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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-01027
UNION TEXAS BANCORPORATION, INC.
1100 MATAMOROS
LAREDO, TEXAS 78040
____________, 1996
Dear Shareholder:
A special meeting of shareholders of Union Texas Bancorporation,
Inc. ("Union") will be held on ____________, 1996 to consider and vote upon a
proposal to approve the agreement and plan of reorganization dated December 4,
1995, as amended by letter agreement dated January 10, 1996 (as amended, the
"Merger Agreement"), between Union and Norwest Corporation ("Norwest") pursuant
to which a wholly-owned subsidiary of Norwest will be merged with and into
Union (the "Merger").
If the Merger Agreement is approved and the Merger becomes
effective, Union will become a wholly-owned subsidiary of Norwest and, subject
to the rights of dissenting shareholders, holders of Union common stock and
Union preferred stock will receive shares of Norwest common stock, all upon the
terms and subject to the conditions set forth in the Merger Agreement. If the
Merger Agreement is not approved or the Merger otherwise does not become
effective, Union will continue to operate as a separate entity and a going
concern.
Union's board of directors has unanimously approved the Merger
Agreement as being advisable and in the best interests of Union's shareholders
and recommends that you vote for approval of the Merger Agreement. Alex
Sheshunoff & Co., Union's financial advisor in connection with the Merger, has
rendered an opinion to Union's board of directors to the effect that as of the
date hereof the consideration to be received by Union's shareholders in the
Merger is fair from a financial point of view.
Enclosed with this letter are a notice of special meeting, which
sets forth the time and location of the special meeting, and a Proxy
Statement-Prospectus, which describes in more detail the terms and conditions
of the Merger and discusses the background and reasons for the Merger. Please
carefully review and consider the information in the Proxy-Statement
Prospectus. Additional information concerning Norwest, including its 1994
annual report on Form 10-K and its 1995 first, second and third quarter reports
on Form 10-Q, may be obtained from Norwest as indicated in the Proxy
Statement-Prospectus under the section entitled "Incorporation of Certain
Documents by Reference."
Your vote is very important. Please mark, date, sign and return
the enclosed proxy in the enclosed postage prepaid envelope as soon as
possible, regardless of whether you plan to attend the special meeting. A
failure to vote, either by not returning the enclosed proxy or by checking the
"Abstain" box thereon, will have the same effect as a vote against approval of
the Merger Agreement. If you attend the meeting, you may vote in person if you
wish, even though you have previously returned your proxy.
John H. Keck
President and Chief Executive Officer
<PAGE> 2
UNION TEXAS BANCORPORATION, INC.
1100 MATAMOROS
LAREDO, TEXAS 78040
(210) 726-8200
----------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
---------------
---------------------
A special meeting (the "Special Meeting") of shareholders of
Union Texas Bancorporation, Inc., a Texas corporation ("Union"), will be held
at Union's offices, located at 1100 Matamoros, Laredo, Texas, on
________________, 1996, at __:__ _m., central standard time, for the following
purposes:
1. To consider and vote upon a proposal to approve the
agreement and plan of reorganization dated December 4, 1995, as
amended by letter agreement dated January 10, 1996 (as amended,
the "Merger Agreement"), between Union and Norwest Corporation
("Norwest"). The Merger Agreement provides for the merger of a
wholly-owned subsidiary of Norwest with and into Union and for
Union to become a wholly-owned subsidiary of Norwest. A copy of
the Merger Agreement is attached as an appendix to the
accompanying Proxy Statement-Prospectus.
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 Union at the close of
business on ___________, 1996 will be entitled to vote at the Special Meeting
or any adjournments 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
Keith L. Rhoden
Secretary
_______________, 1996
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PLEASE COMPLETE, SIGN AND DATE YOUR PROXY AND PROMPTLY MAIL IT IN THE ENCLOSED
ENVELOPE. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE PROXY
STATEMENT-PROSPECTUS AT ANY TIME BEFORE IT IS EXERCISED.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME.
- -------------------------------------------------------------------------------
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PROXY STATEMENT OF
UNION TEXAS BANCORPORATION, INC.
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
---------------
---------------------------------
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
---------------------------------
This Proxy Statement-Prospectus is being furnished to the holders
of the common stock, par value $2.50 per share ("Union Common Stock"), and
preferred stock, no par value ("Union Preferred Stock"), of Union Texas
Bancorporation, Inc., a Texas corporation ("Union"), in connection with the
solicitation of proxies by the board of directors of Union (the "Union Board")
for a special meeting of Union's shareholders to be held on April 2, 1996
(the "Special Meeting").
At the Special Meeting, Union's shareholders will consider and
vote upon a proposal to approve the agreement and plan of reorganization dated
December 4, 1995, as amended by letter agreement dated January 10, 1996 (as
amended and including all exhibits thereto, the "Merger Agreement"), between
Union and Norwest Corporation, a Delaware corporation ("Norwest"), pursuant to
which a wholly-owned subsidiary of Norwest will be merged with and into Union
(the "Merger"). If the Merger Agreement is approved and the Merger becomes
effective, Union will become a wholly-owned subsidiary of Norwest and holders
of Union Common Stock and Union Preferred Stock will receive shares of the
common stock, par value $1-2/3 per share ("Norwest Common Stock"), of Norwest.
A copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement-Prospectus and incorporated herein by reference.
Norwest has filed a registration statement on Form S-4 (File No.
333-01027) (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering under the Securities Act of 1933, as
amended (the "Securities Act"), the shares of Norwest Common Stock to be issued
in the Merger. In addition to serving as the proxy statement in connection
with the Special Meeting, this document constitutes the prospectus of Norwest
filed as part of the Registration Statement.
Norwest Common Stock trades on the New York Stock Exchange
("NYSE") and the Chicago Stock Exchange ("CHX") under the symbol "NOB." The
closing price of Norwest Common Stock as reported on the NYSE Composite Tape on
February 23, 1996 was $36.50 per share.
All information concerning Norwest contained in this Proxy
Statement-Prospectus has been provided by Norwest, and all information
concerning Union contained in this Proxy Statement-Prospectus has been provided
by Union.
This Proxy Statement-Prospectus and the accompanying form of
proxy are first being mailed to shareholders of Union on or about
March 1, 1996.
---------------------------------
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE 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 March 1, 1996.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . .
EXPLANATORY NOTE AND DEFINITIONS OF CERTAIN TERMS . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Meeting and Vote Required . . . . . . . . . . . . . . . . . . . . . . .
Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . .
Recommendation of Union's Board of Directors . . . . . . . . . . . . .
Opinion of Union's Financial Advisor . . . . . . . . . . . . . . . . . .
Conditions to the Merger; Termination of the Merger Agreement . . . . .
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective Time and Closing of the Merger . . . . . . . . . . . . . . . . .
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . .
Directors and Officers of Union after the Merger . . . . . . . . . . . . .
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain U.S. Federal Income Tax Consequences . . . . . . . . . . . . . .
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparison of Rights of Holders of Union Capital Stock and
Norwest Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparative Per Common Share Data . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MEETING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date; Voting Rights; Vote Required . . . . . . . . . . . . . . . . . . . .
Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Background and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . .
Opinion of Union's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . .
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
2
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<TABLE>
<S> <C>
Shares of Norwest Common Stock . . . . . . . . . . . . . . . . . . . . . . . .
Cash in lieu of Fractional Shares . . . . . . . . . . . . . . . . . . . . . .
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conditions to the Obligations of Both Parties . . . . . . . . . . . . . . . .
Conditions to the Obligation of Norwest . . . . . . . . . . . . . . . . . . .
Conditions to the Obligation of Union . . . . . . . . . . . . . . . . . . . .
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . .
By Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
By Norwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Additional Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Termination of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . .
Amendment of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .
Waiver of Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . .
Effect on Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . .
Certain U.S. Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . .
Resale of Norwest Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NORWEST CAPITAL STOCK AND RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwest Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Norwest Preferred Stock; Norwest Preference Stock . . . . . . . . . . . . . . . . . .
Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Reinvestment and Optional Cash Payment Plan . . . . . . . . . . . . . . . .
Shares Registered under the Securities Act . . . . . . . . . . . . . . . . . . . . .
COMPARISON OF RIGHTS OF HOLDERS OF UNION CAPITAL STOCK
AND NORWEST COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendment of Articles or Certificate of Incorporation and Bylaws . . . . . . . . . .
Shareholder or Stockholder Approval of Merger and Asset Sales . . . . . . . . . . .
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limitation of Director Liability . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification of Officers and Directors . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal of Business; Nomination of Director . . . . . . . . . . . . . . . . . . . .
</TABLE>
3
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<TABLE>
<S> <C>
INFORMATION CONCERNING UNION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General
Local Economy
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Operations
Net Interest Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest Income and Non-Interest Expense . . . . . . . . . . . . . . . .
Allowance for Credit Losses . . . . . . . . . . . . . . . . . . . . . . . .
Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of Assets, Liabilities and Stockholders' Equity . . . . . . . .
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Recognition, Non-Performing Assets and Past Due Loans . . . . . . .
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Loan Loss Experience . . . . . . . . . . . . . . . . . . . . . .
Allocation of the Allowance for Credit Losses . . . . . . . . . . . . . . .
Interest Differentials . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate/Volume Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset and Liability Management . . . . . . . . . . . . . . . . . . . . . . .
Return on Equity and Assets . . . . . . . . . . . . . . . . . . . . . . . .
Dividend History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Markets for Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Management and Certain Beneficial Owners . . . . . . . . . .
CERTAIN REGULATORY CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holding Company Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Deposit Insurance Corporation Improvement Act of 1991 . . . . . . . . . .
FDIC Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MANAGEMENT OF NORWEST AND ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS OF UNION F-1
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX B OPINION OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
</TABLE>
4
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APPENDIX C TEXAS BUSINESS CORPORATION ACT, ARTICLES 5.11, 5.12 AND 5.13
5
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AVAILABLE INFORMATION
Norwest is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, Norwest files reports, proxy statements and other
information with the Commission.
The reports, proxy statements and other information filed by
Norwest with the Commission 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 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 concerning 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 and the exhibits thereto.
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, Union and the
shares of Norwest Common Stock offered hereby. Statements contained herein
concerning the provisions of certain 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
hereto as an appendix.
--------------------------------------------------------
NO PERSON HAS BEEN 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 MADE OR AUTHORIZED BY NORWEST OR UNION. 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, NOR DOES IT CONSTITUTE 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 UNION SINCE THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
6
<PAGE> 10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE NORWEST
DOCUMENTS THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH
DOCUMENTS AS FILED WITH THE COMMISSION (OTHER THAN EXHIBITS THERETO NOT
SPECIFICALLY INCORPORATED BY REFERENCE 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 RECEIVED BY NORWEST BY MARCH 26, 1996.
The following documents filed with the Commission by Norwest
(File No. 1-2979) pursuant to the Exchange Act are incorporated by reference in
this Proxy Statement-Prospectus:
1. Norwest's Annual Report on Form 10-K for the year ended
December 31, 1994;
2. Norwest's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, June 30, 1995, September 30, 1995; and
3. Norwest's 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, November 1, 1995, January 24, 1996 and
February 20, 1996, as amended pursuant to Form 8-K/A.
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 that 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.
7
<PAGE> 11
EXPLANATORY NOTE AND DEFINITIONS OF CERTAIN TERMS
Union is incorporated under the laws of the state of Texas and is
governed by the Texas Business Corporation Act and Union's articles of
incorporation and bylaws (as amended and in effect as of the date of this Proxy
Statement-Prospectus, the "TBCA," "Union Articles" and "Union Bylaws,"
respectively). Norwest is incorporated under the laws of the state of Delaware
and is governed by the Delaware General Corporation Law and Norwest's restated
certificate of incorporation and bylaws (as amended and in effect as of the
date of this Proxy Statement-Prospectus, the "DGCL," "Norwest Certificate" and
"Norwest Bylaws," respectively). The TBCA uses the term "shareholder" to refer
to a holder of capital stock of a Texas corporation. The DGCL uses the term
"stockholder" to refer to a holder of capital stock of a Delaware corporation.
Accordingly, this Proxy Statement-Prospectus uses the term "shareholder" to
refer to a holder of Union Common Stock or Union Preferred Stock and the term
"stockholder" to refer to a holder of Norwest Common Stock.
As used in this Proxy Statement-Prospectus, unless the context
otherwise requires, "Norwest" means Norwest and its consolidated subsidiaries,
"Union" means Union and its consolidated subsidiaries and the "Bank" means
Union National Bank of Texas, a wholly-owned subsidiary of Union.
8
<PAGE> 12
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 contained or incorporated by reference in this Proxy
Statement-Prospectus and the appendices hereto. Shareholders of Union are
urged to read this Proxy Statement-Prospectus and the appendices hereto in
their entirety.
PARTIES TO THE MERGER
NORWEST. 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 (the "Bank Holding Company
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, Nevada, 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, mortgage-backed securities servicing, and venture capital
investment. At December 31, 1995, Norwest had consolidated total assets of
$72.1 billion, total deposits of $42.0 billion, and total stockholders' equity
of $5.3 billion. Based on total assets at December 31, 1995, Norwest was the
13th largest commercial banking organization in the United States. Norwest
regularly explores opportunities for acquisitions of financial institutions and
related businesses. Generally, management of Norwest does not make a public
announcement about an acquisition until a definitive agreement has been signed.
Norwest has entered into definitive agreements for the acquisition of various
financial institutions, including Union, having aggregate total assets at
December 31, 1995 of $6.6 billion. In January 1996, Norwest Mortgage, Inc., a
subsidiary of Norwest, signed a definitive agreement to acquire substantially
all of the assets of Prudential Home Mortgage Company, Inc., including $40
billion of its servicing portfolio. Certain of these acquisitions were
completed subsequent to December 31, 1995, and the others remain subject to
regulatory approval and are expected to be completed by the end of the second
quarter of 1996. No assurance can be given regarding the timing, the
likelihood or the business or financial effect of any possible acquisition;
however, none of these acquisitions is individually significant or material to
the consolidated 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 "--Selected Financial Data," "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "CERTAIN
REGULATORY CONSIDERATIONS."
UNION. Union is registered under the Bank Holding Company Act and owns
all the outstanding capital stock of the Bank. Union and the Bank are
headquartered in Laredo, Texas, on the United States/Mexico border, and the
Bank has four locations in Laredo and a full service branch in San Antonio,
Texas. The Bank provides a wide range of banking services for its commercial,
industrial and financial customers. Commercial lending activities include
short-term and medium-term loans, revolving credit arrangements, inventory and
accounts receivable financing, equipment financing, and interim and long-term
real estate lending. Consumer banking services include savings and checking
9
<PAGE> 13
accounts, various savings programs, home improvement loans, real estate loans,
and installment and other personal loans. The Bank also offers MasterCard and
VISA credit cards to its customers and provides 24-hour access to routine
banking services through automated teller machines. At December 31, 1995,
Union had consolidated total assets of $237.5 million, total deposits of $225.4
million, and total shareholders' equity of $10.0 million.
SPECIAL MEETING AND VOTE REQUIRED
SPECIAL MEETING. The Special Meeting will be held on
April 2, 1996, at Union's offices, located at 1100 Matamoros, Laredo, Texas for
the purpose of voting on a proposal to approve the Merger Agreement. Only
holders of record of Union Common Stock or Union Preferred Stock at the close of
business on February 29, 1996 (the "Record Date") will be entitled to receive
notice of and to vote at the Special Meeting. At such date, there were
1,090,403 shares of Union Common Stock outstanding and 433,726 shares of Union
Preferred Stock outstanding. Each share of Union Common Stock and Union
Preferred Stock is entitled to one vote. For additional information relating to
the Special Meeting, see "MEETING INFORMATION."
VOTE REQUIRED. Approval of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Union Common Stock and at least two-thirds of the outstanding shares
of Union Preferred Stock voting as separate classes. Directors and executive
officers of Union and their affiliates, including Union's Employee Stock
Ownership Plan (the "Union ESOP"), beneficially owned an aggregate of 672,347,
or approximately 61.7%, of the shares of Union Common Stock outstanding on the
Record Date and 407,665, or approximately 94.0%, of the shares of Union
Preferred Stock outstanding on the Record Date. For additional information
concerning the number of shares of Union Common Stock and Union Preferred Stock
held by Union's management, see "INFORMATION CONCERNING UNION--Security
Ownership of Management and Certain Beneficial Owners." If at least two-thirds
of the votes eligible to be cast for each class of Union capital stock do not
vote in favor of approval of the Merger Agreement, Union will continue to act
as a separate entity and a going concern. A failure to vote, either by not
returning the enclosed proxy or by checking the "Abstain" box thereon, will
have the same effect as a vote against approval of the Merger Agreement.
MEMBERS OF UNION'S MANAGEMENT INTEND TO VOTE ALL SHARES OF UNION COMMON STOCK
AND UNION PREFERRED STOCK HELD IN THEIR INDIVIDUAL CAPACITIES IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT. BECAUSE MEMBERS OF UNION'S MANAGEMENT HOLD
IN THEIR INDIVIDUAL CAPACITIES 94.0% OF THE SHARES OF UNION PREFERRED STOCK
OUTSTANDING ON THE RECORD DATE, THEY EFFECTIVELY WILL HAVE THE POWER TO APPROVE
THE MERGER AGREEMENT ON BEHALF OF THE OTHER HOLDERS OF UNION PREFERRED STOCK.
See "MEETING INFORMATION--Record Date; Voting Rights; Vote Required."
THE MERGER
EFFECT OF THE MERGER. If the Merger Agreement is approved and
the Merger becomes effective, a wholly-owned subsidiary of Norwest will be
merged with and into Union and Union, as the surviving corporation in the
Merger, will become a wholly-owned subsidiary of Norwest. In the Merger,
outstanding shares of Union Common Stock and Union Preferred Stock will be
automatically converted into the right to receive such number of shares of
Norwest Common Stock as is determined in accordance with formulas set forth in
the Merger Agreement and described herein. In lieu of issuing fractional
shares of Norwest Common Stock, Norwest will pay cash to the holders of Union
Common
10
<PAGE> 14
Stock and Union Preferred Stock who would otherwise be entitled to receive
fractional shares. See "THE MERGER--Merger Consideration."
RECOMMENDATION OF UNION'S BOARD OF DIRECTORS. At a meeting of
the Union Board held on December 4, 1995, after considering the terms and
conditions of the Merger Agreement, the Union Board unanimously approved the
Merger Agreement. The Union Board believes that the Merger is advisable and in
the best interests of Union and its shareholders and recommends that
shareholders of Union vote "FOR" approval of the Merger Agreement. For a
discussion of the circumstances surrounding the Merger and the factors
considered by the Union Board in making its recommendation, see "THE
MERGER--Background and Reasons for the Merger."
OPINION OF UNION'S FINANCIAL ADVISOR. The Union Board 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 Union Board dated as of the date of this Proxy
Statement-Prospectus that the consideration to be received by the shareholders
of Union in the Merger is fair from a financial point of view. The opinion of
Sheshunoff is attached as Appendix B to this Proxy Statement-Prospectus.
Shareholders 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 Union's Financial Advisor."
CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT.
The obligations of Norwest and Union to effect the Merger are subject to the
satisfaction or, if permissible under the Merger Agreement, waiver of a number
of conditions, in addition to approval of the Merger Agreement by Union's
shareholders. The Merger Agreement allows one or more parties to the Merger to
terminate the Merger Agreement if one or more of these conditions are not
satisfied or waived. The Merger Agreement may also be terminated at any time
prior to the Merger becoming effective by mutual consent of Norwest and Union,
by either Norwest or Union if the Merger has not been effected on or before
July 31, 1996 provided the failure of the Merger to become effective by such
date is not due to the failure of the party seeking to terminate to perform or
observe in all material respects its convenants and agreements under the Merger
Agreement, or by Union if the average of the closing prices per share of
Norwest Common Stock for the 20 consecutive trading days ending on the day
before the Special Meeting is less than $25. See "THE MERGER--Conditions to
the Merger" and "--Termination of the Merger Agreement."
REGULATORY APPROVALS. The Merger is subject to the approval of
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Norwest has filed an application with the Federal Reserve Board
requesting approval of the Merger; however, there can be no assurances that
the necessary regulatory approval will be obtained or as to the timing of or
conditions placed on such approval. The Merger is also subject to certain
filing and other requirements of the Texas Department of Banking. See "THE
MERGER--Regulatory Approvals."
EFFECTIVE TIME AND CLOSING OF THE MERGER. The parties will file
articles of merger relating to the Merger (the "Articles of Merger") with the
Texas Secretary of State within ten business days after approval of the Merger
Agreement and satisfaction or waiver of all other conditions to the Merger or
on such other date as the parties may agree. The Merger will become effective
at 11:59 p.m., central time (the "Effective Time"), on the date the Texas
Secretary of State issues a certificate of merger (the "Certificate of Merger")
acknowledging that the Articles of Merger are in the form required by and have
been executed in accordance with the relevant provisions of the TBCA (the
"Closing Date"). The
11
<PAGE> 15
parties expect the Certificate of Merger to be issued on the day the Articles
of Merger are filed with the Texas Secretary of State. The closing of the
Merger (the "Closing") will be held on the Closing Date. See "THE
MERGER--Conditions to the Merger."
NO SOLICITATION. Union has agreed under the Merger Agreement
that neither it nor any of its subsidiaries, or their respective directors,
officers, representatives and agents, will directly or indirectly solicit,
authorize the solicitation of or enter into any discussions with any third
party concerning certain transactions involving the purchase of stock of Union
or any of its subsidiaries, the acquisition of Union or any of its subsidiaries
pursuant to a tender or exchange offer, a merger, consolidation or other
business combination or the purchase, lease or other acquisition of the assets
of Union or any of its subsidiaries except in the ordinary course of business.
See "THE MERGER--No Solicitation."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. As of the Record
Date, Union's directors and executive officers and the Union ESOP beneficially
owned a total of 672,347 shares of Union Common Stock and 407,665 shares of
Union Preferred Stock (representing 61.7% and 94.0%, respectively, of all
outstanding shares of Union Common Stock and Union Preferred Stock on such
date). In the Merger, the directors and executive officers will receive the
same consideration for their shares as the other shareholders of Union. For
information concerning the number of shares of Union Common Stock and Union
Preferred Stock held by the directors and executive officers of Union, see
"INFORMATION CONCERNING UNION--Security Ownership Of Management And Certain
Beneficial Owners."
Norwest, Union and the Bank expect to enter into an employment
agreement (the "Employment Agreement") with John H. Keck pursuant to which
Norwest or one of its subsidiaries will employ Mr. Keck as Chairman of the Bank
for a term of 18 months from the Closing at an annual salary of $170,000.
Under the terms of the Employment Agreement, Mr. Keck is also entitled to
receive a lump sum severance payment of $85,000 upon the later of the
expiration of the Employment Agreement or termination of his employment with
Norwest and its subsidiaries. The parties also anticipate that, promptly after
the Closing of the Merger, Norwest will grant Mr. Keck an option to purchase an
aggregate of 1,500 shares of Norwest Common Stock at an exercise price equal to
the fair market value of Norwest Common Stock on the date of grant, 100% of
which will become first exercisable on the first anniversary of the date such
option is granted.
Norwest has agreed to allow John H. Keck, Ray M. Keck, Jr., Keith
L. Rhoden and S. Bradford Sledge to purchase from the Bank at any time prior to
the Closing the key-man or split dollar life insurance policies covering their
respective lives for the cash value of such policies as of the time of
purchase. See "THE MERGER--Interests of Certain Persons in the Merger."
DIRECTORS AND OFFICERS OF UNION AFTER THE MERGER. The directors
and officers named in Exhibit A to the Merger Agreement will be the directors
and officers of Union after the Effective Time until their respective
successors are duly elected or appointed and have qualified in the manner
provided in the Union Articles and Union Bylaws. Following the Effective Time,
Norwest will be the sole shareholder of Union and, for that reason, subject to
the Employment Agreement, will be in a position to elect or appoint all of the
directors and officers of Union.
DISSENTERS' RIGHTS. The TBCA provides that a shareholder of a
Texas corporation who dissents from a merger is generally entitled to receive
payment of the appraised value of his or her stock. See "THE
MERGER--Dissenters' Rights."
12
<PAGE> 16
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES. The Merger is
intended to be a tax-free reorganization so that no gain or loss will be
recognized by Union's shareholders, except with respect to cash received for
any fractional shares. The Merger's effectiveness is conditioned upon the
receipt by Union of a written opinion of Vinson & Elkins L.L.P., counsel to
Union, substantially to the effect that, for U.S. 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 Internal Revenue Code of 1986, as amended
(the "Code"); (ii) no gain or loss will be recognized by the holders of Union
Common Stock or Union Preferred Stock upon receipt of Norwest Common Stock
except for cash received in lieu of fractional shares; and (iii) the basis of
the Norwest Common Stock received by the shareholders of Union will be the same
as the basis of the Union Common Stock or Union Preferred Stock, as the case
may be, exchanged therefor; and (iv) the holding period of the shares of
Norwest Common Stock received by the shareholders of Union will include the
holding period of the Union Common Stock or Union Preferred Stock, as the case
may be, provided such shares of Union Common Stock or Union Preferred Stock
were held as a capital asset as of the Effective Time.
THE U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER MAY BE
DIFFERENT FOR PARTICULAR TYPES OF UNION SHAREHOLDERS OR IN LIGHT OF EACH UNION
SHAREHOLDER'S PERSONAL INVESTMENT CIRCUMSTANCES. FOR THAT REASON, UNION
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U. S.
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 U.S. FEDERAL INCOME TAX
CONSEQUENCES."
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."
MARKET INFORMATION
On December 1, 1995, the last business day preceding public
announcement of the Merger Agreement, and on February 26, 1996, the last
practicable date prior to the mailing of this Proxy Statement-Prospectus, the
closing price per share of Norwest Common Stock (as reported on the NYSE
Composite Tape) was $33.25 and $36.50, respectively. There is no public market
for the Union Common Stock or the Union Preferred Stock.
The market price for Norwest Common Stock will fluctuate between
the date of this Proxy Statement-Prospectus and the Effective Time, which will
be a period of several weeks. The market value per share of the Norwest Common
Stock that Union shareholders ultimately receive in the Merger could be more or
less than its market value on the date of this Proxy Statement-Prospectus. No
assurance can be given concerning the market price of Norwest Common Stock
before or after the Effective Time. Union shareholders are advised to obtain
current market quotations for Norwest Common Stock.
COMPARISON OF RIGHTS OF HOLDERS OF UNION CAPITAL STOCK AND NORWEST COMMON STOCK
As of the date of this Proxy Statement-Prospectus, the rights of
Union's shareholders are governed by the TBCA and the Union Articles and Union
Bylaws. At the Effective Time, Union's shareholders will become stockholders
of Norwest. As such, their rights will thereafter be governed by the DGCL
13
<PAGE> 17
and the Norwest Certificate and Norwest Bylaws. See "COMPARISON OF RIGHTS OF
HOLDERS OF UNION CAPITAL STOCK AND NORWEST COMMON STOCK.
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 Union Common Stock on a historical and a pro forma equivalent
basis giving effect to the Merger using the purchase method of accounting. The
data for Norwest are derived from the consolidated historical financial
statements of Norwest, including the related notes thereto, incorporated by
reference into this Proxy Statement-Prospectus and should be read in
conjunction with such historical financial statements and related notes. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." The data for Union are
derived from the consolidated historical financial statements of Union,
including the related notes thereto, included in this Proxy
Statement-Prospectus and should be read in conjunction with such historical
financial statements and related notes. The data are 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 become effective
prior to the periods indicated.
AS DISCUSSED IN NOTE (1) TO THE TABLE, THE DATA ARE BASED ON
ASSUMED CONVERSION RATIOS FOR THE UNION COMMON STOCK AND UNION PREFERRED STOCK.
THE ACTUAL RATIOS AT WHICH SHARES OF UNION COMMON STOCK AND UNION PREFERRED
STOCK WILL BE CONVERTED INTO SHARES OF NORWEST COMMON STOCK WILL NOT BE
DETERMINABLE OR OTHERWISE AVAILABLE UNTIL IMMEDIATELY PRIOR TO THE EFFECTIVE
TIME. THE ACTUAL CONVERSION RATIOS MAY BE MATERIALLY LOWER THAN THE CONVERSION
RATIOS USED TO CALCULATE THE DATA IN THE TABLE. SEE "THE MERGER--MERGER
CONSIDERATION."
14
<PAGE> 18
COMPARATIVE PER COMMON SHARE DATA
<TABLE>
<CAPTION>
Norwest Common Stock Union Common Stock
-------------------------- -----------------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
December 31, 1995 14.20 14.21 6.00 3.66
December 31, 1994 10.79 10.79 5.17 2.78
DIVIDENDS DECLARED (2):
Year Ended
December 31, 1995 0.900 0.900 0.000 0.232
December 31, 1994 0.765 0.765 0.000 0.197
NET INCOME (3):
Year Ended
December 31, 1995 2.73 2.72 (0.46) 0.70
December 31, 1994 2.41 2.40 (3.16) 0.62
</TABLE>
- ---------------------------
(1) The pro forma combined book value per share of Norwest Common Stock is
based upon the historical total combined common stockholders' and shareholders'
equity for Norwest and Union divided by total pro forma common shares of the
combined entities assuming conversion of the outstanding Union Common Stock at
a ratio of .2578 shares of Norwest Common Stock for each share of Union Common
Stock and .3455 shares of Norwest Common Stock for each share of Union
Preferred Stock. The historical book value per share of Union Common Stock is
based upon the historical shareholders' equity for Union divided by the sum of
the number of outstanding shares of Union Common Stock plus the number of
outstanding shares of Union Preferred Stock multiplied by the assumed
conversion ratio 1.34 (see "Meeting Information--Merger Consideration--Union
Preferred Stock Conversion Formula"). The aggregate number of shares of
Norwest Common Stock assumed to be issued in the Merger is 430,975. See "THE
MERGER--Terms of the Merger." The pro forma equivalent book value per share of
Union represents the pro forma combined amount multiplied by the Exchange
Ratio.
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Union Common Stock represent cash dividends declared per
share of Norwest Common Stock multiplied by .2578.
(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 Union divided by the
average pro forma common shares of the combined entities. The pro forma
equivalent net income per share of Union Common Stock represents the pro forma
combined net income per share multiplied by .2578.
15
<PAGE> 19
SELECTED FINANCIAL DATA
The following tables set forth certain selected historical
consolidated financial information for Norwest and Union. The income statement
and balance sheet data for Norwest included in the selected financial data for
each of the five years in the period ended December 31, 1994 are derived from
the audited consolidated financial statements of Norwest for such five-year
period. The selected financial data for Norwest for the year ended December
31, 1995 are derived from the unaudited historical financial statements of
Norwest for such period. All financial information derived from unaudited
financial statements reflects, in the opinion of management of Norwest, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data. The income statement and balance sheet data
for Union included in the selected financial data for each of the five years in
the period ended December 31, 1995 are derived from the audited consolidated
financial statements of Union for such five-year period. The tables should be
read in conjunction with the consolidated financial statements of Norwest and
Union and the related notes thereto, included in documents incorporated herein
by reference in the case of Norwest and included in this Proxy
Statement-Prospectus in the case of Union. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "CONSOLIDATED FINANCIAL STATEMENTS OF UNION."
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
NORWEST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1995 1994 1993(1) 1992(2) 1991 1990(3)
---- ---- ------- ------- ---- -------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------
Interest income $5,717.3 4,393.7 3,946.3 3,806.4 4,025.9 3,885.8
Interest expense 2,448.0 1,590.1 1,442.9 1,610.6 2,150.3 2,320.1
------- -------- ------- ------- ------- -------
Net interest income 3,269.3 2,803.6 2,503.4 2,195.8 1,875.6 1,565.7
Provision for credit losses 312.4 164.9 158.2 270.8 406.4 433.0
Non-interest income 1,865.0 1,638.3 1,585.0 1,273.7 1,064.0 896.3
Non-interest expenses 3,399.1 3,096.4 3,050.4 2,553.1 2,041.5 1,744.5
------- -------- ------- ------- ------- -------
Income before income taxes 1,422.8 1,180.6 879.8 645.6 491.7 284.5
Income tax expense 466.8 380.2 266.7 175.6 73.4 115.1
------- -------- -------- --------- -------- -----
Income before cumulative effect
of a change in accounting method 956.0 800.4 613.1 470.0 418.3 169.4
Cumulative effect on years prior
to 1992 of change in accounting method -- -- -- (76.0) -- --
------- -------- -------- --------- -------- -----
Net income $ 956.0 800.4 613.1 394.0 418.3 169.4
======== ======= ===== ===== ===== =====
PER COMMON SHARE DATA
- ---------------------
Net income per share:
Primary:
Before cumulative effect of a
change in accounting method $ 2.76 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 $ 2.76 2.45 1.89 1.19 1.33 0.59
======= ==== ==== ==== ==== ====
Fully diluted:
Before cumulative effect of a
change in accounting method $ 2.73 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 $ 2.73 2.41 1.86 1.19 1.32 0.59
======= ==== ==== ==== ==== ====
Dividends declared per common share $0.900 0.765 0.640 0.540 0.470 0.423
BALANCE SHEET DATA
- ------------------
At period end:
Total assets $72,134.4 59,315.9 54,665.0 50,037.0 45,974.5 43,523.0
Long-term debt 13,676.8 9,186.3 6,850.9 4,553.2 3,686.6 3,066.0
Total stockholders' equity 5,312.1 3,846.4 3,760.9 3,371.8 3,192.3 2,434.0
</TABLE>
17
<PAGE> 21
(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 charges 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 bank holding company 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 charges 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.
18
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
INCOME STATEMENT DATA:
---------------------
<S> <C> <C> <C> <C> <C>
Interest income $16,400 16,191 15,909 19,532 24,581
Interest expense 7,900 7,088 6,963 9,070 14,642
------- ------ ------ ------ ------
Net interest income 8,500 9,103 8,946 10,462 9,939
Provision for credit
losses 320 1,540 945 2,202 2,612
Non-interest income 2,009 2,071 3,039 3,875 3,093
Non-interest expense 10,554 11,619 13,089 13,407 14,430
------- ------ ------ ------ ------
Income (loss) before
income tax (365) (1,985) (2,049) (1,272) (4,010)
Benefit from income taxes 18 30 1,142 -- 110
------- ------ ------ ------ ------
Net income (loss) $ (347) (1,955) (907) (1,272) (3,900)
======= ====== ====== ====== ======
EARNINGS PER COMMON SHARE:
-------------------------
Net income (loss) $ (.46) (3.16) (1.48) (2.09) (6.54)
======= ====== ====== ====== ======
BALANCE SHEET DATA:
------------------
At year end:
Total assets $237,484 251,387 264,849 261,853 286,788
Convertible subordinated
debentures -- 2,562 2,520 2,184 2,288
Total stockholders' equity 9,986 6,207 9,718 8,354 9,243
</TABLE>
19
<PAGE> 23
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of
Union Common Stock and Union Preferred Stock in connection with the
solicitation of proxies by the Union Board for use at the Special Meeting to be
held on April 2, 1996 and at any adjournments or postponements thereof. At
the Special Meeting, shareholders of Union will consider and vote upon a
proposal to approve the Merger Agreement. The Union Board is not aware as of
the date of this Proxy Statement-Prospectus of any business to be acted upon at
the Special Meeting other than the proposal to approve the Merger Agreement.
If other matters are properly brought before the Special Meeting or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act on such matters according to their best
judgment.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED
The Union Board has fixed the close of business on February 29,
1996 as the record date for the determination of shareholders of Union entitled
to receive notice of and to vote at the Special Meeting (the "Record Date").
On the Record Date, there were 1,090,403 shares of Union Common Stock
outstanding and 433,726 shares of Union Preferred Stock outstanding. Each
holder of Union Common Stock or Union Preferred Stock is entitled to one vote
per share held of record on the Record Date. Shares of Union Common Stock and
Union Preferred Stock will vote on the Merger as separate classes.
The presence in person or by proxy at the Special Meeting of the
holders of a majority of the outstanding shares of Union Common Stock and
Union Preferred Stock will constitute a quorum for the transaction of business
at the Special Meeting. Under the TBCA and the Union Articles and Union
Bylaws, approval of the Merger Agreement will require the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Union Common
Stock and at least two-thirds of the outstanding shares of Union Preferred
Stock voting as separate classes. Directors and executive officers of Union
and their affiliates (including the Union ESOP) beneficially owned on the
Record Date an aggregate of 672,347, or approximately 61.7%, of the outstanding
shares of Union Common Stock and an aggregate of 407,665, or approximately
94.0%, of the outstanding shares of Union Preferred Stock. MEMBERS OF UNION'S
MANAGEMENT INTEND TO VOTE ALL SHARES OF UNION COMMON STOCK AND UNION PREFERRED
STOCK HELD IN THEIR INDIVIDUAL CAPACITIES IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT. BECAUSE MEMBERS OF UNION'S MANAGEMENT HOLD IN THEIR INDIVIDUAL
CAPACITIES 94.0% OF THE SHARES OF UNION PREFERRED STOCK OUTSTANDING ON THE
RECORD DATE, THEY EFFECTIVELY WILL HAVE THE POWER TO APPROVE THE MERGER
AGREEMENT ON BEHALF OF THE OTHER HOLDERS OF UNION PREFERRED STOCK. For
additional information concerning the number of shares of Union Common Stock
and Union Preferred Stock held by Union's management, see "INFORMATION
CONCERNING UNION--Security Ownership of Management and Certain Beneficial
Owners."
VOTING AND REVOCATION OF PROXIES
Shares of Union Common Stock or Union Preferred 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
20
<PAGE> 24
indicating any voting instructions, shares of Union Common Stock or Union
Preferred Stock represented by such proxy will be voted FOR approval of the
Merger Agreement. Any proxy given pursuant to this solicitation may be revoked
by the person giving it at any time before the proxy is voted by filing either
an instrument revoking it or a duly executed proxy bearing a later date with
the secretary of Union 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 will not be counted as voting in favor of such
proposal. The proposal to approve the Merger Agreement must be approved by the
holders of at least two-thirds of the shares of Union Common Stock and Union
Preferred Stock outstanding on the Record Date voting as separate classes.
Because the proposal to approve the Merger Agreement 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.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and
employees of Union may solicit proxies from the shareholders of Union, either
personally or by telephone 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. Union will bear its own expenses in connection with any solicitation
of proxies for the Special Meeting. See "THE MERGER--Expenses."
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE TO
THE SHAREHOLDERS OF UNION. SHAREHOLDERS ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT-PROSPECTUS AND TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO UNION
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
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<PAGE> 25
THE MERGER
This section of the Proxy Statement-Prospectus describes certain
aspects of the Merger. The following description does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached as Appendix A to this Proxy Statement-Prospectus
and incorporated herein by reference. Shareholders are urged to read the
Merger Agreement in its entirety.
GENERAL
At the Effective Time, a wholly-owned subsidiary of Norwest will
be merged with and into Union, with Union being the surviving corporation in
the Merger. Following the Merger, Union will be a wholly-owned subsidiary of
Norwest. Except with respect to fractional shares as discussed below, if the
Merger Agreement is approved and the Merger becomes effective, shareholders of
Union will receive shares of Norwest Common Stock for their shares of Union
Common Stock and Union Preferred Stock. See "--Merger Consideration."
Following the Effective Time, Norwest will be the sole shareholder of Union.
Shares of Norwest Common Stock issued and outstanding immediately before the
Effective Time will remain issued and outstanding immediately after the
Effective Time.
The market price for Norwest Common Stock will fluctuate between
the date of this Proxy Statement-Prospectus and the Effective Time. The market
value of the shares of Norwest Common Stock that shareholders of Union receive
at the Effective Time may be more or less than the market value of the shares
on the date of this Proxy Statement-Prospectus.
BACKGROUND AND REASONS FOR THE MERGER
In December 1994, Union's management engaged Sheshunoff to review and
analyze Union's operations and to act as Union's financial advisor in
connection with a possible sale of Union. The transaction contemplated by the
Merger Agreement was submitted by Norwest to Union's management in late
September, 1995 and was deemed by management to be the most attractive offer.
Subsequent negotiations with Norwest resulted in the preparation and execution
of the Merger Agreement on December 4, 1995.
The Union Board considered a number of factors in deciding whether to
enter into the proposed transaction with Norwest. These included the
competitive conditions in the market served by Union, its capital and
prospective earnings, the current regulatory environment, the lack of an
established market for the Union Common Stock and Union Preferred Stock, the
premium represented by the consideration offered to Union's shareholders in
relation to the book value of the Union Common Stock and Union Preferred Stock,
and the prospects for future growth of Union in light of current economic and
banking conditions. The Union Board also anticipates that the proposed
transaction will expand the banking products and services offered to its
current customers and provide them with access to an institution with greater
financial resources.
FOR THE REASONS SET FORTH ABOVE, THE UNION BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF UNION
AND UNION'S SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF UNION VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT.
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<PAGE> 26
OPINION OF UNION'S FINANCIAL ADVISOR
In December 1994, Union retained Sheshunoff, an investment
banking firm based in Austin, Texas, on the basis of its experience, to prepare
an information package and contact potential purchasers identified by
Sheshunoff for the purpose of effecting a sale, merger, exchange or other
similar transaction with respect to the capital stock of Union. Additionally,
Union retained Sheshunoff to render a written fairness opinion (the "Opinion")
to the Union Board. Sheshunoff has been in the business of consulting for the
banking industry for over 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 Texas market and recent transactions in this market.
Sheshunoff did review the negotiated terms of the Merger Agreement, including
corporate governance matters. Prior to being retained for this assignment,
Sheshunoff has provided professional services and products to Union and
Norwest. The revenues derived from such services and products are
insignificant when compared to the firm's total gross revenues.
On date of this Proxy Statement-Prospectus, in connection with
their consideration of the Merger Agreement Sheshunoff issued its Opinion to
the Union Board that, in its opinion as investment bankers, the terms of the
Merger as provided in the Merger Agreement are fair and equitable, from a
financial perspective, to Union and its shareholders. The Opinion is based
upon conditions as they existed on December 31, 1995. A copy of the Opinion is
attached as an exhibit to this Proxy Statement/Prospectus and should be read in
its entirety by Union shareholders. Sheshunoff's written opinion does not
constitute an endorsement of the Merger or a recommendation to any shareholder
as to how such shareholder should vote.
In rendering its Opinion, Sheshunoff reviewed certain publicly
available information concerning Union 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 Merger Agreement;
(ii) the most recent internal Directors' Audit Committee Meeting Report of
Union; (iii) the December 31, 1995, December 31, 1994 and December 31, 1993
audited balance sheet and income statement for Union, the January 17, 1996
Norwest News Release and the December 31, 1994 and December 31, 1993 audited
balance sheet and income statement for Norwest; (iv) the Rate Sensitivity
Analysis report for Union; (v) Union's most recent listing of marketable
securities showing rate, maturity and market value as compared to book value;
(vi) Union's internal loan classification list; (vii) the 1995 budget of Union;
(viii) a listing of unfunded letters of credit and any other off-balance sheet
risks for Union; (ix) the Minutes of the Union Board meetings; (x) the most
recent Union Board report; (xi) the listing and description of significant real
properties for Union; (xii) material leases on real and personal property for
Union; (xiii) Union's senior management employment contracts; (xiv) the
directors and officers liability and blanket bond insurance policies for Union;
(xv) preliminary drafts of the Registration Statement; (xvi) terms of the Union
Preferred Stock; and (xvii) market conditions and current trading levels of
outstanding equity securities of both organizations. Sheshunoff conducted an
on-site review of Union and held telephone conversations with the management of
Norwest to discuss Norwest's historical performance and current financial
condition.
In reaching its Opinion, Sheshunoff analyzed the total purchase
price on a fair market value basis using standard evaluation techniques (as
discussed below) including comparable sales multiples
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<PAGE> 27
(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 Union's earnings
per share and equity per share (appreciation/dilution analysis), which was
based upon stand-alone financial projections for both Union and Norwest
compared with pro forma financial projections.
In performing its analysis, Sheshunoff relied upon financial
projections for Union which were prepared and furnished by the management of
Union. Norwest's projections were prepared by Sheshunoff based on its review
of publicly available information, discussions with the management of Norwest
and a prior on-site due diligence review of Norwest. Union 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 Union
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 Union with the
results of operation of a peer group comprised of all Texas banks with total
assets of $100 to $499 million (206 banks). Sheshunoff compared the results of
operation of Norwest with the results of operation of a national peer group
comprised of all bank holding companies with total assets of $10 billion and
over (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
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<PAGE> 28
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 Arkansas, Louisiana, New Mexico, Oklahoma and Texas banking
organizations with total assets of less than $500 million and which sold for
100% common stock during 1995 (the "Southwest Regional Market Comparables") 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 Union,
Sheshunoff has considered the market approach and has evaluated price to equity
and price to earnings multiples of the Southwest Regional Market Comparables.
The following table provides the 13 banking organizations included in the
Southwest Regional Market Comparables:
<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>
Citizens Bancshares Jonesboro AR 2.01 18.48 17.02
FDH Bancshares Little Rock AR 1.61 13.29 9.02
West-Ark Bancshares Clarksville AR 2.17 9.14 11.95
Financial Investment Springdale AR 1.63 14.36 20.02
First Citizens BncSt Morgan City LA 2.52 18.03 27.28
Bunkie Bancshares Bunkie LA 2.27 15.84 18.59
FNB Bancshares, Inc. Lake Providence LA 1.93 12.91 13.52
Peoples Bancshares Chalmette LA 2.01 21.09 17.36
Bank of St. John Reserve LA 2.15 9.12 22.85
Benson Financial Crp(1) San Antonio TX 1.81 12.27 16.08
Weatherford Nat Bksh Weatherford TX 2.18 12.15 18.73
Valley-Hi Inv. Co(1) San Antonio TX 1.24 6.87 8.79
United Bancshares Rosenberg TX 2.00 15.59 12.01
AVERAGES 1.96X 13.78X 16.40%
</TABLE>
- --------------------------------
- -----------------------
(1) Norwest Corporation is the purchaser in the transaction.
25
<PAGE> 29
Comparable Sales Multiples. Sheshunoff calculated an "Adjusted
Book Value" of $11.70 per share based on Union's December 31, 1995 equity
adjusted for the conversion of Union's convertible preferred stock and the
average price to equity multiple of 1.96x for the Southwest Regional Market
Comparables. Sheshunoff calculated an "Adjusted Earnings Value" of $2.48 per
share based on Union's estimated 1996 earnings and the average price to
earnings multiple of 13.78x for the Southwest Regional Market Comparables. The
financial performance characteristics of the banking organizations in the
Southwest Regional Market Comparables vary, sometimes substantially, from those
of Union. When the variance is significant for relevant performance factors,
adjustments to the price multiples are appropriate when comparing them to the
transaction value.
Investment value is sometimes referred to as the income value or
earnings value. One investment value method frequently used estimates the
present value of an enterprise's future earnings or cash flow. Another popular
investment value method is to determine the level of current annual benefits
(earnings, cash flow, dividends, etc.), and then capitalize one or more of the
benefit types using an appropriate capitalization rate such as an earnings or
dividend yield. Yet another method of calculating investment value is a cash
flow analysis of the ability of a banking company to service acquisition debt
obligations (at a certain price level) while providing sufficient earnings for
reasonable dividends and capital adequacy requirements. In connection with the
cash flow 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 Union's market area, its current
financial condition and historical levels of growth and earnings. Using a net
present value discount rate of 16%, 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 $3.67 per share.
Cash Flow Analysis. The cash flow method assumes the formation
of a one-bank holding company with maximum leverage according to Federal
Reserve Board 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 $1.00 per
share.
Return on Investment Analysis. Return on investment analysis
(ROI) also assumes the formation of a one-bank holding company using maximum
regulatory leverage and analyzes the ten year ROI of a 33.33% equity investment
at the transaction value of $8.41 per share for Union compared to a liquidation
at book value in the year 2005 and a sale at ten times projected earnings for
the year 2005. 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
26
<PAGE> 30
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 2005 equaled 4.27%, and the ROI assuming sale at
ten times projected earnings in 2005 equaled 4.94%.
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 $8.41 per share results in a transaction value as a percentage of total
assets of 5.92%.
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
43.64% for Union. 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 Union 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 Union
shareholders, it is important to project, based upon realistic projections of
future performance, a positive impact for Union shareholders. It is important
to note that the appreciation/dilution analysis is one of the methods utilized
by Sheshunoff. The projected appreciation/dilution analysis supports
Sheshunoff's Opinion as to the fairness of the transaction to Union's
shareholders from a financial point of view. This analysis does not address
future shareholder transactions involving Norwest stock after consummation of
the transaction.
Neither Union 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 Union or Norwest, but instead relied upon
the data provided by or on behalf of Union and Norwest to be true and accurate
in all material respects.
For its services as an independent financial analyst for the
merger, including the rendering of its Opinion referred to above, Union has
paid Sheshunoff aggregate fees of $160,000. Prior to being retained for this
assignment, Sheshunoff has provided professional services and products to Union
and Norwest. The revenues derived from such services and products are
insignificant when compared to the firm's total gross revenues.
27
<PAGE> 31
MERGER CONSIDERATION
SHARES OF NORWEST COMMON STOCK. Except with respect to
fractional shares as described below, if the Merger Agreement is approved and
the Merger becomes effective, each share of Union Common Stock and Union
Preferred Stock outstanding immediately prior to the Effective Time will be
automatically converted into shares of Norwest Common Stock in accordance with
the formulas described below.
UNION COMMON STOCK CONVERSION FORMULA. Each share of
Union Common Stock will be converted into shares of Norwest Common Stock equal
in number to the quotient (the "Common Share Quotient") obtained by dividing
the Adjusted Norwest Shares (defined below) by the sum of (i) the total number
of shares of Union Preferred Stock outstanding immediately prior to the
Effective Time multiplied by 1.34 and (ii) the total number shares of Union
Common Stock outstanding immediately prior to the Effective Time.
"ADJUSTED NORWEST SHARES" means the number
obtained by dividing (i) $14,060,552 minus the amount in dollars by which the
Consolidated Tangible Equity (defined below) of Union immediately prior to the
Effective Time is less than $10,060,552 (the "Gross Amount") by (ii) the
Norwest Measurement Price (defined below); provided, however, that, if the
Norwest Measurement Price is less than $29.625, then the Adjusted Norwest
Shares will mean the number obtained by dividing the Gross Amount by $29.625
and, if the Norwest Measurement Price is greater than $35.625, then the
Adjusted Norwest Shares will mean the number obtained by dividing the Gross
Amount by $35.625.
"CONSOLIDATED TANGIBLE EQUITY" means (i) the
consolidated total shareholders' equity (excluding any changes in net
unrealized loss on marketable securities subsequent to Union's September 30,
1995 consolidated balance sheet and excluding any adjustments made as a result
of the establishment of additional accruals and reserves pursuant to the Merger
Agreement) as determined in accordance with generally accepted accounting
principles, minus (ii) the book value of all consolidated intangible assets as
determined in accordance with generally accepted accounting principles, plus
(iii) the amount in dollars by which the allowance for loan losses is increased
over the amount reflected in Union's September 30, 1995 consolidated balance
sheet if and only if such increase is with respect to certain nonperforming
assets specified in the Merger Agreement and either the Comptroller of the
Currency requires or Norwest consents to such increase, plus (iv) legal and
accounting fees incurred by Union in connection with the transactions
contemplated by the Merger Agreement, the costs of Phase I assessments obtained
pursuant to the terms of the Merger Agreement and the fees and expenses owed to
Sheshunoff pursuant to an agreement between Union and Sheshunoff dated December
30, 1994, which fees, costs and expenses, whether paid or accrued prior to the
Closing, shall not exceed $400,000 on a pre-tax basis.
"NORWEST MEASUREMENT PRICE" means the average of
the closing prices per share of Norwest Common Stock as reported on the NYSE
Composite Tape during the period of 20 consecutive trading days ending on the
day immediately preceding the Special Meeting.
UNION PREFERRED STOCK CONVERSION FORMULA. Each share of Union
Preferred Stock will be converted into shares of Norwest Common Stock equal in
number to the Common Share Quotient multiplied by 1.34 (the "Preferred Share
Quotient"). The terms of the Union Preferred Stock (the "Preferred Stock
Terms") provide that each share will be automatically converted into a number
of
28
<PAGE> 32
shares (not less than 1.0 nor more than 2.0) of Union Common Stock (the
"Conversion Ratio") on December 31, 1996, based upon the 36-month performance
of the loan portfolio and non-performing assets of the Bank as of September 30,
1993 (the "1993 Portfolio"). The Preferred Stock Terms set forth procedures
which are to be followed by management of Union in determining the actual and
remaining expected losses on the 1993 Portfolio as of September 30, 1996 and
calculating the Conversion Ratio based upon such determination. In determining
the Preferred Share Quotient, management of Union followed the procedures set
forth in the Preferred Stock Terms to determine what the Conversion Ratio would
be as of September 30, 1995. Such procedures resulted in a Conversion Ratio of
1.34; therefore, the Preferred Share Quotient is equal to 1.34 multiplied by
the Common Share Quotient. BY APPROVING THE MERGER, THE SHAREHOLDERS OF UNION
WILL EFFECTIVELY APPROVE THE FOREGOING DETERMINATION BY UNION'S MANAGEMENT OF
THE CONVERSION RATIO AND THE PREFERRED SHARE QUOTIENT.
ILLUSTRATION. By way of illustration only, assuming a
Consolidated Tangible Equity immediately prior to the Effective Time of greater
than 10,060,552 and a Norwest Measurement Price of $32.625, then the Adjusted
Norwest Shares would be 430,975, the Common Share Quotient would be .2578, and
the Preferred Share Quotient would be .3455. That is, each share of Union
Common Stock would be converted into .2578 of a share of Norwest Common Stock,
and each share of Union Preferred Stock would be converted into .3455 of a
share of Norwest Common Stock.
AS INDICATED ABOVE, THE FOREGOING ILLUSTRATION ASSUMES
THAT THE CONSOLIDATED TANGIBLE EQUITY OF UNION WILL BE AT LEAST $10,060,552 AND
THAT THE NORWEST MEASUREMENT PRICE WILL BE $32.625. THE ACTUAL NORWEST
MEASUREMENT PRICE WILL NOT BE DETERMINABLE UNTIL THE END OF THE BUSINESS DAY
IMMEDIATELY PRECEDING THE DAY OF THE SPECIAL MEETING, AND THE ACTUAL
CONSOLIDATED TANGIBLE EQUITY OF UNION WILL NOT BE MEASURED UNTIL IMMEDIATELY
PRIOR TO THE EFFECTIVE TIME. (AS OF JANUARY 31, 1996, THE CONSOLIDATED
TANGIBLE EQUITY OF UNION WAS $10,350,148.) FOR THESE REASONS, THE ACTUAL
COMMON SHARE QUOTIENT AND PREFERRED SHARE QUOTIENT WILL NOT BE DETERMINABLE
UNTIL IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. SHAREHOLDERS SHOULD CONSIDER
THE FOREGOING IN DECIDING WHETHER TO VOTE FOR THE PROPOSAL TO APPROVE THE
MERGER AGREEMENT AND/OR WHETHER TO VOTE BY PROXY IN ADVANCE OF THE SPECIAL
MEETING.
CASH IN LIEU OF FRACTIONAL SHARES. Norwest will not issue any
fractional shares of Norwest Common Stock in the Merger. Norwest will pay cash
to each holder of Union Common Stock or Union Preferred Stock who would
otherwise be entitled to receive a fractional share of Norwest Common Stock.
The cash payment will be equal to the product of the fractional part of the
share of Norwest Common Stock multiplied by the average closing price per share
of Norwest Common Stock as reported on the consolidated tape of the NYSE over
the five consecutive trading day period ending on the trading day immediately
preceding the date of the Special Meeting.
DISSENTERS' RIGHTS
The following is a brief summary of the rights of dissenting
shareholders pursuant to Texas law and does not purport to be a complete
statement thereof. The summary is qualified in its entirety by reference to
Articles 5.11 through 5.13 of the TBCA, which are set forth in full in Appendix
C to this Proxy Statement-Prospectus.
Record holders of Union Common Stock and Union Preferred Stock
will have the right to dissent with respect to the Merger and, subject to
certain conditions, receive a cash payment equal to
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the fair value of their shares under the TBCA. ANY SHAREHOLDER WHO WISHES TO
ASSERT HIS OR HER DISSENTER'S RIGHTS MUST CAUSE UNION TO RECEIVE, BEFORE THE
VOTE ON THE MERGER IS TAKEN, WRITTEN NOTICE OF HIS OR HER INTENT TO DEMAND
PAYMENT FOR HIS OR HER SHARES IF THE MERGER IS EFFECTED AND MAY NOT VOTE ANY OF
HIS OR HER SHARES IN FAVOR OF THE MERGER. VOTING AGAINST THE MERGER IS NOT
SUFFICIENT, IN AND OF ITSELF, FOR A SHAREHOLDER TO ASSERT HIS OR HER
DISSENTER'S RIGHTS.
In the event Union's shareholders approve the Merger at the
Special Meeting, Union is required to deliver or mail a written notice to all
shareholders who are entitled to demand payment for their shares no later than
10 days after the Effective Time. Any shareholder to whom a notice is sent by
Union and who desires to exercise his or her dissenter's rights must, within 10
days from the delivery or mailing of Union's notice, make written demand on
Union for the payment of the fair value of his or her shares. Pursuant to the
TBCA, the fair value of the shares is the value thereof as of the day
immediately preceding the Special Meeting, excluding any appreciation or
depreciation in anticipation of the Merger. The demand must state the number
of shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder who does not demand payment for
his or her shares within the 10 day period is bound by the Merger. Upon
receiving a demand for payment from a dissenting shareholder, Union must make
an appropriate notation of the demand in its shareholder records. Within 20
days after making such demand, the dissenting shareholder must submit his or
her share certificates to Union for notation thereon that demand has been made.
Within 20 days after Union's receipt of a demand from a
dissenting shareholder, it must deliver or mail to the shareholder a written
notice that either accepts the amount claimed in the shareholder's demand as
the fair value of the shares or sets forth Union's estimate of the fair value
of the shares. If the shareholder's amount is accepted, the notice must state
that Union will pay that amount to the shareholder within 90 days after the
date the Merger was effected, upon surrender of the certificates for the
shareholder's shares, duly endorsed. If the notice includes Union's estimate
of the fair value of the shares, such notice must also include an offer to pay
the amount of that estimate to the shareholder within 90 days after the date
the Merger was effected, upon receipt of notice within 60 days after that date
from the shareholder that he or she agrees to accept that amount and surrenders
the certificates for the shareholder's shares. The failure of a dissenting
shareholder to submit his or her share certificates for notation terminates
such shareholder's right to dissent, at the option of Union, unless a court of
competent jurisdiction for good and sufficient cause otherwise directs.
If, within 60 days after the date on which the Merger was
effected, the value of the shares is agreed upon by Union and the dissenting
shareholder, then payment for the shares must be made by Union to the
shareholder within 90 days after the date on which the Merger was effected,
upon the shareholder's surrender of the certificates, duly endorsed. Upon
payment of the agreed value, the shareholder ceases to have any interest in the
shares or Union.
If, however, within 60 days after the date on which the Merger
was effected, the dissenting shareholder and Union do not agree upon the value
of the shares, then either may, within an additional 60 days after the
expiration of the first 60 day period, file a petition in any court of
competent jurisdiction in Webb County, Texas, asking the court to determine the
fair value of the shareholder's shares. If the petition is filed by the
shareholder, Union must, within 10 days after service of the petition upon it,
file in the office of the clerk of the court a list containing the names and
addresses of all shareholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
Union. If the petition is filed by Union, then the petition must be
accompanied by such list. The clerk of the court then gives notice of the time
and place fixed for the
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hearing by the court of the petition by registered mail to Union and each of
the shareholders named on the list at the addresses stated therein, and the
shareholders as notified and Union are bound by the final judgment of the
court.
After the hearing of the petition, the court determines the
shareholders who have complied with the foregoing procedure and become entitled
to the valuation of and payment for their shares and appoints one or more
appraisers to determine that value. The appraisers may examine the books and
records of Union and are required to afford a reasonable opportunity to the
interested parties to submit pertinent evidence as to the value of the shares.
The appraisers then determine the fair value of the shares of all of the
shareholders entitled to payment for their shares and file their report of that
value in the office of the clerk of the court, who gives notice of such filing
to the parties in interest. After hearing any exceptions to the report, the
court then determines the fair value of the shares of all the shareholders
entitled to payment and directs Union to pay that value, together with interest
thereon, beginning 91 days after the date on which the Merger was effected
until the date of the judgment, to the shareholders entitled to payment, upon
surrender of the certificates for their shares, duly endorsed. Upon payment of
the judgment, the dissenting shareholders cease to have any interest in those
shares or Union. The court allows the appraisers a reasonable fee as court
costs, and all court costs are allotted between the parties in a manner as the
court determines to be fair and equitable.
Any shareholder who has demanded payment for his or her shares
may withdraw such demand at any time before payment for the shares or before
any petition is filed seeking a determination of the fair value of the shares
and, with the consent of Union, after any such petition is filed. If (i) the
demand is withdrawn, (ii) Union has terminated the shareholder's rights under
Article 5.12 because of the failure of the shareholder to submit the
certificates for his or her shares for notation of demand, (iii) no petition is
timely filed, or (iv) after hearing the petition, the court determines the
shareholder is not entitled to the relief provided by Article 5.12, then the
shareholder is conclusively presumed to have approved the Merger and is bound
thereby, and his or her status as a shareholder is restored and he or she is
entitled to receive any dividends paid to shareholders in the interim.
In the absence of fraud, the remedy provided by Article 5.12 of
the TBCA to a shareholder objecting to the proposed Merger is the exclusive
remedy for the recovery of the value of his or her shares and, if Union
complies with Article 5.12, then any shareholder who fails to comply with the
requirements of Article 5.12 is not entitled to bring suit for the recovery of
the value of his or her shares or money damages to the shareholder with respect
to the Merger.
SURRENDER OF CERTIFICATES
Promptly following the Effective Time, Norwest Bank Minnesota,
National Association, acting in the capacity of exchange agent for Norwest (the
"Exchange Agent"), will mail to each holder of record of shares of Union Common
Stock or Union Preferred 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.
SHAREHOLDERS OF UNION 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 Union Common Stock or Union Preferred Stock, together with a properly
completed letter of transmittal, there will be issued and
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mailed to the holder a certificate representing the number of whole shares of
Norwest Common Stock to which such holder is entitled and, if applicable, a
check for the amount representing any fractional share (without interest). 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 is 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 taxes have been paid or are not
due.
All Norwest Common Stock issued pursuant to the Merger will be
deemed issued as of the Effective Time. No dividends in respect of the Norwest
Common Stock with a record date after the Effective Time will be paid to the
former shareholders of Union entitled to receive certificates for shares of
Norwest Common Stock until such shareholders surrender their certificates
representing shares of Union Common Stock or Union Preferred Stock. Upon such
surrender, there shall be paid to the stockholder 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 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, as the case may be, and prior to
the date of surrender, but a payment date subsequent to the surrender. In no
event shall the persons entitled to receive such dividends be entitled to
receive interest on amounts payable as dividends.
CONDITIONS TO THE MERGER
The effectiveness of the Merger is subject to the satisfaction as
of the Effective Date or, if permissible under the Merger Agreement, waiver of
a number of conditions.
CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES. Conditions to the
obligations of both parties to effect the Merger include but are not limited to
the following: (i) the approval of the Merger Agreement by the requisite vote
of Union's shareholders; (ii) the receipt of all requisite regulatory
approvals; and (iii) the absence of any order of a court or agency of competent
jurisdiction restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Merger Agreement.
CONDITIONS TO THE OBLIGATION OF NORWEST. Conditions to the
obligation of Norwest to effect the Merger include but are not limited to the
following: (i) the total number of shares of Union Common Stock (including
phantom shares and other share equivalents but excluding shares of Union
Preferred Stock) outstanding or subject to issuance upon exercise of any
warrants, options, conversion rights, phantom shares or other common share
equivalents shall not have exceeded 1,090,403 shares at any time from the date
of the Merger Agreement until the Effective Time; (ii) the total number of
shares of Union Preferred Stock (including phantom shares and other share
equivalents) outstanding or subject to issuance upon exercise of any warrants,
options, conversion rights, phantom shares or other preferred share equivalents
shall not have exceeded 433,726 shares at any time from the date of the Merger
Agreement until the Effective Time; (iii) the receipt by Norwest of a
certificate from Union's chief executive officer and Union's chief financial
officer concerning the financial information of Union included in this Proxy
Statement-Prospectus; (iv) Union and its subsidiaries shall not have sustained
since December 31, 1994 any material loss or interference with their respective
businesses from any civil
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disturbance or any fire, explosion, flood or other calamity, whether or not
covered by insurance; (v) the absence of any reasonable basis for any
proceeding, claim or action seeking to impose or that could result in the
imposition on Union or any of its subsidiaries of any liability arising from
the release of hazardous substances under any local, state, federal or foreign
environmental statute, regulation or ordinance which has had or could
reasonably be expected to have a material adverse effect on Union and its
subsidiaries taken as a whole; and (vi) the absence, since September 30, 1995,
of any change (other than changes in banking laws or regulations that affect
the banking industry generally or changes in the general level of interest
rates) or any circumstance which has had or might reasonably be expected to
have a material adverse effect on the financial condition, results of
operations, business, or prospects of Union and its subsidiaries taken as a
whole.
CONDITIONS TO THE OBLIGATION OF UNION. Conditions to the
obligation of Union to effect the Merger include but are not limited to the
following: (i) the receipt of an opinion of counsel to Union at the Closing
regarding certain federal income tax consequences of the Merger; and (ii)
Norwest shall have entered into the Employment Agreement. See "--Certain U.S.
Federal Income Tax Consequences."
For a complete description of all of the conditions to the
obligations of the parties to effect the Merger, see Sections 6 and 7 of the
Merger Agreement.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve
Board under the Bank Holding Company Act. The Merger is also subject to
certain filing and other requirements of the Texas Department of Banking.
Norwest has filed an application with the Federal Reserve Board requesting
approval of the Merger; however, there can be no assurances that the necessary
regulatory approval will be obtained or as to the timing of or conditions
placed on such approval.
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, shareholders. Regulatory approvals do not constitute an
endorsement or recommendation of the proposed Merger.
Norwest and Union are not aware of any governmental approvals or
compliance with banking laws and regulations that are required for the Merger
to become effective other than those described above. The parties currently
intend to seek to obtain any other approval and to take any other action that
may be required to effect the Merger. There can be no assurance that any
required approval or action can be obtained or taken prior to the Special
Meeting. The receipt of all necessary regulatory approvals is a condition to
effecting the Merger. See "--Conditions to the Merger" and "--Termination of
the Merger Agreement."
CONDUCT OF BUSINESS PENDING THE MERGER
BY UNION. Union and its subsidiaries are required to maintain
the general character of their businesses and conduct their businesses in the
ordinary and usual manner. In addition, without the prior written consent of
Norwest, neither Union nor any of its subsidiaries may (i) make any new loan or
modify, restructure or renew any existing loan (except pursuant to commitments
made prior to the date of the Merger Agreement) to any borrower if the amount
of the resulting loan, when aggregated with all other loans or extensions of
credit to such person, would exceed $100,000; (ii) enter into any material
agreement, contract or commitment exceeding $10,000 (other than banking
transactions in the ordinary course of business and in accordance with policies
and procedures in effect on the date of the Merger Agreement); (iii) make any
investments except investments by banking subsidiaries in the ordinary course
of business for terms of up to one year and in amounts of $100,000 or less;
(iv) sell or otherwise dispose of any shares of its capital stock; (v) sell or
otherwise dispose of any of its assets or properties other than in the ordinary
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course of business; or (vi) declare, set aside, make or pay any dividend or
other distribution with respect to its capital stock except for a dividend
declared by a subsidiary's board of directors in accordance with applicable law
and regulation.
BY NORWEST. Norwest is required to conduct and to cause its
significant subsidiaries to conduct their respective businesses in compliance
with all material obligations and duties imposed by laws, regulations, rules
and ordinances or by judicial orders, judgments and decrees applicable to them
or to their businesses or properties.
See Sections 4 and 5 of the Merger Agreement for additional
restrictions on the conduct of the business of Union and Norwest and their
subsidiaries pending the Merger.
NO SOLICITATION
Union has agreed under the Merger Agreement that neither it nor
any of its subsidiaries, or their respective directors, officers,
representatives and agents, will directly or indirectly solicit, authorize the
solicitation of or enter into any discussions with any third party concerning
any offer or possible offer to (i) purchase (A) any shares of common stock, (B)
any option or warrant to purchase shares of common stock, (C) any security
convertible into shares of common stock or (D) any other equity security of
Union or any of its subsidiaries; (ii) make a tender or exchange offer for any
shares of common stock or other equity security of Union or any of its
subsidiaries; (iii) purchase, lease or otherwise acquire the assets of Union or
any of its subsidiaries except in the ordinary course of business; or (iv)
merge, consolidate or otherwise combine with Union or any of its subsidiaries.
If any third party makes an offer or inquiry to Union or any of its
subsidiaries concerning any of the foregoing, Union or the subsidiary, as
applicable, is required to promptly disclose such offer or inquiry (including
the terms thereof) to Norwest.
CERTAIN ADDITIONAL AGREEMENTS
UNION. Union has also agreed under the Merger Agreement to (i)
if requested by Norwest, terminate or amend, effective as of the Effective
Time, certain employee benefit plans of Union and its subsidiaries; (ii)
establish such additional accruals and reserves as may be necessary to conform
Union's accounting and credit loss reserve practices and methods to those of
Norwest and Norwest's plans with respect to the conduct of Union's business
after the Effective Time and to provide for costs and expenses related to
effecting the transactions contemplated by the Merger Agreement; (iii) obtain
and deliver environmental assessment reports on certain properties; (iv) obtain
and deliver title commitments and boundary surveys for each of its bank
facilities; and (v) use its best efforts to sell or lease certain real
property.
NORWEST. Norwest has agreed under the Merger Agreement to (i)
enter into the Employment Agreement; and (ii) for a period of up to 15 days
prior to the Closing, permit Union and its representatives to examine the
books, records and properties of Norwest and to interview officers, employees
and agents of Norwest. For more information concerning the Employment
Agreement, see "--Interests of Certain Persons in the Merger."
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For information concerning additional agreements and covenants of
Union and Norwest, see Sections 4 and 5 of the Merger Agreement.
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TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time (i) by mutual written consent of the parties; (ii) by either
party by written notice to the other if the Merger has not become effective by
July 31, 1996, unless such failure of the Merger to become effective is due to
the failure of the party seeking termination to perform or observe in all
material respects the covenants and agreements to be performed or observed by
it under the Merger Agreement; or (iii) by either party by written notice to
the other if any court or governmental authority of competent jurisdiction has
issued a final order restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement. Union may also terminate
the Merger Agreement within five business days after the Special Meeting if the
Norwest Measurement Price is less than $25.
AMENDMENT OF MERGER AGREEMENT
The Merger Agreement may be amended by the parties thereto,
pursuant to action taken by their respective boards of directors or pursuant to
authority delegated by their respective boards of directors, at any time before
or after approval of the Merger Agreement by Union's shareholders; provided
that, after the Merger Agreement is approved by Union's shareholders, no
amendment can be made to the Merger Agreement that changes in a manner
materially adverse to Union's shareholders the consideration to be received by
Union's shareholders in the Merger.
WAIVER OF PERFORMANCE OF OBLIGATIONS
Any of the parties to the Merger Agreement may, by a signed
writing, give any consent, take any action with respect to the termination of
the Merger Agreement or otherwise, or waive any of the inaccuracies in the
representations and warranties of the other party or compliance by the other
party with any of the covenants or conditions contained in the Merger
Agreement.
EFFECT ON EMPLOYEE BENEFIT PLANS
The Merger Agreement provides that, subject to any eligibility
requirements applicable to such plans, employees of Union shall be entitled to
participate in those Norwest employee benefit and welfare plans specified in
the Merger Agreement. The eligible employees of Union 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 Time. Union's employees will generally continue to
participate in welfare and retirement plans maintained by Union until entering
Norwest's plans. Eligible Union employees will receive credit for past service
for the purpose of determining certain benefits under certain but not all of
Norwest's benefit plans.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement provides, as a condition to Union's obligations
thereunder, that Norwest, Union and the Bank shall have entered into the
Employment Agreement with John H. Keck. The Employment Agreement provides that
Norwest or one of its subsidiaries shall employ Mr. Keck for a term of eighteen
months following the Closing Date at an annual salary of $170,000. The
Employment Agreement also provides that Mr. Keck will be entitled to receive a
lump sum severance payment of $85,000 upon the later of the expiration of the
Employment Agreement or termination of his
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employment with the Norwest and its subsidiaries. Norwest management will also
request that the Human Resources Committee of the Norwest Board grant to Mr.
Keck, at its first meeting following the Closing, a stock option for the
purchase of 1,500 shares of Norwest Common Stock at an exercise price equal to
the fair market value of such stock as of the date of grant, 100% of which will
become first exercisable on the first anniversary of the date such option is
granted, provided that Mr. Keck is still an employee of Norwest or one of its
affiliates on the vesting date. A copy of the Employment Agreement is included
in this Proxy Statement-Prospectus as Exhibit C to the Merger Agreement, which
is included as Appendix A hereto.
Norwest has agreed in the Merger Agreement to allow John H. Keck, Keith L.
Rhoden and S. Bradford Sledge to purchase from the Bank at any time prior to
the Closing the split dollar life insurance policies covering their respective
lives at a price equal to the cash value of each such policy as of the date of
purchase. Norwest has also agreed in the Merger Agreement to allow Ray M.
Keck, Jr., to purchase from the Bank at any time prior to the Closing the
key-man life insurance policies covering his life at a price equal to the cash
value of such policies as of the date of purchase. If such policies are not
purchased by such individuals, Norwest intends to surrender such policies to
the respective insurance companies which are the writers of such policies in
exchange for such cash values. As of December 31, 1995, the cash values of the
policies for John H. Keck, Ray M. Keck, Jr., Keith L. Rhoden and S. Bradford
Sledge were $176,990, $195,093, $98,506 and $136,638, respectively.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax consequences
of the Merger that are generally applicable to Union's shareholders. The
discussion is based on currently existing provisions of the Code, existing
regulations thereunder (including final, temporary or proposed) and current
administrative rulings and court decisions, all of which are subject to change.
Any such change, which may or may not be retroactive, could alter the tax
consequences described herein. The following discussion is intended only as a
summary of certain principal federal income tax consequences of the Merger and
does not purport to be a complete analysis or listing of the all of the
potential tax effects relevant to a decision on whether to vote in favor of
approval of the Merger Agreement.
The parties expect the Merger to qualify as a reorganization
under Section 368(a) of the Code. Except for cash received in lieu of a
fractional share interest in Norwest Common Stock, holders of shares of Union
Common Stock and Union Preferred Stock will recognize no gain or loss on the
receipt of Norwest Common Stock. The Merger's effectiveness is conditioned
upon the receipt by Union of a written opinion of Vinson & Elkins L.L.P.,
counsel to Union, substantially to the effect that, for U.S. federal income
tax purposes: (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code; (ii) no gain or loss will be recognized
by the holders of Union Common Stock or Union Preferred Stock upon receipt of
Norwest Common Stock except for cash received in lieu of fractional shares; and
(iii) the basis of the Norwest Common Stock received by the shareholders of
Union will be the same as the basis of the Union Common Stock or Union
Preferred Stock, as the case may be, exchanged therefor; and (iv) the holding
period of the shares of Norwest Common Stock received by the shareholders of
Union will include the holding period of the Union Common Stock or Union
Preferred Stock, as the case may be, provided such shares of Union Common Stock
or Union Preferred Stock were held as a capital asset as of the Effective Time.
The opinion of counsel, which will be delivered on the Closing Date, is
filed as an exhibit to the Registration Statement. The foregoing discussion is
only a summary of the tax consequences as
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described in the opinion. An opinion of counsel only represents counsel's best
legal judgment and has no binding effect or official status of any kind, and no
assurance can be given that contrary positions may not be taken by the Internal
Revenue Service (the "IRS") or a court considering the issues. Neither Union
nor Norwest has requested or will request a ruling from the IRS with regard to
the federal income tax consequences of the Merger.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO UNION SHAREHOLDERS, WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. EACH UNION SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING ANY SUCH SPECIFIC TAX SITUATION AND STATUS, INCLUDING THE APPLICATION
AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN LAWS AND THE POSSIBLE EFFECT OF
CHANGES IN FEDERAL AND OTHER TAX LAWS.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of
Union upon the Merger becoming effective have been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of Union or Norwest as that
term is defined in the rules under the Securities Act. Norwest Common Stock
received by those shareholders of Union who are deemed to be "affiliates" of
Union may be resold without registration as provided for by Rule 145 or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Union generally include individuals or entities that control, are
controlled by or are under common control with, Union and may include the
executive officers and directors of Union as well as certain principal
shareholders of Union. In the Merger Agreement, Union has agreed to use its
best efforts to cause each executive officer, director or shareholder who may
reasonably be deemed an affiliate of Union to represent to Norwest 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 Union.
STOCK EXCHANGE LISTING
The Merger Agreement provides for the filing by Norwest of
listing applications with the NYSE and the CHX covering the shares of Norwest
Common Stock issuable upon the Merger becoming effective. The Merger's
effectiveness is conditioned on the authorization for listing of such shares on
the NYSE and CHX.
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ACCOUNTING TREATMENT
Any provision of the Merger Agreement notwithstanding, management
of Norwest anticipates that the Merger will be accounted for as a purchase
under generally accepted accounting principles.
EXPENSES
Except as otherwise provided in the Merger Agreement, Norwest and
Union will each pay their own expenses in connection with the Merger, including
fees and expenses of their respective independent auditors and counsel.
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NORWEST CAPITAL STOCK AND RIGHTS
The following description of certain aspects of the capital stock
of Norwest and certain rights of Norwest's stockholders is not intended to be
complete and is qualified in its entirety by reference to Article FOURTH of the
Norwest Certificate and other documents incorporated by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "COMPARISON OF RIGHTS OF
HOLDERS OF UNION CAPITAL STOCK AND NORWEST COMMON STOCK."
GENERAL
Norwest is authorized to issue a total of 509,000,000 shares of
capital stock, consisting of 500,000,000 shares of Norwest Common Stock,
5,000,000 shares of preferred stock without par value ("Norwest Preferred
Stock") and 4,000,000 shares of preference stock without par value ("Norwest
Preference Stock"). As of December 31, 1995, Norwest had issued (i)
358,332,153 shares of Norwest Common Stock, of which 352,760,457 shares were
outstanding and 5,571,696 shares were held as treasury shares, and (ii)
2,119,681 shares of Norwest Preferred Stock, 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 were held by a subsidiary of Norwest),
12,984 shares of ESOP Cumulative Convertible Preferred Stock and 24,572 shares
of 1995 ESOP Cumulative Convertible Preferred Stock. On January 2, 1996, all
of the outstanding shares of 10.24% Cumulative Preferred Stock and related
depositary shares were redeemed at the $100 stated value. Norwest had not
issued any shares of Norwest Preference Stock as of the date of this Proxy
Statement-Prospectus.
Norwest's board of directors (the "Norwest Board") has designated
1,250,000 shares of Norwest Preferred Stock as Series A Junior Participating
Preferred Stock (the "Norwest Junior Preferred Shares") and reserved the
Norwest Junior Preferred Shares for issuance pursuant to a rights agreement
dated November 22, 1988 between Norwest and Citibank, N.A., as the rights
agent. See"--Rights Plan." Norwest had not issued any Norwest Junior
Preferred Shares as of the date of this Proxy Statement-Prospectus.
NORWEST COMMON STOCK
Each share of Norwest Common Stock entitles the holder thereof to
one vote on all matters submitted to a vote of stockholders. Holders of
Norwest Common Stock do not have any cumulative voting rights. For that
reason, holders of a majority of the shares of Norwest Common Stock entitled to
vote in any election of directors of Norwest may elect all of the directors
standing for election. Holders of Norwest Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Norwest Board out of
funds legally available therefor, subject to (i) preferential dividend rights
of all then outstanding shares of Norwest Preferred Stock and Norwest
Preference Stock, (ii) certain legal restrictions on the ability of Norwest's
banking and savings association subsidiaries to distribute funds to Norwest and
(iii) such restrictions as may be imposed on Norwest from time to time pursuant
to debt or credit facilities or otherwise. See "CERTAIN REGULATORY
CONSIDERATIONS." Holders of Norwest Common Stock do not have any preemptive
rights to purchase additional securities issued by Norwest or rights to convert
their shares of Norwest Common Stock into other securities of Norwest. Upon
the liquidation, dissolution or winding up of Norwest, subject to the prior
rights of all then outstanding shares of Norwest Preferred Stock and Norwest
Preference Stock, holders of Norwest
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Common Stock are entitled to receive ratably the assets of Norwest available
after the payment of all debts and other liabilities. All outstanding shares
of Norwest Common Stock are duly authorized, validly issued and nonassessable.
Norwest Bank Minnesota, National Association, a subsidiary of Norwest, is the
transfer agent and registrar for shares of Norwest Common Stock.
Each share of Norwest Common Stock includes, and each share of
Norwest Common Stock issued in the Merger will include, a right to purchase one
four-hundredth of a Norwest Junior Preferred Share. See "--Rights Plan"
The rights, preferences and privileges of holders of Norwest
Common Stock are subject to, and may be adversely affected by, the rights of
holders of Norwest Preferred Stock or Norwest Preference Stock. See "--Norwest
Preferred Stock; Norwest Preference Stock."
NORWEST PREFERRED STOCK; NORWEST PREFERENCE STOCK
The Norwest Board is authorized to issue shares of Norwest
Preferred Stock and Norwest Preference Stock in one or more series and to fix
the relative rights, preferences, privileges and restrictions thereof,
including dividend rates, conversion rights, voting rights, terms of
redemption, liquidation preferences, and the designation of any series and the
number of shares constituting such series, all without any vote or other action
on the part of stockholders; provided, however, that holders of Norwest
Preference Stock will not be entitled to more than one vote per share. The
Norwest Board may issue shares of Norwest Preferred Stock and Norwest
Preference Stock at any time and from time to time without any vote or other
action on the part of stockholders.
The ability of the Norwest Board to issue shares of Norwest
Preferred Stock or Norwest Preference Stock, although providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of the outstanding voting
stock of Norwest. For a discussion of other provisions of the Norwest
Certificate or Norwest Bylaws that may delay, deter or prevent a tender offer
or other takeover attempt, see "--Rights Plan" below.
RIGHTS PLAN
Norwest has in effect a rights plan (the "Rights Plan") pursuant
to which each share of Norwest Common Stock now outstanding, and each share of
Norwest Common Stock to be issued in the Merger, have attached to it one
Preferred Stock purchase right (a "Right") entitling the holder thereof to
purchase one four-hundredth of a Norwest Junior Preferred Share at a price of
$175.00, subject to customary antidilution adjustment. The Rights are not
separable from, and trade automatically with, the shares of Norwest Common
Stock to which they are attached. No separate certificates for the Rights will
be issued. The Rights are exercisable only upon the occurrence of certain
specified events as described below. All rights expire November 23, 1998,
unless earlier exercised by the holders thereof or redeemed or extended by
Norwest. Until exercised, the Rights in and of themselves do not confer any
rights on their holders as stockholders of Norwest, including but not limited
to the right to vote or receive dividends. Subject to certain limited
exceptions, the Norwest Board may amend or otherwise modify the provisions of
the Rights and the Rights Plan without any vote or other action on the part of
the holders of the Rights.
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The Rights are exercisable only if a person or group acquires or
announces an offer to acquire 25% or more (the "Triggering Percentage") of the
outstanding shares of Norwest Common Stock. The Norwest Board may, without any
vote or other action on the part of stockholders, reduce the Triggering
Percentage to no less than 15% at any time prior to the Rights becoming
exercisable. The Rights have certain additional rights that will be triggered
upon the occurrence of specified events:
(1) If a person or group acquires at least the Triggering
Percentage of Norwest Common Stock, the Rights permit the holders thereof,
other than such person or group, to acquire shares of Norwest Common Stock at
50% of such shares' market value at the time. This feature will not apply,
however, if a person or group that 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 shares of Norwest
Common Stock.
(2) After a person or group acquires at least the Triggering
Percentage of Norwest Common Stock but before such person or group acquires 50%
of the outstanding shares of Norwest Common Stock, the Norwest Board may
exchange each Right, other than Rights owned by such acquiror, for one share of
Norwest Common Stock or one four-hundredth of a Junior Preferred Share.
(3) In the event of certain business combinations involving
Norwest or the sale of 50% or more of the assets or earning power of Norwest,
the Rights permit the holders thereof to purchase the stock of the acquiror at
50% of such shares' market value.
Each Junior Preferred Share will have 400 votes, voting together
with shares of Norwest Common Stock. Each Junior Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per
share and will be entitled to an aggregate dividend of 400 times the dividend
declared per share of Norwest Common Stock. In the event of a 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. In the event of liquidation of
Norwest, the holders of the Junior Preferred Shares will be entitled to a
minimum preferential liquidation payment of $400 per share and will be entitled
to an aggregate payment of 400 times the payment made per share of Norwest
Common Stock. The Junior Preferred Shares will not be redeemable. The rights
of the Junior Preferred Shares are protected by customary antidilution
provisions.
The Norwest Board may redeem the Rights in whole, but not in
part, at a price of $.0025 per Right (the "Redemption Price") at any time prior
to the acquisition by a person or group of at least the Triggering Percentage
of the outstanding shares of Norwest Common Stock. The Norwest Board may
effect the redemption at such time, upon such terms and subject to such
conditions as the Norwest Board in its sole discretion may deem necessary or
advisable. Immediately upon redemption of the Rights, all rights of the
holders thereof (including the right to exercise the Rights) will terminate
except for the right to receive the Redemption Price.
The operation of the Rights Plan may result in immediate
substantial dilution to, or otherwise materially adversely affect, any person
or group that acquires the Triggering Percentage of Norwest Common Stock or
otherwise triggers a provision of the Rights Plan. For that reason, the
existence of the Rights Plan may have the effect of delaying, deterring or
preventing a takeover of Norwest.
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DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
Norwest has in effect an automatic Dividend Reinvestment and
Optional Cash Payment Plan that entitles participants to reinvest dividends on
Norwest Common Stock held by them in additional shares of Norwest Common Stock
and, subject to certain dollar limits, purchase additional shares of Norwest
with voluntary cash payments. The price at which shares of Norwest Common
Stock are purchased under the plan is equal to the fair market value of the
Norwest Common Stock (as calculated in accordance with the provisions of the
plan) at the time of purchase. All stockholders of Norwest (including former
shareholders of Union who receive shares of Norwest Common Stock in the Merger)
are entitled to participate in the plan as currently in effect.
SHARES REGISTERED UNDER THE SECURITIES ACT
Norwest has registered 1,700,000 shares of Preferred Stock under
the Act, all of which were available for issuance as of the date of this Proxy
Statement-Prospectus. Pursuant to additional shelf registration statements
filed with the Commission, Norwest has also registered under the Securities Act
an indeterminate number of securities (the "Shelf Securities"), which Norwest
may issue as, among other securities, Norwest Preferred Stock or securities
convertible into Norwest Common Stock or Norwest Preferred Stock. As of
December 31, 1995, Norwest had available for issuance Shelf Securities having
an aggregate initial public offering price of up to $1.925 billion. The
Norwest Board may issue the Shelf Securities at any time and from time to time
without any vote or other action on the part of stockholders.
No prediction can be made as to the effect, if any, that future
sales of shares of Norwest's capital stock will have on the market price of the
Norwest Common Stock prevailing from to time. Sales of substantial amounts of
capital stock in the public market, or the perception that such sales could
occur, could adversely affect the prevailing market price of Norwest Common
Stock. Future sales of Norwest's capital stock may result in dilution to
existing stockholders.
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COMPARISON OF RIGHTS OF HOLDERS OF UNION CAPITAL STOCK
AND NORWEST COMMON STOCK
GENERAL
Union is incorporated under the laws of the state of Texas.
Norwest is incorporated under the laws of the state of Delaware. The rights of
Union's shareholders are currently governed by the TBCA and the Union Articles
and Union Bylaws. If Union's shareholders approve the Merger Agreement and the
Merger becomes effective, shareholders of Union will become stockholders of
Norwest. For that reason, after the Effective Time, their rights will be
governed by the DGCL and the Norwest Certificate and Norwest Bylaws.
The following is a comparison of certain rights of holders of
Union Common Stock and Union Preferred Stock with the rights of holders of
Norwest Common Stock. It is not intended to be complete and is qualified in its
entirety by reference to the relevant provisions of the laws and documents
discussed below. For additional information concerning the rights of holders
of Norwest Common Stock, see "NORWEST CAPITAL STOCK AND RIGHTS."
DIRECTORS
UNION. The Union Bylaws provide that the number of directors
shall be determined from time to time by resolution of a majority of the
full board of directors and that directors hold office until the next annual
meeting of shareholders and until their successors shall have been elected and
qualified. The number of directors of Union is currently fixed at five.
Directors of Union may be removed with or without cause by the affirmative vote
of the holders of a majority of the shares of Union capital stock entitled to
vote thereon. Vacancies on the Union Board may be filled by a majority of the
remaining directors even though such majority may be less than a quorum of the
board of directors. Directors of Union are elected by a majority of the votes
of shares of Union capital stock entitled to vote thereon, present in person or
by proxy at the meeting at which directors are elected. Holders of Union Common
Stock and holders of Union Preferred Stock vote together as a single class on
election of directors. The Union Articles do not currently permit cumulative
voting in the election of directors.
NORWEST. The Norwest Bylaws provide for a board of directors
consisting of not less than 10 nor more than 23 persons, each serving for a
term of one year or until his or her earlier death, resignation or removal.
The number of directors of Norwest is currently fixed at 15. Directors of
Norwest may be removed with or without cause by the affirmative vote of the
holders of a majority of the shares of Norwest capital stock entitled to vote
thereon. Vacancies on the Norwest Board may be filled by a majority of the
remaining directors or, in the event a vacancy is not so filled or if no
director remains, by the stockholders. Directors of Norwest are elected by
plurality of the votes of shares of Norwest capital stock entitled to vote
thereon present in person or by proxy at the meeting at which directors are
elected. The Norwest Certificate does not currently permit cumulative voting
in the election of directors. See "NORWEST CAPITAL STOCK AND RIGHTS--Common
Stock."
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AMENDMENT OF ARTICLES OR CERTIFICATE OF INCORPORATION AND BYLAWS
UNION. The Union Articles may be amended only if the
proposed amendment is approved by the Union Board and thereafter approved by
holders of two-thirds of the outstanding stock entitled to vote thereon and by
the holders of two-thirds of the outstanding stock of each class entitled to
vote thereon as a class. Holders of Union Common Stock and holders of Union
Preferred Stock vote together as a single class on all amendments except those
which would affect a change in either class, in which case the holders of each
class being affected would be entitled to a class vote. The Union Bylaws may
be amended by a majority of the Union Board or by the holders of a majority of
the outstanding stock entitled to vote thereon. Shares of Preferred Stock
currently authorized in the Union Articles may be issued by the Union Board
without amending the Union Articles or otherwise obtaining the approval of
Union's shareholders.
NORWEST. The Norwest Certificate may be amended only if the
proposed amendment is approved by the Norwest Board and thereafter approved by
a majority of the outstanding stock entitled to vote thereon and by a majority
of the outstanding stock of each class entitled to vote thereon as a class.
The Norwest Bylaws may be amended by a majority of the Norwest Board or by a
majority of the outstanding stock entitled to vote thereon. Shares of Norwest
Preferred Stock and Norwest Preference Stock currently authorized in the
Norwest Certificate may be issued by the Norwest Board without amending the
Norwest Certificate or otherwise obtaining the approval of Norwest's
stockholders. See "NORWEST CAPITAL STOCK AND RIGHTS--Preferred Stock and
Preference Stock."
SHAREHOLDER OR STOCKHOLDER APPROVAL OF MERGERS AND ASSET SALES
In addition to being subject to the laws of Texas and Delaware,
respectively, both Union 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."
UNION. Except as described below, the affirmative vote of
holders of two-thirds of the outstanding shares of Union Common Stock and
holders of two-thirds of the outstanding shares of Union Preferred Stock
entitled to vote thereon, voting as separate classes, is required to approve a
merger of consolidation involving Union or the sale, lease or exchange of all
or substantially all of Union's corporate assets. No vote of the shareholders
is required, however, in connection with a merger in which Union is the
surviving corporation and (i) the agreement of merger does not amend in any
respect the Union Articles, (ii) each share of Union capital stock outstanding
immediately before the merger is to be an identical outstanding share of Union
capital stock after the merger, and (iii) the voting power of the number of
voting shares outstanding immediately after the merger, plus the voting power
of the shares issuable as a result of the merger, will not exceed by more than
20% the voting power of the total number of voting shares of Union outstanding
immediately before the merger.
NORWEST. Except as described below, the affirmative 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 all or substantially all of Norwest's corporate
assets. No vote of the stockholders is required, however, in connection with a
merger in which Norwest is the surviving corporation and (i) the agreement of
merger for the merger does not amend in any respect the Norwest Certificate,
(ii) each share of capital stock outstanding immediately
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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
UNION. Articles 5.11 through 5.13 of the TBCA provide for
shareholder appraisal rights in connection with mergers and corporate
combinations generally; however, appraisal rights are not available to holders
of any class or series of class that, at the record date fixed to determine
shareholders entitled to receive notice of and to vote at the meeting to act
upon the agreement of merger or combination, were either (i) listed on a
national securities exchange, or (ii) held of record by more than 2,000
shareholders, so long as shareholders are not required by the terms of the plan
of merger or combination to accept for their shares any consideration other
than (a) shares of a corporation that, immediately after the effective time of
the merger or combination, will be part of a class or series of shares which
are listed, or authorized for listing upon official notice of issuance, on a
national securities exchange or held of record by not less than 2,000 holders
and (b) cash in lieu of fractional shares otherwise entitled to be received.
NORWEST. Section 262 of the DGCL provides for stockholder
appraisal rights in connection with mergers and consolidations generally;
however, appraisal rights are not available to holders of any class or series
of stock that, at the record date fixed to determine stockholders entitled to
receive notice of and to vote at the meeting to act upon the agreement of
merger or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 stockholders, so long as stockholders
receive shares of the surviving corporation or another corporation whose shares
are so listed or designated or held by more than 2,000 stockholders. Norwest
Common Stock is listed on the NYSE and the CHX and currently held by more than
2,000 stockholders. For these reasons, assuming that the other conditions
described above are satisfied, holders of Norwest Common Stock will not have
appraisal rights in connection with mergers and consolidations involving
Norwest.
SPECIAL MEETINGS
UNION. Under the TBCA, special meetings of shareholders may be
called by the president, the board of directors, or such other person or
persons as may be authorized in the articles of incoproration or the bylaws, or
by the holders of at least 10% of all the shares entitled to vote at the
proposed special meeting (unless the articles of incorporation require a number
of shares greater than or less than 10%, but in no event greater than 50%).
The Union Bylaws provide that special meetings of the shareholders may be
called by the president, and shall be called by the president or secretary at
the request in writing of a majority of the Union Board, or at the request in
writing of shareholders owning not less than 10% of all the shares entitled to
vote at the meeting.
NORWEST. Under the DGCL, special meetings of stockholders may be
called by the board of directors or by such persons as may be authorized in the
certificate of incorporation or bylaws. The Norwest Bylaws 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 Norwest Board. As
such, holders of Norwest Common Stock do not have the ability to call a special
meeting of stockholders.
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ACTION WITHOUT A MEETING
UNION. As permitted by Article 9.10 of the TBCA, any action
required or permitted to be taken at a shareholders' meeting may be
taken without a meeting pursuant to the written consent of the holders of all of
the shares entitled to vote with respect to the action that is the subject to
the consent. Article 9.10 of the TBCA also states that the articles of
incorporation may provide that any action required to be taken at a meeting of
shareholders may instead be taken without a meeting pursuant to the written
consent of the holders of the number of shares that would have been required to
effect the action at an actual meeting of shareholders. The Union Articles do
not contain any such provision.
NORWEST. As permitted by Section 228 of the DGCL and the Norwest
Certificate, any action required or permitted to be taken at a stockholders'
meeting may be taken without a meeting pursuant to the written consent of the
holders of the number of shares that would have been required to effect the
action at an actual meeting of the stockholders.
LIMITATION OF DIRECTOR LIABILITY
UNION. Article 1302-7.06 of the Texas Civil Statutes provides
that the articles of incorporation may provide that a director of the
corporation shall not be liable, or shall be liable only to the extent provided
in the articles of incorporation, to the corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director, provided that there shall be no limitation of liability of a director
to the extent the director is found liable for (i) a breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) an act or omission
not in good faith that constitutes a breach of duty of the director to the
corporation or that involves intentional misconduct or a knowing violation of
the law, (iii) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office, or (iv) an act or omission for which the
liability of a director is expressly provided by an applicable statute. The
Union Articles do not contain any special provisions relating to limitation of
liability of directors.
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 (i) any
breach of the director's duty of loyalty to Norwest or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) payment of a dividend or approval of a stock
repurchase in violation of Section 174 of the DGCL, or (iv) any transaction
from which the director derived an improper personal benefit. This provision
protects Norwest's directors against personal liability for monetary damages
from breaches of their duty of care. It does not eliminate the director's duty
of care and 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.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
UNION. The Union Bylaws provide that Union shall indemnify any
director or officer or former director or officer of Union, or any
person who may have served at Union's request as a director or officer or former
director or officer of another corporation in which it owns shares of capital
stock or of which it is a creditor, against expenses actually and necessarily
incurred by him in connection with the
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defense of any action, suit or proceeding, whether civil or criminal, in which
he is made a party by reason of being or having been such director or officer,
except in relation to matters as to which he shall be adjudged in such action,
suit or proceeding to be liable for negligence or misconduct in performance of
duty. The Union Bylaws also provide that Union shall reimburse any such
director or officer or former director or officer or any such person for the
reasonable cost of settlement of any such action, suit or proceeding if it
shall be found by a majority of the directors not involved in the matter in
controversy, whether or not a quorum, that it was in the best interest of Union
that such settlement be made, and that such director, officer, former director
or officer or such person was not guilty of negligence or misconduct in
performance of duty. Union may pay in advance any expenses which may become
subject to indemnification if the Union Board authorizes the specific payment
and if the person receiving the payment undertakes in writing to repay such
payment unless it is ultimately determined that he is entitled to
indemnification by Union.
Pursuant to the Union Bylaws, Union may maintain insurance, at its
expense, on behalf of any person who is or was a director, officer, employee or
agent of Union or who is or was serving at the request of Union as a director,
officer, employee or agent of another corporation or entity against any
liability asserted against him and incurred by him in any such capacity or
arises out of his status as such, whether or not Union would have the power to
indemnify him against such liability under the Union Bylaws or the laws of the
state of Texas.
The right to indemnification is not exclusive of any other right
which any person may have or be entitled to under any agreement, insurance
policy or vote of shareholders or otherwise.
NORWEST. The Norwest Certificate 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
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 Norwest Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
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DIVIDENDS
In addition to restrictions imposed under Texas and Delaware law,
respectively, Norwest and Union are subject to Federal Reserve Board and other
regulatory policies regarding payment of dividends, which generally limit
dividends to operating earnings. See "INFORMATION CONCERNING UNION--Supervision
and Regulation" and "CERTAIN REGULATORY CONSIDERATIONS."
UNION. Texas corporations may pay dividends out of surplus
provided that after giving effect to the dividend payment, the corporation
would not be insolvent.
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.
PROPOSAL OF BUSINESS, NOMINATION OF DIRECTOR
UNION. The Union Bylaws do not contain any procedural rules to
be followed by a stockholder in connection with (i) the nomination by such
stockholder of a person to serve as a director, or (ii) the proposal by such
stockholder of an item of business for consideration at a meeting of Union
shareholders.
NORWEST. The Norwest Bylaws contain detailed advance notice and
informational procedures which must be complied with in order for a stockholder
to nominate a person to serve as a director. The Norwest Bylaws generally
require a stockholder to give notice of a proposed nominee in advance of the
stockholders meeting at which directors will be elected. In addition, the
Norwest Bylaws 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.
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INFORMATION CONCERNING UNION
GENERAL
Union is registered under federal law as a bank holding company
and owns all of the outstanding capital stock of the Bank. Union was
organized under the laws of the state of Texas on May 17, 1984, and became a
bank holding company through its acquisition of the Bank on January 11, 1986.
Union assists the Bank in the management and coordination of its
financial resources and provides capital and business development,
long-range planning and public relations assistance. At December 31, 1995,
Union had, on a consolidated basis, total assets of approximately $237.5
million, total deposits of approximately $225.4 million, net loans (total loans
minus allowance for possible loan losses and unearned discounts) of
approximately $116.0 million and total stockholders' equity of approximately
$10.0 million.
The Bank provides a wide range of banking services for its
commercial, industrial and financial customers. Commercial lending
activities include short-term and medium-term loans, revolving credit
arrangements, inventory and accounts receivable financing, equipment financing,
interim and long-term real estate lending, as well as services such as wire
transfers, federal tax depository services, and VISA and MasterCard merchant
accounts.
The Bank also provides a wide range of consumer banking services,
including savings and checking accounts, various savings programs and
installment and other personal loans. The Bank makes home improvement and real
estate loans and offers MasterCard and VISA credit cards to its customers, and
provides safe deposit services. The Bank provides 24 hour access to routine
banking services through automated teller machines.
The Bank maintains four locations in Laredo and a full service
branch in San Antonio, Texas, the ninth largest city in the United States. The
Bank pioneered branch banking in Texas by successfully opening the first
out-of-county branch in Texas in 1987.
LOCAL ECONOMY
The population of Laredo is 125,000 and, combined with its
sister city of Nuevo Laredo, Mexico, is part of a community of 500,000
inhabitants. Imports and exports through the Port of Laredo and the Maquiladora
program have invigorated the border economy. San Antonio is home to five
military bases and has a strong tourism market that helps maintain stability in
the local economy. Along with Laredo, San Antonio is an important center for
U.S./Mexican trade, and will likely increase in importance due to implementation
of the North American Free Trade Agreement ("NAFTA"), which is expected to cause
substantial increases in cross-border trade with Mexico. Because of the active
economy, expanding trade relations and growth opportunities, the Bank is
positioning itself for a greater market presence in those areas.
50
<PAGE> 54
PREMISES
The main facility of the Bank (the "Main Bank") is located at 1100
Matamoros in the central business district of Laredo, Texas. The Bank owns and
occupies a two-story building at that location. The North Banking Facility is
located in North Laredo immediately adjacent to Interstate 35 and the largest
local mall. The facility consists of a walk-in lobby and seven drive-in lanes.
The West Banking Facility is located at 900 Victoria Street in Laredo, two
blocks from the Main Bank. The facility consists of three drive-in lanes and
additional office space. The East Banking Facility is located at Guadalupe and
Stone Street in Laredo. The facility consists of a newly expanded walk-in
lobby and eight drive-in lanes. The Bank's San Antonio location is located at
4940 Broadway in San Antonio. The facility consists of a full service lobby
and two drive-in lanes. The Bank operates three automated teller machines, one
at the North Banking Facility, one at the West Banking Facility, and one at the
East Banking Facility. The Bank also leases property adjacent to the Main
Bank, which is used to house the data processing and the purchasing
departments.
EMPLOYEES
At December 31, 1995, Union and the Bank had 125 full-time and
five part-time employees.
SUPERVISION AND REGULATION
Union and the Bank are subject to extensive regulation by the
Federal Reserve Board, the Office of the Comptroller of the Currency
(the "OCC") and the Federal Deposit Insurance Corporation (the "FDIC"). These
regulatory agencies have broad powers which can have a major effect on the
operating policies of the Bank. Matters which might be affected include the
scope of business and investments, cash reserves, the purpose, nature of and
collateral for loans, the maximum interest payable on deposits, dividend
policies, capitalization ratios, investment in bank premises or branches, and
the amount of assets held in investment and loan portfolios. Periodic
evaluations of the condition of the Bank are made by these regulatory agencies.
Their evaluations are based on reports frequently submitted by the Bank and by
periodic on-site examinations by field examiners. See "Certain Regulatory
Considerations" for information regarding the effect of regulation by the FRB,
the OCC and the FDIC on banks and bank holding companies generally.
The Federal Reserve Board with respect to bank holding companies
and the OCC with respect to national banks have adopted certain risk-based
capital adequacy guidelines. Under the Federal Reserve Board's guidelines,
Union is required to maintain a minimum ratio of Tier 1 and total capital to
risk-adjusted assets ratios of at least 4.0% and 8.0%, respectively, and a
minimum leverage ratio of 3%. As of December 31, 1995, Union's actual Tier 1
and total assets to risk-adjusted assets ratios were 8.34% and 9.59%,
respectively, and its actual leverage ratio was 4.18%. Pursuant to the
agreement with the OCC discussed below, the Bank is required to maintain
minimum Tier 1 and total capital to risk-adjusted assets ratios of at least
5.0% and 10.0%, respectively, and a minimum leverage ratio of 5%. As of
December 31, 1995, the Bank's actual Tier 1 and total assets to risk-adjusted
assets ratios were 8.50% and 9.76%, respectively, and its actual leverage ratio
was 4.26%. For a more detailed discussion of the capital guidelines and the
criteria used to determine minimum required capital ratios, see "CERTAIN
REGULATORY CONSIDERATIONS--Capital Requirements."
In 1992, Union entered into a letter agreement with the Federal
Reserve Bank of Dallas (the "Reserve Bank") which requires Union to (i) receive
written approval of the Reserve Bank prior to
51
<PAGE> 55
declaration or payment of any dividends; (ii) provide advance written notice to
the Reserve Bank prior to any receipt of dividends from the Bank; (iii) prepare
and provide to the Reserve Bank a capital plan; and (iv) provide the Reserve
Bank with quarterly progress reports and financial statements. Management
believes Union is in substantial compliance with the terms of the letter
agreement.
On April 24, 1992, the Bank entered into an agreement with the
OCC. The agreement requires the Bank to appoint a compliance committee of the
Bank's board of directors to assure compliance with the agreement, employ an
independent management consultant to review the structure and operations of the
Bank, adopt and implement a three-year strategic plan, formulate and ensure
implementation of an internal loan review function, adopt and implement a
program to address criticized assets, develop and implement a policy to govern
the treatment of nonaccrual loans, obtain current information for all loans,
conduct a review of the Bank's policy regarding transactions with affiliates,
develop and implement a policy regarding accounting for nonrefundable fees
associated with the origination of loans, adopt and implement a real estate
appraisal policy, revise the Bank's liquidity and asset and liability
management policies, and adopt and implement an electronic data processing
program. It also required the Bank to increase its level of Tier 1 capital to
adjusted total assets (average total assets minus certain intangible assets
that are deducted from Tier 1 capital) to 5.0% and to increase its level of
total capital to risk-weighted assets to at least 10% within a period of time
acceptable to the OCC. Failure to meet the OCC requirements may result in one
or more regulatory sanctions, including restrictions as to the source of
deposits and the appointment of a conservator. Except for the capital
requirements as discussed above, management believes the Bank is in substantial
compliance with the terms of the agreement with the OCC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The major components of Union's and the Bank's net earnings are
(i) the net interest margin, (ii) non-interest income and expense, and (iii)
allowance for credit losses.
NET INTEREST MARGIN. The Net Interest Margin ("NIM"), defined as
net interest income divided by average interest-earning assets (expressed as a
percentage), increased from 3.86% in 1994 to 3.97% in 1995. Although many
factors can affect interest rates, and no assurance or representations can be
given with respect to forecasts for rates, the Bank's management continues to
work with financial advisors to manage the Bank's exposure to changes in
interest rates.
In addition to interest rate changes, the Bank has seen a
reduction in loans outstanding. Currently, the Bank is approximately $7.6
million under budget for loan volumes. This has had an adverse impact on the
NIM because loans generally provide a higher yield than alternative investments
such as debt securities. The Bank's management continues to focus on
increasing the level of loans outstanding to improve the NIM.
The steep treasury yield curve has flattened in 1995, with yields
on the long term government bonds approaching 6.0% at year end. As forecasters
predicted, a flattened yield curve resulted in pressure on short term rates.
This is an important factor in asset/liability management for financial
institutions.
The Bank actively performs sensitivity analyses to understand and
react to market conditions. Areas such as loan and deposit pricing to insulate
the Bank from adverse market conditions are continually addressed by management
through the use of outside econometric consultants and internal
52
<PAGE> 56
asset/liability analyses.
The following table analyzes the contribution of interest-earning
assets to overall net interest income and the impact of the cost of funds.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1995 1994
------------------------------------ ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
------- -------- ---------- ------- -------- -----------
(DOLLARS IN THOUSANDS)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Time deposits $ 100 $ 5 5.29% $ 468 $ 39 3.58%
Federal funds sold 7,666 443 5.77% 9,996 404 4.04%
Investment securities 86,685 4,691 5.41% 97,925 4,775 4.90%
Loans, net of allowance 116,919 11,261 9.63% 125,199 10,973 8.76%
------- ------ ------- ------
Total $211,370 $16,400 7.76% $233,588 $16,191 6.93%
======= ====== ======= ======
INTEREST-BEARING
LIABILITIES:
Deposits $195,788 $ 7,545 3.86% $220,688 $ 6,835 3.11%
Other 4,543 355 7.69% 3,836 253 6.03%
--------- ----- ----- ----- ----
Total $200,331 $ 7,900 3.94% $224,524 $ 7,088 3.16%
======= ===== ======= =====
</TABLE>
NON-INTEREST INCOME AND NON-INTEREST EXPENSE. Non-interest
income was $2.1 million in 1994 compared to $2.0 million in 1995. Fees for
deposit related services declined by 11.0% from 1995 to 1994 with fees
generated during those periods totaling $1.9 million and $2.2 million,
respectively.
ALLOWANCE FOR CREDIT LOSSES. The Bank has experienced
improvements in the Allowance for Credit Losses (the "Allowance") in 1995.
This has been accomplished primarily by the improving quality of the loan
portfolio, resulting in lower provisions than have been experienced in the
past. Provision for credit losses amounted to $320,000 in 1995, compared to
$1,540,000 in 1994. Charge-offs of loans in 1995 were $875,000 compared to
$1,709,000 in 1994. Recoveries for the same periods are $227,000 for 1995 as
compared to $506,000 for 1994.
A significant number of the Bank's loan problems stem from loans
originated prior to 1988, and there have been no significant increases in
problem loans since that time. The Allowance currently stands at 1.89% of
outstanding loans at December 31, 1995 compared to 1.99% at December 31, 1994.
Charge-offs reached a high of $2,800,000 million in 1991 compared to the
current level of $875,000 in 1995.
CAPITAL. Capital for Union has increased since year end 1994
primarily due to the improvement in the market value of the security portfolio
and the conversion of $2,562,000 in principal amount of Union's Floating Rate
Mandatorily Convertible Subordinated Debentures into shares of Union Common
Stock on October 1, 1995. Effective January 1, 1994, Union adopted Statement
of Financial
53
<PAGE> 57
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Securities which are classified as "Available for
Sale" are recorded at their fair market value, resulting in the changes being
reported as a separate component of stockholders' equity. Effectively, the
market value of securities in the "Available for Sale" category has improved by
$1.3 million since December 31, 1994.
EARNINGS. Earnings for the year ended December 31, 1995 resulted
in a net loss of approximately $347,000 as compared to a loss of approximately
$1,955,000 in 1994. Net interest income has increased slightly over 1994.
However, the biggest improvement has been in the non-interest expense portion
of the income statement. Union has taken measures to streamline operations,
including reductions in salary expenses, professonal fees and other real estate
expenses. Additionally, Union has improved its marketing resources to allow
better penetration of its customer base. This process will focus on increasing
the number of services the customers are utilizing, with the anticipation of
profitability.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY. The
following table shows Union's average balance sheet composition for the periods
indicated, based on the year to date averages for each period.
54
<PAGE> 58
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Based on Year to Date Averages (1)
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- -------------------------- ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Non-interest bearing assets $ 26,242 10.74% $ 27,209 10.54% $ 29,000 11.01%
Time deposits 100 0.04 794 0.31 4,141 1.57
Federal funds sold 13,200 5.40 9,850 3.82 11,550 4.39
Investment securities 84,023 34.37 90,668 35.13 78,485 29.80
Loans, net of allowance 120,871 49.45 129,598 50.20 140,176 53.23
-------- ------ --------- ----- -------- ------
Total Assets $244,436 100.00% $258,119 100.00% $263,352 100.00%
======== ======= ========= ======= ======== =======
LIABILITIES:
Non-interest bearing deposits $ 29,485 12.06% $ 30,422 11.79% $ 29,540 11.22%
Interest bearing deposits 203,670 83.33 215,257 83.39 220,235 83.63
Other 3,184 1.30 4,477 1.73 4,541 1.72
-------- ------ --------- ----- -------- ------
Total Liabilities 236,339 96.69% 250,156 96.91% 254,316 96.57%
-------- ------ --------- ----- -------- ------
STOCKHOLDERS' EQUITY:
Preferred stock 2,169 0.89% 2,095 0.81% 1,011 0.38%
Common stock 2,186 0.89 1,583 0.61 1,547 0.59
Paid-in capital 7,118 2.91 6,511 2.53 7,273 2.76
Accumulated deficit (3,376) (1.38) (2,226) (0.86) (795) (0.30)
-------- ------ --------- ----- -------- ------
Total stockholders' equity 8,097 3.31% 7,963 3.09% 9,036 3.43%
-------- ------ --------- ----- -------- ------
Total liabilities and
stockholders' equity $244,436 100.00% $258,119 100.00% $263,352 100.00%
======== ======= ========= ======= ======== =======
</TABLE>
- ---------------------------
(1) Balances were calculated by averaging the prior period ending balance and
the current period ending balance.
55
<PAGE> 59
LOAN PORTFOLIO. The following table shows the composition of the Bank's
loan portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real Estate Loans
Construction and land development $ 6,293 $ 7,451 $ 4,910
Secured by farmland 4,027 5,436 5,568
Secured by 1-4 family residential properties 28,903 29,522 27,963
Secured by multifamily (5 or more) residential
properties 11,442 11,473 9,399
Secured by non-farm non-residential properties 30,659 34,537 39,618
-------- -------- --------
Total real estate loans 81,324 88,419 87,458
Loans to finance agricultural production and other
loans to farmers 50 64 135
Commercial and industrial loans 20,255 21,952 25,161
Loans to individuals for household, family and other
personal expenditures, credit card and related plans 2,374 2,587 2,557
Other (includes single payment, installment and
student loans) 10,451 11,395 12,629
Loans for foreign governments and official institutions 2,536 2,535 6,058
Obligations of states and political subdivisions of the
U.S. 1,086 1,212 1,335
All other loans 104 186 291
-------- -------- --------
Total loans 118,180 128,350 135,624
Less: Allowance for credit losses 2,230 2,558 2,221
-------- -------- --------
Net Loans $115,950 $125,792 $133,403
======== ======== ========
</TABLE>
56
<PAGE> 60
The following table sets forth the maturity distribution of the Bank's
loan portfolio at December 31, 1995:
<TABLE>
<CAPTION>
ONE
ONE YEAR THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real Estate Loans
Construction and loan development $ 4,102 $ 1,485 $ 706
Secured by farmland 999 1,197 1,831
Secured by 1-4 family residential properties 1,934 3,424 23,545
Secured by multifamily (5 or more) residential 2,263 5,704 3,475
properties
Secured by non-farm non-residential properties 4,529 13,633 12,497
Loans to finance agricultural production and
other loans to farmers 29 21 0
Commercial and industrial loans 11,781 5,200 3,274
Loans to individuals for household, family and other
personal expenditures, credit card and related plans 2,374 0 0
Other (includes single payment, installment and student
loans) 6,596 3,730 125
Loans to foreign governments and official institutions 0 0 2,536
Obligations of states and political subdivisions of the U.S. 0 176 910
All other loans 104 0 0
------- ------- -------
Total loans $34,711 $34,570 $48,899
======= ======= =======
</TABLE>
The following table sets forth the sensitivity to changes in interest
rates of the Bank's loan portfolio as of December 31, 1995:
<TABLE>
<CAPTION>
ONE
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Predetermined interest rates $18,990 $15,931 $22,706
Floating or adjustable rates 60,385 168 0
------- ------- -------
Total $79,375 $16,099 $22,706
======= ======= =======
</TABLE>
The Bank is a party to various financial instruments with off-balance
sheet risk in the normal course of business to meet the financial needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying degrees,
mlements of credit and interest rate risk in excess of the amounts recognized
in the consolidated balance sheets. As of December 31, 1995, the Bank was
contingently liable under standby letters of credit and other commitments to
extend credit of approximately $16.3 million.
57
<PAGE> 61
INTEREST RECOGNITION, NON-PERFORMING ASSETS AND PAST DUE LOANS.
Interest on commercial, real estate, construction and a portion of
installment loans is accrued daily and is included in operating income based on
the principal amount outstanding. Unearned discount on installment loans is
amortized during the terms of the loans and recognized as income using the
sum-of-the-years digits for part of the installment portfolio. Non-performing
loans include loans on which interest has ceased to be recognized due to
management's determination that the borrower's financial and collateral
condition has weakened and the ability of the borrower to pay interest or
principal on such loans is doubtful. Payments received on such loans in excess
of interest recognized will be applied to reduce the principal balance.
The following table sets forth as of December 31, 1995 the dollar
amounts and percentages of the Bank's loans which (i) are more than 30,
60 or 90 days past due, (ii) are on a non-accrual basis, and (iii) contain more
than the normal risk of collectible but are not past due (the "Other Watchlist
Credits"):
<TABLE>
<CAPTION>
TOTAL OTHER
PAST DUE LOANS NON-ACCRUAL WATCHLIST
30-59 60-89 90 AND LOANS CREDITS
--------- --------- ------ -------------- -----------
OVER
----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans $2,357 $505 $600 $2,769 $14,124
Percentage of Total Portfolio 1.99% .43% .51% 2.34% 11.95%
Percentage of Tier 1 Capital 23.28% 4.99% 5.93% 27.35% 139.50%
</TABLE>
OTHER REAL ESTATE. As of December 31, 1995, the Bank owned $6.5
million in other real estate ("ORE") which was acquired through foreclosure.
The majority of this amount is concentrated in a few parcels of real estate:
One 26 acre tract of land in Bexar County, Texas
One 571 acre tract of land in Webb County, Texas
A strip shopping center in San Antonio, Texas
An industrial park in Nuevo Laredo, Mexico
The properties are accounted for at the lower of cost or fair
market value less estimated cost to sell. Each property is appraised
annually to monitor its carrying value, and adjustments are made whenever
appropriate. The Bank maintains reserves for possible losses on ORE. Economic
conditions have a material impact on the disposition of ORE and there is no
assurance these properties will be disposed of in the near future. Management
considers disposition of ORE as a top priority and pursues available avenues for
disposal, including listing with realtors, advertising in national publications
such as The Wall Street Journal, preparation and distribution of detailed
marketing packages, personal contract with potential interested parties,
auctions where possible and many other efforts to reduce the levels of ORE.
58
<PAGE> 62
SUMMARY OF LOAN LOSS EXPERIENCE. It is the opinion of management
that the Bank's allowance for credit losses as of December 31, 1995 of
$2,230,000 was determined in accordance with generally accepted accounting
principles and is in conformity with regulatory standards. Presented below is a
summary of the Bank's loan loss experience for the last two years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCES:
Loans:
Average loans outstanding $122,586 $133,005
Loans at end of period 118,180 128,350
Allowance for credit losses at beginning of period 2,558 2,221
Chargeoffs:
Commercial, financial and agricultural loans 473 1,256
Real estate mortgage and construction loans 221 150
Installment loans 181 303
-------- --------
Total chargeoffs 875 1,709
-------- --------
Recoveries:
Commercial, financial and agricultural loans 195 273
Real estate mortgage and construction loans 0 186
Installment loans 32 47
-------- --------
Total recoveries 227 506
-------- --------
Net chargeoffs 648 1,203
Provision for credit losses 320 1,540
-------- --------
Allowance for credit losses at end of period $ 2,230 $ 2,558
======== ========
RATIOS:
Net loan charge-offs to average loans .53% 0.90%
Net loan charge-offs to loans at end of period .55% 0.94%
Allowance for credit losses to average loans 1.82% 1.92%
Allowance for credit losses to loans at end of period 1.89% 1.99%
Allowance for credit losses to non-performing loans
at end of period 66.19% 49.12%
Net loan charge-offs to allowance for credit losses 29.06% 47.03%
Net loan charge-offs to provision for credit losses 202.50% 78.12%
</TABLE>
59
<PAGE> 63
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES. The following
table describes the allocation of the allowance for credit losses among various
categories of loans and certain other information as of the dates indicated.
The allocation is made for analytical purposes and is not necessarily
indicative of the categories in which future loan losses may occur. The total
allowance is available to absorb losses for any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
% OF % OF
LOANS TO LOANS TO
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
(IN 000S) ALLOWANCE LOANS (IN 000S) ALLOWANCE LOANS
--------- --------- -------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for
credit losses applicable
to:
Commerical, financial and $ 350 15.7% 20.3% $ 429 16.8% 20.2%
industrial
Real estate-construction 36 1.6 5.3 36 1.4 5.8
Real estate-mortgage 933 41.8 63.5 1,629 63.7 63.1
Installment 204 9.2 10.9 393 15.3 10.9
Unallocated 707 31.7 N/A 71 2.8 N/A
--- ---- --- -- ----- ---
Total $2,230 100.00% 100.00% $2,558 100.00% 100.00%
===== ====== ====== ===== ====== ======
</TABLE>
60
<PAGE> 64
INTEREST DIFFERENTIALS. The following table sets forth
information regarding Union's interest differentials (the dollar and
percentage changes in interest income and interest expense) for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
% % %
CHANGE CHANGE CHANGE
1995 1994 1994-95 1993 1993-94 1992 1992-93
--------- ---------- --------- ---------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $11,261 $10,973 2.62% $11,499 (4.57)% $14,644 (21.48)%
Investment securities 4,691 4,775 (1.76)% 3,781 26.29% 4,159 (9.09)%
Funds sold 443 404 9.65% 369 9.49% 326 13.19%
Time deposits 5 39 (87.18)% 260 (85.00)% 403 (35.48)%
------- ------- ------- -------
Total Interest Income 16,400 16,191 1.29% 15,909 1.77% 19,532 (18.55)%
------- ------- ------- -------
INTEREST EXPENSE
Time deposits
$100,000 and over 3,041 2,643 15.06% 2,558 3.32% 3,322 (23.00)%
Money market,
NOW, savings and
other deposits 4,504 4,192 7.44% 4,204 (0.29)% 5,469 (23.13)%
Securities sold under
agreements to
repurchase and
other short-term
borrowings 355 253 40.32% 201 25.87% 279 (27.96)%
------- ------- ------- -------
Total Interest Expense 7,900 7,088 11.46% 6,963 1.80% 9,070 (23.23)%
------- ------- ------- -------
NET INTEREST INCOME $8,500 $ 9,103 (6.62)% $ 8,946 1.75% $10,462 (14.49)%
======= ======= ======= =======
</TABLE>
61
<PAGE> 65
RATE/VOLUME ANALYSIS. The following table shows the portions of
the net change in interest income due to changes in volume or rate. The
changes in interest due to both rate and volume have been allocated to volume or
rate change in proportion to the absolute amounts of the change in each.
<TABLE>
<CAPTION>
1995 VS. 1994 1994 VS. 1993
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN: DUE TO CHANGES IN:
------------------ ------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Deposits in Financial Institutions $ (36) $ 2 $ (34) $ (228) $ (9) $ (237)
Federal Funds Sold (94) 133 39 (71) 106 35
Investment Securities (559) 475 (84) 902 108 1,010
Loans, Net of Unearned Discount (709) 997 288 (735) 209 (526)
------ ------ ------ ----- ------ -------
TOTAL INTEREST INCOME (1,398) 1,607 209 (132) 414 282
------ ------ ------ ----- ------ -------
INTEREST BEARING SOURCES:
Deposits:
Demand and Savings Deposits (274) 97 (177) 99 (115) (16)
CDs and Other Time Deposits (470) 1,341 871 (132) 228 96
------ ------ ------ ----- ------ -------
Total Deposits (744) 1,438 694 (33) 113 80
Other Short-Term Borrowings 38 90 128 1 (4) (3)
Convertible subordinated debentures (49) 39 (10) 15 33 48
--- -- --- -- -- --
TOTAL INTEREST EXPENSE: (755) 1,567 812 (17) 142 125
------ ------ ------ ---- ----- ------
Net Interest Income $ (643) $ 40 $ (603) $ (115) $ 272 $ 157
==== == ==== ==== === ===
</TABLE>
62
<PAGE> 66
DEPOSITS. The following table sets forth information for the
periods indicated regarding the average balances of and weighted average rates
paid on deposits by category:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ---------- ------- -----------
<S> <C> <C> <C> <C>
Non-Interest Bearing Deposits $ 28,711 -- $ 31,571 --
Interest Bearing Demand Deposits 49,884 2.66% 59,346 2.47%
Savings Deposits 16,191 2.35 17,956 2.33
Time Deposits 129,713 4.51 143,386 3.47
--------- --------
Total Deposits $224,499 3.36% $252,259 2.72%
======== ========
Ratio of Public Deposits to
Total Private Deposits 0.00% 0.04%
</TABLE>
The following table indicates the maturity of certificates of
deposit in denominations greater than $100,000 as of December 31, 1995:
<TABLE>
<CAPTION>
MATURITY AMOUNT PERCENT OF TOTAL
------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Less than three months $28,575 40.4%
Three to twelve months 35,900 50.8
Over twelve months 6,197 8.8
Total $70,672 100.00%
======= =======
</TABLE>
INVESTMENTS. The following table summarizes the book values and
the categories of the investment securities held as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Treasury Securities $31,656 $ 47,891
U.S. Government Agencies 6,470 4,850
Mortgaged backed securities 23,166 36,279
Corporate notes and other 11,076 6,657
Total $72,368 $ 95,677
======= =========
</TABLE>
63
<PAGE> 67
The following table summarizes the amortized cost of remaining
maturity and weighted average yields of investment securities as of December
31, 1995:
<TABLE>
<CAPTION>
WITHIN ONE TO FIVE TO OVER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- --------- --------- -----
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ------ ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $30,745 4.96% $ 993 5.01% -- -- -- -- $31,738
U.S. Government Agencies 3,000 5.33 3,474 6.27 -- -- -- -- 6,474
Mortgaged backed 308 8.00 5,360 5.77 $11,862 5.53% $5,932 5.68% 23,462
securities
Corporate notes and 3,201 6.31% 4,455 5.97 3,424 6.81 -- 11,080
------- ------ ------- ------ -------
other
Total $37,254 5.13% $14,282 5.90% $15,286 5.82% $5,932 5.68% $72,754
======= ====== ======= ====== =======
</TABLE>
ASSET AND LIABILITY MANAGEMENT. Management has adopted an Asset
and Liability Management Policy ("ALCO Policy"), which establishes the
parameters of the investment activities of the Bank. One outside director of
the Bank serves as a member of the ALCO Committee, which is otherwise comprised
of members of senior management. The ALCO Committee is responsible for
formulating, implementing and monitoring the asset and liability position of the
Bank. This committee meets on a regular basis and recommends various investment
alternatives based on pricing, maturity, mix and total return analysis.
The asset and liability management process involves the use of a
variety of methods to simulate risk position, gap management, total
return analysis, and other analyses to maintain positive spreads on assets and
liabilities.
Deposits are the Bank's main funding source, and the interest
rates paid on deposits are established with reference to the competition
in both the Laredo and San Antonio markets.
The Bank is a traditional seller of Federal Funds and uses these
balances as part of its liquidity management. Management does not
consider its business to be seasonal nor does it anticipate seasonal variations
will be significant in the future.
RETURN ON EQUITY AND ASSETS. The following table presents certain
performance ratios for Union on the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
RATIO 1995 1994
----- ---- ----
<S> <C> <C>
Return on assets (1) (1.4)% (7.6)%
Return on equity (2) (4.3)% (24.6)%
Equity to assets (3) 3.3% 3.1%
</TABLE>
- ------------------
(1) Net income divided by average total assets.
(2) Net income divided by average stockholders' equity.
64
<PAGE> 68
(3) Average equity divided by average total assets.
DIVIDEND HISTORY
Union has not paid any dividends since 1989. If the Merger is not
consummated, any future cash dividends would be at the discretion of the Board
of Directors and would be dependent upon the level of the Bank's earnings and
the capital adequacy of the Bank and would be made in compliance with
applicable regulatory requirements. Union is currently required to obtain
approval from the Federal Reserve Board prior to paying any cash dividends, as
described under "Supervision and Regulation".
MARKET FOR CAPITAL STOCK
As of the date of this Proxy Statement-Prospectus, neither the
Union Common Stock nor the Union Preferred Stock is actively traded.
65
<PAGE> 69
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the information indicated
concerning beneficial ownership, to the knowledge of Union, of Union
Common Stock and Union Preferred Stock as of January 31, 1996, by (i) holders of
5% or more of either such class, and (ii) each director and executive officer of
Union and the Bank. Except for transactions affecting a change in either class
of security, such as the Merger, the Union Common Stock and Union Preferred
Stock generally vote together as a single class on all matters.
<TABLE>
<CAPTION>
SHARES AND SHARES AND
PERCENTAGE OF PERCENTAGE OF
RELATIONSHIP TO UNION COMMON UNION PREFERRED
NAME UNION AND THE BANK STOCK OWNED STOCK OWNED
<S> <C> <C> <C>
John H. Keck Director, President and 555,005 (50.9%)(1) 407,665(94.0%) (1)
Chief Executive Officer of
Union and the Bank
Union National Bank of Texas Union ESOP 70,442 (6.5%)(2)
Employee Stock Ownership Plan
Manuel B. Bravo, Jr. Director of Union and the 6,137(3)
Bank
Ray M. Keck, Jr. Director, Chairman of the 15,152 (1.4%)(4)
Board of Union and the Bank
Roger Joseph Schwarz Director of Union and the 10,393(3)
Bank
Randolph Slaughter Director of Union and the 7,391(3)
Bank
Keith L. Rhoden Executive Vice President and --
Chief Financial Officer of
the Bank
S. Bradford Sledge Executive Vice President and 3,900(3)
Chief Operating Officer of
the Bank
Adalaberto G. Nava Senior Vice President and 3,927(3)
Senior Lending Officer of
the Bank
</TABLE>
- ---------------------
(1) Mr. Keck's shares of Union Common Stock and Union Preferred Stock together
currently represent 63.2% of the outstanding voting securities of Union.
(2) Represents 4.6% of Union's outstanding voting securities.
(3) Less than 1.0% of the outstanding shares of Union Common Stock.
(4) Represents less than 1% of Union's outstanding voting securities.
As of January 31, 1996, all executive officers and directors of Union and
the Bank as a group, and the Union ESOP, held an aggregate of 672,347 (61.7% of
the outstanding) shares of Union's Common Stock and 407,665 (94.0% of the
outstanding) shares of Union Preferred Stock, together representing 1,080,012
(70.9% of the outstanding) voting securities of Union.
66
<PAGE> 70
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, Norwest is subject to supervision and
examination by the Federal Reserve Board. Norwest's banking and savings
association 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 (the
"BIF"); deposits attributable to certain of Norwest's savings associations are
insured by the Savings Association Insurance Fund (the "SAIF"). For that
reason, 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 that are well secured and in the process of
collection. Under these provisions Norwest's national bank subsidiaries could
have declared, as of December 31, 1995, aggregate dividends of at least $274.1
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. For that reason, the right of Norwest, and thus
the rights of Norwest's creditors, to participate in any distribution of the
assets or earnings of any subsidiary is necessarily subject to the prior claims
of creditors of such subsidiary, except to the extent that claims of Norwest in
its capacity as a creditor may be recognized. The principal sources of
Norwest's revenues are dividends and fees from its subsidiaries.
67
<PAGE> 71
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. Section 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 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
68
<PAGE> 72
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
that are substantially similar to the foregoing. At December 31, 1995,
Norwest's Tier 1 and total capital (the sum of Tier 1 and Tier 2 capital) to
risk-adjusted assets ratios were 8.11% and 10.18%, respectively, and Norwest's
leverage ratio was 5.65%. 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.
None of Norwest, Union or the Bank 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 depository institutions insured by the FDIC that do not
meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." Under
applicable regulations, an FDIC-insured depository institution is defined to be
well capitalized if it maintains a leverage ratio of at least 5%, a
risk-adjusted Tier 1 capital ratio of at least 6% and a risk-adjusted total
capital ratio of at least 10% and is not subject to a directive, order or
written agreement to meet and maintain specific capital levels. An insured
depository institution is defined to be adequately capitalized if its meets all
of its minimum capital requirements as described above. An insured depository
institution will be considered undercapitalized if it fails to meet any minimum
required measure, significantly undercapitalized if it has a risk-adjusted
total capital ratio of less than 6%, risk-adjusted Tier 1 capital ratio of less
than 3% or a leverage ratio of less than 3% and critically undercapitalized if
it fails to maintain a level of tangible equity equal to at least 2% of total
assets. An insured depository institution
69
<PAGE> 73
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.
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
70
<PAGE> 74
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 December 31, 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. The FDIC 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). The FDIC has approved
regulations that would substantially eliminate deposit insurance premiums for
Norwest's banking subsidiaries in 1996. In 1995, Norwest incurred $69.9 million
of FDIC assessment expenses (net of $20.6 million in insurance premium refunds)
as compared with $79.2 million in 1994.
Deposits insured by SAIF held by Norwest bank subsidiaries as a
result of 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 proposed legislation in September 1995 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. This
legislation is included in the current balanced budget legislation and as such,
its approval has yet been finalized. 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 insurance premiums. The effect of this
legislation, if adopted, is not anticipated to be material to Norwest.
71
<PAGE> 75
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 herein by reference to Norwest's
Annual Report for the year ended December 31, 1994, have been so incorporated
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Union and its
subsidiaries as of December 31, 1995 and 1994 and for each of the years in the
two-year period ended December 31, 1995 have been included in this Proxy
Statement-Prospectus in reliance upon the report of Padgett, Strateman & Co.,
L.L.P., independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity
and cash flows of Union and its subsidiary for the year ended December 31, 1993
included in this Proxy Statement-Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
LEGAL OPINIONS
A legal opinion to the effect that the shares of Norwest Common
Stock offered hereby, when issued in accordance with the Merger Agreement, will
be validly issued and fully paid and nonassessable, has been rendered by
Stanley S. Stroup, Executive Vice President and General Counsel of Norwest
Corporation. At December 31, 1995, Mr. Stroup was the beneficial owner of
107,753 shares and held options to acquire 247,410 additional shares of Norwest
Common Stock.
Certain legal matters in connection with the Merger will be
passed upon for Union by Vinson & Elkins L.L.P.
MANAGEMENT OF NORWEST AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation,
voting securities and the principal holders thereof, certain relationships and
related transactions, and other related matters concerning Norwest is included
or incorporated by reference in its Annual Report on Form 10-K for the year
ended December 31, 1994, which is incorporated in this Proxy
Statement-Prospectus by reference. "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." Shareholders of Union desiring copies of such documents may
contact Norwest at the addresses or phone numbers indicated under "AVAILABLE
INFORMATION" above.
72
<PAGE> 76
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
F - 1
<PAGE> 77
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report F - 3
Consolidated Balance Sheets F - 5
Consolidated Statements of Operations F - 7
Consolidated Statements of Stockholders' Equity F - 9
Consolidated Statements of Cash Flows F - 11
Notes to Consolidated Financial Statements F - 13
</TABLE>
F - 2
<PAGE> 78
[PADGETT, STRATEMANN & CO., L.L.P. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders
Union Texas Bancorporation, Inc.
and Subsidiary
Laredo, Texas
We have audited the consolidated balance sheets of Union Texas Bancorporation,
Inc. (the Company) and its wholly-owned subsidiary, Union National Bank of Texas
(Union Bank) as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. The consolidated
financial statements of the Company as of December 31, 1993 were audited by
other auditors whose report dated February 18, 1994 on those consolidated
statements included an explanatory paragraph describing Union Bank's failure to
meet the minimum capital requirements, as discussed in note 17 to the
consolidated financial statements, prescribed by the Office of the Comptroller
of the Currency (the OCC).
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
F - 3
<PAGE> 79
Page 2
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in notes 2 and
17 to the consolidated financial statements, Union Bank is not in compliance
with the capital requirements of a consent order between the Bank and the OCC
and has incurred recurring operating losses. These and other factors raise
substantial doubts about the Company's and Union Bank's ability to remain as
going concerns. Management's plans in regard to these matters are described in
note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments in securities in 1994.
/s/ PADGETT, STRATEMANN & CO.
Certified Public Accountants
February 2, 1996
F - 4
<PAGE> 80
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1995 1994
-------------- ---------------
<S> <C> <C>
Cash and due from banks $ 7,664 $ 8,577
Federal funds sold 22,700 3,700
-------------- ---------------
Cash and cash equivalents 30,364 12,277
Interest bearing deposits in financial institutions 100 100
Investment Securities:
Held to maturity 3,609 48,841
Available for sale 68,759 46,836
-------------- ---------------
Total investment securities 72,368 95,677
-------------- ---------------
Loans 118,180 128,350
Allowance for credit losses (2,230) (2,558)
-------------- ---------------
Net loans 115,950 125,792
-------------- ---------------
Bank premises and equipment, net 4,902 5,490
Real estate acquired by foreclosure 6,529 6,186
Accrued interest receivable 1,918 1,904
Deferred tax asset, net 1,201 1,201
Other assets 4,152 2,760
-------------- ---------------
$ 237,484 $ 251,387
============== ===============
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 5
<PAGE> 81
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
-------------- ---------------
<S> <C> <C>
Liabilities:
Deposits:
Demand $ 28,564 $ 30,406
NOW accounts 18,922 24,770
Savings 15,176 17,068
Money market accounts 31,535 31,964
Time:
$100,000 and over 70,672 72,205
Under $100,000 60,511 64,518
-------------- ---------------
Total deposits 225,380 240,931
Securities sold under agreements to repurchase 501 -
Accrued interest payable 998 887
Other liabilities 619 800
-------------- ---------------
Total liabilities 227,498 242,618
Floating rate mandatorily convertible subordinated debentures - 2,562
Stockholders' Equity:
Noncumulative convertible preferred stock - no par; 1,000,000
shares authorized; 433,726 shares issued and outstanding
at $5.00 stated value at December 31, 1995 and 1994 2,168 2,168
Common stock - $2.50 par value; 2,000,000 shares authorized;
1,106,318 and 641,529 shares issued; 1,083,203 and 618,414
shares outstanding at December 31, 1995 and 1994,
respectively 2,767 1,605
Additional paid-in capital 9,183 7,555
Accumulated deficit (3,550) (3,203)
Treasury stock, at cost, 23,115 shares at December 31, 1995 and 1994 (196) (249)
Unrealized loss on securities available for sale and marketable equity
securities (386) (1,669)
-------------- ---------------
Total stockholders' equity 9,986 6,207
-------------- ---------------
$ 237,484 $ 251,387
============== ===============
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 6
<PAGE> 82
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $ 11,261 $ 10,973 $ 11,499
Investment securities 4,691 4,775 3,781
Federal funds sold 443 404 369
Deposits in financial institutions 5 39 260
--------------- --------------- ---------------
Total interest income 16,400 16,191 15,909
--------------- --------------- ---------------
Interest Expense:
Deposits other than time 1,699 1,868 1,884
Time:
$100,000 and over 3,041 2,643 2,558
Under $100,000 2,805 2,324 2,320
Securities sold under agreements to repurchase 164 36 39
Short-term borrowings and other 191 217 162
--------------- --------------- ---------------
Total interest expense 7,900 7,088 6,963
--------------- --------------- ---------------
Net interest income 8,500 9,103 8,946
Provision for credit losses 320 1,540 945
--------------- --------------- ---------------
Net interest income after provision for
credit losses 8,180 7,563 8,001
--------------- --------------- ---------------
Noninterest Income:
Service charges on deposit accounts 1,188 1,356 1,574
Other service charges and fees 467 344 751
Securities gains (losses) 83 (94) 436
Other operating income 271 465 278
--------------- --------------- ---------------
Total noninterest income 2,009 2,071 3,039
--------------- --------------- ---------------
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 7
<PAGE> 83
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Noninterest Expense:
Salaries and employee benefits $ 4,368 $ 4,949 $ 5,119
Occupancy expenses 1,628 1,624 1,805
Professional fees 720 927 855
Foreclosed property expenses 650 722 1,474
Data processing 592 556 540
Insurance and assessments 805 931 938
Other operating expenses 1,791 1,910 2,358
--------------- --------------- ---------------
Total noninterest expense 10,554 11,619 13,089
--------------- --------------- ---------------
Loss before income taxes (365) (1,985) (2,049)
Benefit for income taxes 18 30 1,142
--------------- --------------- ---------------
Net loss $ (347) $ (1,955) $ (907)
=============== =============== ===============
Loss per share of common stock $ (0.46) $ (3.16) $ (1.48)
=============== =============== ===============
Weighted average common shares outstanding 756,563 619,446 613,906
=============== =============== ===============
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 8
<PAGE> 84
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------------- ------------------------------
Number Number
of Shares Amount of Shares Amount
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 - $ - 607,136 $ 1,534
Net loss - year ended December 31, 1993 - - - -
Principal payments on Employee Stock
Ownership Trust debt - - - -
Preferred stock issuance 404,286 2,021 - -
Common stock issuance - - 10,213 26
Sale of stock acquired by Union Bank
through foreclosure - - 2,560 -
Unrealized loss on marketable equity securities - - - -
----------- ------------- ------------ -------------
Balance at December 31, 1993 404,286 2,021 619,909 1,560
Net loss - year ended December 31, 1994 - - - -
Principal payments on Employee Stock
Ownership Trust debt - - - -
Preferred stock issuance 29,440 147 - -
Common stock issuance - - 17,800 45
Stock acquired by Union Bank
through foreclosure - - (19,295) -
Change in unrealized loss on securities - - - -
----------- ------------- ------------ -------------
Balance at December 31, 1994 433,726 2,168 618,414 1,605
Net loss - year ended December 31, 1995 - - - -
Common stock issuance - - 464,789 1,162
Devaluation of treasury stock acquired by
Union Bank through foreclosure - - - -
Change in unrealized loss on securities - - - -
----------- ------------- ------------ -------------
Balance at December 31, 1995 433,726 $ 2,168 1,083,203 $ 2,767
=========== ============= ============ =============
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 9
<PAGE> 85
<TABLE>
<CAPTION>
Additional Deferred Unrealized
Paid-In Accumulated Treasury Employee Loss on
Capital Deficit Stock Benefits Securities Total
---------- ----------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 7,378 $ (341) $ (48) $ (169) $ - $ 8,354
Net loss - year ended December 31, 1993 - (907) - - - (907)
Principal payments on Employee Stock
Ownership Trust debt - - - 136 - 136
Preferred stock issuance - - - - - 2,021
Common stock issuance 124 - - - - 150
Sale of stock acquired by Union Bank
through foreclosure 8 - (5) - - 3
Unrealized loss on marketable equity securities - - - - (39) (39)
---------- ----------- ---------- ----------- ---------- ---------
Balance at December 31, 1993 7,510 (1,248) (53) (33) (39) 9,718
Net loss - year ended December 31, 1994 - (1,955) - - - (1,955)
Principal payments on Employee Stock
Ownership Trust debt - - - 33 - 33
Preferred stock issuance - - - - - 147
Common stock issuance 45 - - - - 90
Stock acquired by Union Bank
through foreclosure - - (196) - - (196)
Change in unrealized loss on securities - - - - (1,630) (1,630)
-------- ---------- --------- ----------- ---------- ---------
Balance at December 31, 1994 7,555 (3,203) (249) - (1,669) 6,207
Net loss - year ended December 31, 1995 - (347) - - - (347)
Common stock issuance 1,628 - - - - 2,790
Devaluation of treasury stock acquired by
Union Bank through foreclosure - - 53 - - 53
Change in unrealized loss on securities - - - - 1,283 1,283
-------- ---------- --------- ----------- ---------- ---------
Balance at December 31, 1995 $ 9,183 $ (3,550) $ (196) $ - $ (386) $ 9,986
======== ========== ========= =========== =========== =========
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 10
<PAGE> 86
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (347) $ (1,955) $ (907)
------------- ------------ ------------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization and accretion of premiums and discounts on
investment securities, net 358 464 373
Net losses (gains) on sales of investment securities (83) 94 (436)
Net gain on sales of premises and equipment (10) (65) -
Provision for credit losses 320 1,540 945
Provision for personal property losses 38 65 24
Depreciation and amortization 842 804 876
Deferred tax benefit - (30) (1,170)
Net losses on real estate and other assets acquired
by foreclosure 489 293 1,071
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable (14) (380) 450
(Increase) decrease in other assets (1,058) (1,041) 239
Increase (decrease) in accrued interest payable 111 165 (49)
Increase (decrease) in other liabilities (180) 331 (130)
------------- ------------ ------------
Total adjustments 813 2,240 2,193
------------- ------------ ------------
Net cash provided by operating activities 466 285 1,286
------------- ------------ ------------
Cash flows from investing activities:
Change in interest bearing deposits in financial institutions - 1,387 5,307
Purchase of securities held to maturity - (4,992) (33,362)
Proceeds from maturities of securities held to maturity 1,500 2,400 11,500
Proceeds from sales of securities held to maturity - 5,981 15,934
Purchases of securities held or available for sale (10,004) (46,509) (46,560)
Proceeds from the sales of securities held or available for sale 20,950 18,914 12,740
Proceeds from maturities of securities held or available for sale 11,872 12,000 25,420
Change in loans 8,079 7,253 13,740
Disposal of real estate and other assets acquired by foreclosure 246 1,578 245
Purchase of bank premises and equipment (228) (356) (496)
Disposal of bank premises and equipment 30 436 -
Capital (expenditures) recoveries on real estate acquired by
foreclosure - 12 (410)
------------- ------------ ------------
Net cash provided by (used in) investing activities 32,445 (1,896) 4,058
------------- ------------ ------------
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 11
<PAGE> 87
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
(CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ (15,553) $ (9,494) $ 1,301
Proceeds from (repayments under) agreements to repurchase securities 501 (961) 310
Issuance (conversion) of subordinated debentures (2,562) 42 336
Proceeds from sale of common stock and preferred stock 2,790 237 2,174
Purchase of treasury stock - (196) -
Payments of debt - (33) (136)
Decrease in deferred employee benefits - 33 136
------------ ------------ ------------
Net cash provided by (used in) financing activities (14,824) (10,372) 4,121
Net increase (decrease) in cash and cash equivalents 18,087 (11,983) 9,465
Cash and cash equivalents:
Beginning of year 12,277 24,260 14,795
------------ ------------ ------------
End of year $ 30,364 $ 12,277 $ 24,260
============ ============ ============
</TABLE>
Notes to consolidated financial statements form an integral part of these
statements.
F - 12
<PAGE> 88
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The accounting and reporting policies of Union Texas Bancorporation, Inc.
(the Company) and its wholly-owned subsidiary, Union National Bank of
Texas (Union Bank), conform to generally accepted accounting principles
and to general practices within the banking industry. The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates. Following is a summary of the Bank's more
significant accounting and reporting policies:
Consolidation:
The consolidated financial statements include the accounts of Union Texas
Bancorporation, Inc. and its subsidiary. All significant intercompany
transactions and accounts have been eliminated.
Investments in Securities:
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
Pursuant to SFAS No. 115, the Company's investments in securities are
classified in three categories and accounted for as follows:
- Trading Securities. Bonds held principally for resale in the near
term are classified as trading securities and recorded at their fair
values. Unrealized gains and losses on trading securities are
included in other income. At December 31, 1995 and 1994, the Company
did not own any securities classified as trading securities.
- Securities to be Held to Maturity. Bonds, notes, and debentures for
which the Company has the positive intent and ability to hold to
maturity are reported at cost adjusted for amortization of premiums
and accretion of discounts, which are recognized in interest income
using the interest method over the period to maturity.
- Securities Available for Sale. Securities available for sale consist
of bonds, notes, and debentures not classified as trading securities
nor as securities to be held to maturity. These securities are
reported at their fair values with unrealized gains and losses being
reported as a separate component of stockholders' equity.
F - 13
<PAGE> 89
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (Continued)
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than
temporary result in write-downs of the individual securities to their
fair value. The related write-downs are included in earnings as realized
losses.
Gains and losses on the sale of securities available for sale are
determined using the specific- identification method.
The transfer of a security between categories of investments is accounted
for at fair value. For a debt security transferred into the
available-for-sale category from the held-to-maturity category, the
unrealized holding gain or loss at the date of the transfer is recognized
in a separate component of stockholders' equity.
Loans:
Loans are stated at the principal amount outstanding, net of unearned
discount. Unearned discount relates principally to consumer installment
loans and is amortized using a method that approximates the interest
method.
Allowance for Credit Losses:
The allowance for credit losses is a valuation allowance available for
losses incurred on loans and other extensions of credit. All losses are
charged to the allowance for credit losses when the loss actually occurs
or when a determination is made that a loss is likely to occur.
Recoveries are credited to the allowance at the time of recovery.
Prior to the beginning of each year and at least quarterly during the
year, management estimates the likely level of losses to determine
whether the allowance for credit losses is adequate to absorb losses in
the existing portfolio. Based on these estimates, an amount is charged
to the provision for credit losses and credited to the allowance for
credit losses in order to adjust the allowance to a level estimated to be
adequate to absorb losses.
Management's judgment as to the level of losses on existing credits
involves the consideration of current economic conditions and their
potential effects on specific borrowers; an evaluation of existing
relationships among loans with potential credit losses; the present level
of the allowance; results of examinations of the loan portfolio by
regulatory agencies; and management's internal review of the loan
portfolio. In determining the collectibility of certain loans,
management also considers the fair value of any underlying collateral.
F - 14
<PAGE> 90
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (Continued)
Estimates of credit losses involve an exercise of judgment. While it is
possible that in particular periods the Company may sustain losses which
are substantial relative to the allowance for credit losses, it is the
judgment of management that the allowance reflected in the consolidated
balance sheets is adequate to absorb losses in the existing loan
portfolio.
Interest Income on Loans:
Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest on impaired loans
is discontinued when, in the opinion of management, there is an
indication that the borrower may be unable to meet payments as they
become due. Upon such discontinuance, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent
cash payments are received.
Nonperforming Loans:
Included in the nonperforming loan category are loans which have been
categorized by management as nonaccrual because collection of interest is
doubtful, loans which are ninety days or more past due as to principal
and/or interest payments and not yet on nonaccrual status, and loans
which have been restructured to provide a reduction in the interest rate
or a deferral of interest or principal payments.
When the payment of principal or interest on a loan is delinquent for
ninety days, or earlier in some cases, the loan is placed on nonaccrual
status, unless the loan is in the process of collection and the
underlying collateral fully supports the carrying value of the loan and
the accrued interest. If the decision is made to continue accruing
interest on the loan, periodic reviews are made to confirm the accruing
status of the loan. When a loan is put on nonaccrual status, interest
accrued deemed to be uncollectible during the current year is charged to
operations. Interest accrued during prior periods, and deemed
uncollectible, is charged to the allowance for credit losses. Generally,
any payments received on nonaccrual loans are applied first to
outstanding principal amounts and next to the recovery of charged-off
principal amounts. Any excess is treated as recovery of lost interest.
Loan Origination Fees and Costs:
Loan origination fees are recognized as income and loan origination costs
are expensed as incurred, as management has determined that
capitalization of these items would be immaterial to the consolidated
financial statements.
F - 15
<PAGE> 91
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (Continued)
Bank Premises and Equipment:
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation expense is computed principally on the
straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized straight-line over the periods of
the leases or the estimated useful lives, whichever is shorter.
Real Estate Acquired by Foreclosure:
The Company records real estate acquired by foreclosure at the lesser of
the outstanding loan amount or fair value of the property at the time of
foreclosure less estimated costs to sell. Required developmental costs
associated with foreclosed property under construction are capitalized
and considered in determining the fair value of the property. Real
estate acquired by foreclosure is included in the accompanying
consolidated financial statements net of an appropriate reserve for
losses.
Income Taxes:
The Company and its subsidiary file a consolidated federal income tax
return. Federal income taxes are allocated between the consolidated
group as if each entity were filing a separate return.
Provisions for income taxes are based on taxes payable or refundable for
the current year (after exclusion of nontaxable income such as interest
on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable income and pretax financial
income and between the tax bases of assets and liabilities and their
reported amounts in the consolidated financial statements. Deferred tax
assets and liabilities are included in the consolidated financial
statements at currently enacted income tax rates applicable to the period
in which the deferred tax assets and liabilities are expected to be
realized or settled as prescribed in SFAS No. 109, "Accounting for Income
Taxes." As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provisions for income taxes.
Treasury Stock:
Treasury stock was created through Union Bank's foreclosure of certain
loans collateralized by the Company's stock.
F - 16
<PAGE> 92
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (Continued)
Earnings Per Share of Common Stock:
Earnings per share of common stock is computed by dividing earnings by
the weighted average number of shares of common stock outstanding during
the period.
Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods.
Off-Balance-Sheet Financial Instruments:
In the ordinary course of business, Union Bank has entered into
off-balance-sheet financial instruments consisting of commitments to
extend credit, commitments under credit card arrangements, and standby
letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
Fair Value of Financial Instruments:
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments, whether or not recognized in the consolidated balance sheet,
for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company or the Bank.
F - 17
<PAGE> 93
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. (Continued)
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
CARRYING AMOUNTS APPROXIMATE FAIR VALUES for the following instruments:
Cash and due from banks
Federal funds sold
Interest bearing deposits in banks
Accrued interest receivable
Accrued interest payable
Securities available for sale
Deposit accounts except for fixed rate certificates of deposit
Securities sold under agreements to repurchase
QUOTED MARKET PRICES, where available, or if not available, based on
quoted market prices of comparable instruments, for securities to be held
to maturity.
DISCOUNTED CASH FLOWS using interest rates currently being offered on
instruments with similar terms and with similar credit quality:
All loans
Fixed rate certificates of deposit
Subordinated debentures
QUOTED FEES CURRENTLY BEING CHARGED for similar instruments:
Off-balance-sheet instruments:
Letters of credit
Lending commitments
F - 18
<PAGE> 94
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Going Concern:
As disclosed in note 17 to the consolidated financial statements, Union
Bank is not in compliance with the capital requirements of a consent
order between the Bank and the Office of the Comptroller of the Currency
(OCC). Additionally, Union Bank has incurred recurring operating losses.
Union Bank holds high amounts of nonperforming loans and other assets,
and the resulting credit losses and other expenses generated by these
assets have been a significant source of the Bank's operating losses.
These factors raise substantial doubt about the ability of Union Bank and
the Company to remain as going concerns. The consolidated financial
statements do not contain any adjustments related to the recoverability
of asset values that may result from this uncertainty.
Management of Union Bank has implemented plans to reduce nonperforming
loans and assets, restructure operations, and sell certain other assets
with the goal of reducing noninterest expenses and increasing income.
Additionally, the Company has entered into a plan of merger with Norwest
Corporation (note 19). Management believes these actions will result in
profitable operations in the near future and eliminate capital deficiency
issues with the regulators.
3. Cash and Due From Banks:
Union Bank is required to maintain average reserve balances by the
Federal Reserve Bank. Cash and due from banks in the consolidated
financial statements included amounts so restricted of $1,131,000 and
$1,447,000 as of December 31, 1995 and 1994, respectively.
F - 19
<PAGE> 95
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment Securities:
The amortized cost and approximate fair value of investment securities,
by category, as of December 31, 1995 and 1994, are shown below (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
----------------- ------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Held to Maturity:
----------------
Corporate notes and other $ 3,609 $ 45 $ 21 $ 3,633
============== =============== =============== =================
Available for Sale:
------------------
U.S. Treasury securities $ 31,739 $ 8 $ 91 $ 31,656
U.S. Government agencies 6,474 16 20 6,470
Mortgage-backed securities 23,462 13 309 23,166
Corporate notes and other 7,471 77 81 7,467
-------------- --------------- --------------- -----------------
$ 69,146 $ 114 $ 501 $ 68,759
============== =============== =============== =================
December 31, 1994
-----------------
Held to Maturity:
----------------
U.S. Treasury securities $ 22,063 $ - $ 904 $ 21,159
U.S. Government agencies 998 - 60 938
Mortgage-backed securities 20,465 9 1,438 19,036
Corporate notes and other 5,315 - 246 5,069
-------------- --------------- --------------- -----------------
$ 48,841 $ 9 $ 2,648 $ 46,202
============== =============== =============== =================
</TABLE>
F - 20
<PAGE> 96
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. (Continued)
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
----------------- ------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Available for Sale:
------------------
U.S. Treasury securities $ 26,421 $ - $ 593 $ 25,828
U.S. Government agencies 4,002 - 150 3,852
Mortgage-backed securities 16,622 26 834 15,814
Corporate notes and other 1,460 - 118 1,342
-------------- --------------- --------------- -----------------
$ 48,505 $ 26 $ 1,695 $ 46,836
============== =============== =============== =================
</TABLE>
The following table summarizes the maturity distribution (based on
amortized cost) of all investment securities as of December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
U.S. U.S. Mortgage- Corporate
Treasury Government Backed Notes and
Securities Agencies Securities Other Total
-------------- -------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Within one year $ 30,746 $ 3,000 $ 308 $ 3,201 $ 37,255
One to five years 993 3,474 5,360 4,455 14,282
Five to ten years - - 11,862 3,424 15,286
Thereafter - - 5,932 - 5,932
-------------- -------------- -------------- ------------- -----------
$ 31,739 $ 6,474 $ 23,462 $ 11,080 $ 72,755
============== ============== ============== ============= ===========
</TABLE>
Proceeds from sales of securities during 1995, 1994, and 1993 were
$20,950,000, $24,895,000, and $28,674,000, respectively. Gross gains of
$93,000, $0, and $455,000 and gross losses of $10,000, $94,000, and
$19,000, respectively, were realized on those sales.
The Financial Accounting Standards Board (FASB) issued a Special Report,
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities," in November 1995. The FASB
permitted a one-time opportunity during November and December 1995 for
institutions to reassess the appropriateness of the designations of all
securities held upon the initial application of the Special Report.
During this period, Union Bank transferred securities with an amortized
cost of $41,184,000 and a net unrealized loss of $365,000 from the
held-to-maturity category to the available-for-sale category pursuant to
this re-designation opportunity.
F - 21
<PAGE> 97
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. (Continued)
Investment securities carried at $16,887,000 and $24,680,000 at December
31, 1995 and 1994, respectively, were pledged to secure public deposits
and for other purposes as required or permitted by law. At December 31,
1995, Union Bank's investment securities included investments of
$1,011,000, $1,022,000, and $1,022,000 in debt securities of three
separate issuers. The carrying value of these investments exceeded 10%
of stockholders' equity. At December 31, 1994, Union Bank had no
investments in debt securities with any one issuer with an aggregate
carrying value exceeding 10% of stockholders' equity.
The amortized cost and approximate fair value of securities owned of
state, municipal, and political subdivisions were $8,668,000 and
$8,743,000, respectively, at December 31, 1995 and $4,363,000 and
$4,117,000, respectively, at December 31, 1994.
5. Loans and Real Estate Acquired by Foreclosure:
The domestic loan portfolio consists of various types of loans made
principally to borrowers located in Webb and Bexar Counties, Texas.
Loans are classified by major type as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
-----------------------------------
<S> <C> <C>
Domestic:
--------
Commercial $ 17,744 $ 16,404
Real estate:
Mortgage 28,904 29,522
Commercial 52,422 58,897
Consumer 12,824 13,982
Other 1,239 1,462
113,133 120,267
------------ -------------
Borrowers Domiciled in Foreign
------------------------------
Countries (Primarily Mexico):
----------------------------
Public sector 2,536 2,535
Private sector 2,511 5,548
------------ -------------
$ 118,180 $ 128,350
============ =============
</TABLE>
F - 22
<PAGE> 98
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. (Continued)
Final loan maturities and rate sensitivity of the fixed interest rate
loan portfolio excluding those in nonaccrual status and before unearned
income at December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
Within one year $ 17,619
One to five years 15,916
Thereafter 22,706
-----------
$ 56,241
===========
</TABLE>
All variable interest rate loans are repriced at least annually.
Variable interest rate loans totaled $59,170,000 at December 31, 1995.
Effective January 1, 1995, the Bank adopted SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Adoption of these standards was not material to the
consolidated financial statements.
Nonperforming loans are as follows (in thousands):
<TABLE>
<CAPTION>
Domestic Foreign Total
------------ ---------- ----------
<S> <C> <C> <C>
December 31, 1995:
-----------------
Nonaccrual loans $ 2,741 $ 28 $ 2,769
Loans 90 days or more past due,
not on nonaccrual 600 - 600
------------ ---------- ----------
$ 3,341 $ 28 $ 3,369
============ ========== ==========
December 31, 1994:
-----------------
Nonaccrual loans $ 4,945 $ 150 $ 5,095
Loans 90 days or more past due,
not on nonaccrual 113 - 113
------------ ---------- ----------
$ 5,058 $ 150 $ 5,208
============ ========== ==========
</TABLE>
F - 23
<PAGE> 99
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. (Continued)
Impaired loans totaled $2,769,000 at December 31, 1995. The total
allowance for loan losses related to those loans was $193,000 at
December 31, 1995. The average recorded investment in impaired loans
during the year ended December 31, 1995 was $3,026,000. Interest income
of $14,000 on impaired loans was recognized for cash payments received
during the year ended December 31, 1995.
The Bank's nonperforming loans at December 31, 1994, which was prior to
the implementation of SFAS No. 114 and SFAS No. 118, consisted of
$113,000 in accrual loans over 90 days past due and $5,095,000 in
nonaccrual loans. The gross accrued interest income which would have
been recorded under the original terms of the loans would have amounted
to $561,000 and $1,905,000, at December 31, 1994 and 1993, respectively.
At December 31, 1995, there were no commitments to lend additional funds
to borrowers whose loans have been classified as impaired.
Changes in the allowance for credit losses are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------------- ------------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 2,558 $ 2,221 $ 3,276
Provision charged to operations 320 1,540 945
Loans charged off (876) (1,709) (2,209)
Loan recoveries 228 506 209
---------- --------- ----------
Balance at end of year $ 2,230 $ 2,558 $ 2,221
========== ========= ==========
</TABLE>
Changes in the allowance for losses on real estate acquired by
foreclosure are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------------- ------------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 257 $ 686 $ 264
Provision charged to operations 488 435 1,116
Losses charged to allowance (8) (864) (694)
---------- --------- ----------
Balance at end of year $ 737 $ 257 $ 686
========== ========= ==========
</TABLE>
F - 24
<PAGE> 100
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Bank Premises and Equipment:
Components of bank premises and equipment included in the consolidated
balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
----------- -----------
<S> <C> <C>
Land $ 775 $ 775
Buildings and improvements 6,880 6,861
Furniture, fixtures, and equipment 4,639 4,541
----------- -----------
12,294 12,177
Less accumulated depreciation and amortization 7,392 6,687
----------- -----------
$ 4,902 $ 5,490
=========== ===========
</TABLE>
7. Deposits:
The aggregate amount of short-term (maturities less than one year) jumbo
certificates of deposit (CDs), each with a minimum denomination of
$100,000, was approximately $64,475,000 at December 31, 1995
($65,020,000 in 1994).
At December 31, 1995, the scheduled maturities of CDs are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $ 123,901
1997 3,448
1998 3,292
1999 145
2000 and thereafter 397
------------
$ 131,183
============
</TABLE>
Union Bank has no brookered deposits and there are no major
concentrations of deposits.
F - 25
<PAGE> 101
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Securities Sold Under Agreements to Repurchase:
Securities sold under agreements to repurchase generally mature within
one to 90 days from the transaction date. The securities underlying
these agreements were under the Bank's control. Information relating to
these borrowings is shown below (dollar amounts in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Daily average balance $ 2,612 $ 1,274 $ 1,255
Daily average rate 6.25% 2.82% 3.12%
Balance at end of period $ 501 $ - $ 961
Average rate on balance at end of period 4.0% - 2.60%
</TABLE>
Average balances during the year are based on the best available daily,
weekly, or monthly figures. Average rates for the year are computed as
actual interest expense on securities sold under agreements to
repurchase divided by the average balance during the year. The maximum
amount of outstanding agreements at any month end during 1995 was
$8,895,000.
9. Income Taxes:
The components of the federal income tax benefit are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $ (18) $ - $ 28
Deferred benefit - (30) (1,170)
---------- ---------- ----------
$ (18) $ (30) $ (1,142)
</TABLE>
F - 26
<PAGE> 102
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. (Continued)
The federal income tax benefit differs from the amount computed by
applying the federal income tax statutory rate on earnings as follows
(in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Tax benefit calculated at statutory rate $ (124) $ (675) $ (697)
Increase (decrease) resulting from:
Accounting limitation (benefit) on
deferred tax assets 130 669 (449)
Tax-exempt interest, net of
nondeductible items (24) (24) (24)
Alternative minimum tax - - 28
----------- ---------- ----------
$ (18) $ (30) $ (1,142)
=========== ========== ==========
</TABLE>
F - 27
<PAGE> 103
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. (Continued)
Deferred income taxes and benefits are provided for differences between
the financial statement carrying amount of existing assets and
liabilities and their respective tax basis. Significant deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,983 $ 1,825 $ 1,562
Charitable contributions 48 23 23
Provision for losses on real estate
acquired by foreclosure 910 784 926
Provision for credit losses 230 279 838
Tax credit carryforwards 129 129 144
Depreciation and amortization 208 93 36
Other 17 - -
----------- ---------- ----------
Total deferred tax assets 3,525 3,133 3,529
----------- ---------- ----------
Deferred tax liabilities:
Unearned discount on installment loans (152) (247) (304)
Other (125) (167) (169)
----------- ---------- ----------
Total deferred tax liabilities (277) (414) (473)
----------- ---------- ----------
Net deferred tax asset before valuation
allowance 3,248 2,719 3,056
Valuation allowance (2,047) (1,518) (1,886)
----------- ---------- ----------
Net deferred tax asset $ 1,201 $ 1,201 $ 1,170
=========== ========== ==========
</TABLE>
The Company has recorded a net deferred tax asset of approximately $1.2
million reflecting a partial benefit of its tax operating loss
carryforwards. Realization of this net deferred tax asset is dependent
on generating sufficient taxable income either through the sale of
certain of the Company's assets with unrealized appreciation or from
future operations prior to expiration of the carryforwards. Although
realization is not assured, management believes it is more likely than
not that all of the net deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
F - 28
<PAGE> 104
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. (Continued)
For regulatory reporting purposes, there is an imposed limitation on the
amount of deferred tax assets that can be included in regulatory
capital. The amount is limited to the lesser of deferred tax assets
which are expected to be realized within one year or 10% of Tier 1
capital. At December 31, 1995 the net deferred tax asset for regulatory
reporting purposes was $829,000.
For tax purposes, at December 31, 1995 the Company's net operating loss
carryforwards were approximately $5.8 million. These tax loss
carryforwards are for future years and, if not used, begin to expire in
2005.
10. Subordinated Debentures:
The debentures paid interest at the rate of 10% for the period of twelve
months from the date of issuance and thereafter paid interest at prime
plus 1% adjusted semiannually subject to a maximum rate of 13%. On
October 1, 1995, the debentures were automatically converted to 419,253
shares of the Company's common stock based on the principal amount of
the debentures ($2,562,000) divided by the stock's per-share book value
(6.1108).
11. Noncumulative Convertible Preferred Stock:
The Company is authorized to issue 1,000,000 shares of noncumulative
convertible preferred stock having no par value. The Board of Directors
has the authority to issue the preferred shares in one or more series
and to fix and determine preferences, limitations, rights, and other
matters relating to the shares. At December 31, 1995, 433,726 shares
have been issued. The conversion feature provides that on December 31,
1996, each share will be automatically converted into a number of common
stock shares (not less than one nor more than two) based upon the
36-month performance of the loan portfolio and nonperforming assets of
Union Bank as of September 30, 1993. The dividend rights are the same
as for the Company's common stock.
F - 29
<PAGE> 105
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Concentrations of Credit:
Substantially all of the Bank's loans, commitments, and standby letters
of credit have been granted to customers in the Bank's market areas. A
substantial amount of the Bank's customers are located on the
Texas-Mexico border. As such, these customers are dependent on economic
and other conditions affecting both Texas and Mexico. Investments in
state and municipal securities also involve governmental entities within
the Bank's market areas. The concentrations of credit by type of loan
are set forth in note 5. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. Standby
letters of credit were granted primarily to commercial borrowers.
13. Employee Benefit Plans:
The Company and Union Bank have an employee stock ownership plan (the
Plan) which covers substantially all employees. The Plan has three
separate benefit features as follows: the employee stock ownership
feature (the ESOP), an elective savings feature, and an employer profit
sharing feature (the Profit Sharing Plan). Contributions to the
features of the Plan are determined annually by the Board of Directors.
No employer contributions were made to the profit sharing plan for 1995,
1994, and 1993.
A total of 70,442 shares of common stock are held by the ESOP at
December 31, 1995. Contributions of $52,500, $78,000, and $238,000 were
made to the ESOP in 1995, 1994, and 1993, respectively.
14. Related Party Transactions:
As of December 31, 1995 and 1994, loans outstanding to directors,
officers, and their affiliates were $1,291,000 and $1,437,000,
respectively. In the opinion of management, all transactions entered
into with related parties have been and are, in the ordinary course of
business, made on the same terms and conditions as similar transactions
with unaffiliated persons.
An analysis of activity for the year ended December 31, 1995 with
respect to these related party loans is as follows (dollar amount in
thousands):
<TABLE>
<S> <C>
Beginning balance $ 1,437
New loans made 461
Repayments (607)
----------
Ending balance $ 1,291
==========
</TABLE>
F - 30
<PAGE> 106
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Financial Instruments:
The Bank is 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 extent
credit, credit card arrangements, and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the consolidated
financial statements. The contract or notional amounts of those
instruments reflect the extent of the Bank's involvement in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit, credit card arrangements, and standby letters of credit is
represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable; inventory; property, plant, and equipment;
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
F - 31
<PAGE> 107
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. (Continued)
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
--------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 7,664 $ 7,664 $ 8,577 $ 8,577
Federal funds sold 22,700 22,700 3,700 3,700
Interest bearing deposits in banks 100 100 100 100
Securities available for sale 68,759 68,759 46,836 46,836
Securities to be held to maturity 3,609 3,633 48,841 46,202
Loans - net 115,950 117,348 125,792 122,877
Accrued interest receivable 1,918 1,918 1,904 1,904
Financial liabilities:
Demand deposits 28,564 28,564 30,406 30,406
Savings, NOW, and money
market deposits 65,633 65,633 73,802 73,802
Other time deposits 131,183 131,249 136,723 134,972
Securities sold under agree-
ments to repurchase 501 501 - -
Subordinated debentures - - 2,562 2,588
</TABLE>
The fair value of off-balance-sheet assets and liabilities is not
considered significant.
F - 32
<PAGE> 108
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. (Continued)
A summary of the notional amounts of the Bank's financial instruments
with off-balance-sheet risk at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Notional
Amount
-------------
<S> <C>
Commitments to extend credit $ 9,483
Credit card arrangements 6,490
Standby letters of credit 277
</TABLE>
Limitations:
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding current economic
conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance-sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities
include the deferred tax asset, bank premises and equipment, real estate
acquired by foreclosure, accrued interest receivable, and other assets.
In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
These fair value estimates have also been made under the assumption that
the Company will remain as a going concern. As disclosed in note 2 to
the consolidated financial statements, there is a substantial doubt
about the ability of the Company to remain as a going concern. The
outcome of this uncertainty could significantly impact the fair values
of assets and liabilities.
F - 33
<PAGE> 109
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments, Contingencies, and Uncertainties:
The Company's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course
of business and which involve elements of credit risk, interest rate
risk, and liquidity risk. These commitments and contingent liabilities
are described in note 15 as financial instruments with
off-balance-sheet risk.
Leases:
Following is a schedule of future minimum rental payments required under
operating leases that have initial noncancellable lease terms in excess
of one year (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996 $ 325
1997 285
1998 165
1999 72
Thereafter 384
-----------
$ 1,303
===========
</TABLE>
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other property or equipment.
Rent expense under all operating leases aggregated $346,000, $314,000,
and $306,000 for 1995, 1994, and 1993, respectively.
Uncertainties:
On December 19, 1990, the United States District Court for the 111th
Judicial District of Texas issued a Partial Summary Judgment awarding
Union Bank $1,050,000 as damages against Oryx Energy Company ("Oryx") on
a breach of contract claim arising from an assignment of lease payments
on a loan to a defaulted borrower. The court found that Oryx breached
its contractual obligations to Union Bank pursuant to a subordination
agreement between the Bank, the borrower (lessor), and Oryx (lessee)
when Oryx bought out its lease and paid the proceeds directly to the
borrower (lessor) rather than to Union Bank. Included in other assets
as of December 31, 1995 and 1994 is the remaining unpaid principal
balance of the loan equal to the amount of the judgment ($1,050,000).
Oryx has appealed the judgment.
F - 34
<PAGE> 110
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. (Continued)
On January 25, 1995, the Court of Appeals for the Fourth District of
Texas reversed the judgment of the trial court finding that summary
judgment was improper due to ambiguities relating to the assignment of
rents. The case was remanded to the trial court for a jury trial. On
April 7, 1995, Union Bank filed an Application for Writ of Error to the
Supreme Court of Texas. Oryx likewise filed an Application for Writ of
Error. The court denied both Applications for Writ of Error and Union
Bank has filed a motion for rehearing. A ruling on the motion for
rehearing is pending. Management intends to continue to assert its
right to the judgment amount through the courts.
Due to the uncertainty of the outcome of the Oryx litigation, no reserve
for a possible loss has been established against the asset since it
cannot be reasonably determined if a reserve should be recognized or in
what amount. While Union Bank believes it has a meritorious claim
against Oryx, an adverse outcome could materially impact Union Bank's
and the Company's financial statements through a loss of up to the
$1,050,000 amount recorded as an asset on the books of the Bank.
The Company is a defendant in other legal actions arising from
transactions conducted in the ordinary course of business. Management,
after consultation with legal counsel, considers that the aggregate
liabilities, if any, will not be material to the consolidated financial
statements.
17. Regulatory Matters:
Union Bank is subject to regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by the regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements.
During 1992, Union Bank entered into a consent order with the OCC.
Among other items, it requires Union Bank to achieve a minimum level of
Tier 1 capital (as defined by banking regulations) to adjusted total
assets of at least 5% and to achieve a minimum level of Tier 1 capital
to risk-weighted assets of at least 10%.
F - 35
<PAGE> 111
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. (Continued)
At December 31, 1995, Union Bank was not in compliance with the capital
requirements of the OCC consent order as follows:
<TABLE>
<CAPTION>
Minimum Bank's
Required Actual
Ratio Ratio
---------- -----------
<S> <C> <C>
Tier 1 capital to adjusted total assets 5.00% 4.24% (1)
Tier 1 capital to risk-weighted assets 10.00% 8.50%
</TABLE>
(1) Adjusted total assets using daily average assets. Using actual
year-end total assets, the ratio would be 4.26%.
Because Union Bank is not in compliance with the capital requirements of
the consent order, it may be subject to future regulatory sanctions,
including restrictions on its activities and the appointment of a
conservator. This factor, among others discussed in note 2 to the
consolidated financial statements, raises substantial doubt about the
ability of Union Bank to remain as a going concern.
The Company is dependent upon dividends and other payments from Union
Bank to provide funds for its cash requirements. Since Union Bank does
not currently meet minimum required levels of capital and has incurred
recurring operating losses, it is precluded from paying any dividends to
the Company without the approval of the OCC.
F - 36
<PAGE> 112
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Supplemental Cash Flow Disclosures:
<TABLE>
<CAPTION>
Years Ended December 31,
(In Thousands) 1995 1994 1993
-------------- -------------------------------------------
<S> <C> <C> <C>
Cash paid for interest $ 7,789 $ 6,745 $ 7,013
Noncash investing activities consisted
of the following:
Acquisition of real estate and other
assets through foreclosure of loans 1,444 1,428 556
Disposal of real estate facilitated by
origination of loans - 2,611 1,696
Unrealized loss recovery on
marketable securities 1,283 1,630 39
Charge-off of uncollectible loans 876 1,709 2,209
Acquisition of treasury stock through
foreclosure of loans - 196 -
Trade in value received for purchase
of vehicle - - 27
</TABLE>
19. Business Combination:
In December 1995, the Company entered into an Agreement and Plan of
Reorganization (Agreement) with Norwest Corporation (Norwest) to effect
a reorganization whereby a wholly-owned subsidiary of Norwest will merge
with and into the Company by exchanging all of the Company's common and
preferred stock into shares of voting common stock of Norwest. Norwest
expects to account for the acquisition as a pooling of interests. The
stock exchange ratio is a variable amount subject to the price of
Norwest stock and the equity of the Company at the date of merger, as
described in the Agreement.
The Agreement is subject to regulatory and shareholder approval.
Assuming such approvals are obtained, it is expected the merger will be
consummated in mid-1996.
F - 37
<PAGE> 113
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Parent Only Financial Statements:
The following are the balance sheets, statements of operations, and
statements of cash flows for Union Texas Bancorporation, Inc. (Parent
Company only):
UNION TEXAS BANCORPORATION, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Cash $ 13 $ 13
Investment in bank subsidiary 9,993 8,774
Other asset 44 88
---------- ---------
Total assets $ 10,050 $ 8,875
========== =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Liabilities:
Accrued interest payable $ 64 $ 106
Floating rate mandatorily convertible subordinated debentures - 2,562
Stockholders' equity:
Noncumulative convertible preferred stock 2,168 2,168
Common stock 2,767 1,605
Additional paid-in capital 9,183 7,555
Accumulated deficit (3,550) (3,203)
Treasury stock (196) (249)
Unrealized loss on securities available for sale
and marketable equity securities (386) (1,669)
---------- ---------
Total stockholders' equity 9,986 6,207
---------- ---------
Total liabilities and stockholders' equity $ 10,050 $ 8,875
========== =========
</TABLE>
F - 38
<PAGE> 114
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. (Continued)
At December 31, 1995, Union Bank held 23,115 shares of the Company's
outstanding common stock which were acquired through foreclosure on
certain loans collateralized by the Company's stock. Such shares are
presented at cost as treasury stock.
UNION TEXAS BANCORPORATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Dividends received from bank subsidiary $ - $ - $ -
Other income - - -
Expenses:
General and administrative (46) (56) (46)
Interest expense (186) (195) (165)
-------- -------- --------
Loss before income taxes and equity in
undistributed loss of bank subsidiary (232) (251) (211)
Income tax expense - - -
-------- -------- --------
Loss before equity in undistributed loss
of bank subsidiary (232) (251) (211)
Equity in undistributed loss of bank subsidiary (115) (1,704) (696)
-------- -------- --------
Net loss $ (347) $(1,955) $ (907)
======== ======== ========
</TABLE>
F - 39
<PAGE> 115
UNION TEXAS BANCORPORATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. (Continued)
UNION TEXAS BANCORPORATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (347) $ (1,955) $ (907)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization 46 55 45
-------- -------- --------
Equity in undistributed loss of bank subsidiary 115 1,704 696
Change in other assets - (65) -
Change in other liabilities (42) 16 (22)
Total adjustments 119 1,710 719
-------- -------- --------
Net cash used in operating activities (228) (245) (188)
-------- -------- --------
Cash flows from investing activities - investment in bank - - (2,000)
subsidiary -------- -------- --------
Cash flows from financing activities:
Common and preferred stock issued 2,790 236 2,171
Repayment of debentures (2,562) - -
-------- -------- --------
Net cash provided by financing activities 228 236 2,171
-------- -------- --------
Net decrease in cash - (9) (17)
Cash:
Beginning of year 13 22 39
-------- -------- --------
End of year $ 13 $ 13 $ 22
======== ======== ========
</TABLE>
Supplemental Disclosure of Noncash Transaction:
During 1992 and 1994, certain stock was acquired by foreclosure by Union
Bank. The stock is reflected as treasury stock and a reduction of the
investment in bank subsidiary.
Supplemental Cash Flow Disclosure:
Cash paid during 1995, 1994, and 1993 for interest amounted to
approximately $227,000, $178,000, and $187,000, respectively.
F - 40
<PAGE> 116
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Union Texas Bancorporation, Inc.
Laredo, Texas
We have audited the consolidated statements of operations, stockholders' equity,
and cash flows of Union Texas Bancorporation, Inc. and its wholly-owned
subsidiary, Union National Bank of Texas ("Union Bank") (collectively, the
"Company") for the year ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the results of the Company's
operations and its cash flows for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 17 to the consolidated financial statements, Union Bank
has entered into an order with the Office of the Comptroller of the Currency
(the "OCC") that requires it to meet prescribed capital requirements within a
period of time acceptable to the OCC. At December 31, 1993, Union Bank met the
risk-based minimum capital requirements prescribed by the OCC, but was not in
compliance with the capital requirements of the order. Additionally, the
Company has entered into a letter agreement with the Federal Reserve Bank of
Dallas (the "Reserve Bank") which requires certain actions to be approved by
the Reserve Bank. Failure on the part of Union Bank to meet the terms of the
order or the agreement may subject Union Bank and/or the Company to
significant regulatory sanctions. The financial statement impact, if any, that
might result from the failure of Union Bank to comply with the order or the
letter agreement and, ultimately, the capital requirements prescribed by the OCC
cannot presently be determined. Accordingly, no adjustments that may result
from the ultimate resolution of the uncertainty have been made in the
accompanying financial statements.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Antonio, Texas
February 18, 1994
F - 41
<PAGE> 117
APPENDIX A
AGREEMENT AND PLAN
OF REORGANIZATION
<PAGE> 118
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
entered into as of the 4th day of December, 1995, by and between UNION TEXAS
BANCORPORATION, INC. ("Union"), a Texas 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 Union (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 Union of the par value of $2.50 per share ("Union
Common Stock") and of the shares of Preferred Stock of Union of no par value
("Union Preferred 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 Union pursuant to the Merger
Agreement, with Union as the surviving corporation, in which merger (i) each
share of Union 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 equal to the
Adjusted Norwest Shares divided by the sum of (A) 1.34 multiplied by the total
number of shares of Union Preferred Stock then outstanding and (B) the total
number of shares of Union Common Stock then outstanding (the "Common Share
Quotient"), and (ii) each share of Union Preferred Stock outstanding
immediately prior to the Effective Time of the Merger (other than shares as to
which statutory dissenters' appraisal rights have been exercised) will be
converted and exchanged for the number of shares equal to 1.34 multiplied by
the Common Share Quotient. The "Adjusted Norwest Shares" shall be a number
equal to (y) $14,000,000.00 (Fourteen Million Dollars) minus the number of
dollars by which Consolidated Tangible Equity (as defined below) of Union at
Closing (as
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defined below) is less than $10,000,000 (the "Gross Amount"), divided by (z)
the Norwest Measurement Price; except that, if the Norwest Measurement Price is
less than $29.625, then the Adjusted Norwest Shares shall be equal to the Gross
Amount divided by $29.625 and, if the Norwest Measurement Price is greater
than $35.625, then the Adjusted Norwest Shares shall be equal to the Gross
Amount divided by $35.625. 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. "Consolidated
Tangible Equity" for the purposes of this paragraph 1(a) shall mean (i) the
consolidated total shareholders equity (excluding any changes in net unrealized
loss on marketable securities subsequent to Union's September 30, 1995
consolidated balance sheet and excluding any adjustments made pursuant to
paragraph 4 (m)), as determined in accordance with generally accepted
accounting principles, minus (ii) the book value of all consolidated intangible
assets, as determined in accordance with generally accepted accounting
principles, plus (iii) the amount by which the allowance for loan losses is
increased over the amount reflected in Union's September 30, 1995 consolidated
balance sheet if and only if such increase is with respect to the assets listed
on Schedule 1(a) and either the Comptroller requires, or Norwest consents to,
such increase, plus (iv) legal and accounting fees in connection with the
transactions contemplated by this Agreement and the Merger Agreement, the costs
of Phase I assessments obtained pursuant to the terms of this Agreement and the
fees and expenses owed pursuant to the agreement between Union and Alex
Sheshunoff & Co., dated December 30, 1994, which fees, costs and expenses,
whether paid or accrued prior to the Closing, shall not exceed $400,000 on a
pre-tax basis.
(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 and/or shares of a different entity by reason of any
reclassification, recapitalization, split-up, combination, merger,
consolidation, spin-off, sale of assets, 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 Union Common Stock or Union Preferred Stock,
as the case may be, shall be converted pursuant to subparagraph (a), above,
will be appropriately and proportionately adjusted so that the number of such
shares of Norwest Common Stock into which a share of Union Common Stock or
Union Preferred Stock, as the case may be, shall be converted will equal the
number of shares of Norwest Common Stock which holders of shares of Union
Common Stock or Union Preferred Stock, as the case may be, 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
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obtained by multiplying the fractional share interest to which such holder is
entitled by the average of the closing prices of a share of Norwest Common
Stock as reported by the consolidated tape of the New York Stock Exchange for
each of the five (5) trading days ending on the day immediately preceding the
meeting of shareholders required by paragraph 4(c) of this Agreement.
(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 Texas 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. Laredo, Texas 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 Union 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 UNION. Union
represents and warrants to Norwest as follows:
(a) Organization and Authority. Union is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas, 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 Union and the Union 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. Union 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"). Union has furnished Norwest
true and correct copies of its articles of incorporation and by-laws, as
amended.
(b) Union's Subsidiaries. Schedule 2(b) sets forth a
complete and correct list of all of Union's subsidiaries as of the date hereof
(individually a "Union Subsidiary" and collectively the "Union 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 Union. No equity
security of any Union Subsidiary is or may be required to be issued by reason
of
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any option, warrant, scrip, preemptive right, 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 Union
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 12 U.S.C. Section 55 (1982) and the Texas Business
Corporation Act, all of such shares so owned by Union 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 Union Subsidiary
is a corporation or national banking association duly organized, validly
existing, duly qualified to do business and in good standing under the laws of
its jurisdiction of incorporation, and has corporate power and authority to own
or lease its properties and assets and to carry on its business as it is now
being conducted. Except as set forth on Schedule 2(b), Union 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
Union consists of 7,000,000 shares of common stock, $2.50 par value, of which
as of the close of business on October 31, 1995 1,087,870 shares were
outstanding and 19,615 shares were held in the treasury; and 3,000,000 shares
of Preferred Stock, no par value, of which one series has been offered
consisting of 1,000,000 shares of Non-Cumulative Convertible Preferred Stock,
no par value, of which 433,726 shares are issued and outstanding as of the
close of business on October 31, 1995. The maximum number of shares of Union
Common Stock (assuming for this purpose that phantom common shares and other
common share-equivalents, other than the Non-Cumulative Convertible Preferred
Stock, constitute Union 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, other than the Non-Cumulative Convertible
Preferred Stock, were exercised is 1,087,870. The maximum number of shares of
Union Preferred Stock (assuming for this purpose that phantom preferred shares
and other preferred share-equivalents constitute Union Preferred 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 433,726. All of the outstanding shares of capital stock of Union
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 Union or any Union Subsidiary to
issue, sell or otherwise dispose of, or to purchase, redeem or otherwise
acquire, any shares of capital stock of Union or any Union Subsidiary. Since
September 30, 1995 no shares of Union capital stock have been purchased,
redeemed or otherwise acquired, directly or indirectly, by Union or any Union
Subsidiary and no dividends or other distributions have been declared, set
aside, made or paid to the shareholders of Union.
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<PAGE> 122
(d) Authorization. Union 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 Union and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of Union. Subject to such approvals of shareholders and of
government agencies and other governing boards having regulatory authority over
Union as may be required by statute or regulation, this Agreement and the
Merger Agreement are valid and binding obligations of Union enforceable against
Union in accordance with their respective terms.
Except as set forth on Schedule 2(d), neither the
execution, delivery and performance by Union of this Agreement or the Merger
Agreement, nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by Union 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 Union or any
Union 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 Union or any Union Subsidiary is a party or by which it may
be bound, or to which Union or any Union Subsidiary or any of the properties or
assets of Union or any Union 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 Union, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Union or any
Union Subsidiary or any of their respective properties or assets.
Other than in connection or in compliance with the
provisions of the Securities Act of 1933 and the rules and regulations
thereunder (the "Securities Act"), the Securities Exchange Act of 1934 and the
rules and regulations thereunder (the "Exchange Act"), the securities or blue
sky laws of the various states, or filings, consents, reviews, authorizations,
approvals or exemptions required under the BHC Act or the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act"), and filings required to effect
the Merger under Texas 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 Union of the transactions contemplated by
this Agreement and the Merger Agreement.
(e) Union Financial Statements. The consolidated balance
sheets of Union and Union's Subsidiaries as of December 31, 1994 and 1993 and
related consolidated statements of income, shareholders' equity and cash flows
for the three years ended December 31, 1994, together with the notes thereto,
certified by Padgett, Strateman &
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<PAGE> 123
Co., L.L.P., and the unaudited consolidated statements of financial condition
of Union and Union's Subsidiaries as of September 30, 1995 and the related
unaudited consolidated statements of income, shareholders' equity and cash
flows for the nine months then ended (collectively, the "Union 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 Union and Union's
Subsidiaries at the dates and the consolidated results of operations and cash
flows of Union and Union's Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1990, Union and each
Union Subsidiary has filed all reports, registrations and statements, together
with any required amendments thereto, that it was required to file with (i) the
Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation (the
"FDIC"), (iii) the United States Comptroller of the Currency (the
"Comptroller") and (iv) any applicable state or federal securities or banking
authorities. All such reports and statements filed with any such regulatory
body or authority are collectively referred to herein as the "Union Reports".
As of their respective dates, the Union Reports complied in all material
respects with all the rules and regulations promulgated by the Federal Reserve
Board, the FDIC, the Comptroller and applicable state or federal 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 Union Reports have been made available to Norwest by Union.
(g) Properties and Leases. Except as may be reflected in
the Union Financial Statements and except for any lien for current taxes not
yet delinquent and except as set forth on Schedule 2(g), Union and each Union
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 Union's consolidated balance sheet as of
September 30, 1995 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 Union or any Union Subsidiary
pursuant to which Union or such Union 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 Union or such Union Subsidiary
or any event which, with notice or lapse of time or both, would constitute such
a material default. Substantially all Union's and each Union 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 Union and the Union 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,
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<PAGE> 124
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
Union and the Union 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 Union nor any Union 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 Union or any Union Subsidiary which has not been
settled, resolved and fully satisfied. Each of Union and the Union
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 September 30, 1995, 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
Union and the Union Subsidiaries with respect to all periods through the date
thereof.
(i) Absence of Certain Changes. Except as set forth on
Schedule 2(i), since December 31, 1994 there has been no change in the
business, financial condition or results of operations of Union or any Union
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
Union and the Union Subsidiaries taken as a whole.
(j) Commitments and Contracts. Except as set forth on
Schedule 2(j), neither Union nor any Union Subsidiary is a party or subject to
any of the following (whether written or oral, express or implied):
(i) any employment contract or understanding
(including any understandings or obligations with
respect to severance or termination pay liabilities or
fringe benefits) with any present or former officer,
director, employee or consultant (other than those
which are terminable at will by Union or such Union
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 Union or any Union Subsidiary to compete in
any line of business or with any person or which
involve any restriction of the
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geographical area in which, or method by which, Union
or any Union 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;
(vi) any lease with annual rental payments
aggregating $10,000.00 or more;
(vii) any agreement or commitment with respect
to the Community Reinvestment Act with any state or
federal bank regulatory authority or any other party;
(viii) any current or past agreement, contract
or understanding with any current or former director,
officer, employee, consultant, financial adviser,
broker, dealer, or agent providing for any rights of
indemnification in favor of such person or entity; or
(ix) any contract entered into, extended or
renewed since April 30, 1995 with aggregate annual
payments owed by Union or the Union Subsidiaries of
$25,000 or more and any contract pursuant to which the
cost to Union or the Union Subsidiaries of early
termination is $25,000 or more.
(k) Litigation and Other Proceedings. Union has
furnished Norwest copies of (i) all attorney responses to the request of the
independent auditors for Union with respect to loss contingencies as of
December 31, 1994 in connection with the Union financial statements dated as of
that date, and (ii) a written list of legal and regulatory proceedings filed
against Union or any Union Subsidiary since said date. Neither Union nor any
Union Subsidiary is a party to any pending or, to the best knowledge of Union,
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 Union and the
Union Subsidiaries taken as a whole.
(l) Insurance. Union and each Union Subsidiary is
presently insured, and during each of the past five calendar years (or during
such lesser period of time as Union has owned such Union 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. Union and each Union
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
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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 Union or such Union Subsidiary; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect
and, to the best knowledge of Union, no suspension or cancellation of any of
them is threatened; and all such filings, applications and registrations are
current. The conduct by Union and each Union 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. Except as
set forth in Schedule 2(m), neither Union nor any Union 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 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 Union or any Union Subsidiary
which reasonably could be expected to have a material adverse effect on the
business or properties of Union and the Union Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Union or any Union
Subsidiary is pending or, to the best knowledge of Union, threatened. Neither
Union nor any Union 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 Union or such Union
Subsidiary. Employees of Union and the Union 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 Union no officer or director
of Union or any Union 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 Union or any Union
Subsidiary.
Schedule 2(o) sets forth a correct and complete list of
any loan from Union or any Union 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 Union's or such Union Subsidiary's Board of Directors.
(p) Union 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 Union or any Union Subsidiary acts as the plan
sponsor as defined in ERISA Section 3(16)(B) with
respect to which any liability under ERISA or
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otherwise exists or may be incurred by Union or any
Union 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), Union or the Union 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"), the Retirement Equity
Act ("REA") and the Tax Reform Act of 1986 (the "TRA")
for each of the Plans intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), apply. Union knows of no reason
that any Plan intended to be qualified under 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.
(iii) Neither Union nor any Union Subsidiary,
nor any corporation, trade, business or entity under
"common control" with Union, within the meaning of
Section 414(b), (c) or (m) of the Code or Section 4001
of ERISA has sponsored a "defined benefit plan" as
defined in ERISA Section 3(35) or any other plan which
is subject to Section 412 of the Code within the six
years preceding the Effective Time of the Merger.
(iv) Except as disclosed in Schedule 2(p), and
to the best knowledge of Union, 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
Union, 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 Union and the Union
Subsidiaries taken as a whole.
(v) Except as disclosed in Schedule 2(p) or as
provided in this Agreement or the Merger Agreement,
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 Union or any
Union 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.
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(q) Proxy Statement, etc. None of the information
regarding Union and the Union Subsidiaries supplied or to be supplied by Union
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 Union Common Stock and Union Preferred
Stock pursuant to the provisions of the Merger Agreement (the "Registration
Statement"), (ii) the proxy statement to be mailed to Union'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 Union and the Union 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 Union nor any Union 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 Union nor any Union
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 Union or any Union Subsidiary in
connection with this Agreement and the Merger Agreement or the transactions
contemplated hereby and thereby, except for Alex Sheshunoff & Co., pursuant to
an agreement between such firm and Union dated December 30, 1994.
(t) Administration of Trust Accounts. Union and each
Union Subsidiary has properly administered in all respects material and which
could reasonably be expected to be material to the financial condition of Union
and the Union 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 Union,
any Union Subsidiary, nor any director, officer or employee of Union or any
Union 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
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Union and the Union 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 Union nor any Union 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 Union and the Union Subsidiaries, taken as a
whole. To the best of Union's knowledge, all parties with whom Union or any
Union Subsidiary has material leases, agreements or contracts or who owe to
Union or any Union Subsidiary material obligations other than with respect to
those arising in the ordinary course of the banking business of the Union
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 Union or any Union
Subsidiary, any liability relating to the release of hazardous substances as
defined under any United States or foreign local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), pending or to the best of Union's knowledge,
threatened against Union or any Union Subsidiary the result of which has had or
could reasonably be expected to have a material adverse effect upon Union and
Union's Subsidiaries taken as a whole; to the best of Union's knowledge there
is no reasonable basis for any such proceeding, claim or action; and to the
best of Union's knowledge neither Union nor any Union 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. Union 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 Union 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.
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(b) Norwest Subsidiaries. Schedule 3(b) sets forth a
complete and correct list as of September 30, 1995, 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. Section 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 September 30, 1995, 1,127,125
shares of 10.24% Cumulative Preferred Stock at $100 stated value, 980,000
shares of Cumulative Tracking preferred Stock at $200 stated value, 13,311
shares of ESOP Cumulative Convertible Preferred Stock, at $1,000 stated value
and 33,732 shares of 1995 ESOP CUmulative Convertible Preferred Stock, at
$1,000 stated value were outstanding; (ii) 4,000,000 shares of Preference
Stock, without par value, of which as of the close of business on September 30,
1995, no shares were outstanding; and (iii) 500,000,000 shares of Common Stock,
$1-2/3 par value, of which as of the close of business on September 30, 1995,
337,931,133 shares were outstanding and 4,768,328 shares were held in the
treasury.
(d) Authorization. Norwest has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution, delivery and performance of this Agreement by
Norwest and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of Norwest. No approval or consent
by the stockholders of Norwest is necessary for the execution and delivery of
this Agreement and the Merger Agreement and the consummation of the
transactions contemplated hereby and thereby. Subject to such approvals of
government agencies and other governing boards having regulatory authority over
Norwest as may be required by statute or regulation, this Agreement is a valid
and binding obligation of Norwest enforceable against Norwest in accordance
with its terms.
Neither the execution, delivery and performance by Norwest
of this Agreement or the Merger Agreement, nor the consummation of the
transactions contemplated hereby and thereby, nor compliance by Norwest with
any of the provisions hereof or thereof, will
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(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 Texas 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 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, and the unaudited consolidated balance sheets of
Norwest and its subsidiaries as of September 30, 1995 and the related unaudited
consolidated statements of income and cash flows for the nine months then ended
included in Norwest's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995, 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, 1990, Norwest and each
Norwest Subsidiary has filed all reports, registrations and statements,
together with any required amendments thereto, that it was required to file
with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q and
proxy statements, (ii) the Federal Reserve Board, (iii) the FDIC, (iv) the
Comptroller and (v) any applicable state securities or banking authorities.
All such
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reports and statements filed with any such regulatory body or authority are
collectively referred to herein as the "Norwest Reports". As of their
respective dates, the Norwest Reports complied in all material respects with
all the rules and regulations promulgated by the SEC, the Federal Reserve
Board, the FDIC, the Comptroller and any applicable state securities or banking
authorities, as the case may be, and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) Properties and Leases. Except as may be reflected in
the Norwest Financial Statements and except for any lien for current taxes not
yet delinquent, Norwest and each Norwest Subsidiary has good title free and
clear of any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Norwest's
consolidated balance sheet as of September 30, 1995 included in Norwest's
Quarterly Report on Form 10-Q for the period then ended, and all real and
personal property acquired since such date, except such real and personal
property has been disposed of in the ordinary course of business. All leases
of real property and all other leases material to Norwest or any Norwest
Subsidiary pursuant to which Norwest or such Norwest Subsidiary, as lessee,
leases real or personal property, are valid and effective in accordance with
their respective terms, and there is not, under any such lease, any material
existing default by Norwest or such Norwest Subsidiary or any event which, with
notice or lapse of time or both, would constitute such a material default.
Substantially all Norwest's and each Norwest Subsidiary's buildings and
equipment in regular use have been well maintained and are in good and
serviceable condition, reasonable wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries
has filed all material federal, state, county, local and foreign tax returns,
including information returns, required to be filed by it, and paid or made
adequate provision for the payment of all taxes owed by it, including those
with respect to income, withholding, social security, unemployment, workers
compensation, franchise, ad valorem, premium, excise and sales taxes, and no
taxes shown on such returns to be owed by it or assessments received by it are
delinquent. The federal income tax returns of Norwest and the Norwest
Subsidiaries for the fiscal year ended December 31, 1979, and for all fiscal
years prior thereto, are for the purposes of routine audit by the Internal
Revenue Service closed because of the statute of limitations, and no claims for
additional taxes for such fiscal years are pending. Except only as set forth
on Schedule 3(h), (i) neither Norwest nor any Norwest Subsidiary is a party to
any pending action or proceeding, nor to Norwest's knowledge is any such action
or proceeding threatened by any governmental authority, for the assessment or
collection of taxes, interest, penalties, assessments or deficiencies which
could reasonably be expected to have any material adverse effect on Norwest and
its subsidiaries taken as a whole, and (ii) no issue has been raised by any
federal, state, local or foreign taxing authority in connection with an audit
or examination of the tax returns, business or properties of Norwest or any
Norwest Subsidiary which has not been settled, resolved and fully satisfied, or
adequately reserved for. Each of Norwest and the Norwest Subsidiaries has
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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 September 30, 1995 neither Norwest nor any Norwest
Subsidiary is a party or subject to any of the following (whether written or
oral, express or implied):
(i) any labor contract or agreement with any
labor union;
(ii) any contract not made in the ordinary
course of business containing covenants which
materially limit the ability of Norwest or any Norwest
Subsidiary to compete in any line of business or with
any person or which involve any material restriction of
the geographical area in which, or method by which,
Norwest or any Norwest Subsidiary may carry on its
business (other than as may be required by law or
applicable regulatory authorities);
(iii) any other contract or agreement which is a
"material contract" within the meaning of Item
601(b)(10) of Regulation S-K.
(k) Litigation and Other Proceedings. Neither Norwest
nor any Norwest Subsidiary is a party to any pending or, to the best knowledge
of Norwest, threatened, claim, action, suit, investigation or proceeding, or is
subject to any order, judgment or decree, except for matters which, in the
aggregate, will not have, or cannot reasonably be expected to have, a material
adverse effect on the business, financial condition or results of operations of
Norwest and its subsidiaries taken as a whole.
(l) Insurance. Norwest and each Norwest Subsidiary is
presently insured or self insured, and during each of the past five calendar
years (or during such lesser period of time as Norwest has owned such Norwest
Subsidiary) has been insured or self-insured, for reasonable amounts with
financially sound and reputable insurance companies against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured and has maintained all insurance required by
applicable law and regulation.
(m) Compliance with Laws. Norwest and each Norwest
Subsidiary has all permits, licenses, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, federal, state,
local or foreign governmental or regulatory bodies that are required in order
to permit it to own or lease its properties or assets and to carry on its
business as presently conducted and that are material to the
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business of Norwest or such Subsidiary; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect,
and to the best knowledge of Norwest, no suspension or cancellation of any of
them is threatened; and all such filings, applications and registrations are
current. The conduct by Norwest and each Norwest Subsidiary of its business
and the condition and use of its properties does not violate or infringe, in
any respect material to any such business, any applicable domestic (federal,
state or local) or foreign law, statute, ordinance, license or regulation.
Neither Norwest nor any Norwest Subsidiary is in default under any order,
license, regulation or demand of any federal, state, municipal or other
governmental agency or with respect to any order, writ, injunction or decree of
any court. Except for statutory or regulatory restrictions of general
application, no federal, state, municipal or other governmental authority has
placed any restrictions on the business or properties of Norwest or any Norwest
Subsidiary which reasonably could be expected to have a material adverse effect
on the business or properties of Norwest and its subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Norwest or any
Norwest Subsidiary is pending or, to the best knowledge of Norwest, threatened.
Neither Norwest nor any Norwest Subsidiary is involved in, or threatened with
or affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which could materially and adversely affect the business of Norwest
or such Norwest Subsidiary. Except as set forth on Schedule 3(j), employees of
Norwest and the Norwest Subsidiaries are not represented by any labor union nor
are any collective bargaining agreements otherwise in effect with respect to
such employees.
(o) Norwest Benefit Plans.
(i) As of September 30, 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, REA, and TRA for
each of the Norwest Plans intended to be qualified
under Section 401(a) of the Code apply. Norwest knows
of no reason that any Norwest Plan which is intended to
be qualified under 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.
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(iii) The present value of all benefits vested
and all benefits accrued under each Norwest Plan which
is subject to Title IV of ERISA did not, in each case,
as determined for purposes of reporting on Schedule B
to the Annual Report on Form 5500 of each such Norwest
Plan as of the end of the most recent Plan year, exceed
the value of the assets of the Norwest Plans allocable
to such vested or accrued benefits.
(iv) Except as set forth on Schedule 3(o), and
to the best knowledge of Norwest, no Norwest Plan or
any trust created thereunder, nor any trustee,
fiduciary or administrator thereof, has engaged in a
"prohibited transaction", as such term is defined in
Section 4975 of the Code or Section 406 of ERISA or
violated fiduciary standards under Part 4 of Title I
of ERISA, which could subject, to the best knowledge of
Norwest, such Norwest Plan or trust, or any trustee,
fiduciary or administrator thereof, or any party
dealing with any such Norwest Plan or trust, to the tax
or penalty on prohibited transactions imposed by said
Section 4975 or would result in material liability to
Norwest and its subsidiaries taken as a whole.
(v) Except as set forth on Schedule 3(o), no
Norwest Plan which is subject to Title IV of ERISA or
any trust created thereunder has been terminated, nor
have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any
Norwest Plan, other than those events which may result
from the transactions contemplated by this Agreement
and the Merger Agreement.
(vi) No Norwest Plan or any trust created
thereunder has incurred any "accumulated funding
deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), 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
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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 any local, state or federal environmental statute, regulation or
ordinance including, without limitation, CERCLA, 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
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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 UNION. Union 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, Union,
and each Union 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 $100,000.00; 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 Union and
each Union Subsidiary the non-compliance with which reasonably could be
expected to have a material adverse effect on Union and the Union Subsidiaries
taken as a whole; and permit Norwest and its representatives (including KPMG
Peat Marwick) to examine its and its subsidiaries books, records and properties
and to interview officers, employees and agents at all reasonable times when it
is open for business. No such examination by Norwest or its representatives
either before or after the date of this Agreement shall in any way affect,
diminish or terminate any of the representations, warranties or covenants of
Union herein expressed.
(b) Except as otherwise contemplated or required by this
Agreement, from the date hereof until the Effective Time of the Merger, Union
and each Union subsidiary will not (without the prior written consent of
Norwest): amend or otherwise change its articles of incorporation or
association or by-laws; issue or sell or authorize for issuance or sale, or
grant any options or make other agreements with respect to the issuance or
sale or conversion of, any shares of its capital stock, phantom shares or other
share-equivalents, or any other of its securities; authorize or incur any
long-term debt (other than deposit liabilities); mortgage, pledge or subject to
lien or other encumbrance any of its properties, except in the ordinary course
of business; enter into any material agreement, contract or commitment in
excess of $10,000.00 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 year and in amounts of
$100,000.00 or
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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; redeem, purchase or otherwise acquire, directly or indirectly,
any of the capital stock of Union; 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 Union 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 Union 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 Union will (i) cause proper notice of such meeting to be given to
its shareholders in compliance with the Texas 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) Union will furnish or cause to be furnished to
Norwest all the information concerning Union 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 Padgett, Strateman & Co., L.L.P. to use such
opinion in such Registration Statement.
(e) Union 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 Union 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) Union 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) Union will hold in confidence all documents and
information concerning Norwest and its subsidiaries furnished to Union 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 Union's outside professional
advisers in connection with this Agreement, with the same undertaking from such
professional advisers. If the transactions contemplated by this Agreement
shall not be consummated, such confidence shall be maintained and such
information shall not be used in competition with Norwest (except to the extent
that such information can be
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shown to be previously known to Union, in the public domain, or later acquired
by Union 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 Union, nor any Union 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 Union or any Union 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 Union or any Union
Subsidiary except in the ordinary course of business, or (iv) to merge,
consolidate or otherwise combine with Union or any Union Subsidiary. If any
corporation, partnership, person or other entity or group makes an offer or
inquiry to Union or any Union Subsidiary concerning any of the foregoing, Union
or such Union Subsidiary will promptly disclose such offer or inquiry,
including the terms thereof, to Norwest.
(i) Union 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) Union and each Union Subsidiary will take all action
necessary or required (i) to terminate or amend, if requested by Norwest, all
qualified pension and welfare benefit plans and all non-qualified benefit plans
and compensation arrangements as of the Effective Date of the Merger, (ii) to
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) Neither Union nor any Union Subsidiary shall take any
action which with respect to Union would disqualify the Merger as a "pooling of
interests" for accounting purposes.
(l) Union shall use its best efforts to obtain and
deliver at least 32 days prior to the Effective Date of the Merger signed
representations substantially in the form attached hereto as Exhibit B to
Norwest by each executive officer, director or shareholder of Union who may
reasonably be deemed an "affiliate" of Union within the meaning of such term as
used in Rule 145 under the Securities Act.
(m) Union shall establish such additional accruals and
reserves as may be necessary to conform Union's accounting and credit loss
reserve practices and methods to those of Norwest and Norwest's plans with
respect to the conduct of Union's business following the Merger and to provide
for the costs and expenses relating to the consummation by Union of the Merger
and the other transactions contemplated by this Agreement.
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(n) Union shall obtain, at its sole expense, Phase I
environmental assessments for each bank facility (other than leased facilities)
and each non-residential OREO property (except for those which have already
been obtained). Oral reports of such environmental assessments shall be
delivered to Norwest no later than four weeks and written reports shall be
delivered to Norwest no later than eight weeks from the date of this Agreement.
Union 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. Union shall obtain a survey and assessment of all
potential asbestos containing material in owned or leased properties (other
than OREO property) and a written report of the results shall be delivered to
Norwest within four weeks of execution of the definitive agreement.
(o) Union shall obtain, at its sole expense, commitments
for title insurance and boundary surveys for each bank facility (other than
leased facilities) which shall be delivered to Norwest no later than four weeks
from the date of this Agreement.
(p) Union shall use its best efforts to sell or lease its
real estate located at 1100 Matamoros, Laredo, Texas prior to Closing at a
price and for terms acceptable to Norwest and with provision for lease to
Norwest or its designee of the portion of the premises currently used for the
banking business.
(q) Union shall use its best efforts to obtain W-8
forms for all non-resident alien customers prior to the Closing Date.
(r) Union shall perform an audit and verification of
securities safekept in physical and book entry form for customers of Union
National Bank of Texas prior to the Closing Date.
(s) Union shall use its best efforts to negotiate an
option to extend the land lease covering the Laredo East location beyond the
2001 termination date at a price and for terms acceptable to Norwest.
(t) Union shall reconcile all account balances as of
the month-end prior to the Closing Date. All stale-dated and unrecoverable
differences shall be charged-off.
5. COVENANTS OF NORWEST. Norwest covenants and agrees
with Union 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
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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 Union all the information
concerning Norwest required for inclusion in a proxy statement or statements to
be sent to the shareholders of Union, or in any statement or application made
by Union 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 Union 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
Union shareholders, at the time of the Union 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 Union or
any Union 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 Union 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 Union 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.
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(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 Union to obtain all such approvals and consents required by
Union.
(h) Norwest will hold in confidence all documents and
information concerning Union and Union's Subsidiaries furnished to it and its
representatives in connection with the transactions contemplated by this
Agreement and will not release or disclose such information to any other
person, except as required by law and except to its outside professional
advisers in connection with this Agreement, with the same undertaking from such
professional advisers. If the transactions contemplated by this Agreement
shall not be consummated, such confidence shall be maintained and such
information shall not be used in competition with Union (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 Union.
(i) Norwest will file any documents or agreements
required to be filed in connection with the Merger under the Texas Business
Corporation Act.
(j) Norwest will use its best efforts to deliver to the
Closing all opinions, certificates and other documents, including the
Employment Agreement with John H. Keck substantially in the form attached
hereto as Exhibit C (the "Employment Agreement"), required to be delivered by
it at the Closing.
(k) Norwest shall consult with Union 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 Union notice of receipt of the
regulatory approvals referred to in paragraph 7(e).
(m) Neither Norwest nor any Norwest Subsidiary shall take
any action which with respect to Norwest would disqualify the Merger as a
"pooling of interests" for accounting purposes. Norwest shall use its best
efforts to obtain and deliver to Union, prior to the Effective Date of the
Merger, signed representations from the directors and executive officers of
Norwest to the effect that, except for de minimus dispositions which will not
disqualify the Merger as a pooling of interests, they will not dispose of
shares of Norwest or Union during the period commencing 30 days prior to the
Effective Date and ending upon publication by Norwest of financial results
including at least 30 days of combined operations of Union and Norwest.
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(n) For a period not exceeding fifteen days prior to the
Closing Date, Norwest will permit Union 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 Union or its representatives shall in any way affect, diminish
or terminate any of the representations, warranties or covenants of Norwest
herein expressed.
6. CONDITIONS PRECEDENT TO OBLIGATION OF UNION. The
obligation of Union 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 Union:
(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) Union shall have received a favorable certificate,
dated as of the Effective Date of the Merger, signed by the Chairman, the
President or any Executive Vice President or Senior Vice President and by the
Secretary or Assistant Secretary of Norwest, as to the matters set forth in
subparagraphs (a) and (b) of this paragraph 6.
(d) This Agreement and the Merger Agreement shall have
been approved by the affirmative vote of the holders of the percentage of the
outstanding shares of Union required for approval of a plan of merger in
accordance with the provisions of Union's Articles of Incorporation and the
Texas 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 Union 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.
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(h) Union shall have received an opinion, dated the
Closing Date, of counsel to Union, 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 Union Common Stock or
Union Preferred 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 Union will be the same as the basis of
Union Common Stock or Union Preferred Stock, as the case may be, exchanged
therefor; and (iv) the holding period of the shares of Norwest Common Stock
received by the shareholders of Union will include the holding period of the
Union Common Stock or Union Preferred Stock, as the case may be , provided such
shares of Union Common Stock or Union Preferred Stock, as the case may be, 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) Norwest shall have executed and delivered the
Employment Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The
obligation of Norwest to effect the Merger shall be subject to the satisfaction
at or before the Time of Filing of the following conditions, which may be
waived in writing by Norwest:
(a) Except as they may be affected by transactions
contemplated hereby and except to the extent such representations and
warranties are by their express provisions made as of a specified date and
except for activities or transactions or events occurring after the date of
this Agreement made in the ordinary course of business and not expressly
prohibited by this Agreement, the representations and warranties contained in
paragraph 2 hereof shall be true and correct in all respects material to Union
and the Union Subsidiaries taken as a whole as if made at the Time of Filing.
(b) Union 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 Union required for approval of a plan of merger in
accordance with the provisions of Union's Articles of Incorporation and the
Texas Business Corporation Act.
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(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 Union, 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 Union or any Union Subsidiary
that, in the good faith judgment of Norwest, is unreasonably burdensome to
Norwest.
(f) Union and each Union Subsidiary shall have obtained
any and all material consents or waivers from other parties to loan agreements,
leases or other contracts material to Union's or such subsidiary's business
required for the consummation of the Merger, and Union and each Union
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) The Merger shall qualify as a "pooling of interests"
for accounting purposes and Norwest shall have received from Padgett, Strateman
& Co., L.L.P. an opinion to that effect.
(i) At any time since the date hereof, the total number
of shares of Union Common Stock outstanding and subject to issuance upon
exercise (assuming for this purpose that phantom common shares and other common
share-equivalents, other than the Non-Cumulative Convertible Preferred Stock,
constitute Union Common Stock) of all warrants, options, conversion rights,
phantom shares or other common share-equivalents, other than the Non-Cumulative
Convertible Preferred Stock, shall not have exceeded 1,087,870. At any time
since the date hereof, the total number of shares of Union Preferred Stock
outstanding and subject to issuance upon exercise (assuming for this purpose
that phantom preferred shares and other preferred share-equivalents constitute
Union Preferred Stock) of all warrants, options, conversion rights, phantom
shares or other preferred share-equivalents shall not have exceeded 433,726.
(j) The Registration Statement (as amended or
supplemented) shall have become effective under the Securities Act and shall
not be subject to any stop order, and no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness of the Registration
Statement shall have been initiated and be continuing, or have been threatened
or be unresolved. Norwest shall have received all state securities law or blue
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sky authorizations necessary to carry out the transactions contemplated by this
Agreement.
(k) Norwest shall have received from the Chief Executive
Officer and Chief Financial Officer of Union 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 Union 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
Union;
(ii) the amounts reported in the interim
quarterly financial statements of Union agree with the
general ledger of Union;
(iii) the annual and quarterly financial
statements of Union and the Union 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 Union and the
Union 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 Union and the
Union 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 Union and the Union 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 Union and the Union 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 Union and the Union Subsidiaries and have found them
to
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be in agreement with financial records and analyses
prepared by Union included in the annual and quarterly
financial statements, except as disclosed in such letters.
(l) Union and the Union 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.
(m) There shall be no reasonable basis for any
proceeding, claim or action of any nature seeking to impose, or that could
result in the imposition on Union or any Union Subsidiary of, any liability
relating to the release of hazardous substances as defined under any United
States or foreign local, state or federal environmental statute, regulation or
ordinance including, without limitation, CERCLA, which has had or could
reasonably be expected to have a material adverse effect upon Union and its
subsidiaries taken as a whole.
(n) Since September 30, 1995, 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 Union and the Union 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).
(o) Union shall have complied in all material
respects with the OCC Consent Order and the FRB Written Agreement, except for
the exceptions identified on Schedule 2(m).
(p) Union shall have reconciled all account balances
as of month-end prior to the Closing Date. All differences over 60 days old
shall be charged-off. Any potential loss associated with open differences less
than 60 days old shall be recognized prior to Closing.
(q) Union shall have performed an audit and
verification of physical securities in the vault and reconciled to applicable
documentation prior to the Closing Date. Any potential loss associated with
unreconciled positions or missing securities shall be recognized prior to
Closing.
8. EMPLOYEE BENEFIT PLANS. Each person who is an
employee of Union or any Union Subsidiary as of the Effective Date of the
Merger ("Union 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 Union 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
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first day of the calendar quarter which begins at least 32 days after the
Effective Date of the Merger:
Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
For the purpose of determining each Union Employee's benefit for the year in
which the Merger occurs under the Norwest vacation program, vacation taken by
an Union Employee in the year in which the Merger occurs will be deducted from
the total Norwest benefit. Credit will be given to a Union Employee for the
portion of the deductible satisfied year to date under the Union medical plan
toward the deductible under the Norwest Medical Plan. Credit for years of
service with Union and the Union Subsidiaries will be granted under the Norwest
Short Term Disability Plan, Vacation Plan and Severance Plan. No past service
credit will be granted for Retiree Medical. With respect to group benefit
plans, pre-existing conditions will be waived except in the case of long term
care.
(b) Employee Retirement Benefit Plans.
Each Union 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 with Union
and the Union Subsidiaries for eligibility and vesting purposes 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 Union Employee shall be eligible for participation, as a new employee, in
the Norwest Pension Plan under the terms thereof.
(c) Life Insurance Policies
Norwest agrees to allow Ray M. Keck, Jr. to purchase for the current cash value
at the time of purchase the key-man life insurance policies covering his life
from Union National
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Bank of Texas on or prior to the Closing Date. Norwest agrees to allow John H.
Keck, Keith L. Rhoden and S. Bradford Sledge to purchase for the current cash
value at the time of purchase the split dollar life insurance policies covering
their respective lives from Union National Bank of Texas on or prior to the
Closing Date.
(d) Plan Transition.
Until eligible for the employee welfare and retirement plans of Norwest, the
Union Employees shall continue to participate in the employee benefit plans
maintained by Union or the Union Subsidiaries.
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 July 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;
(iii) by Union or Norwest upon written notice to
the other party if any court or governmental authority
of competent jurisdiction shall have issued a final
order restraining, enjoining or otherwise prohibiting
the consummation of the transactions contemplated by
this Agreement; or
(iv) by Union, within five business days after
the meeting of the shareholders of Union held to vote on this Agreement and the
Merger Agreement if the Norwest Measurement Price at the end of the trading day
immediately preceding the day of the meeting of the shareholders of Union held
to vote on this Agreement and the Merger Agreement is less than $25.00.
(b) Termination of this Agreement under this paragraph 9
shall not release, or be construed as so releasing, either party hereto from
any liability or damage to the other party hereto arising out of the breaching
party's wilful and material breach of the warranties and representations made
by it, or wilful and material failure in performance of any of its covenants,
agreements, duties or obligations arising hereunder, and the obligations under
paragraphs 4(g), 5(h) and 10 shall survive such termination.
10. EXPENSES. All expenses in connection with this
Agreement and the transactions contemplated hereby, including without
limitation legal and accounting fees,
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incurred by Union and Union Subsidiaries shall be borne by Union, 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 by facsimile transmission 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
Fax: (612) 667-4399
If to Union:
Union Texas Bancorporation, Inc.
1100 Matamoros
Laredo, Texas 78040
Attention: John H. Keck
Fax: (210) 726-8385
With a copy to:
Union Texas Bancorporation, Inc.
4940 Broadway
San Antonio, Texas 78209
Attention: Keith L. Rhoden
Fax (210) 804-7414
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
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14. COMPLETE AGREEMENT. This Agreement and the Merger
Agreement contain the complete agreement between the parties hereto with
respect to the Merger and other transactions contemplated hereby and supersede
all prior agreements and understandings between the parties hereto with respect
thereto.
15. CAPTIONS. The captions contained in this Agreement
are for convenience of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by
a signed writing, give any consent, take any action pursuant to paragraph 9
hereof or otherwise, or waive any inaccuracies in the representations and
warranties by the other party and compliance by the other party with any of the
covenants and conditions herein.
17. AMENDMENT. At any time before the Time of Filing,
the parties hereto, by action taken by their respective Boards of Directors or
pursuant to authority delegated by their respective Boards of Directors, may
amend this Agreement; provided, however, that no amendment after approval by
the shareholders of Union shall be made which changes in a manner adverse to
such shareholders the consideration to be provided to said shareholders
pursuant to this Agreement and the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of Minnesota without regard
to the conflict of laws provisions thereof.
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 UNION TEXAS BANCORPORATION, INC.
By: /s/ KEN MURRAY By: /s/ JOHN H. KECK
------------------------- ------------------------
Its: Executive Vice President Its: President
------------------------ -----------------------
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EXHIBIT A
TO AGREEMENT AND PLAN
OF REORGANIZATION
AGREEMENT AND PLAN OF MERGER
BETWEEN
UNION TEXAS BANCORPORATION, INC.
a Texas corporation
(the surviving corporation)
AND
a Texas corporation
(the merged corporation)
This Agreement and Plan of Merger dated as of __________,
1996, between UNION TEXAS BANCORPORATION, INC., a Texas corporation
(hereinafter sometimes called "Union" and sometimes called the "surviving
corporation") and ____________, a Texas 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 Texas on _______, 1996, and said
corporation is now a corporation subject to and governed by the provisions of
the Texas Business Corporation Act. Merger Co. has authorized capital stock of
10,000 shares of common stock having a par value of $2.50 per share ("Merger
Co. Common Stock"), of which 400 shares were outstanding as of the date hereof;
and
WHEREAS, Union was incorporated by Articles of Incorporation
filed in the office of the Secretary of State of the State of Texas on May 17,
1983, and said corporation is now a corporation subject to and governed by the
provisions of the Texas Business Corporation Act. As of the date hereof, Union
has authorized capital stock of 7,000,000 shares of common stock, par value
$2.50 per share, of which 1,087,870 shares were outstanding and 19,615 shares
were held in the treasury (the "Union Common Stock") and 3,000,000 shares of
Preferred Stock, no par value, of which one series is issued and outstanding
consisting of 1,000,000 shares of Non-Cumulative Convertible Preferred Stock,
no par value, of which 433,726 shares were outstanding and no shares were held
in treasury (the "Union Preferred Stock" and together with the Union Common
Stock, the "Union Stock"); and
WHEREAS, Norwest Corporation and Union are parties to an
Agreement and Plan of Reorganization, dated as of __________, 1995 (the
"Reorganization Agreement"), setting forth certain representations, warranties
and covenants in connection with the merger provided for herein; and
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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 Union, with Union continuing as the surviving
corporation, on the terms and conditions hereinafter set forth in accordance
with the provisions of the Texas 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 of 1986, as amended;
NOW, THEREFORE, the parties hereto, subject to the approval of
the shareholders of Union and Merger Co., in consideration of the premises and
of the mutual covenants and agreements contained herein and of the benefits to
accrue to the parties hereto, have agreed and do hereby agree that Merger Co.
shall be merged with and into Union pursuant to the laws of the State of Texas,
and do hereby agree upon, prescribe and set forth the terms and conditions of
the merger of Merger Co. with and into Union, the mode of carrying said merger
into effect, the manner and basis of converting the shares of Union Common
Stock into shares of common stock of Norwest Corporation 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 Union, 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 Union Texas Bancorporation, Inc.
SECOND: The Articles of Incorporation of Union at the time of
merger shall be and remain the Articles of Incorporation of the surviving
corporation until further amended according to law.
THIRD: The By-Laws of Union 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 number of directors of the surviving corporation
shall be three and the persons named below shall become the directors of the
surviving corporation and shall hold office from the time of merger until their
respective successors are elected and qualify:
Stanley S. Stroup
William H. Queenan
John T. Thornton
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FIFTH: The persons named below shall become 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:
John T. Thornton - President
Charles D. White - Vice President and Treasurer
J. Daniel Vandermark - Vice President
Robert J. Murphy - Vice President
Margaret M. Weber - Secretary
Rachelle M. Graham - Assistant Secretary
SIXTH: The manner and basis of converting the shares of Union
Stock into shares of Norwest Common Stock shall be as follows:
1. Each of the shares of Union 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 equal to the Adjusted Norwest
Shares (as defined in the Reorganization Agreement) divided by
the Common Share Quotient (as defined in the Reorganization
Agreement). Each of the shares of Union Preferred 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 equal to 1.34
multiplied by the Common Share Quotient (as defined in the
Reorganization Agreement).
2. As soon as practicable after the merger becomes
effective, each holder of a certificate for shares of Union
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 Union Stock shall not be transferable on
the books of the surviving corporation but shall be deemed to
evidence (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 Union Stock have been
converted on the basis above set forth; provided, however,
until the holder of such certificate for Union 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
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<PAGE> 155
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 and/or shares of a different entity by reason
of any reclassification, recapitalization, split-up,
combination, merger, consolidation, spin-off, sale of assets,
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, if any, into which a share of
Union Stock shall be converted pursuant to paragraph 1 above,
will be appropriately and proportionately adjusted so that the
number of such shares of Norwest Common Stock into which a
share of Union Stock shall be converted will equal the number
of shares of Norwest Common Stock which the holders of shares
of Union Stock would have received pursuant to such Common
Stock Adjustment 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 average of
the closing prices of a share of Norwest Common Stock as
reported by the consolidated tape of the New York Stock
Exchange for each of the five (5) trading days ending on the
day immediately preceding the meeting of the shareholders of
Union held to vote on the merger.
5. Each share of Merger Co. Common Stock issued and
outstanding at the time of merger shall be converted into and
exchanged for one share of the surviving corporation after the
time of merger.
SEVENTH: The merger provided for by this Agreement shall be
effective as follows:
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 Texas; provided, however,
that all of the following actions shall have been taken in the
following order:
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<PAGE> 156
a. This Agreement shall be approved and adopted
by Merger Co. and Union in accordance with the Texas
Business Corporation Act; and
b. Articles of Merger (with this Agreement
attached as a part thereof) with respect to the
merger, setting forth the information required by the
Texas Business Corporation Act, shall be executed by
the President or a Vice President of Merger Co. and
by the President or a Vice President of Union and
shall be filed in the office of the Secretary of
State of the State of Texas in accordance with the
Texas Business Corporation Act.
2. The merger shall become effective as of 11:59 p.m.
Laredo, Texas time (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 Union shall continue
as the surviving corporation.
2. The merger shall have the other effects prescribed by
Section 5.06 of the Texas Business Corporation Act.
NINTH: The following provisions shall apply with respect to
the merger provided for by this Agreement:
1. The registered office of the surviving corporation in
the State of Texas shall be 350 North St. Paul Street, Dallas
Texas, and the name of the registered agent of Union at such
address is CT Corporation System.
2. If at any time the surviving corporation shall
consider or be advised that any further assignment or
assurance in law or other action is necessary or desirable to
vest, perfect or confirm in the surviving corporation the
title to any property or rights of Merger Co. acquired or to
be acquired as a result of the merger provided for herein, the
proper officers and directors of Union 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.
3. 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.
4. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in
accordance with the laws of the State of Texas without regard
to the conflicts of laws provisions thereof.
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<PAGE> 157
5. This Agreement cannot be altered or amended except
pursuant to an instrument in writing signed by both of the
parties hereto.
6. At any time prior to the filing of Articles of Merger
with the Secretary of State of Texas, 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 caused this
Agreement and Plan of Merger to be signed in their respective corporate names
by the undersigned officers pursuant to authority duly given by their
respective Boards of Directors, all as of the day and year first above written.
UNION TEXAS BANCORPORATION, INC.
By:
---------------------------
Name:
-----------------
Title:
-----------------
[MERGER CO.]
By:
---------------------------
Name:
-----------------
Title:
-----------------
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EXHIBIT B
TO AGREEMENT AND
PLAN OF REORGANIZATION
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attn: Secretary
Ladies and 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 Union Texas Bancorporation, Inc., a Texas corporation
("Union").
Pursuant to an Agreement and Plan of Reorganization, dated
as of ________, 1995 (the "Reorganization Agreement"), between Union and
Norwest Corporation, a Delaware corporation ("Norwest"), it is contemplated
that a wholly-owned subsidiary of Norwest will merge with and into Union (the
"Merger") and, as a result, I will receive, in exchange for each share of
common stock, par value $2.50 per share, of Union ("Union 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 Union 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 until
such time as financial results covering at least 30 days of post-Merger
combined operations of Union and Norwest have been published.
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<PAGE> 159
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) any
such shares of Stock are sold at a time when 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
of Union and Norwest 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 Union.
Sincerely,
By:
-----------------------
Name:
---------------------
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<PAGE> 160
EXHIBIT C
TO AGREEMENT AND PLAN
OF REORGANIZATION
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of_________, 1996, between
John H. Keck ("Employee"), Union Texas Bancorporation, Inc. ("Bancorp"), Union
National Bank of Texas (the "Bank") and Norwest Corporation ("Norwest"), a
bank holding company.
WHEREAS, Employee is currently employed as President and Chief
Executive officer of the Bank which is a subsidiary of Bancorp; and
WHEREAS, Bancorp and Norwest have entered into an Agreement and Plan of
Reorganization, dated as of December __, 1995 (the "Merger Agreement") pursuant
to which a wholly owned subsidiary of Norwest will be merged with and into
Bancorp (the "Aquisition"); and
WHEREAS, the parties desire to enter into an Employment Agreement with
respect to Employee's obligations and compensation following the Acquisition,
and to resolve any potential or pending claims that Employee may now have
against Bancorp, Bank or Norwest.
NOW THEREFORE, the parties agree as follows:
1. EFFECTIVE DATE AND TERM. The Effective Date of this Agreement shall be
the date immediately following the Acquisition. The Term of this Agreement
shall be the period from the Effective Date through the next eighteen (18)
month period.
2. EMPLOYEE'S SERVICES. Commencing upon the Effective Date of this
Agreement and continuing through the Term, Employee shall be regular, full-
time employee of Bank with the title of Chairman of the Bank and shall perform
all of the duties as assigned by Norwest.
3. BASE COMPENSATION. Employee shall be paid base compensation at the
rate of One Hundred Seventy Thousand Dollars ($170,000.00) per annum during the
term of this Employment Agreement.
4. BENEFITS. Upon the Effective Date of this Agreement, Employee shall be
eligible to participate in the Bank's employee benefit plans avialable to
regular full-time employees
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<PAGE> 161
of Bank and in accordance with all of the terms of said benefit plans, with
the exception of the Norwest Corporation Severance Pay Plan (see paragraph 5).
In addition, upon the Effective Date, the Employee shall also be eligible to
receive the perquisites available to other executives at his level within
Norwest and its affiliates. Employee shall also be eligible for four (4) weeks
paid vacation each calendar year.
5. SEVERANCE PAY. Employee's participation in the Norwest Corporation
Severance Pay Plan shall be modified such that, at the end of the Term of this
Agreement or the termination of Employee from any employment with Bancorp,
Bank or Norwest, whichever occurs later, Employee shall, upon execution of an
ICA Severance Agreement, including a Release of Claims, receive a lump sum
severance pay benefit in the amount ot Eighty Five Thousand Dollars
($85,000.00).
6. STOCK OPTION. Management of Norwest will request that the Human
Resources Committee of the Board of Directors of Norwest Corporation, at the
Committee's first meeting after the Effective Date, grant stock options for
1,500 shares of Norwest stock to the Employee, at an exercise price equal to
the fair market value as of the date of grant, 100% of which will become first
exercisable on the first anniversary of the date such options are granted,
provided that Employee is still an Employee of Norwest (or an affiliate of
Norwest) on the vesting date.
7. TERMINATION. This Employment Agreement shall terminate on the
earlier of:
(a) The last day of the month concluding the eighteen (18) month
period immediately following the Effective Date.
(b) Prior to the end of the Term set forth above, upon:
i. the Employee's death;
ii. receipt of notice of termination by Employee from Bank
arising from the commission of a fraudulent or
dishonest act by Employee or upon the Employee's
violation of Bancorp, Bank or Norwest policy; or
iii. the Employee voluntarily resigns his employment with
the Bank.
8. RELEASE OF CLAIMS. In consideration for this Employment
Agreement, Employee agrees that he will execute the Release of Claims,
attached hereto as Exhibit A, on the Effective Date of this Agreement.
9. DEATH OR TERMINATION OF EMPLOYEE. In the event of the death or
termination of the Employee, all amounts earned by Employee prior to his death
or termination shall be payable to the Employee or his estate as circumstances
dictate.
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<PAGE> 162
10. CONFIDENTIALITY. The parties hereto agree to keep the terms of this
Agreement confidential. Norwest, Bank or Bancorp shall disclose the terms
herein only as necessary to perform their duties hereunder or as required by
law. Employee shall not disclose any terms herein except as required by law.
In addition, Employee agrees that all information he receives or has access to
in his position as Chairman of the Bank shall forever be treated by him as
confidential and as proprietary property of Bancorp, Bank and Norwest, except
for any such information which (i) shall have become public knowledge otherwise
than by disclosure by Employee, (ii) Employee shall have received from a third
party, who, by revealing same, is not in violation of any obligation to the
Bank or Norwest to keep such information confidential, or (iii) Employee is
required by law to disclose. Employee agrees that at no time during or
following the Term of this Agreement, will he disclose any such information
outside of Bancorp, Bank or Norwest, except in the performance of his assigned
duties on behalf of the Bancorp, Bank and Norwest, or under the circumstances
described in the preceding sentence.
11. SPLIT-DOLLAR LIFE INSURANCE. Effective upon the closing of the
Acquisition, Employee shall be offered the opportunity to purchase from the
Bank the split-dollar life insurance policy then in effect covering Employee's
life at a cash price equal to the cash value of the policy on the date of
purchase. Neither Bancorp, Bank or Norwest shall make any further payments on
said policy following the closing of the Acquisition.
12. INDEMNIFICATION. As an officer of the Bank, if in the course of
performing his assigned job duties Employee is named as an individual defendant
in any litigation, he shall be entitled to indemnification by the Bank as set
forth in its Articles of Association or Bylaws. Within 60 days after the
closing of the Acquisition, the Bank shall amend its Articles of Association to
include the indemnification provisions attached hereto as Exhibit B.
13. WAIVER. No waiver of any term, condition or provision shall be
effective for any purpose whatsoever unless such waiver is in writing and
signed by the appropriate party.
14. GOVERNING LAW AND ENFORCEABILITY. This agreement shall be governed by and
construed in accordance with the laws of the State of Texas. In the event that
a court of competent jurisdiction shall determine that any provision set forth
herein is void, invalid, or unenforceable, such void, invalid, or
unenforceable provision shall be deemed to be severable from and shall be
severed from this Agreement, and this Agreement shall be construed and enforced
as if such severed provision had never been a part hereof.
15. AMENDMENT AND ASSIGNMENT. The parties may not modify or amend this
Employment Agreement unless said amendment is in writing and is signed by all
parties. This Agreement is personal in nature as to the Employee and may not
be assigned by him. The terms of this Agreement shall inure to the benefit
of the Bank, Bancorp, Norwest and their successors and assigns.
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<PAGE> 163
16. MERGER. This Agreement includes the entire agreement between the
Employee, Bancorp, Bank and Norwest regarding the subject matter hereof and
supersedes any and all verbal or written agreements between Employee and
Bancorp, Bank or Norwest.
IN WITNESS WHEREOF, the undersigned have set their hands as of the date
first written above.
UNION TEXAS BANCORPORATION, INC.
By:
----------------------------
Its
-------------------------
NORWEST CORPORATION
By:
----------------------------
Its
-------------------------
UNION NATIONAL BANK OF TEXAS
By:
----------------------------
Its
-------------------------
--------------------------------
John H. Keck
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<PAGE> 164
UNION TEXAS BANCORPORATION
1100 MATAMOROS
LAREDO, TEXAS 78042-0699
January 10, 1996
BY TELEFAX - (612) 667-4399
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
Re: Agreement and Plan of Reorganization as of December 4, 1995 between
Union Texas Bancorporation, Inc. and Norwest Corporation
Gentlemen:
Pursuant to Section 17 of the above Agreement (the "Agreement") the
purpose of this letter is to amend the Agreement for the purposes set forth
herein. Capitalized terms used in this letter shall have the same meanings as
those used in the Agreement.
1. Number of Outstanding Shares of Common Stock. Section 2(c) of the
Agreement is hereby amended to reflect the fact that the correct numbers of
outstanding shares and treasury shares of Union Common Stock as of the close of
business on October 31, 1995, are 1,083,203 shares and 23,115 shares,
respectively.
2. Sale of Additional Shares of Union Common Stock. In order for
Union to have sufficient funds to make the final interest payment on its
floating rate mandatorily convertible subordinated debentures, which is due on
January 10, 1996, Union proposes to sell 7,200 newly issued shares of Union
Common Stock to John H. Keck for a purchase price of $8.41 per share, which
will result in 1,090,403 shares of Union Common Stock being outstanding and
23,115 shares of Union Common Stock being held by Union as treasury shares. In
order for this sale to be completed, (i) the second sentence of Section 2(c) of
the Agreement is hereby amended to change the number "1,087,870" to
"1,090,403", as the maximum number of shares of Union Common Stock that would
be outstanding as of the Effective Date of the Merger and (ii) Section 7(i) of
the Agreement is also hereby amended to change the number "1,087,870" to
"1,090,403".
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<PAGE> 165
3. Amendment of Total Purchase Price. The definition of "Adjusted
Norwest Shares", set forth in the second sentence of Section 1(a) of the
Agreement is hereby amended (i) to change the number "$14,000,000 (Fourteen
Million Dollars)" to "$14,060,552.00 (Fourteen Million Sixty Thousand Five
Hundred Fifty-Two Dollars)" and (ii) to change the number "$10,000,000" to
"$10,060,552.00".
4. Waiver of Covenant. Consistent with the amendment set forth in
paragraph 2 above, Norwest hereby waives the restriction on the sale by Union
of shares of its capital stock, set forth in Section 4(b) of the Agreement, for
the sole purpose of allowing the above sale fo 7,200 shares of Union Common
Stock to John H. Keck.
Please signify your agreement with the above amendments and waiver with
respect to the Agreement by executing both copies of this letter in the space
provided below and returning one executed copy to the undersigned.
Very truly yours,
UNION TEXAS BANCORPORATION, INC.
By /s/ S. BRADFORD SLEDGE
-------------------------------
S. Bradford Sledge
Vice President
Agreed to this 12
day of January, 1996
NORWEST CORPORATION
By: /s/ KIRK SIMPSON
----------------------
Name: Kirk Simpson
--------------------
Title: Vice President
-------------------
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<PAGE> 166
APPENDIX B
OPINION OF
ALEX SHESHUNOFF & CO.
<PAGE> 167
[DATE OF PROXY STATEMENT-PROSPECTUS]
Board of Directors
Union Texas Bancorporation, Inc.
1100 Matamoros
Laredo, Texas 78040
Members of the Board:
You have requested our opinion, as an independent financial analyst to the
shareholders of Union Texas Bancorporation, Inc., Laredo, Texas, ("Union"), as
to the fairness, from a financial point of view to the common and preferred
shareholders of Union, of the terms of the proposed merger of Union with and
into Norwest Corporation, Minneapolis, Minnesota, ("Norwest").
Pursuant to the terms of the Agreement and Plan of Reorganization, as amended
by letter on January 10, 1996 (the "Merger Agreement"), each share of Union
Common Stock will be converted into shares of Norwest Common Stock equal in
number to the quotient (the "Common Share Quotient") obtained by dividing the
Adjusted Norwest Shares by the sum of (i) the total number of shares of Union
Preferred Stock outstanding immediately prior to the Effective Time multiplied
by 1.34 and (ii) the total number shares of Union Common Stock outstanding
immediately prior to the Effective Time. Adjusted Norwest Shares means the
number obtained by dividing (i) $14,060,552 minus the amount in dollars by
which the Consolidated Tangible Equity of Union (as defined in the Merger
Agreement) immediately prior to the Effective Time is less than $10,060,552
(the "Gross Amount") by (ii) the Norwest Measurement Price; provided, however,
that, if the Norwest Measurement Price is less than $29.625, then the Adjusted
Norwest Shares will mean the number obtained by dividing the Gross Amount by
$29.625 and, if the Norwest Measurement Price is greater than $35.625, then the
Adjusted Norwest Shares will mean the number obtained by dividing the Gross
Amount by $35.625. Norwest Measurement Price means the average of the closing
prices per share of Norwest Common Stock as reported on the NYSE Composite Tape
during the period of 20 consecutive trading days ending on the day immediately
preceding the Special Meeting. Each share of Union Preferred Stock will be
converted into shares of Norwest Common Stock equal in number to the Common
Share Quotient multiplied by 1.34 (the "Preferred Share Quotient").
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<PAGE> 168
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 and products to Union 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 Merger Agreement
between Union and Norwest; (ii) the most recent internal Directors' Audit
Committee Meeting Report of Union; (iii) the December 31, 1995, December 31,
1994 and December 31, 1993 audited balance sheet and income statement for
Union, the January 17, 1996 Norwest News Release and the December 31, 1994 and
December 31, 1993 audited balance sheet and income statement for Norwest; (iv)
the Rate Sensitivity Analysis report for Union; (v) Union's most recent listing
of marketable securities showing rate, maturity and market value as compared to
book value; (vi) Union's internal loan classification list; (vii) the 1995
budget of Union; (viii) a listing of unfunded letters of credit and any other
off-balance sheet risks for Union; (ix) the Minutes of the Board of Directors
meetings of Union; (x) the most recent Union Board report; (xi) the listing and
description of significant real properties for Union; (xii) material leases on
real and personal property for Union; (xiii) Union's senior management
employment contracts; (xiv) the directors and officers liability and blanket
bond insurance policies for Union; (xv) preliminary drafts of the S-4; (xvi)
terms of Union's preferred stock; and (xvii) market conditions and current
trading levels of outstanding equity securities of both organizations.
We have also had discussions with the management of Union and Norwest regarding
their respective financial results and have analyzed the most current financial
data available on Union 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
Union to discuss the foregoing information with them.
We have considered certain financial data of Union 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 Union or
Norwest. Additionally, we have relied upon the preferred stock conversion
ratio as calculated by Padgett, Stratemann & Co., L.L.P.
In reaching our opinion we took into consideration the financial benefits of
the proposed transaction to all Union common and preferred shareholders. Based
on all
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<PAGE> 169
factors that we deem relevant and assuming the accuracy and completeness of the
information and data provided to us by Union and Norwest, it is our opinion as
of February 9, 1996, that the proposed transaction is fair and equitable to all
Union common and preferred shareholders from a financial point of view.
Our opinion does not constitute an endorsement of the merger or a
recommendation to any stockholder of Union as to how such stockholder should
vote.
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
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<PAGE> 170
APPENDIX C
TEXAS BUSINESS
CORPORATION ACT
ARTICLES 5.11, 5.12 AND 5.13
<PAGE> 171
ART. 5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right
to dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if
shareholder approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote thereon
as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including
any pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all, the
property and assets, with or without good will, of a corporation requiring the
special authorization of the shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in
which the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if (1) the shares held by the shareholder are part
of a class shares of which are listed on a national securities exchange, or are
held of record by not less than 2,000 holders, on the record date fixed to
determine the shareholders entitled to vote on the plan of merger or the plan
of exchange, and (2) the shareholder is not required by the terms of the plan
of merger or the plan of exchange to accept for his shares any consideration
other than (a) shares of a corporation that, immediately after the effective
time of the merger or exchange, will be part of a class or series of shares of
which are (i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange, or (ii) held of record by not
less than 2,000 holders, and (b) cash in lieu of fractional shares otherwise
entitled to be received.
Act 1995, 54th Leg., p.239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1957,
55th Leg., p. 111, ch. 54 Section 10; Acts 1973, 63rd Leg., p. 1508, ch. 545,
Section 36, eff. Aug. 27, 1972; Acts 1989, 71st Leg, ch. 301, Section 34, eff.
Aug 28, 1989; Acts 1991, 72nd Leg., ch. 901, Section 32, Aug. 26, 1991.
ART. 5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACCOUNTS
A. Any shareholder of any domestic corporation who has the right
to dissent from any of the corporate actions referred to in Article 5.11 of
this Act may exercise that right to dissent only by complying with the
following procedures:
(1)(a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall
be delivered or mailed in that event. If the action is effected and the
shareholder shall not have voted in favor of the action, the corporation, in
the case of action other than a merger, or the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten (10)
days after the action is effected, deliver or mail to the shareholder written
notice that the action has been effected, and the shareholder may, within ten
(10) days from the delivery or mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of the day
immediately preceding the meeting, excluding any appreciation or depreciation
in anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the shares
as estimated by the shareholders. Any shareholder failing to make demand
within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within ten (10) days after the date
the action is effected, mail to each shareholder of record as of the effective
date of the action notice of the fact and date of the action and that the
shareholder may exercise the shareholder's right to dissent from the action.
The notice shall be accompanied by a copy of this Article and any articles or
documents filed by the corporation with the Secretary of State to effect the
action. If the shareholder shall not have consented to the taking of the
action, the shareholder may, within twenty (20) days after the mailing of the
notice, make written demand on the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, for payment of the
fair
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value of the shareholder's shares. The fair value of the shares shall
be the value thereof as of the date the written consent authorizing the action
was delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the action.
The demand shall state the number of class of shares owned by the dissenting
shareholder and the fair value of the shares as estimated by the shareholder.
Any shareholder failing to make demand within the twenty (20) day period shall
be bound by the action.
(2) Within twenty (20) days after receipt by the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the
case may be, of a demand for payment made by a dissenting shareholder in
accordance with Subsection (1) of this Section, the corporation (foreign or
domestic) or other entity shall deliver or mail to the shareholder a written
notice that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was effected,
and, in the case of shares represented by certificates, upon the surrender of
the certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the
corporate action was effected, the value of the shares is agreed upon between
the shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall be
made within ninety (90) days after the date on which the action was effected
and, in the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the shareholder
shall cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on
which the corporate action was effected, the shareholder and the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the
case may be, do not so agree, then the shareholder or the corporation (foreign
or domestic) or other entity may, within sixty (60) days after the expiration
of the sixty (60) day period, file a petition in any court of competent
jurisdiction in the county in which the principal office of the domestic
corporation is located, making for a finding and determination of the fair
market value of the shareholder's shares. Upon the filing of any such petition
by the shareholder, service of a copy thereof shall be made upon the
corporation (foreign or domestic) or other entity, which shall, within ten
(10) days after service, file in the office of the clerk of the court in which
the petition was filed a list containing the names and addresses of all
shareholders of the domestic corporation who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the corporation (foreign or domestic) or other entity. If the
petition shall be filed by the corporation (foreign or domestic) or other
entity, the petition shall be accompanied by such a list. The clerk of the
court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the address therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgement of the court.
C. After the hearing of the petition, the court shall determine
the shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civile Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of
the shareholders adjudged by the court to be entitled to payment for their
shares and shall file their report of that value in the office of the clerk of
the court. Notice of the filing of the report shall be given by the clerk to
the parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of
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the shares of the shareholders entitled to payment for their shares and shall
direct the payment of that value by the existing, surviving, or new corporation
(foreign or domestic) or other entity, together with interest thereon,
beginning 91 days after the date on which the applicable corporate action
from which the shareholders elected to dissent was effected to the date of such
judgement, to the shareholder entitled to payment. The judgment shall be
payable to the holders of uncertified shares immediately but to the holders of
shares represented by certificates only upon, and simultaneously with, the
surrender to the existing, surviving, or new corporation (foreign or domestic)
or other entity, as the case may be, of duly endorsed certificates for those
shares. Upon payment of the judgment, the dissenting shareholders shall cease
to have any interest in those shares or in the corporation. The court shall
allow the appraisers a reasonable fee as court costs, and all court costs
shall be allotted between the parties in the manner that the court determines.
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, pursuant to the
payment of the agreed value of the shares or pursuant to payment of the
judgment entered for the value of the shares, as in this Article provided,
shall, in the case of a merger, be treated as provided in the plan of merger,
and, in all other cases, may be held and disposed of by the corporation as in
the case of other treasury shares.
F. The provisions of this Article shall not apply to a merger if,
on the date of the filing of the articles of merger, the surviving corporation
is the owner of all the outstanding shares of the other corporations, domestic
or foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided
by this Article to a shareholder objecting to any corporate action referred to
in Article 5.11 of this Act is the exclusive remedy for the recovery of the
value of his shares or money damages to the shareholder with respect to the
action. If the existing, surviving, or new corporation (foreign or domestic) or
other entity, as the case may be, complies with the requirements of this
Article shall not be entitled to bring suit for the recovery of the value of
his shares or money damages to the shareholder with respect to the action.
Acts 1955, 54th Leg., p.239, ch. 64, eff. Sept. 6, 1966. Amended by Acts 1967,
60th Leg., p. 1721, ch. 657, Section 12, eff. June 17, 1967; Acts 1968, 68th
Leg., p. 3570, ch. 442, Section 9, eff. Sept. 1, 1983; Acts 1967, 70th Leg.,
ch. 98, Section 27, eff. Aug. 31, 1987; Acts 1989, 71st Leg., ch. 801, Section
35, eff. Aug. 28, 1989; Acts 1983, 73rd Leg., ch. 215, Section 2.16, eff.
Sept. 1, 1983.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act shall not thereafter
be entitled to vote or exercise any other rights of a shareholder exempt the
right to receive payment for his shares pursuant to the provisions of those
articles and the right to maintain an appropriate action to obtain relief on
the ground that the corporate action would be or was fraudulent, and the
respective shares for which payment has been demanded shall not thereafter be
considered outstanding for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting
shareholder, the corporation shall make an appropriate notation thereof in its
shareholder records. Within twenty (20) days after demanding payment for his
shares in accordance with either Article 5.12 or 5.16 of this Act, each holder
of certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Article
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original demand for payment of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act may withdraw such
demand at any time before payment for his shares or before any petition has
been filed pursuant to Article 5.12 or 5.16 of this Act asking for a finding
and determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair
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value of such shares by a court shall have been filed within the time provided
in Article 5.12 or 5.16 of this Act, as the case may be, or if after the
hearing of a petition filed pursuant to Article 5.12 or 5.16 the court shall
determine that such shareholder is not entitled to the relief provided by those
articles, then, in any such case, such shareholder and all persons claiming
under him shall be conclusively presumed to have approved and ratified the
corporate action from which he dissented and shall be bound thereby, the right
of such shareholder to be paid the fair value of his shares shall cease, and
his status as a shareholder shall be restored without prejudice to any
corporate proceedings which may have been taken during the interim, and such
shareholder shall be entitled to receive any dividends or other distributions
made to shareholders in the interim.
Acts 1966, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts 1967,
60th Leg. p.1723, ch. 657, Section 13, eff. June 17, 1967; Acts 1963, 68th Leg.
p. 2573, ch. 442, Section 10, eff. Sept. 1, 1968; Acts 1993, 73rd Leg., ch.
215, Section 2.17, eff. Sept. 1, 1996.
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