filing.
(c) Canton shall have received a favorable certificate, dated as of the
Effective Date of the Merger, signed by the Chairman, the President or any
Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs (a)
and (b) of this paragraph 6.
A-21
<PAGE>
(d) This Agreement and the Merger Agreement shall have been approved by
the affirmative vote of the holders of the percentage of the outstanding shares
of Canton required for approval of a plan of merger in accordance with the
provisions of Canton's Articles of Incorporation and the Illinois Business
Corporation Act.
(e) Norwest shall have received approval by the Federal Reserve Board and
by such other governmental agencies as may be required by law of the
transactions contemplated by this Agreement and the Merger Agreement and all
waiting and appeal periods prescribed by applicable law or regulation shall have
expired.
(f) No court or governmental authority of competent jurisdiction shall
have issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(g) The shares of Norwest Common Stock to be delivered to the stockholders
of Canton pursuant to this Agreement and the Merger Agreement shall have been
authorized for listing on the New York Stock Exchange and the Chicago Stock
Exchange.
(h) Canton shall have received an opinion, dated the Closing Date, of
counsel to Canton, substantially to the effect that, for federal income tax
purposes: (i) the Merger 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 Canton 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 Canton will be the same
as the basis of Canton Common Stock exchanged therefor; and (iv) the holding
period of the shares of Norwest Common Stock received by the shareholders of
Canton will include the holding period of the Canton Common Stock, provided such
shares of Canton Common Stock were held as a capital asset as of the Effective
Time of the Merger.
(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) Prior to the mailing of the Proxy Statement, Canton and the Board of
Directors of Canton shall have received an opinion of Alex Sheshunoff & Co.
Investment Banking, dated effective as of the date of mailing of such Proxy
Statement, based on such matters as Alex Sheshunoff & Co. Investment Banking
deems appropriate or necessary, to the effect that the consideration to be
received by stockholders of Canton pursuant to the Merger is fair from a
financial point of view. Canton shall promptly provide a copy of such opinion
to Norwest upon receipt.
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-22
<PAGE>
(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 Canton and the Canton Subsidiaries taken as a whole as if
made at the Time of Filing.
(b) Canton shall have, or shall have caused to be, performed and observed
in all material respects all covenants, agreements and conditions hereof to be
performed or observed by it at or before the Time of Filing.
(c) This Agreement and the Merger Agreement shall have been approved by
the affirmative vote of the holders of the percentage of the outstanding shares
of Canton required for approval of a plan of merger in accordance with the
provisions of Canton's Articles of Incorporation and the Illinois Business
Corporation Act.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Merger signed by the Chairman or President and by the
Secretary or Assistant Secretary of Canton, as to the matters set forth in
subparagraphs (a) through (c) of this paragraph 7.
(e) Norwest shall have received approval by all governmental agencies as
may be required by law of the transactions contemplated by this Agreement and
the Merger Agreement and all waiting and appeal periods prescribed by applicable
law or regulation shall have expired. No approvals, licenses or consents
granted by any regulatory authority shall contain any condition or requirement
relating to Canton or any Canton Subsidiary that, in the good faith judgment of
Norwest, is unreasonably burdensome to Norwest.
(f) Canton and each Canton Subsidiary shall have obtained any and all
material consents or waivers from other parties to loan agreements, leases or
other contracts material to Canton's or such subsidiary's business required for
the consummation of the Merger, and Canton and each Canton Subsidiary shall have
obtained any and all material permits, authorizations, consents, waivers and
approvals required for the lawful consummation by it of the Merger.
(g) No court or governmental authority of competent jurisdiction shall
have issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(h) At any time since the date hereof the total number of shares of Canton
Common Stock outstanding and subject to issuance upon exercise (assuming for
this purpose that phantom shares and other share-equivalents constitute Canton
Common Stock) of all warrants, options, conversion rights, phantom shares or
other share-equivalents, other than any option held by Norwest, shall not have
exceeded 49,564.
(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened or be unresolved. Norwest shall have
A-23
<PAGE>
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) Norwest shall have received from the Chief Executive Officer and Chief
Financial Officer of Canton a letter, dated as of the effective date of the
Registration Statement and updated through the date of Closing, in form and
substance satisfactory to Norwest, to the effect that:
(i) the interim quarterly financial statements of Canton 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 Canton;
(ii) the amounts reported in the interim quarterly financial
statements of Canton agree with the general ledger of Canton;
(iii) the annual and quarterly financial statements of Canton and the
Canton Subsidiaries included in, or incorporated by reference in, the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published
rules and regulations thereunder;
(iv) from the date of the most recent unaudited consolidated
financial statements of Canton and the Canton Subsidiaries as may be
included in the Registration Statement) to a date 5 days prior to the
effective date of the Registration Statement or 5 days prior to the
Closing, there are no increases in long-term debt, changes in the capital
stock or decreases in stockholders' equity of Canton and the Canton
Subsidiaries, except in each case for changes, increases or decreases which
the Registration Statement discloses have occurred or may occur or which
are described in such letters. For the same period, there have been no
decreases in consolidated net interest income, consolidated net interest
income after provision for credit losses, consolidated income before income
taxes, consolidated net income and net income per share amounts of Canton
and the Canton Subsidiaries, or in income before equity in undistributed
income of subsidiaries, in each case as compared with the comparable period
of the preceding year, except in each case for changes, increases or
decreases which the Registration Statement discloses have occurred or may
occur or which are described in such letters;
(v) they have reviewed certain amounts, percentages, numbers of
shares and financial information which are derived from the general
accounting records of Canton and the Canton Subsidiaries, which appear in
the Registration Statement under the certain captions to be specified by
Norwest, and have compared certain of such amounts, percentages, numbers
and financial information with the accounting records of Canton and the
Canton Subsidiaries and have found them to be in agreement with financial
records and analyses prepared by Canton included in the annual and
quarterly financial statements, except as disclosed in such letters.
(k) Canton and the Canton Subsidiaries considered as a whole shall not
have sustained since December 31, 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.
A-24
<PAGE>
(l) Except as contemplated by the Escrow Agreement, 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 Canton or any Canton 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, which has had or could
reasonably be expected to have a material adverse effect upon Canton and its
subsidiaries taken as a whole.
(m) Since December 31, 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 Canton and the Canton Subsidiaries taken as a whole
(other than changes in banking laws or regulations, or interpretations thereof,
that affect the banking industry generally or changes in the general level of
interest rates).
(n) Canton shall have terminated or amended the Special Benefit Plans in
accordance with paragraph 4(j) hereof, effective as of the Effective Date of the
Merger.
(o) Canton shall have demolished the building on the Expansion Site in
full compliance with the requirements of paragraph 4(p) of this Agreement.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Canton or
any Canton Subsidiary as of the Effective Date of the Merger ("Canton
Employees") shall be eligible for participation in the employee welfare and
retirement plans of Norwest, as in effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each Canton Employee shall be eligible
for participation in the employee welfare benefit plans of Norwest listed below
subject to any eligibility requirements applicable to such plans and shall enter
each plan not later than the first day of the calendar quarter which begins at
least 32 days after the Effective Date of the Merger (provided, however, that it
is Norwest's intent that the transition from the Canton plans to the Norwest
plans be facilitated without gaps in coverage to the participants and without
duplication in costs to Norwest):
Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
A-25
<PAGE>
For the purpose of determining each Canton Employee's benefit for the year in
which the Merger occurs under the Norwest vacation program, vacation taken by an
Canton Employee in the year in which the Merger occurs will be deducted from the
total Norwest benefit. Canton Employees shall receive past service credit for
the purpose of determining benefits under the Norwest Vacation Program and the
Norwest Severance Pay Plan.
(b) Employee Retirement Benefit Plans.
Each Canton Employee shall be eligible for participation in the Norwest Savings-
Investment Plan (the "SIP"), subject to any eligibility requirements applicable
to the SIP (with full credit for years of past service to Canton and the Canton
Subsidiaries for the purpose of satisfying any eligibility and vesting periods
applicable to the SIP), and shall enter the SIP not later than the first day of
the calendar quarter which begins at least 32 days after the Effective Date of
the Merger.
Each Canton Employee shall be eligible for participation, as a new employee, in
the Norwest Pension Plan under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of
Filing:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Merger shall not have been consummated by March 31, 1996
unless such failure of consummation shall be due to the failure of the
party seeking to terminate to perform or observe in all material respects
the covenants and agreements hereof to be performed or observed by such
party; or
(iii) by Canton 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.
(iv) by Norwest if it determines in its sole discretion that the
anticipated cost of Remediation and the potential damages caused by
contamination in, on or emanating from the drive-up bank property located
at First and Pine in Canton, Illinois (the "Drive-Up Site") would exceed an
aggregate of $250,000. "Remediation" includes the investigation, removal
and/or remediation of, or other response to (including testing, monitoring,
sampling or other investigation) any contamination in, or emanating from
the Drive-Up Site to comply with environmental laws and regulations, the
presentation of plans for remediation to the appropriate state authority,
and the receipt of such authority's approval and certification of the
completion of any necessary remediation.
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any liability
or damage to the other party hereto arising out of the breaching party's willful
and material breach of the warranties and representations made by it, or willful
and material failure in performance of any of its covenants,
A-26
<PAGE>
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 Canton and Canton Subsidiaries shall be borne by
Canton, and all such expenses incurred by Norwest shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
13. NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be delivered in
person or shall be mailed by first class registered or certified mail, postage
prepaid, addressed as follows:
If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to Canton:
Canton Bancshares, Inc.
2 North Main Street
Canton, IL 61520
Attention: Otto G. Stephenitch, President
With a copy to:
Charles H. Young, Esq.
101 SW Adams, Suite 800
Peoria, IL 61602
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Merger Agreement contain
the complete agreement between the parties hereto with respect to the Merger and
other transactions contemplated hereby and supersede all prior agreements and
understandings between the parties hereto with respect thereto.
A-27
<PAGE>
15. CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by a signed
writing, give any consent, take any action pursuant to paragraph 9 hereof or
otherwise, or waive any inaccuracies in the representations and warranties by
the other party and compliance by the other party with any of the covenants and
conditions herein.
17. AMENDMENT. At any time before the Time of Filing, the parties hereto,
by action taken by their respective Boards of Directors or pursuant to authority
delegated by their respective Boards of Directors, may amend this Agreement;
provided, however, that no amendment after approval by the shareholders of
Canton shall be made which changes in a manner adverse to such shareholders the
consideration to be provided to said shareholders pursuant to this Agreement and
the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
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. Paragraph 10 shall survive the Merger.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION CANTON BANCSHARES, INC.
By: /s/ Daniel A. Saklad By: /s/ Stanley J. Feinner
-------------------- ----------------------
Its: Executive Vice President Its: Chairman of the Board
------------------------ ---------------------
A-28
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
CANTON BANCSHARES, INC.
an Illinois corporation
(the surviving corporation)
AND
CANTON MERGER CO.
an Illinois corporation
(the merged corporation)
This Agreement and Plan of Merger dated as of __________, 1995, between
CANTON BANCSHARES, INC., an Illinois corporation (hereinafter sometimes called
"Canton" and sometimes called the "surviving corporation") and CANTON MERGER
CO., an Illinois corporation ("Merger Co.")(said corporations being hereinafter
sometimes referred to as the "constituent corporations"),
WHEREAS, Merger Co., a wholly-owned subsidiary of Norwest Corporation, was
incorporated by Articles of Incorporation filed in the office of the Secretary
of State of the State of Illinois on _______, 19__, and said corporation is now
a corporation subject to and governed by the provisions of the Illinois Business
Corporation Act. Merger Co. has authorized capital stock of ________ shares of
common stock having a par value of $_____ per share ("Merger Co. Common Stock"),
of which _________ shares were outstanding as of the date hereof; and
WHEREAS, Canton was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Illinois on ________, 19__ and
said corporation is now a corporation subject to and governed by the provisions
of the Illinois Business Corporation Act. Canton has authorized capital stock
of ________ shares of Common Stock, par value $_____ per share ("Canton Common
Stock") of which _______ shares were outstanding and no shares were held in the
treasury as of ___________ , 19__; and
WHEREAS, Norwest Corporation and Canton are parties to an Agreement and Plan
of Reorganization dated as of __________ , 19__ (the "Reorganization
Agreement"), setting forth certain representations, warranties and covenants in
connection with the merger provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the constituent
corporations respectively deem it advisable for the welfare and advantage of
said corporations and for the best interests of the respective shareholders of
said corporations that said corporations merge and that Merger Co. be merged
with and into Canton, with Canton continuing as the surviving corporation, on
the terms and conditions hereinafter set forth in accordance with the provisions
of the Illinois Business Corporation Act, which statute permits such merger; and
WHEREAS, it is the intent of the parties to effect a merger which qualifies
as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Internal Revenue Code;
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of Merger Co., in consideration of the premises and of the mutual
covenants and agreements
A-29
<PAGE>
contained herein and of the benefits to accrue to the parties hereto, have
agreed and do hereby agree that Merger Co. shall be merged with and into Canton
pursuant to the laws of the State of Illinois, and do hereby agree upon,
prescribe and set forth the terms and conditions of the merger of Merger Co.
with and into Canton, the mode of carrying said merger into effect, the manner
and basis of converting the shares of Canton Common Stock into shares of common
stock of Norwest of the par value of $1-2/3 per share ("Norwest Common Stock"),
and such other provisions with respect to said merger as are deemed necessary or
desirable, as follows:
FIRST: At the time of merger Merger Co. shall be merged with and into
Canton, one of the constituent corporations, which shall be the surviving
corporation, and the separate existence of Merger Co. shall cease and the name
of the surviving corporation shall be ________________.
SECOND: The Articles of Incorporation of Canton at the time of merger shall
be amended as set forth below and, as so amended, shall be the Articles of
Incorporation of the surviving corporation until further amended according to
law:
[Amend to change name, number of directors, etc.]
THIRD: The By-Laws of Canton at the time of merger shall be and remain the
By-Laws of the surviving corporation until amended according to the provisions
of the Articles of Incorporation of the surviving corporation or of said By-
Laws.
FOURTH: The directors of Merger Co. at the time of merger shall be and
remain the directors of the surviving corporation and shall hold office from the
time of merger until their respective successors are elected and qualify.
FIFTH: The officers of Merger Co. at the time of merger shall be and
remain the officers of the surviving corporation and shall hold office from the
time of merger until their respective successors are elected or appointed and
qualify.
SIXTH: The manner and basis of converting the shares of Canton Common Stock
into cash or shares of shares of Norwest Common Stock shall be as follows:
1. Each of the shares of Canton Common Stock outstanding immediately prior
to the time of merger (other than shares as to which statutory dissenters'
rights have been exercised) shall at the time of merger, by virtue of the
merger and without any action on the part of the holder or holders thereof,
be converted into and exchanged for the number of shares of Norwest Common
Stock determined by dividing the Adjusted Norwest Shares by the number of
shares of Canton Common Stock then outstanding. The "Adjusted Norwest
Shares" shall be a number equal to (i) $9,400,000 less the Escrow Amount
(as defined below) divided by (ii) the Norwest Measurement Price. The
"Norwest Measurement Price" is defined as the average of the closing prices
of a share of Norwest Common Stock as reported on the consolidated tape of
the New York Stock Exchange during the period of 20 trading days ending on
the day immediately preceding the meeting of shareholders held to vote on
the merger. The "Escrow Amount" shall be equal to $250,000. Immediately
following the effective time of the merger, a number of shares of Norwest
Common Stock equal to $250,000 divided by the Norwest Measurement Price
shall be deposited into escrow and held in accordance with the terms of an
escrow agreement substantially in the form attached to the Reorganization
Agreement.
A-30
<PAGE>
2. As soon as practicable after the merger becomes effective, each holder
of a certificate for shares of Canton Common Stock outstanding immediately
prior to the time of merger shall be entitled, upon surrender of such
certificate for cancellation to the surviving corporation or to Norwest
Bank Minnesota, National Association, as the designated agent of the
surviving corporation (the "Agent"), to receive a new certificate for the
number of whole shares of Norwest Common Stock to which such holder shall
be entitled on the basis set forth in paragraph 1 above. Until so
surrendered each certificate which, immediately prior to the time of
merger, represented shares of Canton Common Stock 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 into
which such shares of Canton Common Stock have been converted on the basis
above set forth; provided, however, until the holder of such certificate
for Canton Common Stock shall have surrendered the same for exchange as
above set forth, no dividend payable to holders of record of Norwest Common
Stock as of any date subsequent to the effective date of merger shall be
paid to such holder with respect to the Norwest Common Stock, if any,
represented by such certificate, but, upon surrender and exchange thereof
as herein provided, there shall be paid by the surviving corporation or the
Agent to the record holder of such certificate for Norwest Common Stock
issued in exchange therefor an amount with respect to such shares of
Norwest Common Stock equal to all dividends that shall have been paid or
become payable to holders of record of Norwest Common Stock between the
effective date of merger and the date of such exchange.
3. If between the date of the Reorganization Agreement and the time of
merger, shares of Norwest Common Stock shall be changed into a different
number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared
with a record date within such period, then the number of shares of Norwest
Common Stock, if any, into which a share of Canton Common Stock shall be
converted on the basis above set forth, will be appropriately and
proportionately adjusted so that the number of such shares of Norwest
Common Stock into which a share of Canton Common Stock shall be converted
will equal the number of shares of Norwest Common Stock which the holders
of shares of Canton Common Stock would have received pursuant to such
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or stock dividend had the record date therefor been
immediately following the time of merger.
4. No fractional shares of Norwest Common Stock and no certificates or
scrip certificates therefor shall be issued to represent any such
fractional interest, and any holder of a fractional interest shall be paid
an amount of cash equal to the product obtained by multiplying the
fractional share interest to which such holder is entitled by the Norwest
Measurement Price.
5. Each share of Merger Co. Common Stock issued and outstanding at the
time of merger shall be converted into and exchanged for shares of the
surviving corporation after the time of merger.
A-31
<PAGE>
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
1. The effective date of merger shall be the date on which Articles of
Merger (as described in subparagraph 1(b) of this Article Seventh) shall be
delivered to and filed by the Secretary of State of the State of Illinois;
provided, however, that all of the following actions shall have been taken
in the following order:
a. This Agreement shall be approved and adopted on behalf of Merger
Co. and Canton in accordance with the Illinois Business Corporation
Act; and
b. Articles of merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by
the Illinois Business Corporation Act, shall be executed by the
President or a Vice President of Merger Co. and by the Secretary or an
Assistant Secretary of Merger Co., and by the President or a Vice
President of Canton and by the Secretary or an Assistant Secretary of
Canton, and shall be filed in the office of the Secretary of State of
the State of Illinois in accordance with the Illinois Business
Corporation Act.
2. The merger shall become effective as of 11:59 p.m. (the "time of
merger") on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Merger Co. shall cease, and the corporate
existence and identity of Canton shall continue as the surviving
corporation.
2. The merger shall have the other effects prescribed by Section _______
of the Illinois Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
1. The surviving corporation shall (i) file with the Secretary of State of
the State of Illinois an agreement that it may be served with process
within or without the State of Illinois in the courts of the State of
Illinois in any proceeding for the enforcement of any obligation of Merger
Co. and in any proceeding for the enforcement of the rights of a dissenting
shareholder of Merger Co. against Canton, and (ii) file with said Secretary
of State an agreement that it will promptly pay to the dissenting
shareholders of Merger Co. the amount, if any, to which such dissenting
shareholders will be entitled under the provisions of the Illinois Business
Corporation Act with respect to the rights of dissenting shareholders.
2. The registered office of the surviving corporation in the State of
Illinois shall be _______________, and the name of the registered agent of
Canton at such address is The Corporation Trust Company.
3. If at any time the surviving corporation shall consider or be advised
that any further assignment or assurance in law or other action is
necessary or desirable to vest,
A-32
<PAGE>
perfect or confirm in the surviving corporation the title to any property
or rights of Merger Co. acquired or to be acquired as a result of the
merger provided for herein, the proper officers and directors of Canton and
Merger Co. may execute and deliver such deeds, assignments and assurances
in law and take such other action as may be necessary or proper to vest,
perfect or confirm title to such property or right in the surviving
corporation and otherwise carry out the purposes of this Agreement.
4. For the convenience of the parties and to facilitate the filing of this
Agreement, any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument.
5. This Agreement and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Illinois.
6. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
7. At any time prior to the filing of Articles of Merger with the
Secretary of State of the State of Illinois, subject to the provisions of
the Reorganization Agreement this Agreement may be terminated upon approval
by the Boards of Directors of either of the constituent corporations
notwithstanding the approval of the shareholders of either constituent
corporation.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan
of Merger to be signed in their respective corporate names by the undersigned
officers and their respective corporate seals to be affixed hereto, pursuant to
authority duly given by their respective Boards of Directors, all as of the day
and year first above written.
CANTON BANCSHARES, INC.
By: _________________________________
Its: ________________________________
(Corporate Seal)
Attest:
- -----------------------
Secretary
A-33
<PAGE>
CANTON MERGER CO.
By: ________________________________
Its: _______________________________
(Corporate Seal)
Attest:
______________________
Secretary
A-34
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is entered into as of this ____ day of
______ 1995, by and among Canton Bancshares, Inc. ("Canton") for the benefit of
the shareholders of Canton (the "Shareholders"), Norwest Corporation ("Norwest")
and Norwest Bank Minnesota, National Association ("Escrow Agent").
WHEREAS, Canton and Norwest are parties to that certain Agreement and Plan
of Reorganization dated as of _________, 1995 (the "Reorganization Agreement")
under which it is contemplated that a wholly-owned subsidiary of Norwest will
merge with Canton (the "Merger") and as a result the Shareholders will receive
in exchange for each share of common stock of Canton, par value $1.00 per share
("Canton Common Stock") owned by the Shareholders immediately prior to the
Effective Time of the Merger (as defined in the Reorganization Agreement), a
number of shares of common stock of Norwest, par value $1-2/3 per share
("Norwest Common Stock") as more specifically set forth in the Reorganization
Agreement, and
WHEREAS, the Shareholders will derive substantial benefit from the
transactions contemplated by the Reorganization Agreement, and
WHEREAS, it appears that there is contamination in, on or emanating from
the drive-up bank property located at First and Pine in Canton, Illinois owned
by Canton's wholly-owned bank subsidiary (the "Drive-Up Site"), and
WHEREAS, the Reorganization Agreement provides that immediately following
the Effective Time of the Merger, a number of shares of Norwest Common Stock
equal to $250,000 divided by the Norwest Measurement Price (the "Escrow Shares")
shall be deposited into escrow and held in accordance with the terms of an
escrow agreement. The "Norwest Measurement Price" is defined as the average of
the closing prices of a share of Norwest Common Stock as reported on the
consolidated tape of the New York Stock Exchange during the period of 20 trading
days ending on the day immediately preceding the meeting of shareholders
required by paragraph 4(c) of the Reorganization Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Deposit of Shares. Immediately following the Effective Time of the
Merger Norwest shall deposit the Escrow Shares with the Escrow Agent. The
Escrow Shares shall be deposited in the form of one (1) certificate representing
all of the Escrow Shares registered in the name of the Escrow Agent.
2. Remediation. Immediately following the Effective Time of the Merger,
Norwest shall undertake the Remediation of the Drive-Up Site. "Remediation"
includes the investigation, removal and/or remediation of, or other response to
(including testing, monitoring, sampling or other investigation) any
contamination in, or emanating from the Drive-Up Site to comply with
environmental laws and regulations, the presentation of plans for remediation to
the appropriate regulatory authority, and the receipt of such authority's
approval and certification of the
A-35
<PAGE>
completion of any necessary remediation. Subject to approval by the appropriate
state authority, it is expected that the plan of Remediation for the Drive-Up
Site will include demolition of the existing drive-up building, removal and
proper off-site disposal of all contaminated soil and debris, and replacement of
the material which was removed from the site with clean fill material. Norwest
shall undertake the Remediation of the Drive-Up Site in consultation with Otto
Stephenitch, a representative designated by the Shareholders (the "Shareholder
Representative"). Norwest shall: (i) inform the Shareholder Representative of
all significant investigative findings with respect to the Remediation; (ii)
furnish the Shareholder Representative with copies of all significant plans and
submissions to regulatory authorities with respect to the Remediation; and (iii)
furnish the Shareholder Representative with copies of all correspondence
received from regulatory authorities with respect to the Remediation. The
environmental engineering firm and contractor chosen by Norwest to carry out the
plan of Remediation shall be reasonably acceptable to the Shareholder
Representative.
3. Disbursement. The Escrow Agent shall distribute Escrow Shares upon
written notice to be given jointly by Norwest and by Shareholder Representative,
indicating that the following terms have been completed:
a. The Remediation of the Drive-Up Site has been completed, as
evidenced by (i) the receipt of written notification from the appropriate
regulatory authority that the Remediation has been completed or, (ii) if
the regulatory authority having jurisdiction over the Remediation declines
to exercise such jurisdiction, the receipt of written certification from
the environmental engineering firm conducting the Remediation that the soil
and ground water cleanup objectives have been met.
b. The aggregate dollar amount paid for the Remediation of the Drive-
Up Site (the "Remediation Costs") and the estimated dollar amount of the
actual and potential damages caused by contamination in, on or emanating
from the Drive-Up Site (the "Damages") have been determined.
(i) "Remediation Costs" shall consist of the following costs incurred
after the date hereof: consulting engineering fees, laboratory fees,
permit fees, demolition fees, disposal fees, governmental agency
oversight fees and the costs of a remedial action contractor
reasonably necessary for the performance of the Remediation.
(ii) "Damages" shall consist of the sum of:
(A) all amounts (including reasonable attorneys fees, accrued
interest and costs) which Norwest, Canton or any of their
affiliates are obligated to pay through settlement of or judgment
upon any claim caused by contamination in, on or emanating from
the Drive-Up Site, and
(B) an estimate of all amounts (including reasonable attorneys
fees and costs) which Norwest, Canton or any of their affiliates
may reasonably become obligated to pay in connection with any
pending or threatened claim caused by contamination in, on or
emanating from the Drive-Up Site.
A-36
<PAGE>
If no reasonable basis for any potential but not yet threatened or pending
claim (including, but not limited to evidence of ground water contamination
or migration of contaminated materials off of the Drive-Up Site) has been
discovered during the Remediation process, the Damages shall be determined
as of the date the Remediation of the Drive-Up Site has been completed. If
any reasonable basis for a potential but not yet pending or threatened
claim is discovered during the Remediation process, the Damages shall be
determined as of a date 180 days following completion of the Remediation.
The Escrow Agent shall distribute to Norwest a portion of the Escrow Shares
determined by dividing the sum of the Remediation Costs and the Damages (which
sum shall be certified in the Notice) by the Norwest Measurement Price, and
rounding to the nearest full share.
The Escrow Agent shall distribute the balance, if any, of the Escrow Shares,
together with all dividends paid in respect of the Escrow Shares during the term
of this Escrow Agreement, to the Shareholders in the same proportions as the
proportionate interests held by them in Canton immediately prior to the
Effective Time of the Merger, as conclusively established by the shareholder
list attached to this Escrow Agreement.
If no such written notice has been received by the Escrow Agent on or before
December 31, 2000, then the Escrow Agent shall transfer all of the Escrow
Shares, together with all dividends paid in respect of the Escrow Shares, to
Norwest.
4. Duty of the Escrow Agent. The only duties of the Escrow Agent under
this Escrow Agreement shall be those described herein, and Escrow Agent shall be
under no obligation to determine whether the other parties hereto are complying
with any requirements of law or the terms and conditions of any other agreement
among the parties. Escrow Agent may conclusively rely upon, and shall be
protected in acting upon, any notice, consent, order or other document believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, consistent with the reasonable use of due diligence on
the part of the Escrow Agent. Escrow Agent shall have no other duty or
liability to verify any such notice, consent, order or other document, and its
sole responsibility shall be to act as expressly set forth in this Escrow
Agreement. If any dispute arises with respect to the disbursement of Escrow
Shares, or any portion thereof, Escrow Agent shall file an interpleader action
in the U. S. District Court in Minneapolis, Minnesota, and deposit therein all
Escrow Shares in the possession of Escrow Agent pursuant hereto and shall have
no further duties or responsibilities under this Escrow Agreement.
5. Indemnity. The Shareholders hereby jointly and severally indemnify and
hold harmless the Escrow Agent from and against any and all loss, liability,
cost, damage and expense including, without limitation, reasonable attorneys'
fees. which the Escrow Agent may suffer or incur by reason of any action, claim
or proceeding brought by or against the Escrow Agent arising out of or relating
in any way to this Escrow Agreement or any transaction to which this Escrow
Agreement relates unless such action, claim or proceeding is the result of gross
negligence of the Escrow Agent. The Escrow Agent may consult legal counsel in
respect of any question arising under this Escrow Agreement, and the Escrow
Agent shall not be liable for any action taken or omitted in good faith upon
advice of such counsel.
6. Notices. Any notices or consents required or permitted by this Escrow
Agreement shall be in writing and shall be deemed delivered, if sent by First
Class Mail postage prepaid,
A-37
<PAGE>
delivered in person or sent by certified mail, postage prepaid, return receipt
requested, as follows, unless such address is changed by written notice
hereunder:
If to the Escrow Agent:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0065
Attention: Dan Mruz
If to the Shareholders:
______________
______________
______________
If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, MN 55479-1026
Attention: Secretary
7. Miscellaneous.
a. This Escrow Agreement shall be construed, performed and enforced
in accordance with the laws of the State of Minnesota without giving effect
to the principles of conflicts of laws therein. Each party hereby
consents to the personal jurisdiction and venue of U. S. District Court,
located in Minneapolis, Minnesota.
b. This Escrow Agreement may be amended or modified only by written
instrument executed by the parties hereto, or in the case of a waiver, by
the party waiving compliance. Any waiver of any condition or breach of any
provision contained in this Escrow Agreement in any one or more instances
shall not be deemed or construed as a further or continuing waiver of any
such condition or breach of provision of this Escrow Agreement.
c. This Escrow Agreement shall inure to the benefit of and shall be
binding upon the respective successors and assigns of the parties hereto;
however, the Escrow Agent shall not be permitted to assign its obligations
hereunder without the prior written consent of the Shareholders and
Norwest.
8. Escrow Fee. Norwest agrees to pay to the Escrow Agent an escrow fee
equal to an aggregate of $________ per annum.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be executed as of the date set forth above.
A-38
<PAGE>
NORWEST BANK MINNESOTA, CANTON BANCSHARES, INC.
NATIONAL ASSOCIATION
By: __________________________ By: __________________________
Its: ___________________________ Its: ___________________________
NORWEST CORPORATION
By: __________________________
Its: ___________________________
A-39
<PAGE>
EXHIBIT C
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attn: Secretary
Gentlemen:
I have been advised that I might be considered to be an "affiliate," as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act") of Canton
Bancshares, Inc., an Illinois corporation ("Canton").
Pursuant to an Agreement and Plan of Reorganization, dated as of ________,
19__, (the "Reorganization Agreement"), between Canton and Norwest Corporation,
a Delaware corporation ("Norwest") it is contemplated that a wholly-owned
subsidiary of Norwest will merge with and into Canton (the "Merger") and as a
result, I will receive in exchange for each share of Common Stock, par value
$1.00 per share, of Canton ("Canton Common Stock") owned by me immediately prior
to the Effective Time of the Merger (as defined in the Reorganization
Agreement), a number of shares of Common Stock, par value $1 2/3 per share, of
Norwest ("Norwest Common Stock"), as more specifically set forth in the
Reorganization Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Canton Common Stock or Norwest Common Stock held by me during the 30
days prior to the Effective Time of the Merger.
I will not offer to sell, transfer or otherwise dispose of any of the
shares of Norwest Common Stock issued to me pursuant to the Merger (the "Stock")
except (a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or (c) in an offering registered under the Securities Act.
I will not sell, transfer or otherwise dispose of the Stock or in any way
reduce my risk relative to any shares of the Stock issued to me pursuant to the
Merger until such time as financial results covering at least 30 days of post-
Merger combined operations of Canton and Norwest have been published.
A-40
<PAGE>
I consent to the endorsement of the Stock issued to me pursuant to the
Merger with a restrictive legend which will read substantially as follows:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933,
as amended (the "Act"), applies, and may be sold or otherwise transferred
only in compliance with the limitations of such Rule 145, or upon receipt
by Norwest Corporation of an opinion of counsel reasonably satisfactory to
it that some other exemption from registration under the Act is available,
or pursuant to a registration statement under the Act."
Norwest's transfer agent shall be given an appropriate stop transfer order
and shall not be required to register any attempted transfer of the shares of
the Stock, unless the transfer has been effected in compliance with the terms of
this letter agreement.
It is understood and agreed that this letter agreement shall terminate and
be of no further force and effect and the restrictive legend set forth above
shall be removed by delivery of substitute certificates without such legend, and
the related stop transfer restrictions shall be lifted forthwith, if (a) (i) any
such shares of Stock shall have been registered under the Securities Act for
sale, transfer or other disposition by me or on my behalf and are sold,
transferred or otherwise disposed of, or (ii) any such shares of Stock are sold
in accordance with the provisions of paragraphs (c), (e), (f) and (g) of Rule
144 promulgated under the Securities Act, or (iii) I am not at the time an
affiliate of Norwest and have been the beneficial owner of the Stock for at
least two years (or such other period as may be prescribed thereunder) and
Norwest has filed with the Commission all of the reports it is required to file
under the Securities Exchange Act of 1934, as amended, during the preceding
twelve months, or (iv) I am not and have not been for at least three months an
affiliate of Norwest and have been the beneficial owner of the Stock for at
least three years (or such other period as may be prescribed by the Securities
Act, and the rules and regulations promulgated thereunder), or (v) Norwest shall
have received an opinion of counsel acceptable to Norwest to the effect that the
stock transfer restrictions and the legend are not required, and (b) financial
results covering at least 30 days of post-Merger combined operations have been
published.
I have carefully read this letter agreement and the Reorganization
Agreement and have discussed their requirements and other applicable limitations
upon my ability to offer to sell, transfer or otherwise dispose of shares of the
Stock, to the extent I felt necessary, with my counsel or counsel for Canton.
Sincerely,
_________________________
A-41
<PAGE>
APPENDIX B
OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT
BANKING
<PAGE>
[LETTERHEAD OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING]
January 2, 1996
Board of Directors
Canton Bancshares, Inc.
2 North Main Street
Canton, Illinois 61520
Members of the Board:
You have requested our opinion, as an independent financial analyst to the
common stockholders of Canton Bancshares, Inc., Canton, Illinois ("Canton"), as
to the fairness, from a financial point of view to the common stockholders of
Canton, of the terms of the proposed merger of Canton with and into Norwest
Corporation, Minneapolis, Minnesota ("Norwest"). Pursuant to the terms of the
Agreement and Plan of Reorganization, a wholly-owned subsidiary of Norwest will
be merged by statutory merger with and into Canton pursuant to the Merger
Agreement, with Canton as the surviving corporation, in which each share of
Canton Common Stock outstanding immediately prior to the Effective Time of the
Merger will be converted into and exchanged for the number of shares of Norwest
Common Stock determined by dividing the Adjusted Norwest Shares by the number of
shares of Canton Common Stock then outstanding. The "Adjusted Norwest Shares"
shall be a number equal to $9,400,000 less the Escrow Amount divided by the
Norwest Measurement Price. The "Norwest Measurement Price" is defined as the
average of the closing prices of a share of Norwest Common Stock as reported on
the consolidated tape of the New York Stock Exchange during the period of 20
trading days ending on the day immediately preceding the meeting of
stockholders. The "Escrow Amount" shall be equal to $250,000. Based on an
assumed Norwest Measurement Price of $33.58, calculated as of January 2, 1996,
Canton would receive 272,484 shares ($9,150,000 / $33.58) of Norwest Common
Stock, which would result in a transaction value of $184.61 per share (excluding
the escrow shares) for Canton.
As part of its banking analysis business, Alex Sheshunoff & Co. Investment
Banking is continually engaged in the valuation of bank, bank holding company
and thrift securities in connection with mergers and acquisitions nationwide.
Prior to being retained for this assignment, Alex Sheshunoff & Co. Investment
Banking has provided professional services
<PAGE>
Board of Directors
Canton Bancshares, Inc.
January 2, 1996
Page 2
and products to Canton and Norwest. The revenues derived from such services and
products are insignificant when compared to the firm's total gross revenues.
In connection with this assignment, we reviewed (i) the Agreement and Plan of
Reorganization dated July 25, 1995; (ii) the external auditor's reports to the
Board of Directors of Canton and the internal audit function of Norwest; (iii)
the September 30, 1995 balance sheet and income statement for each organization
and the audited December 31, 1994 and December 31, 1993 balance sheet and income
statement for each organization; (iv) each organization's rate sensitivity
analysis reports; (v) each organization's listing of marketable securities
showing rate, maturity and market value as compared to book value; (vi) each
organization's internal loan classification list; (vii) a listing of other real
estate owned for each organization; (viii) the budget and long range operating
plan of each organization; (ix) a listing of unfunded letters of credit and any
other off-balance sheet risks for each organization; (x) the minutes of the
Board of Directors meetings of each organization; (xi) the Board report for each
organization; (xii) the listing and description of significant real properties
for each organization; (xiii) the directors and officers liability and blanket
bond insurance policies for each organization; and (xiv) market conditions and
current trading levels of outstanding equity securities of both organizations.
We have also had discussions with the management of Canton and Norwest regarding
their respective financial results and have analyzed the most current financial
data available on Canton and Norwest. We also considered such other
information, financial studies, analyses and investigations, and economic and
market criteria which we deemed relevant. We have met with the management of
Canton and Norwest to discuss the foregoing information with them.
We have considered certain financial data of Canton and Norwest, and have
compared that data with similar data for other banks and bank holding companies
which have recently merged or been acquired; furthermore, we have considered the
financial terms of these business combinations involving said banks and bank
holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of Canton and
Norwest.
In reaching our opinion we took into consideration the financial benefits of the
proposed transaction to all Canton stockholders. Based on all factors that we
deem relevant and assuming the accuracy and completeness of the information and
data provided to us by Canton and Norwest, it is our opinion as of January 2,
1996, that the terms of the proposed merger of Canton with and into Norwest are
fair to all Canton stockholders from a financial point of view.
<PAGE>
Board of Directors
Canton Bancshares, Inc.
January 2, 1996
Page 3
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
/s/ Wade Schuessler
By: ____________________________
Wade Schuessler
Vice President
HWS/db
<PAGE>
APPENDIX C
ILLINOIS BUSINESS CORPORATION ACT OF 1983
SECTIONS 5/11.65 AND 5/11.70
<PAGE>
5/11.65 RIGHT TO DISSENT. (a) A shareholder of a corporation is entitled
to dissent from, and obtain payment for his or her shares in the event of any of
the following corporate actions.:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder authorization is
required for the merger or consolidation or the share exchange by Section 11.20
or the articles of incorporation or (ii) the corporation is a subsidiary that is
merged with its parent or another subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially all,
of the property and assets of the corporation other than in the usual and
regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of such
shares;
(iii) in the case of a corporation incorporated prior to January 1, 1982,
limits or eliminates cumulative voting rights with respect to such shares; or
(4) any other corporation action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain payment
for their shares in accordance with the procedures set forth in Section 11.70 or
as may be otherwise provided in the articles, by-laws or resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his or
her entitlement unless the action is fraudulent with respect to the shareholder
or the corporation or constitutes a breach of a fiduciary duty owned to the
shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the record owner asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares as to which dissent is made and the other shares
were recorded in the names of different shareholders. A beneficial owner of
shares who is not the record owner may assert dissenters' rights as to shares
held on such person's behalf only if the beneficial owner submits to the
corporation the record owner's written consent to the dissent before or at the
same time the beneficial owner asserts dissenters' rights.
5/11.70 PROCEDURE TO DISSENT. (a) If the corporate action giving rise to
the right to dissent is to be approved at a meeting of shareholders, the notice
of meeting shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to the meeting, the corporation furnishes to
the shareholders material information with respect to the transaction that will
objectively enable a shareholder to vote on the transaction and to determine
whether or not to exercise dissenters' rights, a shareholder may assert
dissenters' rights only if the shareholder delivers to the corporation before
the vote is taken a written demand for payment for his or her shares if the
proposed action is consummated, and the shareholder does not vote in favor of
the proposed action.
(b) If the corporation action giving rise to the right to dissent is not be
approved at a meeting of shareholders, the notice to shareholders describing the
action taken under Section 11.30 or Section 7.10 shall inform the shareholders
of their right to dissent and the procedure to dissent. If, prior to or
concurrently with the notice, the corporation furnishes to the shareholders
material information with respect to the transaction that will objectively
enable a shareholder to determine whether or not to exercise dissenters' rights,
a shareholder may assert dissenter's rights only if he or she delivers to the
C-1
<PAGE>
corporation within 30 days from the date of mailing the notice a written demand
for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as of
the end of a fiscal year ending not earlier than 16 months before the delivery
of the statement, together with the statement of income for that year and the
latest available interim financial statements, and either a commitment to pay
for the shares of the dissenting shareholder at the estimated fair value thereof
upon transmittal to the corporation of the certificate or certificates, or other
evidence of ownership, with respect to the shares, or instructions to the
dissenting shareholder to sell his or her shares within 10 days after delivery
of the corporation's statement to the shareholder. The corporation may instruct
the shareholder to sell only if there is a public market for the shares at which
the shares may be readily sold. If the shareholder does not sell within the 10
day period after being so instructed by the corporation, for purposes of this
Section the shareholder shall be deemed to have sold his or her shares at the at
the average closing price of the shares, if listed on a national exchange, or
the average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that 10 day
period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation
as to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the amount
of the payment by the corporation or the proceeds of sale by the shareholder,
whichever is applicable because of the procedure for which the corporation opted
pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay the
difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this State,
whose demands remain unsettled parties to the proceeding as an action against
their shares and all parties shall be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication as
provided by law. Failure of the corporation to commence an action pursuant to
this Section shall not limit or affect the right of the dissenting shareholders
to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced
under subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power described
in the order appointing them, or in any amendment to it.
C-2
<PAGE>
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of the appraisers, if any, appointed by the court under subsection (g),
but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court, then
all or any part of the costs may be assessed against that dissenter. The court
may also assess the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to that counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who are benefited. Except as otherwise provided in this Section,
the practice, procedure, judgment and costs shall be governed by the Code of
Civil Procedure.
(j) As used in this Section:
(1) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the consummation of the corporate
action to which the dissenter objects excluding any appreciation or
depreciation in anticipation of the corporate action, unless exclusion would
be inequitable.
(2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all the circumstances.
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes indemnification
of directors and officers of a Delaware corporation under certain circumstances
against expenses, judgments, and the like in connection with an action, suit, or
proceeding. Article Fourteenth of Norwest's Certificate of Incorporation
provides for broad indemnification of directors and officers.
Item 21. Exhibits and Financial Statement Schedules
Exhibits: Parenthetical references to exhibits in the description of Exhibits
3.1, 3.1.1, 3.1.2, 3.1.3, 3.14, and 3.2 below are incorporated by
reference from such exhibits to the indicated reports of Norwest
filed with the Securities and Exchange Commission under File No.
1-2979.
2.1 -- Agreement and Plan of Reorganization, dated as of July 25, 1995,
between Canton Bancshares, Inc. and Norwest Corporation (included in
Proxy Statement-Prospectus as Appendix A).
2.2 -- Form of Agreement and Plan of Merger between Canton Bancshares, Inc.
and Merger Co. (included in Proxy Statement-Prospectus as part of
Appendix A).
2.3 -- Form of Escrow Agreement between Canton Bancshares, Inc., Norwest
Corporation, and Norwest Bank Minnesota, National Association
(included in Proxy Statement-Prospectus as part of Appendix A).
3.1 -- Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(b) to Norwest's Current Report on Form 8-K
dated June 28, 1993).
3.1.1 -- Certificate of Designations of Powers, Preferences, and Rights of
Norwest ESOP Cumulative Convertible Preferred Stock (incorporated by
reference to Exhibit 4 to Norwest's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994).
3.1.2 -- Certificate of Designations of Powers, Preferences, and Rights of
Norwest Cumulative Tracking Preferred Stock (incorporated by
reference to Exhibit 3 to Norwest's Current Report on Form 8-K dated
January 9, 1995).
3.1.3 -- Certificate of Designations of Powers, Preferences, and Rights of
Norwest 1995 ESOP Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4 to Norwest's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995).
3.1.4 -- Certificate eliminating the Certificate of Designations with respect
to the Cumulative Convertible Preferred Stock, Series B (incorporated
by reference to Exhibit 3(a) to Norwest's Current Report on Form 8-K
dated November 1, 1995).
II-1
<PAGE>
3.2 -- By-Laws, as amended (incorporated by reference to Exhibit 4(c) to
Norwest's Quarterly Report on Form 10-Q for the quarter ended March
31, 1991).
4 -- Rights Agreement, dated as of November 22, 1988, between Norwest
Corporation and Citibank, N.A. (incorporated by reference to Exhibit
1 to Norwest's Form 8-A dated December 6, 1988).
4.1 -- Certificate of Adjustment, dated July 21, 1989, to Rights Agreement
(incorporated by reference to Exhibit 3 to Norwest's Form 8 dated
July 21, 1989).
4.2 -- Certificate of Adjustment, dated June 28, 1993, to Rights Agreement
(incorporated by reference to Exhibit 4 to Norwest's Form 8-A/A
dated June 29, 1993).
5 -- Opinion of Stanley S. Stroup, counsel to Norwest.
8 -- Opinion of Husch & Eppenberger.
23.1 -- Consent of Stanley S. Stroup (included as part of Exhibit 5).
23.2 -- Consent of Husch & Eppenberger (included as part of Exhibit 8).
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of McGladrey & Pullen, LLP.
24 -- Powers of Attorney.
99 -- Form of proxy for Special Meeting of Shareholders of Canton
Bancshares, Inc.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
posteffective amendment to this registration statement (i) to include
any prospectus required by section 10(a)(3) of the Securities Act of
1933, (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent posteffective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement, and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such posteffective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a posteffective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
posteffective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 9th day of January, 1996.
NORWEST CORPORATION
By: /s/ Richard M. Kovacevich
-------------------------
Richard M. Kovacevich
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed on the 9th day of January, 1996, by the following
persons in the capacities indicated:
/s/ Richard M. Kovacevich President and Chief Executive Officer
- ---------------------------- (Principal Executive Officer)
Richard M. Kovacevich
/s/ John T. Thornton Executive Vice President and Chief
- ---------------------------- Financial Officer
John T. Thornton (Principal Financial Officer)
/s/ Michael A. Graf Senior Vice President and Controller
- ---------------------------- (Principal Accounting Officer)
Michael A. Graf
DAVID A. CHRISTENSEN )
GERALD J. FORD )
PIERSON M. GRIEVE )
CHARLES M. HARPER )
WILLIAM A. HODDER )
LLOYD P. JOHNSON ) A majority of the
REATHA CLARK KING ) Board of Directors*
RICHARD M. KOVACEVICH )
RICHARD S. LEVITT )
RICHARD D. McCORMICK )
CYNTHIA H. MILLIGAN )
IAN M. ROLLAND )
STEPHEN E. WATSON )
- --------------------
*Richard M. Kovacevich, by signing his name hereto, does hereby sign this
document on behalf of each of the directors named above pursuant to powers of
attorney duly executed by such persons.
/s/ Richard M. Kovacevich
-------------------------
Richard M. Kovacevich
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit Form of
Number Description* Filing
- ------ ------------ ------
2.1 Agreement and Plan of Reorganization, dated as of July 25,
1995, between Canton Bancshares, Inc. (included in Proxy
Statement-Prospectus as Appendix A).
2.2 Form of Agreement and Plan of Merger between Canton
Bancshares, Inc. and Merger Co. (included in Proxy
Statement-Prospectus as part of Appendix A).
2.3 Form of Escrow Agreement between Canton Bancshares, Inc.,
Norwest Corporation, and Norwest Bank Minnesota, National
Association (included in Proxy Statement-Prospectus as
part of Appendix A).
3.1 Restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(b) to Norwest's
Current Report on Form 8-K dated June 28, 1993).
3.1.1 Certificate of Designations of Powers, Preferences, and
Rights of Norwest ESOP Cumulative Convertible Preferred
Stock (incorporated by reference to Exhibit 4 to Norwest's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1994).
3.1.2 Certificate of Designations of Powers, Preferences, and
Rights of Norwest Cumulative Tracking Preferred Stock
(incorporated by reference to Exhibit 3 to Norwest's
Current Report on Form 8-K dated January 9, 1995).
3.1.3 Certificate of Designations of Powers, Preferences, and
Rights of Norwest 1995 ESOP Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 4
to Norwest's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
3.1.4 Certificate eliminating the Certificate of Designations
with respect to the Convertible Cumulative Preferred Stock,
Series B (incorporated by reference to Exhibit 3(a) to
Norwest's Current Report on Form 8-K dated November 1, 1995).
3.2 By-Laws, as amended (incorporated by reference to Exhibit
4(c) to Norwest's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1991).
<PAGE>
Exhibit Form of
Number Description* Filing
- ------ ------------ ------
4 Rights Agreement, dated as of November 22, 1988, between
Norwest Corporation and Citibank, N.A. (incorporated by
reference to Exhibit 1 to Norwest's Form 8-A dated December
6, 1988).
4.1 Certificate of Adjustment, dated July 21, 1989, to Rights
Agreement (incorporated by reference to Exhibit 3 to
Norwest's Form 8 dated July 21, 1989).
4.2 Certificate of Adjustment, dated June 28, 1993, to Rights
Agreement (incorporated by reference to Exhibit 4 to
Norwest's Form 8-A/A dated June 29, 1993).
5 Opinion of Stanley S. Stroup, counsel to Norwest. **
8 Opinion of Husch & Eppenberger. Electronic
Transmission
23.1 Consent of Stanley S. Stroup (included as part of
Exhibit 5). **
23.2 Consent of Husch & Eppenberger (included as part of
Exhibit 8).
23.3 Consent of KPMG Peat Marwick LLP. **
23.4 Consent of McGladrey & Pullen, LLP. **
24 Powers of Attorney. **
99 Form of proxy for Special Meeting of Shareholders of Electronic
Canton Bancshares, Inc. Transmission
________________________
* Parenthetical references to exhibits in the description of Exhibits 3.1,
3.1.1, 3.1.2, 3.1.3, 3.1.4, and 3.2 are incorporated by reference from such
exhibits to the indicated reports of Norwest filed with the SEC under File
No. 1-2979.
** Previously filed.
<PAGE>
EXHIBIT 8
January 8, 1996
Canton Bancshares, Inc.
2 North Main Street
Canton, Illinois 61520
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of a wholly-owned subsidiary
of Norwest Corporation ("Merger Co.") with and into Canton Bancshares, Inc.
("Canton").
FACTS
Norwest Corporation ("Norwest") is a diversified financial services company
which was organized under the laws of Delaware in 1929 and is registered under
the Bank Holding Company Act of 1956, as amended. Norwest is the parent
corporation of Merger Co., an Illinois corporation, as well as other
subsidiaries through which Norwest engages in the banking and banking-related
business. Norwest does not directly engage in the banking and banking-related
business but instead does so indirectly as the holding company for Merger Co.
and Norwest's other subsidiaries.
Canton is a bank holding company organized under the laws of Illinois.
Canton holds one hundred percent (100%) of the issued and outstanding capital
stock of Canton State Bank, a full service commercial bank chartered under the
laws of Illinois.
The terms of the proposed Merger are contained in the Agreement and Plan of
Reorganization, dated as of July 25, 1995, by and among Canton and Norwest (the
"Merger Agreement") and the Agreement and Plan of Merger attached thereto (the
"Reorganization Agreement").
The Merger Agreement and Reorganization Agreement are collectively referred
to as the "Agreements." Terms not otherwise defined in this letter shall have
the meanings assigned to them in the Merger Agreement.
<PAGE>
You have directed us to assume in preparing this opinion that (1) the
Merger will be consummated in accordance with the terms, conditions and other
provisions of the Agreements, and (2) all of the factual information,
descriptions, representations and assumptions set forth in this letter, in the
Agreements, in the affiliate letters and representation letters from Canton
shareholders (the "Shareholder Letters"), in the representation letter from
Norwest (the "Norwest Letter") and in the Proxy Statement/Prospectus dated on or
about January 10, 1996, and mailed to Canton shareholders in connection with the
special meeting of shareholders to approve the Merger, are accurate and complete
and will be accurate and complete at the time the Merger becomes effective (the
"Effective Date"). We have not independently verified any factual matters
relating to the Merger with or apart from our preparation of this opinion and,
accordingly, our opinion does not take into account any matters not set forth
herein which might have been disclosed by independent verification.
The Agreements provide that Merger Co. will be merged with and into Canton
in accordance with the applicable provisions of Illinois laws. The Merger must
be approved as required by law by the Canton shareholders at a special meeting
to be held on February 12, 1996 ("Canton Special Meeting"). Any stockholder of
Canton entitled to vote on approval of the Merger has the right to receive the
fair value of his or her shares of Canton Common Stock upon compliance with
section 11.70 of the Illinois Business Corporation Act.
On the Effective Date, Merger Co. will merge into Canton pursuant to the
laws of Illinois, with Canton as the surviving corporation. Thus, on the
Effective Date, all assets and liabilities of Merger Co. will be transferred by
operation of law to Canton and the separate corporate existence of Merger Co.
will cease. Also, on the Effective Date, the outstanding shares of Canton
Common Stock (other than shares 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. Each outstanding share of common stock of Canton
("Canton Common Stock") will be converted into shares of common stock, par value
$1 2/3 per share, of Norwest ("Norwest Common Stock"), determined by dividing
the "Adjusted Norwest Shares" by the number of shares of Canton Common Stock
then outstanding.
The "Adjusted Norwest Shares" will be the number of shares of Norwest
Common Stock calculated by dividing the sum of $9,400,000 less an escrow amount
of $250,000 (the "Escrow Amount") by the "Norwest Measurement Price". The
Norwest Measurement Price will be equal to the average of the closing prices of
a share of Norwest Common Stock as reported on the consolidated tape of the New
York Stock Exchange during the period of 20 trading days ending on the day
immediately preceding the Canton Special Meeting.
<PAGE>
Also upon the consummation of the Merger, that number of shares of Norwest
Common Stock equal to the Escrow Amount divided by the Norwest Measurement Price
(the "Escrowed Shares") will be deposited into escrow pursuant to the terms of
an Escrow Agreement (the "Escrow Agreement") among Canton, Norwest, and Norwest
Bank Minnesota, National Association, as escrow agent to be entered into in
connection with the Merger. The Escrowed Shares will be held in escrow and
distributed to Canton Shareholders and Norwest as provided in the Escrow
Agreement.
No fractional shares of Norwest Common Stock will be issued in the Merger.
Each holder of Canton Common Stock who otherwise would be entitled to receive a
fraction of a share of Norwest Common Stock will receive, instead, cash equal to
such fraction multiplied by the average of the closing prices of a share of
Norwest Common Stock on the New York Stock Exchange for the five trading days
immediately preceding the Effective Date of the Merger. Except for cash paid to
dissenters and cash exchanged in lieu of issuing fractional shares of Norwest
Common Stock, no cash will be exchanged for shares of Canton Common Stock or
shares of Norwest Common Stock pursuant to the Merger.
Furthermore, no options to purchase Canton Common Stock and no securities or
other instruments convertible into Canton Common Stock will be outstanding on
the Effective Date.
We have also relied with your permission on the following additional
representations and/or assumptions:
1. The Merger will be a statutory merger in accordance with the
applicable provisions of Illinois law.
2. The fair market value of the Norwest Common Stock and other
consideration received by each Canton shareholder will be approximately equal to
the fair market value of the Canton Common Stock surrendered in the exchange.
3. There is no plan or intention by the shareholders of Canton who own
one percent (1%) or more of the Canton Common Stock, and to the best of the
knowledge of the management of Canton, there is no plan or intention on the part
of the remaining shareholders of Canton to sell, exchange, or otherwise dispose
of a number of shares of Norwest Common Stock received in the Merger that would
reduce the Canton shareholders' ownership of the Norwest Common Stock to a
number of shares having an aggregate value, as of the Effective Date, of less
than fifty percent (50%) of the value of all of the formerly outstanding Canton
Common Stock as of the same date. For purposes of this paragraph, shares of
Canton Common Stock exchanged for cash or other property, surrendered by
dissenters, or exchanged for cash in lieu of fractional shares of Norwest Common
Stock will be treated as outstanding Canton Common Stock on the Effective
<PAGE>
Date. Moreover, shares of Canton Common Stock and shares of Norwest Common Stock
held by Canton shareholders and otherwise sold, redeemed, or disposed of prior
or subsequent to the Merger are taken into account for purposes of the
calculations described in this paragraph.
4. Norwest has no plan or intention to reacquire any of the Norwest
Common Stock to be issued in the Merger; however, Norwest has authorized and is
engaged in the repurchase from time to time of shares of its common stock on the
open market.
5. Norwest has no plan or intention to liquidate Canton; to merge Canton
with or into another corporation; to sell or otherwise dispose of the stock of
Canton except for transfers of stock to corporations controlled by Norwest; or
to cause Canton to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Merger Co., except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by Canton, or other dispositions which would not violate the "substantially all"
test described in paragraph 17 below.
6. Merger Co. will have no liabilities assumed by Canton and will not
transfer to Canton any assets subject to liabilities in the Merger.
7. Following the Merger, Canton will continue its historic business or
will use a significant portion of its historic business assets in a business.
8. Norwest, Merger Co., Canton and the shareholders of Canton will pay
their respective expenses, if any, incurred in connection with the Merger.
9. There is no intercorporate indebtedness existing between Norwest and
Canton or between Merger Co. and Canton that was issued, acquired or will be
settled at a discount.
10. No two parties to the Merger are investment companies as defined in
section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code.
11. Canton is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Internal Revenue
Code.
12. On the Effective Date, the fair market value of the assets of Canton
will exceed the sum its liabilities plus the amount of liabilities, if any, to
which the assets are subject.
13. Except as described in the Proxy Statement/Prospectus, no dividends or
distributions, other than regular or normal dividends or distributions, will be
made with respect to
<PAGE>
any Canton stock prior to the Merger. After the Merger, no dividends or
distributions will be made to the former Canton shareholders by Norwest, other
than regular or normal dividend distributions made with regard to all shares of
Norwest Common Stock.
14. None of the compensation received by any shareholder-employees of
Canton will be separate consideration for, or allocable to, any of their shares
of Canton Common Stock. The compensation paid to any shareholder-employees of
Canton will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
None of the Norwest Common Stock received by any shareholder-employee of Canton
will be in exchange for, or in consideration of, services rendered to Norwest,
Canton or any other entity by such shareholder-employee.
15. The payment of cash in lieu of fractional shares of Norwest Common
Stock is solely for the purpose of avoiding the expense and inconvenience to
Norwest of issuing fractional shares and does not represent separately
bargained-for consideration.
16. The Merger is being effected for bona fide business reasons as
described in the Proxy Statement/Prospectus.
17. Following the transaction, Canton will hold at least ninety percent
(90%) of the fair market value of its net assets and at least seventy percent
(70%) of the fair market value of its gross assets and at least ninety percent
(90%) of the fair market value of Merger Co.'s net assets and at least seventy
percent (70%) of the fair market value of Merger Co.'s gross assets held
immediately prior to the transaction. For purposes of this paragraph, amounts
paid by Canton or Merger Co. to dissenters, amounts paid by Canton or Merger Co.
to shareholders who receive cash or other property, amounts used by Canton or
Merger Co. to pay the Merger expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Canton will be included as assets
of Canton or Merger Co., respectively, immediately prior to the transaction.
18. Prior to the Merger, Norwest will be in control of Merger Co. within
the meaning of section 368(c) of the Internal
Revenue Code.
19. Canton has no plan or intention to issue additional shares of stock
that would result in Norwest losing control of Canton within the meaning of
section 368(c) of the Internal Revenue Code.
<PAGE>
20. Norwest does not own, nor has it owned during the past five (5) years,
any shares of the stock of Canton, except potentially shares it may have owned
in a fiduciary capacity and in which it held no beneficial interest.
21. In the Merger, shares of Canton stock representing control of Canton,
as defined in section 368(c) of the Internal Revenue Code, will be exchanged
solely for voting stock of Norwest. For purposes of this paragraph, shares of
Canton stock exchanged for cash or other property originating with Norwest will
be treated as outstanding Canton stock on the Effective Date of the Merger.
22. At the time of the Merger, Canton will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Canton that, if exercised or
converted, would affect Norwest's control of Canton, as defined in section
368(c) of the Internal Revenue Code.
OPINION
Assuming that the Merger is consummated in accordance with the terms and
conditions set forth in the Agreements and based on the facts set forth in the
Proxy Statement/Prospectus, the Shareholder Letters, the Norwest Letter, and
this letter (including all assumptions and representations), it is our opinion
that for federal income tax purposes:
1. The Merger will constitute a "reorganization" within the meaning of
section 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code.
2. Canton stockholders will recognize no gain or loss upon the receipt of
the Norwest Common Stock in exchange for their Canton Common Stock. Internal
Revenue Code section 354(a)(1).
3. The basis of the Norwest Common Stock to be received by the Canton
shareholders will be the same as the basis of the Canton Common Stock
surrendered in exchange therefor. Internal Revenue Code section 358(a)(1).
Under the IRS' position for ruling purposes, prior to the distribution of the
Escrowed Shares the aggregate basis of the Canton Common Stock surrendered by a
Canton stockholder would need to be allocated to the maximum number of shares of
Norwest Common Stock that could be received by such stockholder in the Merger
(including the Escrowed Shares). Rev. Proc. 77-37, 1977-2 C.B. 568, (S)3.03.
However, there are no case law authorities directly supporting the IRS' ruling
position. Therefore, any Canton stockholder who sells any Norwest Common Stock
prior to the distribution of the Escrowed
<PAGE>
Shares from the escrow account should consult his tax advisor regarding the
appropriate basis to be used for purposes of calculating gain or loss on the
sale of the Norwest Common Stock.
4. The holding period of the shares of Norwest Common Stock received by
the shareholders of Canton will include the holding period of the Canton Common
Stock surrendered in exchange therefor, provided that such stock was held as a
capital asset in the hands of the Canton shareholders on the Effective Date of
the Merger. Internal Revenue Code section 1223(1).
5. Where a Canton Shareholder receives cash by exercising statutory
dissenter's rights, the cash will be treated as having been received by such
shareholder as a distribution in redemption of his Canton Stock, subject to the
provisions and limitations of section 302 of the Internal Revenue Code.
6. Payment of cash in lieu of fractional share interests of Norwest Stock
will be treated as if the fractional shares were distributed as part of the
exchange and then were redeemed by Norwest. These cash payments will be treated
as having been received as distributions in redemption of the Norwest Stock,
subject to the provisions and limitations of section 302(a) of the Internal
Revenue Code.
Our opinion is limited to the foregoing federal income tax consequences of
the Merger, which are the only matters as to which you have requested our
opinion, and you must judge whether the matters addressed herein are sufficient
for your purposes. We do not address any other federal income tax consequences
of the Merger or other matters of federal law and have not considered matters
(including state or local tax consequences) arising under the laws of any
jurisdiction other than matters of federal law arising under the laws of the
United States.
Our opinion is based on the understanding that the relevant facts are, and
will be on the Effective Date, as set forth in this letter. If this
understanding is incorrect or incomplete in any respect, our opinion could be
affected. Our opinion is also based on the Internal Revenue Code, Treasury
Regulations, case law, and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change and such change may be made with
retroactive effect. We can give no assurance that after any such change, our
opinion would not be different.
We undertake no responsibility to update or supplement our opinion. Only
Canton and the Canton shareholders may rely on this opinion, and only with
respect to the proposed Merger described herein.
We consent to the summarization of our federal tax opinion in
the registration statement of Norwest Corporation on Form S-4 and to the
references to our firm under the headings of the registration statement entitled
"SUMMARY-Certain Federal Income Tax Considerations" and "THE MERGER-Certain
Federal Income Tax Considerations." We also consent to the inclusions of such
opinion as an exhibit to the registration statement.
Very truly yours,
HUSCH & EPPENBERGER
/s/ Charles H. Young
By: _________________________
<PAGE>
EXHIBIT 99
CANTON BANCSHARES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Bruce Edwards and Gary Barnhart, or either of
them, as proxies to vote all shares of Common Stock the undersigned is entitled
to vote at the Special Meeting of Shareholders of Canton Bancshares, Inc.
("Canton") to be held at the ____________________, ______________, Canton,
Illinois, at __:__ _.m. on _______, January __, 1996, or at any adjournment
thereof, as follows, hereby revoking any proxy previously given:
1. The adoption of the Agreement and Plan of Reorganization between Canton
and Norwest Corporation ("Norwest"), dated as of July 25, 1995, pursuant to
which a wholly owned subsidiary of Norwest will be merged with Canton (the
"Merger"), and each outstanding share of the common stock of Canton (other than
shares as to which statutory dissenters' rights have been exercised and not
forfeited) will be exchanged for shares of the common stock, par value $1 2/3
per share, of Norwest; and the authorization such further action by the Board of
Directors and officers of Canton as may be necessary and appropriate in
connection with the Merger.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In their discretion on such matters as may properly come before the
meeting or any adjournment thereof; all as set out in the Notice and Proxy
Statement-Prospectus relating to the meeting.
Shares represented by this proxy will be voted as directed by the
shareholder. The Board of Directors recommends a vote "FOR" proposal 1. If no
direction is supplied, the proxy will be voted "FOR" proposal 1.
Dated: __________________________, 1995.
______________________________________________
(Please sign exactly as name appears at left.)
______________________________________________
(If stock is owned by more than one person,
all owners should sign. Persons signing as
executors, administrators, trustees, or in
similar capacities should so indicate.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
