<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1996
REGISTRATION NO. 333-02485
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NORWEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6711 41-0449260
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
NORWEST CENTER
SIXTH AND MARQUETTE
MINNEAPOLIS, MINNESOTA 55479-1000
612-667-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STANLEY S. STROUP
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
NORWEST CORPORATION
NORWEST CENTER
SIXTH AND MARQUETTE
MINNEAPOLIS, MINNESOTA 55479-1026
612-667-8858
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
ROBERT J. KAUKOL EZRA G. LEVIN
NORWEST CORPORATION KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN &
NORWEST CENTER FRANKEL
SIXTH AND MARQUETTE 919 THIRD AVENUE
MINNEAPOLIS, MINNESOTA 55479-1026 NEW YORK, NEW YORK 10022-3903
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[BENSON LETTERHEAD]
April 26, 1996
Dear Shareholder:
A special meeting of shareholders of Benson Financial Corporation
("Benson") will be held on May 29, 1996 to consider and vote upon a proposal to
approve the Agreement and Plan of Reorganization dated December 21, 1995 (as
amended, the "Merger Agreement") between Benson and Norwest Corporation
("Norwest") pursuant to which a wholly-owned subsidiary of Norwest will merge
with and into Benson (the "Merger"). If the Merger Agreement is approved and the
Merger becomes effective, Benson will become a wholly-owned subsidiary of
Norwest and holders of Benson capital stock will be entitled to receive shares
of Norwest common stock upon the terms and subject to the conditions set forth
in the Merger Agreement.
Benson's board of directors has unanimously approved the Merger Agreement
as being advisable and in the best interests of Benson's shareholders and
recommends that you vote for approval of the Merger Agreement. Hoefer & Arnett
Incorporated, Benson's financial advisor in connection with the Merger, has
rendered an opinion to Benson's board of directors that as of the date hereof
the consideration to be received pursuant to the Merger Agreement by holders of
Benson common stock 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 of and reasons for the Merger. Please carefully review
and consider the information in the Proxy Statement-Prospectus. Additional
information concerning Norwest, including its 1995 annual report on Form 10-K,
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.
R. TOM RODDY
President and Chief Executive Officer
<PAGE> 3
BENSON FINANCIAL CORPORATION
40 N.E. LOOP 410
SAN ANTONIO, TEXAS 78216
(210) 340-5000
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1996
------------------------
A special meeting (the "Special Meeting") of shareholders of Benson
Financial Corporation, a Texas corporation ("Benson"), will be held at Groos
Bank, N.A. -- North Star, Texas Room, 40 N.E. Loop 410, San Antonio, Texas, on
May 29, 1996, at 2:00 p.m., central time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Reorganization dated December 21, 1995 (as amended, the "Merger
Agreement") between Benson and Norwest Corporation ("Norwest") pursuant to
which a wholly-owned subsidiary of Norwest will merge with and into Benson
and Benson will become a wholly-owned subsidiary of Norwest, all upon the
terms and subject to the conditions set forth in the Merger Agreement, a
copy of which 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 or postponements thereof.
Only shareholders of record on the books of Benson at the close of business
on April 18, 1996 will be entitled to vote at the Special Meeting or any
adjournments or postponements 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
JACK E. SMITH
Secretary
April 26, 1996
- --------------------------------------------------------------------------------
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY AND PROMPTLY MAIL IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. 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.
- --------------------------------------------------------------------------------
<PAGE> 4
BENSON FINANCIAL CORPORATION
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1996
------------------------
NORWEST CORPORATION
PROSPECTUS
SHARES OF COMMON STOCK
------------------------
This Proxy Statement-Prospectus is being provided to holders of the common
stock, par value $.10 per share ("Benson Common Stock"), and Series C preferred
stock, par value $100 per share ("Benson Series C Preferred Stock"), of Benson
Financial Corporation, a Texas corporation ("Benson"), in connection with the
solicitation of proxies by the board of directors of Benson (the "Benson Board")
for a special meeting of Benson's shareholders to be held on May 29, 1996 (the
"Special Meeting").
At the Special Meeting, Benson's shareholders will consider and vote upon a
proposal to approve the Agreement and Plan of Reorganization dated December 21,
1995 (as amended and including all exhibits thereto, the "Merger Agreement")
between Benson and Norwest Corporation, a Delaware corporation ("Norwest"),
pursuant to which a wholly-owned subsidiary of Norwest will merge with and into
Benson and Benson will become a wholly-owned subsidiary of Norwest (the
"Merger"). If the Merger is approved and becomes effective, holders of Benson
Common Stock and holders of Benson Series C Preferred Stock will receive shares
of Norwest's common stock, par value $1 2/3 per share ("Norwest Common Stock"),
in exchange for their shares of Benson capital stock. Assuming the Norwest
Average Price (as defined below) is between $28.50 and $36.50, inclusive,
holders of Benson Common Stock will receive $20 worth of Norwest Common Stock,
as measured by the Norwest Average Price, for each share of Benson Common Stock
held by them. For additional information concerning the consideration to be
received by holders of Benson Common Stock and certain risks due to fluctuations
in the price of Norwest Common Stock, see "THE MERGER -- Merger Consideration."
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. 333-02485)
(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 April 23, 1996
was $36 5/8 per share. Benson Common Stock is traded in the over-the-counter
market and quoted on the Nasdaq National Market System under the symbol "BFCX."
The last reported sale price of Benson Common Stock on April 23, 1996 was
$19 3/4 per share. There is no public market for shares of Benson Series C
Preferred Stock.
All information concerning Norwest contained in this Proxy
Statement-Prospectus has been provided by Norwest, and all information
concerning Benson contained in this Proxy Statement-Prospectus has been provided
by Benson.
This Proxy Statement-Prospectus and the accompanying form of proxy are
first being mailed to shareholders of Benson on or about April 26, 1996.
------------------------
THE SHARES OF NORWEST COMMON STOCK OFFERED BY THIS PROXY STATEMENT-PROSPECTUS
ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
NONBANK SUBSIDIARY OF NORWEST AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Proxy Statement-Prospectus is April 26, 1996.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
EXPLANATORY NOTE AND DEFINITIONS OF CERTAIN TERMS..................................... 3
SUMMARY............................................................................... 4
Parties to the Merger............................................................... 4
Special Meeting and Vote Required................................................... 4
The Merger.......................................................................... 5
Market Information.................................................................. 7
Comparison of Rights of Holders of Benson Common Stock and
Norwest Common Stock............................................................. 7
Comparative Per Common Share Data................................................... 7
Selected Consolidated Financial Data................................................ 8
MEETING INFORMATION................................................................... 12
General............................................................................. 12
Record Date; Voting Rights; Vote Required........................................... 12
Voting and Revocation of Proxies.................................................... 12
Solicitation of Proxies............................................................. 13
THE MERGER
General............................................................................. 14
Background of and Reasons for the Merger............................................ 14
Opinion of Benson's Financial Advisor............................................... 14
Merger Consideration................................................................ 23
Dissenters' Rights.................................................................. 25
Surrender of Certificates........................................................... 27
Conditions to the Merger............................................................ 28
Regulatory Approvals................................................................ 28
Conduct of Business Pending the Merger.............................................. 29
No Solicitation..................................................................... 30
Certain Additional Agreements....................................................... 30
Termination of the Merger Agreement................................................. 30
Amendment of the Merger Agreement................................................... 31
Waiver of Performance of Obligations................................................ 31
Effect on Employee Benefit Plans.................................................... 31
Interests of Certain Persons in the Merger.......................................... 31
Certain U.S. Federal Income Tax Consequences........................................ 32
Resale of Norwest Common Stock...................................................... 33
Stock Exchange Listing.............................................................. 34
Accounting Treatment................................................................ 34
Expenses............................................................................ 34
NORWEST CAPITAL STOCK AND RIGHTS...................................................... 34
General.......................................................................... 34
Norwest Common Stock............................................................. 35
Norwest Preferred Stock; Norwest Preference Stock................................ 35
Rights Plan...................................................................... 36
Dividend Reinvestment and Optional Cash Payment Plan............................. 37
Shares Registered under the Securities Act....................................... 37
COMPARISON OF RIGHTS OF HOLDERS OF BENSON COMMON STOCK AND NORWEST COMMON STOCK....... 38
General.......................................................................... 38
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Directors........................................................................ 38
Amendment of Articles or Certificate of Incorporation and Bylaws................. 38
Shareholder or Stockholder Approval of Mergers and Asset Sales................... 39
Appraisal Rights................................................................. 39
Special Meetings................................................................. 40
Action Without a Meeting......................................................... 40
Limitation of Director Liability................................................. 40
Indemnification of Officers and Directors........................................ 41
Dividends........................................................................ 41
Proposal of Business; Nomination of Director..................................... 42
INFORMATION CONCERNING BENSON......................................................... 43
General.......................................................................... 43
The Banks........................................................................ 43
Nonbanking Activities............................................................ 44
Competition...................................................................... 44
Regulation and Supervision....................................................... 44
Employees........................................................................ 46
Properties....................................................................... 47
Legal Proceedings................................................................ 47
Description of Securities........................................................ 47
Dividends and Dividend Policy.................................................... 48
Holders.......................................................................... 48
Security Ownership of Management................................................. 49
Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 50
COMPARATIVE PER SHARE PRICES AND DIVIDENDS............................................ 72
CERTAIN REGULATORY CONSIDERATIONS PERTAINING TO NORWEST............................... 73
General.......................................................................... 73
Dividend Restrictions............................................................ 73
Holding Company Structure........................................................ 73
Capital Requirements............................................................. 75
Federal Deposit Insurance Corporation Improvement Act of 1991.................... 76
FDIC Insurance................................................................... 77
EXPERTS............................................................................... 78
LEGAL OPINIONS........................................................................ 78
MANAGEMENT OF NORWEST AND ADDITIONAL INFORMATION...................................... 78
REPORT OF BENSON'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................... F-1
CONSOLIDATED FINANCIAL STATEMENTS OF BENSON........................................... F-2
APPENDIX A AGREEMENT AND PLAN OF MERGER............................................... A-1
APPENDIX B OPINION OF HOEFER & ARNETT INCORPORATED.................................... B-1
APPENDIX C TEXAS BUSINESS CORPORATION ACT, ARTICLES 5.11, 5.12 AND 5.13............... C-1
</TABLE>
ii
<PAGE> 7
AVAILABLE INFORMATION
Norwest and Benson are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission.
The reports, proxy statements and other information filed by Norwest and
Benson 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 Citicorp Center, 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. Reports,
proxy statements and other information concerning Benson are available for
inspection at the offices of The Nasdaq Stock Market, 1735 K Street, Washington,
D.C. 20006.
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, Benson 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 is authorized to give any information or make any representations
other than those expressly set forth in this Proxy Statement-Prospectus. Any
such information or representations must not be relied upon as being authorized.
The delivery of this Proxy Statement-Prospectus is neither an offer to sell or a
solicitation of an offer to buy shares of Norwest Common Stock nor a
solicitation of a proxy in any circumstances in which such offer to sell,
solicitation of an offer to buy or solicitation of a proxy is unlawful. Neither
the delivery of this Proxy Statement-Prospectus nor any distribution of
securities hereunder shall under any circumstances create any implication that
there has been no change in the business prospects, financial condition or other
affairs of Norwest or Benson since the date of this Proxy Statement-Prospectus
or that the information contained herein is correct and complete as of any time
subsequent to the date of this Proxy Statement-Prospectus.
1
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE 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, IN THE CASE OF DOCUMENTS RELATING TO NORWEST, TO LAUREL A.
HOLSCHUH, SECRETARY, NORWEST CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE,
MINNEAPOLIS, MINNESOTA 55479-1026, TELEPHONE (612) 667-8655 OR, IN THE CASE OF
DOCUMENTS RELATING TO BENSON, TO SHIRLEY R. YOAKUM, TREASURER, BENSON FINANCIAL
CORPORATION, 40 N.E. LOOP 410, SAN ANTONIO, TEXAS 78216, TELEPHONE (210)
681-5100. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE RECEIVED BY NORWEST OR BENSON, AS THE CASE MAY BE, BY MAY 21, 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: (i) Norwest's Annual Report on Form 10-K for the year
ended December 31, 1995; (ii) Norwest's Current Reports on Form 8-K dated
January 17, 1996, February 20, 1996, as amended pursuant to Form 8-K/A, February
26, 1996 and April 22, 1996; and (iii) Norwest's Registration Statement on Form
8-A dated December 6, 1988, as amended pursuant to Form 8-A/A dated June 29,
1993, relating to preferred stock purchase rights.
All documents filed by Norwest and Benson 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.
2
<PAGE> 9
EXPLANATORY NOTE AND DEFINITIONS OF CERTAIN TERMS
Benson is incorporated under the laws of the state of Texas and is governed
by the Texas Business Corporation Act and Benson's articles of incorporation and
bylaws (as amended and in effect as of the date of this Proxy
Statement-Prospectus, the "TBCA," "Benson Articles" and "Benson 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 Benson Common Stock or Benson Series C 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:
"1992 Benson Common Stock Options" mean the options granted pursuant
to Benson's 1992 Nonqualified Stock Option Plan that have not been
exercised as of immediately prior to the Effective Time of the Merger.
"1994 Benson Common Stock Options" mean the options granted pursuant
to Benson's 1994 Stock Option Plan that have not been exercised as of
immediately prior to the Effective Time of the Merger and whose holders
have agreed to cancel their options in exchange for shares of Norwest
Common Stock.
"1994 Benson Option Shares" mean the shares of Benson Common Stock
issuable upon exercise of 1994 Benson Common Stock Options.
"Benson" means Benson and its consolidated subsidiaries.
"Norwest" means Norwest and its consolidated subsidiaries.
"Norwest Average Price" means the average of the closing prices of a
share of Norwest Common Stock as reported on the NYSE composite tape during
the period of 10 trading days ending on the day immediately preceding the
date of the Special Meeting at which the vote to approve the Merger
Agreement is taken.
"Norwest Measurement Price" means (i) the Norwest Average Price if the
Norwest Average Price is greater than $28.50 and less than $36.50, (ii)
$28.50 if the Norwest Average Price is equal to or less than $28.50 or
(iii) $36.50 if the Norwest Average Price is equal to or greater than
$36.50.
Other capitalized terms used in this Proxy Statement-Prospectus generally
are defined where they first appear.
3
<PAGE> 10
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 Benson 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. Norwest generally does not make a public
announcement of an acquisition until a definitive agreement has been signed.
Norwest generally provides information concerning the aggregate asset value of,
and the aggregate consideration anticipated to be paid for, its pending
acquisitions in its annual and quarterly reports filed with the Commission and
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
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 "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Benson. Benson, a bank holding company headquartered in San Antonio,
Texas, derives substantially all of its revenues and income from the operation
of its two wholly-owned bank subsidiaries, Groos Bank, N.A. ("Groos Bank") and
Kelly Field National Bank ("Kelly Bank," together with Groos Bank, the "Banks").
The Banks provide a full range of commercial and consumer banking services to
individuals and small and middle market businesses in the metropolitan San
Antonio area through five full service banking facilities and to United States
military officers stationed throughout the world. In addition, Benson is the
sole owner of Bancshares Life Insurance Company, an insurance company domiciled
in Arizona. As of December 31, 1995, Benson had total assets of $475.5 million,
total deposits of $420.9 million and total stockholders' equity of $51.3
million. At December 31, 1995, Benson and the Banks employed approximately 300
full time equivalent employees. See "Information Concerning Benson."
SPECIAL MEETING AND VOTE REQUIRED
Special Meeting. The Special Meeting will be held on May 29, 1996 at Groos
Bank, N.A. -- North Star, Texas Room, 40 N.E. Loop 410, San Antonio, Texas for
the purpose of voting on a proposal to approve the Merger Agreement. Only
holders of record of Benson Common Stock and holders of record of Benson Series
C Preferred Stock at the close of business on April 18, 1996 (the
4
<PAGE> 11
"Record Date") will be entitled to receive notice of and to vote at the Special
Meeting. At the Record Date, there were outstanding 3,724,500 shares of Benson
Common Stock and 86,947 shares of Benson Series C Preferred Stock. 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 Benson
Common Stock and Benson Series C Preferred Stock voting as separate classes.
Holders of Benson Common Stock and holders of Benson Series C Preferred Stock
are entitled to one vote per share owned of record on the Record Date. If at
least two-thirds of the votes eligible to be cast by the holders of Benson
Common Stock and Benson Series C Preferred Stock voting as separate classes do
not vote in favor of approval of the Merger Agreement, Benson will continue to
act as a separate entity and a going concern. 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 merge with and into
Benson and Benson, as the surviving corporation in the Merger, will become a
wholly-owned subsidiary of Norwest. In the Merger, each outstanding share of
Benson Common Stock and Benson Series C Preferred Stock, and each 1994 Benson
Option Share, will be automatically converted into the right to receive shares
of Norwest Common Stock in such amounts as is determined in accordance with the
provisions of the Merger Agreement. In addition, each 1992 Benson Common Stock
Option will be automatically converted into an option to receive shares of
Norwest Common Stock in such amounts and at such exercise price as is determined
in accordance with the provisions of the Merger Agreement. In lieu of issuing
fractional shares of Norwest Common Stock, Norwest will pay cash to Benson's
shareholders who would otherwise be entitled to receive fractional shares. See
"THE MERGER -- Merger Consideration."
Recommendation of Benson's Board of Directors. At a meeting of the Benson
Board held on December 20, 1995, after considering the terms and conditions of
the Merger Agreement and obtaining the advice of its financial advisor, the
Benson Board unanimously approved the Merger Agreement. The Benson Board
believes that the Merger is advisable and in the best interests of Benson and
its shareholders and recommends that shareholders of Benson vote in favor of
approval of the Merger Agreement. For a discussion of the circumstances
surrounding the Merger and the factors considered by the Benson Board in making
its recommendation, see "THE MERGER -- Background of and Reasons for the
Merger."
Opinion of Benson's Financial Advisor. The Benson Board has retained
Hoefer & Arnett Incorporated ("Hoefer & Arnett") to act as financial advisor in
connection with the Merger. Hoefer & Arnett has delivered its written opinion to
the Benson Board that as of the date of this Proxy Statement-Prospectus the
consideration to be received pursuant to the Merger Agreement by holders of
Benson Common Stock is fair from a financial point of view. The opinion of
Hoefer & Arnett 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 Benson's Financial Advisor."
Conditions to the Merger; Termination of the Merger Agreement. The
obligations of Norwest and Benson 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 Benson's
shareholders. The Merger Agreement is subject to termination by one or more
parties at any time prior to the Effective Time of the Merger upon the
occurrence of certain specified events, including termination by Benson within
one business day after the Special Meeting at which a vote
5
<PAGE> 12
on the Merger Agreement is taken if the Norwest Average Price is less than $27.
See "THE MERGER -- Conditions to the Merger" and "-- Termination of the Merger
Agreement."
Regulatory Approvals. The Merger is subject to the approval of 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. If the Merger Agreement is
approved at the Special Meeting and all other conditions to the Merger have been
satisfied or waived, the parties expect the Merger to become effective (the
"Effective Time of the Merger") upon the filing with the Texas Secretary of
State of articles of merger relating to the Merger (the "Articles of Merger") in
accordance with the relevant provisions of the TBCA. The parties expect to file
the Articles of Merger with the Texas Secretary of State as soon as practicable
following approval of the Merger Agreement at the Special Meeting. The closing
of the Merger (the "Closing") will be held on the date the Articles of Merger
are filed with the Texas Secretary of State or on such other date as the parties
may agree (the "Closing Date"). See "THE MERGER -- Conditions to the Merger" and
"-- Regulatory Approvals."
No Solicitation. Benson and its subsidiaries, and their respective
directors, officers, representatives and agents, have agreed under the Merger
Agreement not to directly or indirectly solicit, authorize the solicitation of
or enter into any discussions with any third party concerning certain
transactions involving the acquisition of Benson's capital stock or assets. See
"THE MERGER -- No Solicitation."
Interests of Certain Persons in the Merger. In the Merger, the directors
and executive officers will receive the same consideration for their shares of
Benson capital stock as the other shareholders of Benson will receive for their
shares of the same capital stock. Certain members of the Benson Board and
management, however, may be deemed to have interests in the Merger that are in
addition to and separate from the interests of Benson's shareholders generally.
These interests include, among others, provisions in the Merger Agreement
relating to certain payments made in connection with employment agreements,
continued employment or association with Benson or one or more of Norwest's
subsidiaries, continuation of certain director and officer indemnification
rights and acceleration of the vesting of certain stock options. See "THE
MERGER -- Interests of Certain Persons in the Merger."
Directors and Officers of Benson after the Merger. Following the Effective
Time of the Merger, Norwest will be the sole shareholder of Benson and, for that
reason, will be in a position to elect or appoint all of the directors and
officers of Benson.
Dissenters' Rights. Holders of Benson Common Stock and Benson Series C
Preferred Stock will have the right to dissent with respect to their shares of
Benson Common Stock and Benson Series C Preferred Stock. For more information
concerning dissenters' rights and the procedures to be followed to exercise such
rights, see "THE MERGER -- Dissenters' Rights."
Certain U.S. Federal Income Tax Consequences. The Merger is intended to be
a tax-free reorganization. Generally, no gain or loss will be recognized by
Benson's shareholders, except with respect to cash received for any fractional
shares. The Merger's effectiveness is conditioned upon the receipt by Benson of
a written opinion of its counsel to that effect. See "THE MERGER -- Certain U.S.
Federal Income Tax Consequences."
THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER MAY BE DIFFERENT FOR
PARTICULAR TYPES OF BENSON SHAREHOLDERS OR IN LIGHT OF EACH BENSON SHAREHOLDER'S
PERSONAL INVESTMENT CIRCUMSTANCES. FOR THAT REASON, BENSON SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS
6
<PAGE> 13
CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES 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.
Accounting Treatment. The parties anticipate that the Merger will be
accounted for as a pooling of interests by Norwest under generally accepted
accounting principles. The Merger Agreement provides that a condition to the
Merger becoming effective is the receipt by Norwest of an opinion from Grant
Thornton LLP, Benson's independent auditors, that the activities of Benson will
not preclude the Merger from qualifying for pooling of interests accounting
treatment. See "THE MERGER -- Conditions to the Merger" and "-- Accounting
Treatment."
MARKET INFORMATION
The following table sets forth the closing price per share of Norwest
Common Stock (as reported on the NYSE composite tape) and of Benson Common Stock
(as quoted on the Nasdaq National Market) and the equivalent per share price for
Benson Common Stock on (i) December 20, 1995, the last business day preceding
public announcement of the Merger Agreement and (ii) April 23, 1996, the last
practicable date prior to the mailing of this Proxy Statement-Prospectus. Under
the terms of the Merger Agreement, if the Norwest Average Price is between
$28.50 and $36.50, inclusive, holders of Benson Common Stock will receive $20
worth of Norwest Common Stock (as measured by the Norwest Average Price) for
each share of Benson Common Stock held by them. The equivalent per share prices
for Benson Common Stock set forth below (i) assume that the Norwest Average
Price will be the same as the closing price per share of Norwest Common Stock on
the date specified and (ii) represent the value of the fractional share of
Norwest Common Stock (as measured by the Norwest Average Price) to be received
in the Merger in exchange for each share of Benson Common Stock. See "THE
MERGER -- Merger Consideration." There is no public market for shares of Benson
Series C Preferred Stock.
<TABLE>
<CAPTION>
NORWEST BENSON EQUIVALENT PRICE
COMMON STOCK COMMON STOCK PER BENSON SHARES
------------ ------------ -----------------
<S> <C> <C> <C>
December 20, 1995................... $33.25 $18.00 $ 20.00
April 23, 1996...................... $36.63 $19.75 $ 20.07
</TABLE>
COMPARISON OF RIGHTS OF HOLDERS OF BENSON CAPITAL STOCK AND NORWEST COMMON STOCK
As of the date of this Proxy Statement-Prospectus, the rights of Benson's
shareholders are governed by the TBCA and the Benson Articles and Benson Bylaws.
At the Effective Time of the Merger, Benson's shareholders will become
stockholders of Norwest. As such, their rights will thereafter be governed by
the DGCL and the Norwest Certificate and Norwest Bylaws. See "COMPARISON OF
RIGHTS OF HOLDERS OF BENSON 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 Benson
Common Stock on a historical and pro forma equivalent basis giving effect to the
Merger using the pooling of interests method of accounting. For a description of
the pooling of interests method of accounting with respect to the Merger and the
related effects on the historical financial statements of Norwest, see "THE
MERGER -- Accounting Treatment." The historical data for Norwest and Benson for
each of the years in the three-year period ended December 31, 1995 are derived
from the respective audited consolidated financial statements of Norwest and
Benson, including the related notes thereto, for such three-year period. The
audited consolidated financial statements of Benson are included in this Proxy
Statement-Prospectus. See "CONSOLIDATED FINANCIAL STATEMENTS OF BENSON." The
audited consolidated financial statements of Norwest are incorporated by
reference into this Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." 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.
7
<PAGE> 14
COMPARATIVE PER COMMON SHARE DATA
<TABLE>
<CAPTION>
NORWEST COMMON STOCK BENSON COMMON STOCK
------------------------ -------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL EQUIVALENT
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
December 31, 1995.......................... 14.20 14.22 11.43 8.75
DIVIDENDS DECLARED (2):
Year Ended
December 31, 1995.......................... 0.900 0.900 0.10 0.554
December 31, 1994.......................... 0.765 0.765 -- 0.471
December 31, 1993.......................... 0.640 0.640 -- 0.394
NET INCOME (3):
Year Ended
December 31, 1995.......................... 2.73 2.72 1.51 1.67
December 31, 1994.......................... 2.41 2.40 2.23 1.48
December 31, 1993.......................... 1.86 1.86 3.26 1.14
</TABLE>
- ---------------
(1) The pro forma combined book value per share of Norwest Common Stock
represents the historical total combined common stockholders' equity for
Norwest and Benson divided by total pro forma common shares of the combined
entities. The data assume (i) a Benson Common Stock Exchange Ratio of
0.6154, a Benson Series C Preferred Stock Exchange Ratio of 3.0769 and a
Benson Option Share Exchange Ratio of 0.2077, each based on a Norwest
Measurement Price of $32.50, and (ii) the issuance in the Merger of (A) an
aggregate of 2,526,006 shares of Norwest Common Stock in exchange for (x)
3,634,500 shares of Benson Common Stock (which excludes 90,000 shares owned
by Norwest), (y) 86,947 shares of Benson Series C Preferred Stock and (z)
1994 Benson Common Stock Options to purchase an aggregate of 105,000 shares
of Benson Common Stock and (B) Post-Merger Norwest Common Stock Options (as
defined below) to purchase an aggregate of 61,435 shares of Norwest Common
Stock in exchange for 1992 Benson Common Stock Options to purchase an
aggregate of 99,831 shares of Benson Common Stock. The actual exchange
ratios used to determine the number of shares of Norwest Common Stock
issuable in the Merger to the holders of Benson Common Stock, Benson Series
C Preferred Stock and 1994 Benson Common Stock Options may differ from those
set forth in (i) above due to fluctuations in the closing prices of Norwest
Common Stock prior to the date of the Special Meeting at which the vote to
approve the Merger Agreement is taken. See "THE MERGER -- Merger
Consideration" and "EXPLANATORY NOTE AND DEFINITIONS OF CERTAIN TERMS." The
pro forma equivalent book value per share of Benson represents the pro forma
combined book value per share multiplied by the assumed Benson Common Stock
Exchange Ratio of 0.6154.
(2) Assumes no changes in cash dividends per share by Norwest. The pro forma
equivalent dividends per share of Benson Common Stock represent cash
dividends declared per share of Norwest Common Stock multiplied by the
assumed Benson Common Stock Exchange Ratio of 0.6154. See note (1) above.
(3) The pro forma combined net income per share of Norwest Common Stock (based
on fully diluted net income and weighted average number of common and common
equivalent shares) is based upon the combined historical net income for
Norwest and Benson divided by the average pro forma common and common
equivalent shares of the combined entities. The pro forma equivalent net
income per share of Benson Common Stock represents the pro forma combined
net income per share multiplied by the assumed Benson Common Stock Exchange
Ratio of 0.6154. See note (1) above.
8
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
NORWEST CORPORATION AND SUBSIDIARIES
The following table sets forth certain selected historical consolidated
financial information for Norwest and Benson. The income statement and balance
sheet data for Norwest and Benson included in the selected consolidated
financial data for each of the five years in the period ended December 31, 1995
are derived from the respective audited consolidated financial statements of
Norwest and Benson for such five-year period. This information should be read in
conjunction with the consolidated financial statements of Norwest and Benson and
the related notes thereto, included in this Proxy Statement-Prospectus in the
case of Benson and incorporated herein by reference in the case of Norwest. See
"CONSOLIDATED FINANCIAL STATEMENTS OF BENSON" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------------------
1995 1994 1993(1) 1992(2) 1991
--------- --------- --------- --------- ---------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <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
Interest expense............................. 2,448.0 1,590.1 1,442.9 1,610.6 2,150.3
--------- -------- -------- -------- --------
Net interest income........................ 3,269.3 2,803.6 2,503.4 2,195.8 1,875.6
Provision for credit losses.................. 312.4 164.9 158.2 270.8 406.4
Non-interest income.......................... 1,865.0 1,638.3 1,585.0 1,273.7 1,064.0
Non-interest expenses........................ 3,399.1 3,096.4 3,050.4 2,553.1 2,041.5
--------- -------- -------- -------- --------
Income before income taxes................. 1,422.8 1,180.6 879.8 645.6 491.7
Income tax expense........................... 466.8 380.2 266.7 175.6 73.4
--------- -------- -------- -------- --------
Income before cumulative effect of a change
in accounting method....................... 956.0 800.4 613.1 470.0 418.3
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
========= ======== ======== ======== ========
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
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
========= ======== ======== ======== ========
Fully diluted:
Before cumulative effect of a change in
accounting method..................... $ 2.73 $ 2.41 $ 1.86 $ 1.42 $ 1.32
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
========= ======== ======== ======== ========
Dividends declared per common share.......... $ 0.900 $ 0.765 $ 0.640 $ 0.540 $ 0.470
BALANCE SHEET DATA
At period end:
Total assets............................... $72,134.4 $59,315.9 $54,665.0 $50,037.0 $45,974.5
Long-term debt............................. 13,676.8 9,186.3 6,850.9 4,553.2 3,686.6
Total stockholders' equity............ 5,312.1 3,846.4 3,760.9 3,371.8 3,192.3
</TABLE>
9
<PAGE> 16
- ---------------
(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.
10
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income.................... $ 32,458 $ 29,982 $ 29,387 $ 31,555 $ 35,375
Interest expense................... 11,416 10,201 10,341 12,852 20,095
--------- --------- --------- --------- ---------
Net interest income............. 21,042 19,781 19,046 18,703 15,280
Provision for loan losses.......... 1,130 735 280 903 1,125
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses..... 19,912 19,046 18,766 17,800 14,155
Noninterest income(1).............. 7,624 7,261 8,495 6,661 8,083
Noninterest expense(2)............. 19,751 20,519 21,231 20,623 19,863
Income taxes (benefits)............ 2,527 754 (498) (3,040) 24
Extraordinary credit, net of tax... 1,155 676 -- -- --
--------- --------- --------- --------- ---------
Net earnings............... $ 6,413 $ 5,710 $ 6,528 $ 6,878 $ 2,351
========= ========= ========= ========= =========
COMMON SHARE DATA:
Net earnings before extraordinary
credit(3)....................... $ 1.21 $ 1.96 $ 3.26 $ 3.56 $ 1.22
Extraordinary credit, net of tax... 0.30 0.27 -- -- --
Book value......................... 11.43 9.64 7.60 3.69 0.15
Weighted average common and common
equivalent shares outstanding... 3,811,605 2,484,914 2,001,270 1,930,214 1,919,515
BALANCE SHEET DATA:
Total assets....................... $ 475,483 $ 460,621 $ 462,255 $ 445,180 $ 427,634
Investments and federal funds
sold............................ 141,954 107,025 124,911 122,612 89,731
Total loans........................ 274,495 288,194 261,156 248,257 254,566
Allowance for loan losses.......... 3,177 3,673 4,310 5,363 7,489
Total deposits..................... 420,932 407,577 411,753 403,733 395,141
Common stockholders equity......... 42,555 35,887 15,187 7,228 290
Total stockholders equity.......... 51,263 44,609 19,928 11,974 2,341
</TABLE>
- ---------------
(1) Noninterest income in 1993 includes litigation settlement of $958,000
recorded in the fourth quarter of 1993. Related legal fees were incurred in
prior years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Includes costs related to "other real estate owned" as follows:
1995-$514,000; 1994-$749,000; 1993-$1,758,000; 1992-$2,837,000 and
1991-$3,397,000. Included in 1995 is the loss of $200,000 on the sale of
Groos Bank's banking facility located at 246 East Commerce Street in
downtown San Antonio.
(3) Earnings per share is based upon the weighted average number of common and
common equivalent shares outstanding during the period.
11
<PAGE> 18
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Benson
Common Stock and Benson Series C Preferred Stock in connection with the
solicitation of proxies by the Benson Board for use at the Special Meeting to be
held on May 29, 1996 and at any adjournments or postponements thereof. At the
Special Meeting, shareholders of Benson will consider and vote upon a proposal
to approve the Merger Agreement. The Benson 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 Benson Board has fixed the close of business on April 18, 1996 as the
record date for the determination of shareholders of Benson entitled to receive
notice of and to vote at the Special Meeting (the "Record Date"). On the Record
Date there were outstanding 3,724,500 shares of Benson Common Stock and 86,947
shares of Benson Series C Preferred Stock. Holders of Benson Common Stock and
holders of Benson Series C Preferred Stock are entitled to one vote per share
held of record on the Record Date. The presence in person or by proxy at the
Special Meeting of the holders of a majority of the shares of Benson Common
Stock and Benson Series C Preferred Stock outstanding on the Record Date counted
as a single class will constitute a quorum for the transaction of business at
the Special Meeting.
Under the TBCA and the Benson Articles and Benson Bylaws, approval of the
Merger Agreement will require the affirmative vote of the holders of at least
two-thirds of the shares of Benson Common Stock and Benson Series C Preferred
Stock voting separately as classes. Directors and executive officers of Benson
and their affiliates beneficially owned as of the Record Date an aggregate of
1,237,690, or approximately 33.2%, of the outstanding shares of Benson Common
Stock (not including shares issuable upon exercise of 1992 and 1994 Benson
Common Stock Options) and 86,947, or 100%, of the outstanding shares of Benson
Series C Preferred Stock. Directors and executive officers of Benson intend to
vote all shares of Benson Common Stock and Benson Series C Preferred Stock held
in their individual capacities in favor of approval of the Merger Agreement. See
"INFORMATION CONCERNING BENSON -- Security Ownership of Management." Norwest
beneficially owned 90,000 shares of Benson Common Stock on the Record Date. If
at least two-thirds of the votes eligible to be cast by the holders of Benson
Common Stock and Benson Series C Preferred Stock voting as separate classes do
not vote in favor of approval of the Merger Agreement, Benson 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.
VOTING AND REVOCATION OF PROXIES
Shares of Benson Common Stock and Benson Series C 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 indicating any voting instructions, shares of Benson Common Stock or
Benson Series C 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 Benson 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.
12
<PAGE> 19
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 Benson Common Stock and Benson Series C 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
Benson may solicit proxies from the shareholders of Benson, 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. Benson 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 BENSON. 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 BENSON
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
13
<PAGE> 20
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.
Parenthetical references are to sections of the Merger Agreement.
GENERAL
At the Effective Time of the Merger, Sub will be merged with and into
Benson, with Benson being the surviving corporation in the Merger. Following the
Merger, Benson will be a wholly-owned subsidiary of Norwest. Except with respect
to fractional shares, if the Merger is approved and becomes effective, holders
of Benson Common Stock, Benson Series C Preferred Stock and 1994 Benson Common
Stock Options will receive shares of Norwest Common Stock for shares of Benson
Common Stock and Benson Series C Preferred Stock and 1994 Benson Common Stock
Options held by them immediately prior to the Effective Time of the Merger.
Following the Effective Time of the Merger, Norwest will be the sole shareholder
of Benson. Shares of Norwest Common Stock issued and outstanding immediately
before the Effective Time of the Merger will remain issued and outstanding
immediately after the Effective Time of the Merger.
BACKGROUND AND REASONS FOR THE MERGER
Background of the Merger. In mid-summer 1995, Benson received letters from
Norwest and another large super-regional bank holding company expressing
preliminary indications of interest in possible business combinations. On August
2, 1995, the Benson Board met to evaluate Benson's strategic direction in light
of its improved financial condition and these inquiries. The Benson Board
determined to assess in a deliberate and considered fashion all available
options, including whether to remain independent, to pursue growth through
acquisitions of its own or to seek a merger with another banking institution.
The Benson Board decided to engage an investment banking firm to assist it in
evaluating its alternatives, and thereafter approved the engagement for this
purpose of Hoefer & Arnett. The Benson Board noted that Hoefer & Arnett had
substantial investment banking experience and significant familiarity with
Benson as a result of services that it provided Benson in connection with
Benson's initial public offering in the prior year.
On August 15, 1995, Hoefer & Arnett informed the Benson Board at a special
meeting that, in addition to the two banks which had contacted Benson earlier by
letter, four other banking institutions had contacted Hoefer & Arnett in
connection with a possible transaction. Hoefer & Arnett recommended that the
interested banks be asked to complete a certain amount of due diligence off-
site, in order for firm offers to be forthcoming. The Benson Board approved
preliminary off-site due diligence, subject to mutual confidentiality agreements
with three of the banks (including Norwest), each of which had expressed
interest, appeared able to carry through on a transaction and had shares with
substantial liquidity. The Benson Board also authorized management to continue
pursuing other selected institutions which would be viable candidates for a
business combination.
By August 18, 1995, Benson had entered into five mutual confidentiality
agreements with various banks. Norwest decided not to pursue further due
diligence at that time, indicating that it would not be able to pursue a
transaction with Benson at more than $19.00 per share.
On September 12, 1995, Hoefer & Arnett informed the Benson Board at a
special meeting that Benson had signed a confidentiality agreement with a sixth
bank and that, after receiving preliminary due diligence materials from Benson,
three of the six banks declined to pursue further a potential business
combination. One bank expressed interest in a transaction in the range of $20.00
per share of Benson Common Stock. Norwest had reinitiated contact, but was still
considering its future course of action. A final bank had tendered an indication
of its interest at $22.02 per share in an all-
14
<PAGE> 21
cash transaction, subject to extensive due diligence. As a result of the higher
price, the Benson Board decided to pursue intensive due diligence with this
final bank as well as to continue to investigate other potential suitors. The
Chairman of the Benson Board also noted that Benson was under no pressure to
sell, and that through the evaluation process, it might conclude not to go
forward with a merger or sale.
On October 12, 1995, the Benson Board reviewed two proposals. The first
proposal was for $19.00 in cash per share of Benson Common Stock, subject to
various closing conditions, including a provision for substantial reserves for
portions of Benson's loan portfolio and OREO property, satisfactory appraisals
and an indemnity by Benson for an environmental loss. This offer was a
significant (15%) decrease in the bank's prior offer of $22.02 per share. The
second proposal was an indication of interest from Norwest at $20.00 per share
in a tax-free stock transaction that would be subject to more extensive due
diligence, among other conditions. As proposed, the pricing mechanism would be
determined by an exchange ratio, fixed twenty days prior to the shareholder
meeting; both parties would be protected from risks associated with price
fluctuations of Norwest Common Stock by means of a fixed range or "collar" for
the Norwest price per share used to determine the exchange ratio. The Benson
Board considered the timing of the sale, the need for further information about
Norwest, the liquidity of Norwest Common Stock and the dates for determining the
pricing mechanism. The Benson Board thereafter approved the distribution of
research reports on Norwest and discussion of such reports by the Benson Board,
prior to commencing negotiations with Norwest toward a definitive agreement. The
Chairman reiterated his view that Benson was under no pressure to sell and could
continue growth independently if an acceptable price could not be achieved.
On November 11, 1995 at a special meeting, the Benson Board discussed the
materials concerning Norwest it had received for review three weeks earlier, and
the quality of the Norwest stock. Norwest had submitted an offer, after due
diligence, which was for a share exchange at $19.00 per share, with an
adjustment to $20.00 per share if appraisals of certain real property owned by
Benson exceeded $13 million. In addition, Benson Series C Preferred Stock would
be exchanged either for Norwest Common Stock or some combination of Norwest
Common Stock and cash. The offer also provided for current employment contracts
with Benson management, subject to negotiations. The Benson Board was informed
that Norwest intended to become a major presence in the regional marketplace and
that such plans would ensure continuity for Benson employees. Upon discussion
and review of the proposal of Norwest and financial analyses of Norwest prepared
by Hoefer & Arnett and other investment banking firms, the Benson Board
authorized Benson's President in conjunction with the firm of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, which it had retained as special counsel, to
proceed with the preparation and negotiation of a definitive agreement with
Norwest, preliminary to a presentation to the Benson Board for review and
analysis.
On December 20, 1995 at a special meeting, the Benson Board reviewed the
terms of the proposed definitive agreement with Norwest and additional financial
information about Norwest. The proposal provided for a non-taxable, all stock
transaction whereby a share of Benson Common Stock would be valued at $20 per
share and exchanged for a fractional share of Norwest Common Stock based on the
average of the closing prices of a share of Norwest Common Stock as reported on
the NYSE composite tape during the period of ten trading days ending on the day
immediately preceding the date of the meeting at which the vote to approve the
Merger Agreement would be taken. The proposal also provided for a "collar" of
$28.50 and $36.50 on the price of Norwest Common Stock, and and a right for
Benson to terminate the agreement if the average price of Norwest Common Stock
dropped below $27.00 during the period in which the exchange ratio would be
determined. The Benson Board discussed the advantages and consequences of a
share exchange treated for accounting purposes as a pooling of interests and the
need to consider the date on which Norwest declares its third-quarter dividend
in choosing the timing of the closing of a transaction. The Benson Board noted
that Benson retained the right to declare a dividend to its
15
<PAGE> 22
shareholders if the closing of the merger with Norwest occurred after the record
date for Norwest's regular third quarter dividend. The Benson Board reviewed
material terms of the agreement, including the fact that the Norwest offer
required commitments from Benson affiliates not to sell Norwest stock for a
certain period. Hoefer & Arnett then presented information about Norwest and
noted that the terms of the Norwest transaction was in its view at a favorable
price-earnings ratio to shareholders. Additionally, Hoefer & Arnett noted the
high liquidity of Norwest Common Stock and that Norwest Common Stock in its view
was a fairly valued equity. Thereafter, the Benson Board authorized the Company
to enter into the definitive agreement with Norwest and to take such actions
necessary to conclude the transaction.
Benson's Reasons for the Merger. The Benson Board believes that the Merger
is fair to, and in the best interests of, Benson and its shareholders.
Accordingly, the Benson Board has unanimously approved the Merger Agreement and
recommends that Benson shareholders vote FOR the approval and adoption of the
Merger Agreement.
In reaching its determination that the Merger is fair to, and in the best
interests of, Benson and its shareholders, the Benson Board considered a number
of factors, including without limitation, the following:
(a) the current condition and growth prospects of Benson and its
subsidiary banks, including historical and prospective results of
operation, financial conditions, and capital conditions, were Benson to
remain independent in the competitive banking climate in Texas;
(b) the monetary value of the Norwest Common Stock offered to Benson
shareholders by Norwest (i) in absolute terms, (ii) as compared to the
value of offers received by Benson by qualified and informed potential
acquirors, which offers were less than Norwest's offer, and (iii) as
compared to recent merger and acquisition transactions involving other
banks and financial institutions in the Texas and southeastern regions;
(c) the price obtainable for Benson Common Stock at this time compared
with the risk involved and possible price available at a later time;
(d) the benefits of a merger with Norwest, including access to
Norwest's financial and management resources and customer products, which
could increase Benson's competitiveness and its ability to serve
depositors, customers, and communities;
(e) the results of operation and financial condition of Norwest and
the increased liquidity represented by Norwest Common Stock;
(f) Norwest's significant long-term experience and success in the
acquisition of additional banking locations;
(g) the expectation that the Merger will be a tax-free reorganization
to Benson's shareholders for federal income tax purposes;
(h) the expectation that Norwest would assimilate Benson's employees
to the fullest extent possible; and
(i) the presentation of Hoefer & Arnett and its opinion that the
consideration to be received pursuant to the Merger Agreement by holders of
Benson Common Stock was fair to such holders from a financial point of
view.
OPINION OF BENSON'S FINANCIAL ADVISOR
The Benson Board retained Hoefer & Arnett to render financial advisory and
investment banking services in connection with the Merger. Hoefer & Arnett has
rendered a written opinion (the "Fairness Opinion") to the Benson Board that the
consideration to be received pursuant to the Merger Agreement by holders of
Benson Common Stock is fair from a financial point of view. No
16
<PAGE> 23
limitations were imposed by the Benson Board upon Hoefer & Arnett with respect
to the investigations made or procedures followed in rendering the Fairness
Opinion.
A COPY OF THE FAIRNESS OPINION, DATED AS OF THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY HOEFER & ARNETT, IS ATTACHED
HERETO AS APPENDIX B. HOLDERS OF BENSON COMMON STOCK ARE URGED TO READ THE
FAIRNESS OPINION IN ITS ENTIRETY. THE FOLLOWING SUMMARY OF THE PROCEDURES AND
ANALYSIS PERFORMED, AND ASSUMPTIONS USED BY HOEFER & ARNETT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE TEXT OF THE FAIRNESS OPINION. THE FAIRNESS OPINION
IS DIRECTED TO THE BENSON BOARD AND IS DIRECTED ONLY TO THE CONSIDERATION TO BE
RECEIVED PURSUANT TO THE MERGER AGREEMENT BY HOLDERS OF BENSON COMMON STOCK AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY BENSON SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE MEETING.
In arriving at its opinion, Hoefer & Arnett reviewed and analyzed, among
other things, the following: (i) the Merger Agreement (ii) Annual Reports to
Shareholders of Benson and Norwest for the years ended December 31, 1993 and
1994 and an annual report on Form 10-K for Norwest for the year ended December
31, 1994; (iii) Quarterly Reports on Form 10-Q of Benson and Norwest for the
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; (iv)
certain other publicly available financial and other information concerning
Benson and Norwest and the trading markets for the publicly traded securities of
Benson and Norwest; (v) publicly available information concerning other banks
and bank holding companies, the trading markets for their securities and the
nature and terms of certain other merger transactions Hoefer & Arnett believed
relevant to its inquiry; and (vi) evaluations and analyses prepared and
presented to the Benson Board or a committee thereof in connection with this
business combination with Norwest. Hoefer & Arnett held discussions with senior
management of Benson and of Norwest concerning their past and current
operations, financial condition and prospects.
Hoefer & Arnett reviewed with senior management of Benson earnings
projections for the years 1996 through 2000 for Benson as a stand-alone entity,
assuming the Merger does not occur, prepared by Hoefer & Arnett. Hoefer & Arnett
reviewed earnings projections prepared by several independent research analysts
of major Wall Street investment firms through the year 1997 for Norwest as a
stand-alone entity, assuming the Merger does not occur. Certain pro forma
financial projections for the years 1996 through 2000 for the combined entity
were derived by Hoefer & Arnett based partially upon the projections discussed
above, as well as Hoefer & Arnett's own assessment of general economic, market
and financial conditions.
In conducting its review and in arriving at the Fairness Opinion, Hoefer &
Arnett relied upon and assumed the accuracy and completeness of the financial
and other information provided to it or publicly available, and has not assumed
any responsibility for independent verification of the same. Hoefer & Arnett
relied upon the management of Benson as to the reasonableness of the financial
and operating forecasts and projections (and the assumptions and bases therefor)
provided to it, and has assumed that such forecasts and projections reflect the
best currently available estimates and judgments of such management. Hoefer &
Arnett also assumed, without assuming any responsibility for the independent
verification of same, that the aggregate allowances for loan losses for Benson
and Norwest are adequate to cover such losses. Hoefer & Arnett has not made or
obtained any evaluations or appraisals of the property of Benson or Norwest, nor
examined any individual loan credit files. For purposes of the Fairness Opinion,
Hoefer & Arnett assumed that the Merger will have the tax, accounting and legal
effects (including, without limitation, that the Merger will be accounted for as
a pooling-of-interests) described in the Merger Agreement and assumed the
accuracy of the disclosures set forth in the Merger Agreement. The Fairness
Opinion is limited to the fairness, from a financial point of view, of the
consideration to be received pursuant to the Merger Agreement by holders of
Benson Common Stock and does not address Benson's underlying business decision
to proceed with the Merger.
17
<PAGE> 24
As more fully discussed below, Hoefer & Arnett considered such financial
and other factors as Hoefer & Arnett deemed appropriate under the circumstances,
including among others the following: (i) the historical and current financial
position and results of operations of Benson and Norwest, including interest
income, interest expense, net interest income, net interest margin, provision
for loan losses, noninterest income, noninterest expense, earnings, dividends,
internal capital generation, tangible book value, intangible assets, return on
assets, return on shareholders equity, capitalization, the amount and type of
nonperforming assets, loan losses and the allowance for loan losses, all as set
forth in the financial statements for Benson and for Norwest; (ii) the assets
and liabilities of Benson and Norwest, including the loan, investment and
mortgage portfolios, deposits, other liabilities, historical and current
liability sources and costs and liquidity; and (iii) the nature and terms of
certain other merger transactions involving banks and bank holding companies.
Hoefer & Arnett also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuation and its knowledge of the banking
industry generally. The Fairness Opinion is necessarily based upon conditions as
they existed and could be evaluated on the date of its opinion and the
information made available to it through that date.
In connection with rendering the Fairness Opinion to the Benson Board,
Hoefer & Arnett performed certain financial analyses, which are summarized
below. Hoefer & Arnett believes that its analyses must be considered as a whole
and that selecting portions of such analyses and the factors considered therein,
without considering all factors and analyses, could create an incomplete view of
the analyses and the processes underlying the Fairness Opinion. The preparation
of a fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analysis or summary description. In its
analyses, Hoefer & Arnett made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
are beyond the control of Benson and Norwest. Any estimates contained in Hoefer
& Arnett's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually be sold. None of
the financial analyses performed by Hoefer & Arnett was assigned a greater
significance by Hoefer & Arnett than any other.
The financial forecasts and projections of Benson and Norwest prepared by
Hoefer & Arnett were based on projections provided by Benson and projections
prepared by several independent research analysts of major Wall Street
investment firms through the year 1997 for Norwest as well as Hoefer & Arnett's
own assessment of general economic, market and financial conditions. Benson does
not publicly disclose internal management financial forecasts and projections of
the type provided to Hoefer & Arnett in connection with its review of the
proposed Merger. Such forecasts and projections were not prepared with a view
towards public disclosure. The forecasts and projections prepared by Hoefer &
Arnett were based on numerous variables and assumptions which are inherently
uncertain, including, without limitation, factors related to general economic
and market conditions. Accordingly, actual results could vary significantly from
those set forth in such forecasts and projections.
Set forth below is a brief summary of the analyses performed by Hoefer &
Arnett in rendering the Fairness Opinion. Unless otherwise noted in this
summary, Hoefer & Arnett used 0.7018 and 0.5480 Benson Common Stock Exchange
Ratios. The 0.7018 Exchange Ratio represents the ratio derived by dividing $20
by a Norwest Measurement Price of $28.50 the lowest Norwest Measurement Price
which can be used to calculate the Benson Common Stock Exchange Ratio as set
forth in the Merger Agreement. The 0.5480 Benson Common Stock Exchange Ratio
represents the ratio derived by dividing $20 by a Norwest Measurement Price of
$36.50, the highest Norwest Measurement Price which can be used to calculate the
Benson Common Stock Exchange Ratio as set forth in the Merger Agreement.
18
<PAGE> 25
Although the 0.7018 and 0.5480 Benson Common Stock Exchange Ratios reflect
the highest and lowest possible Benson Common Stock Exchange Ratios under the
terms of the Merger Agreement, there can be no assurance that a share of Benson
Common Stock will be accorded a value equal to $20.00 or that the Benson Common
Stock Exchange Ratio will reflect the actual values of Norwest and Benson Common
Stock, relative to one another. The analysis also focused on core financial and
operating projections and statistics which were not specifically adjusted for
non-recurring charges, unless otherwise stated.
Pro Forma Merger and Contribution Analysis. Hoefer & Arnett compared the
changes in the amount of earnings, tangible book value and dividends
attributable to one share of Benson Common Stock before the Merger with the
amounts attributable to the shares of Norwest Common Stock for which such shares
of Benson would be exchanged under the Merger Agreement. The following
assumptions regarding earnings and dividends underlie the pro forma results.
After reviewing earnings projections for Norwest and Benson and
Merger-related possible operating cost savings, Hoefer & Arnett performed a pro
forma merger analysis. In addition, Hoefer & Arnett analyzed certain pro forma
merger scenarios in order to assess the impact on Benson of some levels of
volatility in Norwest's and Benson's projected earnings as well as the range of
variability for the Benson Common Stock Exchange Ratio.
The impact on Benson of volatility in Norwest's earnings was shown by
calculating pro forma results assuming Norwest's earnings as projected, as well
as 75% and 125% of Norwest's projected earnings. In order to measure the impact
on Benson of volatility of Benson's earnings to the pro forma results, Hoefer &
Arnett also examined the earnings impact on Benson resulting at those levels of
Norwest earnings if Benson achieved 75% and 125% of its projected earnings. The
Benson Common Stock Exchange Ratios of 0.7018 and 0.5480 were used to make the
calculations in each case.
Hoefer & Arnett determined that variability of the Benson Common Stock
Exchange Ratio does not affect the conclusions of the analysis, although changes
in earnings, tangible book value and indicated dividends attributable to one
share of Benson Common Stock as a result of the Merger are less favorable using
the Benson Common Stock Exchange Ratio of 0.5480 than those shown for the
analysis assuming the Benson Common Stock Exchange Ratio of 0.7018. Hoefer &
Arnett found that, despite the variability of the Benson Common Stock Exchange
Ratio as set forth in the Merger Agreement, the consideration to be received
pursuant to the Merger Agreement by the holders of Benson Common Stock is fair
from a financial point of view.
Hoefer & Arnett concluded that changes in earnings per share, dividends and
tangible book value attributable to ownership of Norwest Common Stock as a
result of the Merger are fair from a financial point of view when compared to
the attributes of ownership of shares of Benson Common Stock as a stand-alone
entity.
The following table presents the results of an analysis of differences in
earnings, tangible book value and dividends attributable to one share of Benson
Common Stock before the Merger and the
19
<PAGE> 26
portion of a share of Norwest Common Stock for which such shares of Benson
Common Stock would be exchanged, under the above described methodologies:
PROJECTED CHANGES IN BOOK VALUE AND EARNINGS PER SHARE
(COMPARATIVE CHANGES IN PROJECTED EARNINGS
AND TANGIBLE BOOK VALUES STAND ALONE VS. PRO FORMA)
(BENSON COMMON STOCK EXCHANGE RATIO 0.7018)
<TABLE>
<CAPTION>
NORWEST/BENSON 1997 1998 1999 2000
- -------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
100%/100%
Change in EPS.................................... 69.02% 81.41% 94.07% 107.74%
Change in Tangible Book Value.................... -13.49% -7.12% -0.59% 6.15%
75%/125%
Change in EPS.................................... 61.01% 64.15% 66.64% 69.93%
Change in Tangible Book Value.................... -14.20% -9.16% -4.56% -0.32%
125%/75%
Change in EPS.................................... 77.97% 100.44% 125.35% 153.77%
Change in Tangible Book Value.................... -12.79% -5.03% 3.58% 13.13%
</TABLE>
(BENSON COMMON STOCK EXCHANGE RATIO 0.5480)
<TABLE>
<CAPTION>
NORWEST/BENSON 1997 1998 1999 2000
- -------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
100%/100%
Change in EPS.................................... 32.61% 42.11% 51.88% 62.74%
Change in Tangible Book Value.................... -32.33% -27.34% -22.24% -16.96%
75%/125%
Change in EPS.................................... 25.87% 27.93% 30.32% 32.82%
Change in Tangible Book Value.................... -32.88% -28.94% -25.34% -22.03%
125%/75%
Change in EPS.................................... 38.94% 56.59% 76.13% 98.75%
Change in Tangible Book Value.................... -31.78% -25.71% -18.98% -11.50%
</TABLE>
Analysis of Other Merger Transactions. Hoefer & Arnett analyzed 164 other
bank and bank holding company merger and acquisition transactions in Texas for
the period from January 1, 1990 to December 19, 1995. Hoefer & Arnett also
analyzed twenty-four Norwest and other bank holding company merger and
acquisition transactions for the period from January 1, 1994 to December 19,
1995. Hoefer & Arnett also compared price/earnings and price/tangible book value
multiples of the Benson Common Stock Exchange Ratio to the high, median and low
multiples of all transactions. Hoefer & Arnett assumed a Norwest Common Stock
price per share of $33.25 (the closing market price at December 20, 1995) and
Benson's twelve months' earnings for, and tangible book value at, the period
ended September 30, 1995.
Set forth below is certain information relating to the Benson Common Stock
Exchange Ratio described above, and the high, median and low transaction
multiples summarized above:
<TABLE>
<CAPTION>
NORWEST TRANSACTIONS TEXAS TRANSACTIONS FROM
FROM JUNE 1, 1994 JANUARY 1, 1990 PROPOSED
TO DECEMBER 11, 1995 TO DECEMBER 11, 1995 NORWEST
----------------------- ----------------------- BENSON
HIGH MEDIAN LOW HIGH MEDIAN LOW MERGER
----- ------ ---- ----- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Price to Earnings....................... 18.06 12.15 6.87 51.73 10.44 2.63 15.04
Price to Tangible Book Value............ 2.89 1.71 1.16 2.63 1.41 0.55 1.92
</TABLE>
No other company or transaction used in the above analysis as a comparison
is identical to Benson, Norwest or the Merger. Accordingly, an analysis of the
results is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating
20
<PAGE> 27
characteristics of the companies and other factors that could affect the
companies and transactions to which Benson, Norwest and the Merger are being
compared.
Discounted Cash Flow Analysis. Hoefer & Arnett examined the results of a
discounted cash flow analysis designed to compare the present value, under
certain assumptions, of cash flows that would be attained if Benson remained
independent through the year 2000, with the present value of the earnings
projected to be achieved by the combined entities during the same period. The
results produced in the analysis did not purport to be indicative of actual
values or expected values of Benson or the shares of Benson Common Stock.
In calculating the present values through the discounted cash flow
analysis, Hoefer & Arnett analyzed the effect of possible earnings variability
and possible Merger-related operating cost savings variability, among other
items, by assuming varying levels of projected earnings for Benson and Norwest.
The three cases examined were: Benson earnings as projected and Norwest earnings
as projected; Benson earnings at 75% of projected earnings and Norwest earnings
at 125% of projected earnings; and Benson earnings at 125% of projected earnings
and Norwest earnings at 75% of projected earnings. Pro forma combined cash flows
were calculated assuming the combinations of the cash flows in each of these
cases, and were compared to the cash flows of Benson on a stand-alone basis as
well as to the cash flows of Benson acquired in the year 2000 by a larger
financial institution. All cases were analyzed assuming realization of the
possible operating cost savings, projected by Hoefer & Arnett, in the amounts
and time periods previously indicated, unless otherwise stated.
The discount rates used ranged from 8.0% to 12.0%, which Hoefer & Arnett
believes to be the range of investor return for an investment having the risk
profile associated with this type of investment. For Benson on a stand-alone
basis, the terminal value multiples applied to year-end 2000 estimated earnings
per share ranged from 9.0x to 17.0x. Lower levels of terminal value reflected an
estimated future trading range of Benson, while the higher levels of terminal
value were more indicative of a future sale of Benson s stock to a larger
financial institution. For the pro forma combined analyses, the terminal price
to earnings multiples also ranged from 9.0x to 17.0x.
For Benson on a stand-alone basis, the cash flows were comprised of the
projected stand alone dividends per share in years 1997 through 2000 plus the
terminal value of Benson Common Stock at year-end 2000 (calculated by applying
each one of the assumed terminal price to earnings per share multiples as stated
above to year-end 2000 projected Benson earnings per share). For the pro forma
combined analyses, the cash flows were comprised of the projected pro forma
combined dividends per share in years 1997 through 2000 plus the terminal value
of the pro forma combined entity's stock at year-end 2000 (calculated by
applying each one of the assumed terminal price to earnings per share multiples
as stated above to the year-end 2000 projected pro forma combined earnings per
share). The discount rates described above were then applied to these cash flows
to obtain the present values per share of Benson Common Stock.
21
<PAGE> 28
The following table presents the results of the discounted cash flow
analysis described above using a discount rate of 10%, the mid-point of the
range of discount rates employed in the analysis:
PROJECTED PRESENT VALUE OF DISCOUNTED CASH FLOWS
(COMPARATIVE STAND ALONE VS. PRO FORMA, 10% DISCOUNT RATE,
0.7018 BENSON COMMON STOCK EXCHANGE RATIO)
<TABLE>
<CAPTION>
NORWEST/BENSON 12.0X EARNINGS 17.0X EARNINGS
- -------------- -------------- --------------
<S> <C> <C>
100%/100%
Benson Stand Alone...................................... $12.13 $ 22.57
Merger Pro Forma........................................ $27.04 $ 48.74
% Change in Benson...................................... 122.92% 115.95%
75%/125%
Benson Stand Alone...................................... $12.98 $ 24.17
Merger Pro Forma........................................ $23.82 $ 42.83
% Change in Benson...................................... 83.51% 77.20%
125%/75%
Benson Stand Alone...................................... $11.31 $ 21.04
Merger Pro Forma........................................ $30.65 $ 55.35
% Change in Benson...................................... 171.00% 163.07%
</TABLE>
(COMPARATIVE STAND ALONE VS. PRO FORMA, 10% DISCOUNT RATE,
0.5480 BENSON COMMON STOCK EXCHANGE RATIO)
<TABLE>
<CAPTION>
NORWEST/BENSON 12.0X EARNINGS 17.0X EARNINGS
- -------------- -------------- --------------
<S> <C> <C>
100%/100%
Benson Stand Alone...................................... $12.13 $ 22.57
Merger Pro Forma........................................ $21.18 $ 38.18
% Change in Benson...................................... 74.61% 69.16%
75%/125%
Benson Stand Alone...................................... $12.98 $ 24.17
Merger Pro Forma........................................ $18.62 $ 33.48
% Change in Benson...................................... 43.45% 38.52%
125%/75%
Benson Stand Alone...................................... $11.31 $ 21.04
Merger Pro Forma........................................ $24.01 $ 43.35
% Change in Benson...................................... 112.29% 106.04%
</TABLE>
The analysis showed that use of a higher (lower) level of projected Norwest
earnings raised (lowered) the resulting present value for a given level of
Benson earnings, on a pro forma combined basis. The analysis also showed that
use of a lower (higher) discount rate or a higher (lower) terminal price to
earnings per share multiple raised (lowered) the calculated present values. In
all cases, for a given discount rate and a given price to earnings per share
multiple, the analysis showed that the financial terms of the Merger offered a
higher present value per share of Benson Common Stock than if Benson remained
independent through the year 2000 or was acquired in the year 2000 by a larger
financial institution. However, the examples shown above do not necessarily
indicate that a direct comparison of the present values obtained using the same
terminal price to earnings per share multiple and/or discount rate for the
Benson stand-alone, Benson acquired in the year 2000 by a larger financial
institution, and pro forma combined entity cash flows are the only comparisons
which can be made.
Comparable Company Analysis. Hoefer & Arnett examined recent historical
data on Benson and Norwest based upon information from their respective 1994
Annual Reports to Stockholders and subsequent quarterly information through
September 30, 1995. Hoefer & Arnett analyzed certain credit and operating
statistics for Benson and Norwest, comparing these statistics to data for a peer
group of Texas banks and bank holding companies using the Hoefer & Arnett Bank
Universe West and Southwest Coverage Area (the "Universe"), a publication
reporting financial statistics of 15 publicly traded Texas financial
institutions including Benson. The comparisons made
22
<PAGE> 29
are as of or for the quarter ended September 30, 1995 unless otherwise noted.
The following table presents the results of the comparable company analysis
described above:
<TABLE>
<CAPTION>
UNIVERSE
NORWEST BENSON TX MEDIAN
----------- -------- ---------
<S> <C> <C> <C>
Total Assets........................................ $71,411,900 $467,112 $430,727
Market Capitalization(1)............................ 10,772,252 61,453 53,388
Price to Tangible equity per share(1)............... 2.32x 1.50x 1.50 x
Price to last 12 months earnings per share.......... 12.12x 10.78x 10.89 x
Tangible equity to tangible assets.................. 6.92% 8.78% 8.74 %
Nonperforming assets to total assets(2)............. 0.37% 1.18% 0.55 %
Loan loss reserve to nonperforming loans(2)......... 218.85% 166.57% 172.05 %
Return on average assets............................ 1.45% 1.23% 1.27 %
Return on average common equity..................... 20.76% 14.24% 14.55 %
Efficiency Ratio.................................... 66.00% 63.72% 65.63 %
</TABLE>
- ---------------
(1) Statistics calculated based on bid prices at November 21, 1995, the latest
available prices prior to publishing the third quarter 1995 Universe.
(2) Nonperforming assets include loans which are 90 days past due and still
accruing in addition to nonaccrual and restructured loans and other real
estate owned.
Hoefer & Arnett concluded based on the analyses described above that the
consideration to be received pursuant to the Merger Agreement by holders of
Benson Common Stock is fair from a financial point of view.
Hoefer & Arnett is an investment banking firm continually engaged in the
valuation of businesses and securities, including financial institutions and
their securities, in connection with mergers and acquisitions, underwritings,
private offerings of securities, secondary distributions of listed and unlisted
securities and valuations for estate, corporate and other purposes.
As a normal part of its business, Hoefer & Arnett analyzes securities of
financial institutions for the purposes of providing, among other things,
transactional advice and assistance, investment research and capital financing
activities. Hoefer & Arnett currently conducts dealer markets in the shares of
more than 120 independent financial institutions, including Benson. In addition,
the principals of Hoefer & Arnett have substantial experience in investment and
commercial banking, some of which may be deemed applicable to the Fairness
Opinion.
Financial Advisory Fee In consideration for the rendering of financial
advice and the Fairness Opinion, Benson has agreed to pay Hoefer & Arnett a fee
equal to (i) $250,000 plus 7.0% of any amount paid to the holders of Benson
Common Stock in excess of $18.50 per share. No portion of the fee is contingent
upon the conclusions reached in the Fairness Opinion.
MERGER CONSIDERATION
Holders of Benson Common Stock, Benson Series C Preferred Stock and 1994 Benson
Common Stock Options
Shares of Norwest Common Stock. Except with respect to fractional shares
as described below and shares as to which dissenters' rights have been
exercised, if the Merger Agreement is approved and the Merger becomes effective,
each share of Benson Common Stock and Benson Series C Preferred Stock
outstanding immediately prior to the Effective Time of the Merger, and each 1994
Benson Option Share, will be automatically converted into the number of shares
or fraction of a share, as the case may be, of Norwest Common Stock determined
in accordance with the applicable exchange ratio set forth below. (Section 1(a))
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Benson Common Stock Exchange Ratio. The "Benson Common Stock Exchange
Ratio" will equal the quotient obtained by dividing $20 by the Norwest
Measurement Price.
Benson Series C Preferred Stock Exchange Ratio. The "Benson Series C
Preferred Stock Exchange Ratio" will equal the quotient obtained by dividing the
Redemption Price Per Share (as defined below) by the Norwest Measurement Price.
The "Redemption Price Per Share" means the par value per share ($100) plus
accrued but unpaid dividends as of immediately prior to the Effective Time of
the Merger.
Benson Option Share Exchange Ratio. The "Benson Option Share Exchange
Ratio" will equal the product obtained by multiplying the Benson Common Stock
Exchange Ratio by 0.3375. (For purposes of the foregoing calculation, 0.3375
represents the quotient obtained by dividing (i) the difference between (A) the
fair market value per share of Benson Common Stock and (B) the exercise price
per share of the 1994 Benson Common Stock Options by (ii) the fair market value
per share of Benson Common Stock, where the exercise price per share of the 1994
Benson Common Stock Options is $13.25 and the fair market value per share of
Benson Common Stock is assumed to be $20.)
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 Benson Common Stock, Benson Series C Preferred Stock or 1994 Benson
Stock Option 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 Norwest
Measurement Price. (Section 1(d))
Holders of 1992 Benson Stock Options
If the Merger Agreement is approved and the Merger becomes effective, each
1992 Benson Common Stock Option will be automatically converted into an option
(each, a "Post-Merger Norwest Common Stock Option") to purchase shares of
Norwest Common Stock in an amount and at an exercise price determined as
follows: (i) the number of shares of Norwest Common Stock issuable upon exercise
of a Post-Merger Norwest Common Stock Option will equal the number calculated by
multiplying the number of shares of Benson Common Stock subject to the 1992
Stock Option by the Benson Common Stock Exchange Ratio, provided that any
fractional share of Norwest Common Stock that would otherwise be issuable as a
result of such multiplication will be rounded down to the nearest whole share;
and (ii) the exercise price per share of Norwest Common Stock under a
Post-Merger Norwest Common Stock Option will equal the number calculated by
dividing the exercise price per share of Benson Common Stock under the 1992
Benson Common Stock Option by the Benson Common Stock Exchange Ratio, provided
that such exercise price will be rounded up to the nearest cent.
Shares of Norwest Common Stock issuable upon exercise of each Post-Merger
Norwest Common Stock Option will be subject to such forfeiture restrictions and
other terms and conditions of Benson's 1992 Nonqualified Stock Option Plan as if
such shares of Norwest Common Stock were shares of Benson Common Stock. (Section
1(b))
Risk Due to Fluctuations in the Price of Norwest Common Stock
Before the Special Meeting. The market price of Norwest Common Stock will
fluctuate between the date of this Proxy Statement-Prospectus and the date of
the Special Meeting at which the vote to approve the Merger Agreement is taken.
If the Norwest Average Price is between $28.50 and $36.50, inclusive, holders of
Benson Common Stock will receive $20 worth of Norwest Common Stock (as measured
by the Norwest Average Price) for each share of Benson Common Stock held by
them. If the Norwest Average Price is less than $28.50, holders of Benson Common
Stock will receive less than $20 worth of Norwest Common Stock (again as
measured by the Norwest Average Price) for each share of Benson Common Stock
held by them. Shareholders should
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consider this in deciding whether to vote by proxy in advance of the Special
Meeting. Shareholders who vote by proxy in advance of the Special Meeting may
revoke their proxies at any time before the proxies are voted.
After the Special Meeting. The Norwest Measurement Price will be
calculated at the end of the day immediately preceding the Special Meeting at
which the vote to approve the Merger Agreement is taken. Because the Benson
Common Stock Exchange Ratio (and thus the number of shares of Norwest Common
Stock to be received in the Merger by holders of Benson Common Stock) will not
be adjusted to reflect changes in the market price of Norwest Common Stock after
such Special Meeting, holders of Benson Common Stock are subject to the risk of
decreases in the market price of Norwest Common Stock from the time the Norwest
Measurement Price is determined through the Effective Time of the Merger.
The Norwest Measurement Price will also be used to determine the number of
shares of Norwest Common Stock to be received in the Merger by holders of Benson
Series C Preferred Stock and 1994 Benson Common Stock Options and the number and
purchase price of shares issuable upon exercise of the Post-Merger Norwest
Common Stock Options to be received in the Merger by holders of 1992 Benson
Common Stock Options. For that reason, holders of Benson Series C Preferred
Stock, 1994 Benson Common Stock Options and 1992 Benson Common Stock Options are
subject to the same risks of fluctuations in the market price of Norwest Common
Stock as described above with respect to the holders of Benson Common Stock.
DISSENTERS' RIGHTS
The following is a 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, copies of which are set forth in full in Appendix C to this
Proxy Statement-Prospectus.
The TBCA provides that a shareholder does not have the right to dissent
from any plan of merger in which there is single surviving corporation if (i)
the shares held by the shareholder are part of a class of shares which either
are (A) listed on a national securities exchange or (B) 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 and (ii) the shareholder is not required
by the plan of merger to accept for his or her shares any consideration other
than cash in lieu of fractional shares and shares of a corporation that,
immediately after the effective time of the merger, will be part of a class or
series of shares that either are (A) listed or authorized for listing on a
national securities exchange or (B) held of record by not less than 2,000
holders. Because Benson Common Stock and Benson Series C Preferred Stock are
neither listed on a national securities exchange nor held by not less than 2,000
holders, holders of Benson Common Stock and Benson Series C Preferred Stock will
have the right to dissent with respect to their shares of Benson Common Stock
and Benson Series C Preferred Stock.
Record holders of Benson Common Stock and Benson Series C Preferred Stock
will have the right under the TBCA to dissent with respect to the Merger and,
subject to certain conditions, receive a cash payment equal to the fair value of
their shares. ANY SHAREHOLDER WHO WISHES TO ASSERT HIS OR HER DISSENTER'S RIGHTS
MUST CAUSE BENSON TO RECEIVE, BEFORE THE VOTE ON THE MERGER AGREEMENT 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 AGREEMENT. VOTING AGAINST THE MERGER AGREEMENT IS NOT SUFFICIENT, IN AND
OF ITSELF, FOR A SHAREHOLDER TO ASSERT HIS OR HER DISSENTER'S RIGHTS.
In the event Benson's shareholders approve the Merger Agreement at the
Special Meeting, Benson 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 of the Merger. Any shareholder to whom a notice
is sent by Benson and who desires to exercise his or her dissenter's
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rights must, within 10 days from the delivery or mailing of Benson's notice,
make written demand on Benson 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, Benson 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 Benson for notation thereon that demand has been made.
Within 20 days after Benson'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 Benson's estimate of the fair value of the shares.
If the shareholder's amount is accepted, the notice must state that Benson 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 Benson'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 Benson, 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 Benson and the dissenting shareholder,
then payment for the shares must be made by Benson 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 Benson.
If, however, within 60 days after the date on which the Merger was
effected, the dissenting shareholder and Benson 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 Bexar County, Texas, asking the court to determine the fair
value of the shareholder's shares. If the petition is filed by the shareholder,
Benson 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 Benson. If
the petition is filed by Benson, 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 hearing by the court of the petition by registered mail to Benson and each
of the shareholders named on the list at the addresses stated therein, and the
shareholders as notified and Benson 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 Benson
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 Benson 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
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their shares, duly endorsed. Upon payment of the judgment, the dissenting
shareholders cease to have any interest in those shares or Benson. 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 Benson, after any such petition is filed. If (i) the demand is
withdrawn, (ii) Benson 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 Benson 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 of the Merger, 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
Benson Common Stock or Benson Series C 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 BENSON 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 Benson
Common Stock or Benson Series C Preferred Stock, together with a properly
completed letter of transmittal, there will be issued and mailed to the holder a
certificate representing the number of whole shares of Norwest Common Stock to
which such holder is entitled and, 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 of the Merger. No dividends in respect of the
Norwest Common Stock with a record date after the Effective Time of the Merger
will be paid to the former shareholders of Benson entitled to receive
certificates for shares of Norwest Common Stock until such shareholders
surrender their certificates representing shares of Benson Common Stock or
Benson Series C 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 of the Merger and before the date of
such surrender. After such surrender, there shall be paid to the person in whose
name the certificate representing such shares of Norwest Common Stock is issued,
on the appropriate dividend payment date, any dividend on such shares of Norwest
Common Stock which shall have a
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record date after the Effective Time of the Merger, as the case may be, and
prior to the date of surrender, but a payment date subsequent to the surrender.
In no event shall the persons entitled to receive such dividends be entitled to
receive interest on amounts payable as dividends.
CONDITIONS TO THE MERGER
Conditions to the Obligations of Norwest and Benson. The obligations of
both Norwest and Benson to effect the Merger are subject to the satisfaction as
of the Effective Time of the Merger or, if permissible under the Merger
Agreement, waiver of a number of conditions, including, among others, the
following: (i) the approval of the Merger Agreement by the requisite vote of
Benson's shareholders; (ii) the receipt of all requisite regulatory approvals;
(iii) the absence of any order issued by any court or governmental authority of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
consummation of the Merger; and (iv) the effectiveness of the Registration
Statement. (Sections 6 and 7)
Conditions to the Obligation of Benson. The obligation of Benson to effect
the Merger is subject to the satisfaction as of the Effective Time of the Merger
or, if permissible under the Merger Agreement, waiver of certain additional
conditions, including, among others, the following: (i) the performance by
Norwest in all material respects of the agreements made by Norwest in the Merger
Agreement and the truthfulness in all material respects of the representations
made by Norwest in the Merger Agreement; (ii) the approval for listing on the
NYSE and CHX of the shares of Norwest Common Stock to be issued in the Merger;
and (iii) the receipt of an opinion of counsel to Benson at the Closing
regarding certain federal income tax consequences of the Merger. (Section 6) See
"-- Certain U.S. Federal Income Tax Consequences."
Conditions to the Obligation of Norwest. The obligation of Norwest to
effect the Merger is subject to the satisfaction as of the Effective Time of the
Merger or, if permissible under the Merger Agreement, waiver of certain
additional conditions, including, among others, the following (i) the
performance by Benson in all material respects of the agreements made by Benson
in the Merger Agreement and the truthfulness in all material respects of the
representations made by Benson in the Merger Agreement; (ii) the absence of any
condition or requirement in any approval, license or consent relating to the
Merger that, in the good faith judgment of Norwest, is unreasonably burdensome
to Norwest; (iii) the Merger shall qualify for pooling of interests accounting
treatment and Norwest shall have received an opinion from Grant Thornton LLP
that the activities of Benson will not preclude the Merger from being accounted
for as a pooling of interests; (iv) at any time since December 21, 1995 (the
date of the Merger Agreement) the total number of shares of Benson Common Stock
and Series C Preferred Stock outstanding and subject to issuance upon exercise
(assuming for this purpose that phantom shares and other share equivalents
constitute Benson Common Stock) of all warrants, options, conversion rights
(including equity securities convertible into Benson Common Stock), phantom
shares or other share equivalents shall not have exceeded 3,929,820 in the case
of Benson Common Stock and 86,947 in the case of Benson Series C Preferred
Stock; (v) the Roddy Employment Agreement (as defined below) shall have been
amended as required under the Merger Agreement; and (vi) the Landfill (as
defined below) shall have been sold in accordance with the terms of the Merger
Agreement. (Section 7) See "-- Certain Additional Agreements."
See Sections 6 and 7 of the Merger Agreement for additional conditions to
the Merger becoming effective.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Federal Reserve Board under
the Bank Holding Company Act. 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
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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.
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 Benson 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 Benson. Benson and its subsidiaries are required to maintain their
corporate existence in good standing, 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 Benson 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 $1,000,000; (ii) enter into any material agreement, contract or
commitment exceeding $25,000 (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 the capital stock of any of its subsidiaries; (v) sell or
otherwise dispose of any of its assets or properties other than in the ordinary
course of business; (vi) declare, set aside, make or pay any dividend or other
distribution with respect to its capital stock (other than a dividend declared
by a subsidiary's board of directors in accordance with applicable law and
regulation and other than semiannual dividends on the Series C Preferred Stock
in an amount equal to 7.5% per annum consistent with past practices), provided
that if the Effective Time of the Merger is after the record date for the
regular cash dividend, if any, declared on Norwest Common Stock for the third
quarter of 1996, Benson may declare and pay cash dividends on Benson Common
Stock immediately prior to the Closing Date in an amount not to exceed, in the
aggregate, the amount that shareholders of Benson would have received on the
Norwest Common Stock to be issued in the Merger if the Effective Time of the
Merger had occurred immediately prior to such record date; (vii) redeem,
purchase or otherwise acquire, directly or indirectly, any of the capital stock
of Benson, except that Benson may redeem prior to the Effective Time of the
Merger up to 100% of the outstanding shares of Benson Series C Preferred Stock
in accordance with the terms thereof; or (viii) increase the compensation of any
director, officer or executive employee of Benson, except increases granted
pursuant to existing compensation plans and practices and any year-end bonuses
awarded in conformity with existing bonus award programs. (Section 4) For
information concerning the terms upon which Benson may redeem the Benson Series
C Preferred Stock, see "-- Interests of Certain Persons in the Merger."
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. (Section 5)
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See Sections 4 and 5 of the Merger Agreement for additional restrictions on
the conduct of business by Benson and Norwest pending the Merger.
NO SOLICITATION
Benson and its subsidiaries, and their respective directors, officers,
representatives and agents, have agreed under the Merger Agreement not to
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 Benson or any of its subsidiaries; (ii) make
a tender or exchange offer for any shares of common stock or other equity
security of Benson or any of its subsidiaries; (iii) purchase, lease or
otherwise acquire the assets of Benson or any of its subsidiaries except in the
ordinary course of business; or (iv) merge, consolidate or otherwise combine
with Benson or any of its subsidiaries. (Section 4(h)) If any third party makes
an offer or inquiry to Benson or any of its subsidiaries concerning any of the
foregoing, Benson or the subsidiary, as applicable, is required to promptly
disclose such offer or inquiry (including the terms thereof) to Norwest.
(Section 4(h))
CERTAIN ADDITIONAL AGREEMENTS
Benson. Benson has also agreed under the Merger Agreement to (i) if
requested by Norwest, terminate or amend, effective as of the Effective Time of
the Merger, certain employee benefit plans of Benson and its subsidiaries; (ii)
establish such additional accruals and reserves as may be necessary to conform
Benson's accounting and credit loss reserve practices and methods to those of
Norwest and Norwest's plans with respect to the conduct of Benson's business
after the Effective Time of the Merger 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; (v) take all necessary action to (A) terminate Benson's 1994
Stock Option Plan, (B) accelerate the vesting of the 1994 Benson Common Stock
Options to permit such options to be immediately exercisable, and (C) terminate
the 1994 Benson Common Stock Options; (vi) obtain the written consent or
acknowledgment of the holders of the 1994 Benson Common Stock Options to such
termination in exchange for shares of Norwest Common Stock as provided in the
Merger Agreement; (vii) use its best efforts to amend the Roddy Employment
Agreement (as defined below); (viii) sell certain real property commonly known
as the Old Southeast Landfill or the Riley Landfill (the "Landfill"); and (ix)
take all action necessary to terminate any registration rights of the holders of
Series C Preferred Stock. (Section 4)
Norwest. Norwest has agreed under the Merger Agreement to (i) take certain
action to maintain Benson's directors' and officers' liability insurance
policies in effect as of the date of the Merger Agreement; and (ii) for a period
of up to 15 days prior to the Closing, permit Benson and its representatives to
examine the books, records and properties of Norwest and to interview officers,
employees and agents of Norwest. (Section 5) For more information concerning the
directors' and officers' liability insurance policies, see "-- Interests of
Certain Persons in the Merger."
For information concerning additional agreements and covenants of Benson
and Norwest, see Sections 4 and 5 of the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time of the Merger (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
August 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
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Agreement; (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; or (iv) by Benson within one business day after the
Special Meeting at which the vote on the Merger Agreement is taken if the
Norwest Average Price is less than $27. (Section 9)
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 Benson's shareholders, provided that, after
the Merger Agreement is approved by Benson's shareholders, no amendment can be
made to the Merger Agreement that changes in a manner materially adverse to
Benson's shareholders the consideration to be received by Benson's shareholders
in the Merger. (Section 17)
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. (Section 16)
EFFECT ON EMPLOYEE BENEFIT PLANS
The Merger Agreement provides that, subject to any eligibility requirements
applicable to such plans, employees of Benson shall be entitled to participate
in those Norwest employee benefit and welfare plans specified in the Merger
Agreement. The eligible employees of Benson 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 of the Merger. Benson's employees will generally
continue to participate in welfare and retirement plans maintained by Benson
until entering Norwest's plans. Eligible Benson employees will receive credit
for past service for the purpose of determining certain benefits under certain
but not all of Norwest's benefit plans. (Section 8)
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Benson's management and the Benson Board may be deemed
to have interests in the Merger in addition to their interests as shareholders
of Benson generally. The Benson Board was aware of these interests and
considered them, among other matters, in unanimously approving the Merger
Agreement and the transactions contemplated thereby.
Employment Agreement. As a condition to the Merger Agreement, Benson has
agreed to negotiate with R. Tom Roddy, President and Chief Executive Officer of
Benson, to make certain revisions to his employment agreement (the "Roddy
Employment Agreement"). These revisions are that the severance payment, due
under the Roddy Employment Agreement upon a change of control, will not exceed
the amount deductible for income tax purposes under the Internal Revenue Code
and that Benson will agree to pay Mr. Roddy $25,000 if he remains employed by
Benson until December 31, 1996.
Indemnification, Insurance. In the Merger Agreement, Norwest has agreed
that all rights to indemnification and all limitations of liability in the
Benson Articles or Benson Bylaws, existing in favor of any person who is, has
been or becomes prior to the Effective Time of the Merger, a director or officer
of Benson or any Benson subsidiary, shall survive the Merger and continue in
full force and effect. These rights to indemnification and limitations of
liability are to survive with respect to all claims arising from (i) facts or
events that occurred before the Effective Time of the Merger, or (ii) the Merger
Agreement or the transaction contemplated thereby.
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Norwest has also agreed, for a period of three years after the Effective
Time of the Merger, to use its best efforts to cause to be maintained in effect
the current policies of directors' and officers' liability insurance maintained
by Benson (provided that Norwest may substitute therefor policies of at least
the same coverage and amounts, containing terms and conditions which are
substantially no less advantageous) with respect to claims arising from facts or
events which occurred before the Effective Time of the Merger. However, Norwest
is not obligated to expend, in order to maintain such insurance coverage, an
amount per year in excess of 150% of the amount of the annual premiums paid as
of the date hereof by Benson (the "Maximum Amount"). If the amount of the annual
premiums necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, Norwest is obligated to use reasonable efforts to obtain as much
comparable insurance as can be obtained for the Maximum Amount.
Stock Options. The Benson 1994 Stock Option Plan provides that, in the
event of a change of control, including one that will occur upon consummation of
the Merger, each optionee may exercise his stock options with respect to the
full number of shares without regard to any vesting period provisions contained
in the optionee's agreement. Pursuant to the Merger Agreement, Benson has agreed
to terminate its 1994 Option Plan and cause persons holding unexpired options
issued thereunder to exchange such options for shares of Norwest Common Stock.
The persons and the number of potential 1994 Benson Option Shares affected by
the acceleration of the vesting schedule are: Messrs. Tom Benson (50,000
shares), Roddy (20,000 shares), McCandless (11,250 shares), Oveland (11,250
shares), Larry Benson (5,000 shares), Jerome Benson (2,500 shares), Gillaspia
(800 shares), Seal (700 shares), Goff (800 shares), Urps (725 shares) and
Peterson (500 shares), and Ms. Yoakum (800 shares) and Ms. Watson (675 shares).
Redemption of Series C Preferred Stock. Under the terms of the Merger
Agreement, Benson may redeem prior to the Effective Time of the Merger up to
100% of the outstanding shares of Benson Series C Preferred Stock for a per
share amount in cash equal to the par value per share of $100, plus accrued and
unpaid dividends. Management of Benson anticipates that Benson will redeem more
than 50% of such shares prior to the Effective Time of the Merger. As of the
Record Date, there were 86,947 shares of Benson Series C Preferred Stock
outstanding, all of which were owned by Tom Benson.
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 Benson's shareholders. The
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations promulgated and
proposed thereunder, published Internal Revenue Service rulings and
pronouncements and court decisions as in effect on the date hereof. All of the
above authorities are subject to change (possibly retroactive) by legislative,
administrative or judicial action. Any such change 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 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 Benson Common Stock and
Benson Series C Preferred Stock will recognize no gain or loss on the receipt of
Norwest Common Stock in exchange therefor. The Merger's effectiveness is
conditioned upon the receipt by Benson of a written opinion of Kramer, Levin,
Naftalis, Nessen, Kamin & Frankel, counsel to Benson, 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 Code; (ii) no gain or loss will be recognized by the holders
of Benson Common Stock or Benson Series C Preferred Stock upon receipt of
Norwest Common Stock except for cash received in lieu of fractional shares; and
(iii) the basis of the
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Norwest Common Stock received by the shareholders of Benson will be the same as
the basis of the Benson Common Stock or Benson Series C Preferred Stock
exchanged therefor, decreased by the tax basis allocated to any fractional share
interest exchanged for cash; and (iv) the holding period of the shares of
Norwest Common Stock received by the shareholders of Benson will include the
holding period of the Benson Common Stock or Benson Series C Preferred Stock
exchanged therefor, provided such shares were held as a capital asset as of the
Effective Time of the Merger.
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 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 Benson 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 tax consequences may not be applicable to Benson shareholders
subject to special treatment under certain federal income tax laws, such as
dealers in securities, banks, insurance companies, tax-exempt entities,
non-United States persons, and stockholders who acquired Benson stock pursuant
to the exercise of Benson options or otherwise as compensation.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO BENSON SHAREHOLDERS, WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. EACH BENSON 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 Benson 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 Benson or Norwest as that term is defined in
the rules under the Securities Act. Norwest Common Stock received by those
shareholders of Benson who are deemed to be "affiliates" of Benson 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 Benson
generally include individuals or entities that control, are controlled by or are
under common control with, Benson and may include the executive officers and
directors of Benson as well as certain principal shareholders of Benson. In the
Merger Agreement, Benson has agreed to use its best efforts to cause each
shareholder who, in the opinion of counsel to Benson, is an affiliate of Benson
to enter into an agreement with Norwest providing that such affiliate will not
(i) offer to sell, transfer or otherwise dispose of, during the 30 days
immediately prior to the Effective Time of the Merger, any shares of Benson
Common Stock; (ii) 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 or (iii) sell, transfer or otherwise dispose
of the shares of Norwest Common Stock to be received by such persons in the
Merger or in any way reduce such shareholder's risk relative to such shares
until such time as financial results covering at least 30 days of post-Merger
combined operations of Benson and Norwest have been published. (Section 4(l))
This Proxy Statement-Prospectus does not cover any resales of Norwest Common
Stock received by affiliates of Benson.
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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. Consummation of the Merger is
conditioned on the authorization for listing of such shares on the NYSE and CHX.
(Section 6)
ACCOUNTING TREATMENT
The parties anticipate that the Merger will qualify for pooling of
interests accounting treatment. Under the pooling of interests method of
accounting, the historical basis of the assets and liabilities of Norwest and
Benson will be combined at the Effective Time of the Merger and carried forward
at their previously recorded amounts, and the shareholders' equity accounts of
Benson will be combined with Norwest's stockholder equity accounts on Norwest's
consolidated balance sheet. Income and other financial statements of Norwest
will not be restated retroactively because the Merger is not material to the
financial statements of Norwest.
In order for the Merger to qualify for pooling of interests accounting
treatment, among other things, at least 90% of the outstanding Benson Common
Stock must be exchanged for Norwest Common Stock. Benson and Norwest have each
agreed not to take any action that would disqualify the Merger from pooling of
interests accounting treatment by Norwest.
The unaudited pro forma data included in this Proxy Statement-Prospectus
for the Merger have been prepared using the pooling of interests method of
accounting. See "SUMMARY -- Comparative Per Common Share Data."
EXPENSES
Except as otherwise provided in the Merger Agreement, Norwest and Benson
will each pay their own expenses in connection with the Merger, including fees
and expenses of their respective independent auditors and counsel.
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 BENSON COMMON 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 are 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. On February 27, 1996, Norwest issued 59,000 shares of
1996 ESOP Cumulative Convertible Preferred Stock. Norwest had not issued any
shares of Norwest Preference Stock as of the date of this Proxy
Statement-Prospectus.
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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 PERTAINING TO NORWEST."
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 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."
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RIGHTS PLAN
Norwest has in effect a rights plan (the "Rights Plan") pursuant to which
each share of Norwest Common Stock now outstanding has, and each share of
Norwest Common Stock to be issued in the Merger will 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 per one one-hundredth of a Norwest Junior Preferred Share, subject to
adjustment in accordance with the terms of the Rights Agreement. 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.
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 preferential quarterly dividend payment equal to the greater of $1.00 per
share or 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 preferential liquidation payment equal to the greater of $400
per share plus accrued and unpaid dividends or 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
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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.
The foregoing discussion of the Rights Plan is qualified in its entirety by
reference to the rights agreement dated November 22, 1988 between Norwest and
Citicorp., N.A., as rights agent.
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 Benson
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
Pursuant to shelf registration statements filed with the Commission,
Norwest has 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 March 31, 1996, Norwest had
available for issuance Shelf Securities having an aggregate initial public
offering price of up to $1.35 billion. On March 15, 1996, Norwest filed a
registration statement for an additional $5 billion of Shelf Securities.
Approval by the Commission of this shelf registration statement is pending as of
the date of this Proxy Statement-Prospectus. 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 time 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
BENSON COMMON STOCK AND NORWEST COMMON STOCK
GENERAL
Benson is incorporated under the laws of the state of Texas. Norwest is
incorporated under the laws of the state of Delaware. The rights of Benson's
shareholders are currently governed by the TBCA and the Benson Articles and
Benson Bylaws. If Benson's shareholders approve the Merger Agreement and the
Merger becomes effective, shareholders of Benson will become stockholders of
Norwest. For that reason, after the Effective Time of the Merger, 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 Benson Common
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 and Benson Common
Stock, see "NORWEST CAPITAL STOCK AND RIGHTS" and "INFORMATION CONCERNING
BENSON."
DIRECTORS
Benson. The Benson Bylaws provide that the Benson Board shall consist of
not less than one nor more than ten directors, as may be fixed from time to time
to in accordance with the Benson Articles, the Benson Bylaws or by resolution of
the Benson Board. The Benson Articles currently set the number of directors at
six and divide the Benson Board into three classes of directors, with the term
of office of one class expiring each year; shareholders may remove a director
only for cause. The Benson Articles and Benson Bylaws provide that vacancies on
the Benson Board may be filled exclusively by the affirmative vote of a majority
of the remaining directors, although that number may be less than a quorum.
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 14. 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."
AMENDMENT OF ARTICLES OR CERTIFICATE OF INCORPORATION AND BYLAWS
Benson. Under the TBCA, certain amendments to the articles of
incorporation require the affirmative vote of the holders of at least two-thirds
of the outstanding shares entitled to vote thereon, unless any class or series
of shares is entitled to vote thereon as a class, in which event the proposed
amendment shall be adopted upon receiving the affirmative vote of the holders of
at least two-thirds of the shares within each class or series entitled to vote
thereon as a class and of at least two-thirds of the total outstanding shares
entitled to vote thereon. The Benson Bylaws provide that the Bylaws may be
amended by a majority of the Benson Board.
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
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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 Benson 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
PERTAINING TO NORWEST."
Benson. The TBCA requires certain mergers to be approved by holders of at
least two-thirds of the outstanding shares entitled to vote thereon, unless
there is a class of stock that is entitled to vote as a class, in which event
the merger must be approved by the holders of two-thirds of the outstanding
shares of each class of stock entitled to vote as a class and by the holders of
two-thirds of the outstanding shares otherwise entitled to vote; provided that
the articles of incorporation may require a vote of a different number, not less
than a majority, of the shares outstanding. The Benson Articles do not provide
for a different number of shares for approval of a merger or permit the shares
of any class or series to vote thereon. However, as described above, the
affirmative vote of two-thirds of the Common Stock and Series C Preferred Stock
is required for a merger with Norwest and at least two-thirds of the total
outstanding shares otherwise entitled to vote thereon.
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 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
Benson. Shareholders of Texas corporations are entitled to exercise
certain dissenters' rights in the event of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property and assets of the
corporation, and with the exception discussed below, a merger or consolidation.
Under Section 5.11 of the TBCA, however, shareholders do not have dissenters'
rights if, in connection with a merger, the stock of the corporation held by the
shareholder is either listed on a national securities exchange or is held of
record by more than 2,000 shareholders and, pursuant to the plan of merger, such
shareholder is not required to accept for his shares any consideration other
than (a) shares of stock of a corporation which, immediately after the effective
date of the merger, (i) are listed on a national securities exchange or (ii) are
held of record by not less than 2,000 shareholders, and (b) cash in lieu of
fractional shares otherwise entitled to be received. A Benson shareholder will
receive merger consideration that satisfies the provisions of subsections (a)
and (b) above; however, because the Benson Common Stock is not listed on a
national securities exchange and is held of record by fewer than 2,000 holders,
dissenters rights will be available to Benson shareholders.
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
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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
Benson. Under the TBCA, a special meeting of shareholders of a Texas
corporation may be called by either (a) the president, the board of directors,
or such other person or persons as authorized by the articles of incorporation
or the bylaws, or (b) the holders of shares entitled to cast not less than ten
percent (10%) of all shares entitled to vote at the meeting, unless a different
percentage, not to exceed fifty percent (50%), is provided for in the articles
of incorporation. The Benson Articles provide that (1) any action required or
permitted to be taken by Benson's shareholders must be effected at a duly called
annual or special meeting of shareholders, and (2) any special meeting of
shareholders of Benson may be called only by a majority of the Benson Board, the
Chairman of the Board or the President.
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.
ACTION WITHOUT A MEETING
Benson. Under the TBCA, shareholders may act without a meeting if a
consent in writing to such action is signed by all shareholders; provided,
however, that the articles of incorporation may provide that the shareholders
may not take action without a meeting. The Benson Articles prohibit shareholders
from taking an action by means of a consent in writing rather than a duly called
meeting.
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
Benson. The TBCA permits a corporation to set limits on the extent of a
director's liability. The Benson Articles limit, to the fullest extent now or
hereafter permitted by the TBCA, liability of Benson's directors to Benson or
its shareholders for monetary damages for a breach of such director's fiduciary
duty. This provision presently limits a director's liability except for (1) a
breach of duty of loyalty to Benson or its shareholders, (2) a failure to act in
good faith or where a director engages in intentional misconduct or knowingly
violates the law, (3) a transaction from which the director obtains an improper
personal benefit, and (4) an act or omission for which liability is expressly
provided for by statute.
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
40
<PAGE> 47
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
Benson. TBCA provides that a corporation may indemnify an individual only
if the individual (i) acted in good faith, (ii) in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the
corporation's best interests and, in all other cases, that his conduct was at
least not opposed to the corporation's interests, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. The Benson Articles provide that directors and officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by law, including (upon receipt of an
undertaking to repay such advances if the officer or director is found to have
not met the required standard of conduct) payment in advance of a final
disposition of a director's or officer's expenses and attorneys' fees incurred
in defending any action, suit or proceeding, other than in the case of an
action, suit or proceeding brought about by Benson on its own behalf against an
officer. See "-- Interests of Certain Persons in the Merger."
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.
DIVIDENDS
In addition to restrictions imposed under Texas and Delaware law,
respectively, Norwest and Benson are subject to Federal Reserve Board policies
regarding payment of dividends, which generally limit dividends to operating
earnings. See "CERTAIN REGULATORY CONSIDERATIONS PERTAINING TO NORWEST."
Benson. Under the TBCA, a Texas corporation may make distributions only
out of surplus. Holders of Benson Common Stock are entitled to receive dividends
ratably when, as and if declared by the Benson Board from assets legally
available therefrom, after payment of all dividends on
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<PAGE> 48
Benson preferred stock. Holders of shares of Series C Preferred Stock are
entitled to receive semi-annual dividends at the rate of 7.5% of the par value
per share.
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 DIRECTORS
Benson. The Benson Bylaws provide detailed advance notice and
informational procedures which shareholders must follow in order to nominate a
candidate to serve as a director or to propose an item of business for
consideration at a meeting of Benson shareholders. No shareholder nomination or
proposal shall be effective unless made in accordance with these detailed
procedures.
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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<PAGE> 49
INFORMATION CONCERNING BENSON
GENERAL
Benson is a Texas bank holding company, incorporated in 1986. Benson
maintains its principal office at 40 N.E. Loop 410, San Antonio, Texas, 78216.
Its telephone number is (210) 340-5000.
Benson derives substantially all of its revenues and income from the
operation of the Banks. The Banks provide a full range of commercial and
consumer banking services to individuals and small and middle market businesses
in the metropolitan San Antonio area through five full service banking
facilities. The Banks also provide consumer banking services to United States
military officers stationed in the United States and throughout the world.
Management believes Benson currently ranks as the third largest bank holding
company headquartered in the metropolitan San Antonio area (based upon total
deposits as of December 31, 1995).
In addition to the two wholly-owned subsidiary banks, Benson also owns
Bancshares Life Insurance Company ("BLIC"), which operates principally as a
"captive" credit life, accident and health reinsurer. BLIC reinsures insurance
risks underwritten by Mayflower National Life Insurance of Indianapolis, Indiana
("Mayflower National") and Union Fidelity Life Insurance Company of Chicago,
Illinois ("Union Fidelity").
THE BANKS
The Banks conduct a general commercial and consumer banking business, which
includes the acceptance of deposits from consumers and the origination of
commercial, real estate, installment and other loans. The Banks also provide
trust services to their customers. Deposit services include certificates of
deposit, individual retirement accounts and other time deposits, checking and
other demand deposit accounts, interest-bearing checking accounts, savings
accounts and money market accounts. Loans consist of commercial loans directed
to small and middle market businesses, loans to individuals, loans to United
States military officers (including retired military officers) and commercial
real estate loans, residential mortgages and construction loans.
Although the Banks provide a full range of commercial and consumer banking
services, each Bank also seeks to distinguish itself in the products and
services it offers. Groos Bank, with three full service banking facilities, 26
drive-through lanes and three ATMs located in San Antonio, has historically
provided banking services to small and middle market businesses and individuals.
With origins in 1854, Groos Bank has developed a strong community identity and
name recognition. As part of its community focus, Groos Bank has implemented
certain banking programs specially tailored to the needs of its customers. For
senior citizens, Groos Bank provides, among other things, credit card protection
and accidental death insurance and sponsors seminars and trips of interest. For
graduate students and alumni of a local college, Groos Bank has introduced a
banking program which provides, among other things, credit card services and
favorable interest rates on automobile loans. Groos Bank has also developed a
particular market niche related to the purchase of installment loans (or
"indirect dealer paper") originated by automobile dealers. As of December 31,
1995, this indirect dealer paper portfolio amounted to $62.7 million or 41.13%
of Groos Bank's total loans outstanding. This type of installment financing is
attractive due to its favorable average yield as well as its relatively short
maturity (generally three to six years).
Kelly Bank provides traditional commercial and consumer banking services to
its customers through two full service banking facilities, 16 drive-through
lanes and ten ATMs located in San Antonio. In addition, Kelly Bank provides a
specialized group of banking services to United States military officers
(including retired military officers) stationed in the United States and
throughout the world. The military banking focus of Kelly Bank evolved initially
due to its proximity to Kelly Air Force Base. Subsequently, as its reputation
developed, Kelly Bank expanded its focus to pursue business from officers
serving in all branches of the United States armed forces and from non-military
individuals and businesses in the local community in which Kelly Bank is
located.
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<PAGE> 50
Approximately 48.95% of Kelly Bank's total deposits of $192.4 million as of
December 31, 1995, consisted of deposits by United States military officers.
Kelly Bank solicits potential military customers at the start of their careers,
which involves solicitations at the military service academies and officer
candidate and training schools. Specialized banking services include direct
deposit of paychecks, loans subject to direct debit, the issuance of credit
cards, the provision of toll-free telephone numbers to enable such customers to
have access to Kelly Bank's customer service representatives from virtually any
location worldwide and an automated telephone response system which permits
offsite banking. The specialized banking services provided by Kelly Bank are
also attractive to a number of other groups similar in certain respects to the
military, including members of law enforcement organizations, airline pilots and
others that travel extensively.
NONBANKING ACTIVITIES
BLIC operates principally as a "captive" credit life, accident and health
reinsurer. Mayflower National and Union Fidelity act as the principal conduits
for BLIC, underwriting credit life insurance for installment loan customers of
the Banks. These life insurance policies are subsequently ceded to BLIC. BLIC
derives its income from insurance premiums which it assumes and investment
income derived from policyholder reserves. In 1995, BLIC had net income of
$89,960 on total insurance coverage in force of approximately $25 million.
COMPETITION
The Banks encounter strong competition both in making loans and attracting
deposits. The state of Texas permits statewide branch banking and statewide
savings and loan branching. Moreover, the Banks compete with other commercial
and savings banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and certain other nonfinancial institutions not only in the San
Antonio metropolitan area, but also worldwide due to Kelly Bank's military
customer base. The continued liberalization of the banking and securities
industries may also increase competitive pressures on the Banks.
Management believes the Banks are well positioned to compete successfully
in their primary market area, although no assurances can be given in this
regard. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans, other credit and
service charges, the quality and scope of the services rendered, the convenience
of banking facilities, and, in the case of loans to commercial borrowers,
relative lending limits. In particular, Groos Bank expects to encounter
continued and increased competition in the indirect dealer paper market and
Kelly Bank expects to encounter similar competitive pressures in the market for
military customers. Management believes, however, that the Banks' long-term
presence, local expertise and ongoing commitment to the community, as well as
their commitment to quality and personalized banking services, are factors that
contribute to the Banks' competitiveness.
REGULATION AND SUPERVISION
Regulation of Benson. Benson is a bank holding company within the meaning
of the Bank Holding Company Act and therefore is subject to regulation and
supervision by the Federal Reserve Board. As such, Benson is required to file
reports with and furnish such other information as the Federal Reserve Board may
require pursuant to the Bank Holding Company Act, and to subject itself to
examination by the Federal Reserve Board.
As a bank holding company, Benson is required to obtain approval prior to
merging or consolidating with any other bank holding company, acquiring all or
substantially all of the assets of any bank or acquiring ownership or control of
shares of a bank or bank holding company if, after the
44
<PAGE> 51
acquisition, Benson would directly or indirectly own or control 5% or more of
the voting shares of such bank or bank holding company.
Benson is also prohibited from acquiring a direct or indirect interest in
or control of more than 5% of the voting shares of any company which is not a
bank or bank holding company and from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiary banks, except that it may engage in and
may own shares of companies engaged in certain activities found by the Federal
Reserve Board to be so closely related to banking or managing and controlling
banks as to be a proper incident thereto.
Under the Bank Holding Company Act and the Federal Reserve Board's
regulations, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
Regulation of the Banks. The Banks are national banking associations and
are therefore subject to regulation, supervision, and examination by the Office
of the Comptroller of the Currency (the "OCC"). The Banks are also members of
the Federal Reserve System and of the Federal Deposit Insurance Corporation (the
"FDIC"). Requirements and restrictions under the laws of the United States
include the requirement that reserves be maintained against deposits,
restrictions on the nature and the amount of loans which can be made,
restrictions on the business activities in which a bank may engage, restrictions
on the payment of dividends to stockholders and minimum capital requirements.
There are certain statutory limitations on the payment of dividends by
national banks. For information concerning dividend restrictions imposed on
national banks, see "CERTAIN REGULATORY CONSIDERATIONS PERTAINING TO
NORWEST -- Dividend Restrictions." At December 31, 1995, approximately
$8,484,000 was available for declaration of dividends by the Banks to Benson
without prior regulatory approval.
The OCC is authorized by legislation to take various enforcement actions
against any significantly undercapitalized national bank and any national bank
that fails to submit an acceptable capital restoration plan or fails to
implement a plan accepted by the OCC. Based on their respective capital ratios
as of December 31, 1995, Groos Bank and Kelly Bank were both classified as "well
capitalized" under the applicable regulations.
Current Regulatory Issues. In 1990, Benson entered into a Memorandum of
Understanding (the "Memorandum") with the Federal Reserve Board which (i)
imposed certain restrictions on Benson, and (ii) required Benson to present a
plan to the Federal Reserve Board designed to increase Benson's capital and
improve its ability to service its long-term indebtedness. Based upon Benson's
net earnings in 1992, 1993 and 1994, and the substantial improvement in Benson's
capital structure resulting from its initial public offering ("IPO") in October,
1994, the Memorandum was terminated on February 2, 1995.
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, Benson is required to maintain minimum Tier 1 and total
capital to risk-adjusted assets ratios of 4% and 8%, respectively, and a minimum
"leverage ratio" of 3%. At December 31, 1995 and 1994, Benson's Tier 1 and total
capital to risk-adjusted assets ratios and its leverage ratio were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
----- -----
<S> <C> <C>
Tier 1 to risk-adjusted assets............................ 16.51% 15.27%
Total capital to risk-adjusted assets..................... 17.54 16.87
Leverage Ratio............................................ 10.68 10.63
</TABLE>
For a general discussion of the Federal Reserve Board's risk-based capital
guidelines and the criteria applied to calculate the ratios, see "CERTAIN
REGULATORY CONSIDERATIONS PERTAINING
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<PAGE> 52
TO NORWEST -- Capital Requirements." For information concerning similar
risk-based capital ratios for the Banks, see "INFORMATION CONCERNING
BENSON -- Capital Resources."
Effective January 1, 1993, the FDIC imposed deposit premiums based on a
risk-based assessment system, requiring the healthiest banks to pay $0.23 per
$100 of insured deposits. The rates increased incrementally to a top rate of
$0.31 per $100 of deposits for the weakest banks. Based on the risk category
applicable to Groos Bank and Kelly Bank through June 1995, the premiums paid by
each were $0.23 per $100 of deposits.
In August, 1995, the FDIC voted to reduce significantly the deposit
insurance premiums paid by institutions insured by the Bank Insurance Fund
("BIF") to a range of 4 to 31 basis points per $100 of deposits. On September
15, 1995, the FDIC refunded overpayments on insurance premiums for the months
June through September, 1995, and the Banks were assessed a rate of 4 basis
points per $100 of deposits for the fourth quarter of 1995.
On November 14, 1995 the FDIC approved reducing the assessment rates
applicable to BIF-insured institutions to a range of zero to 27 basis points
from the previous range of 4 to 31 points. Deposit insurance premiums for
Subgroup A institutions were reduced to zero beginning with the January 1, 1996
assessment period. Banks within the Subgroup A category will be required to pay
$1,000 per semiannual period as mandated by statute. Both Groos Bank and Kelly
Bank were within the Subgroup A category as of December 31, 1995. For a general
discussion concerning the criteria applied by the FDIC to determine an
institution's insurance premium assessment rate, see "CERTAIN REGULATORY
CONSIDERATIONS PERTAINING TO NORWEST -- FDIC Insurance."
In December, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was signed into law by President Bush. FDICIA increased
the regulatory burden on financial institutions and imposed substantial actual
and incidental costs on the institutions and their customers. See "CERTAIN
REGULATORY CONSIDERATIONS PERTAINING TO NORWEST -- Federal Deposit Insurance
Corporation Improvement Act of 1991."
Regulation of the Insurance Company. BLIC, which provides life, accident
and health insurance products principally to the Banks' installment loan
customers, is subject to comprehensive regulation by the Department of Insurance
in the State of Arizona, the state in which it is domiciled, and other states
(including the State of Texas), in which it conducts business. These regulations
are intended primarily for the protection of policyholders rather than for the
benefit of Benson's investors.
The National Association of Insurance Commissioners (the "NAIC") has
adopted a "risk-based capital" requirement for the property and casualty
insurance industry. "Risk-based capital" refers to the determination of the
amount of statutory capital required for an insurer based on the risks assumed
by the insurer rather than the amount of premiums written by the insurer. A
formula that applies prescribed factors to the various risk elements in an
insurer's business would be used to determine the minimum statutory capital
requirement for the insurer. An insurer having less statutory capital than the
formula calculates would be subject to varying degrees of regulatory
intervention, depending on the level of capital inadequacy. As of December 31,
1995, BLIC had "risk-based capital" in excess of the required amounts
established by the NAIC.
EMPLOYEES
Benson and its subsidiaries had approximately 300 full-time equivalent
employees as of December 31, 1995. None of the employees are represented by any
collective bargaining agreement and management believes its employee relations
are good. Benson and its subsidiaries are equal opportunity employers and
provide equal employment opportunities to individuals without regard to race,
sex, age, national origin, religion, veteran status or handicap.
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PROPERTIES
Benson's principal executive offices are located at 40 N.E. Loop 410, San
Antonio, Texas, 78216. Kelly Bank owns both of its full service facilities,
while Groos Bank leases two of its three full service facilities. One such lease
is for Benson s principal offices located at 40 N. E. Loop 410 (the "North Star
Lease"). The North Star Lease expires in 2005, subject to Groos Bank's option to
renew such lease for two consecutive terms of five years each.
On May 10, 1995 Groos Bank sold its banking facility located at 246 East
Commerce Street in downtown San Antonio for an aggregate sale price of
$3,772,000 (excluding equipment). In October, 1995, Groos Bank leased space in
the One Alamo Center facility, also in downtown San Antonio, which provides
approximately 4,100 square feet of retail space and approximately 10,950 square
feet for drive-through lanes. The lease expires in ten years, subject to Groos
Bank's option to renew such lease for two terms of five years each. Due to the
sale of its 246 East Commerce facility and the execution of the One Alamo Center
lease, Groos Bank was successful in reducing its occupancy by 28,900 square
feet, thereby effectively reducing its occupancy expenses by approximately
$256,000 in 1995 compared to 1994.
Groos Bank has three full service banking facilities, 26 drive-through
lanes and three ATMs; Kelly Bank has two full service banking facilities, 16
drive-through lanes and ten ATMs all located in San Antonio.
LEGAL PROCEEDINGS
Benson and the Banks periodically are parties to or otherwise involved in
legal proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of real property loans,
and other issues incident to the Banks' business. Management does not believe
there is any proceeding, threatened or pending against Benson or the Banks
which, if determined adversely, would have a materially adverse effect on the
financial position or results of operations of Benson.
DESCRIPTION OF SECURITIES
Benson's authorized capital stock consists of (1) 20,000,000 shares of
Benson Common Stock, and (2) 7,000,000 shares of preferred stock, consisting of
(i) 200,000 shares of Preferred Stock, par value $100, of which 50,000 shares
were designated as TCB Exchangeable Preferred Stock and 106,947 shares were
designated as Benson Series C Preferred Stock, (ii) 1,000,000 shares of Series A
Preferred Stock, $10 par value per share, (iii) 18,275 shares of Convertible
Participating Preferred Stock, $2.50 par value per share, and (iv) 5,781,725
shares of preferred stock, par value $.10 per share (the "Preferred Stock"). At
the Record Date, there were outstanding 3,724,500 shares of Benson Common Stock
and 86,947 shares of Benson Series C Preferred Stock. There were no outstanding
shares of Series A Preferred Stock, TCB Exchangeable Preferred Stock or
Convertible Participating Preferred Stock. The discussion below is not intended
to be a complete description of the securities of Benson and is qualified in its
entirety by reference to the relevant provisions of the laws and the documents
discussed below.
Benson Common Stock. Holders of shares of Benson Common Stock are entitled
to one vote for each share owned of record on all matters to be voted upon by
the shareholders. Holders of Benson Common Stock are entitled to share ratably
in dividends and, in the event of a liquidation, dissolution or winding up of
Benson, to share pro rata, after payment of all debts and other liabilities, all
of the remaining assets of Benson available for distribution to its
shareholders. The holders of shares of Benson Common Stock have no preemptive or
other subscription rights and there are no conversion rights or redemption or
sinking fund provisions applicable to such shares.
Benson Series C Preferred Stock. The affirmative vote of two thirds of the
Benson Series C Preferred Stock is required for any dissolution or any
distributions in complete or partial liquidation,
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<PAGE> 54
the sale or other disposition of all or substantially all of the assets of
Benson and a merger or consolidation with any other corporation, unless each
holder of shares of Benson Series C Preferred Stock immediately preceding such
merger or consolidation receives or continues to hold in the surviving
corporation the same number of shares, with substantially the same rights and
preferences, as before the transaction. In addition, the Benson Series C
Preferred Stock ranks senior to all classes of Benson Common Stock and to any
other series of preferred stock with respect to the payment of dividends and the
distribution of assets upon liquidation. Holders of shares of Benson Series C
Preferred Stock are entitled to receive semi-annual dividends at the rate of
7.5% of the par value per share. Each outstanding share of Benson Series C
Preferred Stock shall be mandatorily redeemed on the tenth anniversary (October
3, 2004) of its date of issuance, for an amount, in cash, equal to the par value
of such share; the shares are redeemable by Benson at any time at a redemption
price payable in cash equal to the par value of each outstanding share, plus
accrued and unpaid dividends. The shares of Benson Series C Preferred Stock are
exchangeable at the option of Benson for Benson Series C Subordinated Notes at
an exchange rate of $100.00 principal amount of Benson Series C Subordinated
Notes for each share of Benson Series C Preferred Stock. Benson has granted to
the holders of shares of Benson Series C Preferred Stock certain "demand" and
"piggyback" registration rights with respect to such securities converted from
or exchanged with the Benson Series C Preferred. Benson is required under the
terms of the Merger Agreement to terminate these registration rights.
DIVIDENDS AND DIVIDEND POLICY
Holders of Benson Common Stock are entitled to receive dividends when, as
and if declared by the Benson Board out of funds legally available therefor. On
June 8, 1995, the Benson Board declared special dividends of $0.10 and $0.03 on
Benson Common Stock and Benson Participating Preferred Stock, respectively,
payable to shareholders of record as of June 22, 1995. The dividends were paid
to shareholders on July 6, 1995.
Dividends or other distributions (other than in shares of Benson Common
Stock or other securities ranking junior to the Benson Series C Preferred Stock
as to the payment of dividends) may be paid on Benson Common Stock only if full
dividends have been declared and paid on the shares of Benson Series C Preferred
Stock. See "Regulation and Supervision -- Regulation of the Banks" and Notes J
and M of the Notes to Consolidated Financial Statements of Benson.
Benson's principal source of funds to pay dividends on the Benson Common
Stock is the cash dividends Benson receives from the Banks. The payment of
dividends by the Banks to Benson is subject to certain restrictions imposed by
federal banking laws, regulations and authorities. In addition, the Merger
Agreement restricts Benson's ability to pay dividends except for semi-annual
dividends on Benson Series C Preferred Stock and except for certain cash
dividends in the event the Effective Time of the Merger occurs after the record
date for Norwest's regular third quarter dividend. The amount of dividends
available for declaration at December 31, 1995, by the Banks, without prior
regulatory approval, was approximately $8,484,000.
HOLDERS
At April 18, 1996, Benson Common Stock and Benson Series C Preferred Stock
were owned of record by approximately 186 and 1 shareholder(s), respectively. At
April 18, 1996, Benson Common Stock was owned by approximately 736 beneficial
shareholders.
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<PAGE> 55
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth the shares of Benson Common Stock beneficially
owned by each director, each named executive officer of Benson, and by all
directors and executive officers as a group, as of March 4, 1996.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
OWNERSHIP COMMON
NAME AND ADDRESS(1) (2)(3)(4)(5) STOCK
- ------------------- ----------------- ----------
<S> <C> <C>
DIRECTORS:
Charles T. Barrett, Jr......................................... 1,000 *
Thomas M. Benson, Jr.(6)....................................... 1,200,505 31.22%
John H. Fetterman, USN (Ret.).................................. 100 *
EXECUTIVE OFFICERS:
Bill W. McCandless............................................. 27,089 *
Greg A. Oveland................................................ 35,796 *
R. Tom Roddy................................................... 44,537 1.16%
Shirley R. Yoakum.............................................. 4,370 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (7
individuals)................................................. 1,313,397 34.16%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address of each of the beneficial owners is
Benson's principal executive offices.
(2) Unless otherwise indicated, Benson believes that all persons named in the
table have sole investment and voting power over the shares of Benson Common
Stock owned.
(3) Includes shares of Benson Common Stock issuable upon exercise of options
granted under the 1992 Nonqualified Stock Option Plan and the 1994 Stock
Option Plan, respectively, which are currently exercisable as follows:
Thomas M. Benson, Jr., 22,819 and 10,000 shares; Bill W. McCandless, 8,557
and 2,250 shares; Greg A. Oveland, 11,409 and 2,250 shares; R. Tom Roddy,
14,262 and 4,000 shares; Shirley R. Yoakum, 0 and 160 shares; and all
directors and executive officers as a group, 57,047 and 18,660 shares. The
options granted in 1993 became fully exercisable following Benson's IPO. The
options granted in 1995 are exercisable as follows: 20% at the grant date,
and 20% thereafter at each anniversary date over the next four years. The
1995 options become fully exercisable upon change of control of Benson.
(4) Includes shares of Benson Common Stock allocated to respective accounts as
participants in Benson's ESOP as of December 31, 1995, as to which the named
person has voting power but not dispositive power, as follows: Thomas M.
Benson, Jr., 887 shares; Bill W. McCandless, 4,189 shares; Greg A. Oveland,
5,031 shares; R. Tom Roddy, 4,200 shares; Shirley R. Yoakum, 1,999 shares.
(5) Includes shares of Benson Common Stock held in the Banks' 401(k) Profit
Sharing Plans for the benefit of the named person, as to which the named
person has sole dispositive power, but no voting power, as follows: Thomas
M. Benson, Jr. 10 shares; Bill W. McCandless, 2,093 shares; Greg A. Oveland,
2,447 shares; R. Tom Roddy, 5,622 shares; Shirley R. Yoakum, 2,211 shares.
(6) Includes 94,126 shares of Benson Common Stock held by Benson Motors and
61,324 shares held by Bensco, corporations controlled by Thomas M. Benson,
Jr. Also includes 1,153 shares held by Mr. Benson's wife, with respect to
which Mr. Benson disclaims voting and dispositive power.
49
<PAGE> 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations.
Summary. The major components that affected Benson's 1995 net earnings as
compared with its 1994 net earnings were as follows:
- Average interest-earning assets increased $12,532,000 or 3.24%, to
$399,703,000, with an increase in average yield to 8.12% from 7.74%.
- Nonperforming assets which includes non-accrual loans, loans past due 90
days or more, and other real estate owned, decreased $3,084,000 to
$4,844,000, representing a decrease of 38.90%.
- Average loans increased $7,443,000 or 2.77% to $276,629,000, and the
allowance for loan losses decreased 13.51% to $3,177,000 due to improved
quality of the loan portfolio. The provision for loan losses was
$1,130,000 in 1995 compared to $735,000 in 1994.
- On January 31, 1995, Benson realized an extraordinary credit of
$1,155,000, net of tax, as a result of the redemption of its $5,000,000
Exchangeable Redeemable Preferred Stock at a cost of $3,250,000.
- Net interest income increased $1,261,000 or 6.38% to $21,042,000.
- Other income, excluding securities transactions, increased $478,000 or
6.76% to $7,559,000. Other income represents service charges on deposits,
trust fees and other operating income.
- Other expenses decreased $768,000 or 3.74% to $19,751,000. Net operations
of other real estate owned, included in other expenses, decreased
significantly from $749,000 to $514,000, or 31.36%. Other components of
other expenses include salaries, wages and benefits, occupancy and
equipment expenses, and other operating expenses.
- Income tax expense increased to $3,121,572 in 1995 from $1,103,575 in
1994, as a result of Benson's effective tax rate increase to 32.7% from
16.2% following utilization of all its tax net operating loss
carryforwards.
Net Earnings. Net earnings for 1995 were $6,413,064 compared with net
earnings for 1994 of $5,710,035 representing an increase of $703,029 or 12.31%.
The increase was primarily due to an increase of $1,261,660 or 6.38% in net
interest income from 1994 to 1995, an increase of $549,191 or 35.94% in other
income, a decrease of $305,697 or 12.51% in occupancy and equipment expenses, a
decrease of $234,724 or 31.36% in net operations of other real estate and a
decrease of $540,150 or 6.51% in other operating expenses, all of which was
partially offset by an increase of $395,000 or 53.74% in the provision for loan
losses, a decrease in investment securities gains of $115,463 or 64.15%, a loss
of $199,605 on the sale of Groos Bank's downtown banking facility and an
increase in federal income tax of $2,017,997 or 182.86%. Additionally, in 1995,
Benson realized an extraordinary credit, net of tax, of $1,155,000 from the
redemption of its $5,000,000 Exchangeable Redeemable Preferred Stock at a cost
of $3,250,000.
Net earnings for 1994 were $5,710,035 compared with net earnings of
$6,528,170 for 1993, a decrease of $818,135 or 12.53%. The decline in net
earnings for 1994 compared with 1993 resulted principally from an increase in
the provision for loan losses of $455,000, a decrease in investment security
gains of $434,799, the agreement by Benson in 1994 to pay $365,909 in settlement
of a tax dispute with the Internal Revenue Service (the "IRS"), and the one time
gain recognized in 1993 of $957,696 from the settlement of certain litigation
stemming from construction defects at one of Kelly Bank's facilities, all of
which was partially offset by a decrease of $1,009,357 in the costs of other
real estate owned ("OREO"), an increase in net interest income of $735,073 and
an extraordinary credit of $676,330, net of taxes of $350,000. All legal fees
related to the 1993 litigation referred to above were incurred in years prior to
1993. The extraordinary credit was the result of the forgiveness of $1,026,330
of unpaid interest upon the conversion of a $5,000,000 note payable with
50
<PAGE> 57
an unaffiliated bank into Exchangeable Redeemable Preferred Stock. The
aforementioned tax settlement related to certain federal income tax returns
separately filed in 1985, 1986 and 1987 prior to the time the Banks, and certain
other banks which were subsequently merged into the Banks, were included in
Benson's consolidated federal income tax returns. The IRS disallowed portions of
amortization charges relating to certain intangible assets referred to as "core
deposits". See "-- Income Taxes".
Net earnings for 1995, 1994, and 1993 include federal income tax expense
(benefits) of approximately $3,121,572, $1,103,575 and ($498,400) respectively,
reported in accordance with SFAS No. 109. Income tax expense for 1995 and 1994
includes the federal tax expense of $595,000 and $350,000 on each respective
years' extraordinary credit. As of December 31, 1995, for federal income tax
purposes, Benson had no net operating loss or general business credit
carryforwards remaining. See "-- Income Taxes" and Note I of the Notes to
Benson's Consolidated Financial Statements. See below for a discussion of the
foregoing factors insofar as they affected earnings for the years ended 1995,
1994, and 1993.
Net Interest Income. Net interest income, which constitutes one of the
principal sources of income for the Banks, represents the difference between
interest income on interest-earning assets and interest expense on
interest-bearing liabilities. The net yield on total interest-earning assets,
also referred to as interest rate margin or net interest margin, represents net
interest income divided by average interest-earning assets. The Banks' principal
interest-earning assets are loans, taxable investment securities and federal
funds sold.
Net interest income was $21,042,339 for 1995, an increase of $1,261,660 or
6.38% compared with 1994, resulting principally from an increase in average
interest-earning assets from $387,171,000 to $399,703,000, a substantial portion
of which was comprised of loans (typically the highest yielding asset). The
increase in net interest income was also attributable to a decrease in average
interest-bearing liabilities of $19,224,000 or 5.71% from $336,441,000 to
$317,217,000. In addition, the yield on average interest-earning assets
increased by 38 basis points from 7.74% to 8.12% while the cost of average
interest-bearing liabilities also increased by 57 basis points from 3.03% to
3.60% from 1994 to 1995. In total, Benson experienced an increase in net
interest margin of 15 basis points from 5.11% in 1994 to 5.26% in 1995.
Net interest income was $19,780,679 for 1994, an increase of $735,073 or
3.86% compared with 1993, resulting principally from an increase in average
interest-earning assets from $367,346,000 to $387,171,000, a substantial portion
of which was comprised of loans (typically the highest yielding asset). The
increase in net interest income was also attributable to a decrease in average
interest-bearing liabilities of $753,000 or 0.22% from $337,194,000 in 1993 to
$336,441,000 in 1994. In addition, Benson experienced a decrease in the net
interest margin of 7 basis points from 5.18% to 5.11% and a decrease in the net
interest spread of 22 basis points from 4.93% to 4.71% from 1993 to 1994. The
foregoing decreases resulted principally from the fact that the yield on
interest-earning assets declined more than the cost of interest-bearing
liabilities. The yield on interest-earning assets decreased 26 basis points to
7.74% from 8.00%, while the cost of interest-bearing liabilities decreased 4
basis points to 3.03% from 3.07% in 1994 compared to 1993.
Benson's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
"volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds, referred to as a "rate change." The table on the following page
sets forth for each category of interest-earning assets and interest-bearing
liabilities, the average amounts outstanding, the interest earned or paid on
such amounts and the average rate earned or paid for the years ended 1995, 1994
and 1993. The table also sets forth the average rate earned on all
interest-earning assets, the average rate paid on all interest-bearing
liabilities, and the net yield on average interest-earning assets for the same
periods.
51
<PAGE> 58
AVERAGE BALANCES AND INTEREST RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1)... $276,629 $25,328 9.16% $269,186 $23,882 8.87% $243,455 $22,957 9.43%
Investment securities(2):
Taxable.................. -- -- -- -- -- -- 74,064 4,448 6.01
Taxable -- AFS(3)........ 39,054 2,212 5.66 47,262 2,542 5.38 68 -- --
Taxable -- HTM........... 36,304 2,100 5.78 28,234 1,528 5.41 218 -- --
Mortgage-backed
securities -- HTM...... 22,447 1,353 6.03 23,183 1,247 5.38 19,842 1,095 5.52
Non-taxable -- HTM....... 343 20 5.83 145 10 6.90 180 13 7.22
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total investment
securities............. 98,148 5,685 5.79 98,824 5,327 5.39 94,372 5,556 5.89
Federal funds sold........... 24,443 1,424 5.83 18,666 757 4.06 29,067 858 2.95
Interest-earning deposits
with banks................. 483 21 4.35 495 16 3.23 452 16 3.54
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total interest-earning
assets................. 399,703 32,458 8.12 387,171 29,982 7.74 367,346 29,387 8.00
Noninterest-earning assets:
Cash and due from banks.... 27,487 33,532 37,145
Other assets............... 38,192 44,710 46,638
-------- -------- --------
Total noninterest-earning
assets..................... 65,679 78,242 83,783
-------- -------- --------
Total assets............. $465,382 $465,413 $451,129
======== ======== ========
Interest-bearing liabilities:
Deposits:
Interest-bearing demand
and NOW deposits....... $100,876 $ 2,261 2.24% $106,766 $ 2,322 2.17% $101,012 $ 2,231 2.21%
Savings deposits......... 49,532 1,335 2.70 57,635 1,454 2.52 55,742 1,551 2.78
Money market deposits.... 45,162 1,594 3.53 50,492 1,402 2.78 48,153 1,239 2.57
Time deposits............ 119,245 5,959 5.00 101,517 3,562 3.51 106,106 3,611 3.40
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total interest-bearing
deposits............... 314,815 11,149 3.51 316,410 8,740 2.76 311,013 8,632 2.78
Borrowings................... 2,402 267 11.12 20,031 1,461 7.29 26,181 1,710 6.53
-------- ------- ----- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities............ 317,217 11,416 3.60 336,441 10,201 3.03 337,194 10,342 3.07
Exchangeable redeemable
preferred stock............ 411 1,233 --
Noninterest-bearing
liabilities:
Noninterest-bearing
deposits................. 95,179 97,131 94,900
Other liabilities.......... 3,951 4,446 4,073
-------- -------- --------
Total noninterest-bearing
liabilities................ 99,130 101,577 98,973
Stockholders' equity......... 48,624 26,162 14,962
-------- -------- --------
Total liabilities and
stockholders' equity... $465,382 $465,413 $451,129
======== ======== ========
Net interest income.......... $21,042 $19,781 $19,045
======= ======= =======
Net interest spread(4)....... 4.52% 4.71% 4.93%
===== ==== ====
Net interest margin(5)....... 5.26% 5.11% 5.18%
===== ==== ====
</TABLE>
- ---------------
(1) Non-accrual loans are included in the average balances used in calculating
this table.
(2) Effective December 31, 1993, Benson elected early adoption of SFAS No. 115.
See "-- Accounting Matters." This statement requires classification of
investment securities into available for sale (AFS) and held to maturity
(HTM).
(3) The yield on the AFS investment securities portfolio is based on the average
market value of the securities.
(4) The net interest spread is the difference between the average rate on total
interest-earning assets and interest-bearing liabilities.
(5) The net interest margin is net interest income divided by average
interest-earning assets.
52
<PAGE> 59
The following table reflects the changes in net interest income stemming
from changes in interest rates and from asset and liability volume, including
mix. The change in interest attributable to both rate and volume has been
allocated to the changes in the rate and the volume on a pro rata basis.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
COMPARED WITH COMPARED WITH
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------- -----------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------- -----------------------------
VOLUME(1) RATE CHANGE VOLUME(1) RATE CHANGE
--------- ------- ------- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable, net(1)..... $ 670 $ 776 $ 1,446 $ 2,334 $(1,409) $ 925
Investment securities:(2)
Taxable -- AFS............ (460) 130 (330) 43 (279) (236)
Taxable -- HTM............ 461 111 572 25 (167) (142)
Mortgage-backed
securities -- HTM....... (40) 146 106 180 (28) 152
Non-taxable -- HTM........ 12 (2) 10 (2) (1) (3)
Federal funds sold........... 277 390 667 (363) 262 (101)
Interest-earning deposits.... -- 5 5 1 (1) --
------- ------- ------- ------ ------- -----
$ 920 $ 1,556 $ 2,476 $ 2,218 $(1,623) $ 595
======= ======= ======= ====== ======= =====
Interest paid on:
Interest-bearing demand and
NOW deposits.............. $ (131) $ 70 $ (61) $ 126 $ (35) $ 91
Savings deposits............. (214) 95 (119) 51 (148) (97)
Money market accounts........ (159) 351 192 62 101 163
Time deposits................ 699 1,698 2,397 (159) 110 (49)
Borrowings................... (1,708) 514 (1,194) (433) 184 (249)
------- ------- ------- ------ ------- -----
(1,513) 2,728 1,215 (353) 212 (141)
------- ------- ------- ------ ------- -----
$ 2,433 $(1,172) $ 1,261 $ 2,571 $(1,835) $ 736
======= ======= ======= ====== ======= =====
</TABLE>
- ---------------
(1) Non-accrual loans are included in the average volumes used in calculating
this table.
(2) SFAS No. 115 requires classification of investment securities into available
for sale (AFS) and held to maturity (HTM).
Provision for Loan Losses. Provisions for loan losses are charged to
earnings to bring the total allowance for loan losses to a level deemed
appropriate by management based on such factors as historical experience, the
volume and type of lending conducted by the Banks, the amount of nonperforming
assets, regulatory policies, generally accepted accounting principles, general
economic conditions, and other factors related to the collectability of loans in
the Banks' portfolios. On January 1, 1995, Benson adopted the provisions of
Statement of Financial Accounting Standards No. 114 (SFAS 114), "Accounting by
Creditors for Impairment of a Loan," as amended by Statement of Financial
Accounting Standards, No. 118 (SFAS 118), "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures." These Statements
require impairment on nonperforming loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate,
its observable market price, or the fair value of the collateral if the loan is
collateral dependent. The provision for loan losses for the year ended December
31, 1995 was determined in accordance with the requirements of the Statements,
the
53
<PAGE> 60
adoption of which did not have a significant impact on Benson's financial
position or its results of operations for the year then ended.
The provision for loan losses for the year ended December 31, 1995 was
$1,130,000 ($715,000 and $415,000 of which was attributable to Groos Bank and
Kelly Bank, respectively), an increase of $395,000 compared with the provision
for loan losses for 1994. The provision for loan losses of $735,000 in 1994
represented an increase of $455,000 compared with the provision for loan losses
of $280,000 for 1993.
Since the improvement in the economy of south central Texas is generally
believed to have begun in 1991, recoveries with respect to nonperforming assets,
especially in 1993, exceeded management's initial expectations. As a result of
management's evaluation of existing economic conditions and discussions with
representatives of the OCC and of its independent auditors, Groos Bank decreased
its loan loss reserve by $1,000,000, thereby reducing that Bank's provision to
$0 for 1993. In 1994, the Banks reestablished their accruals to the loan loss
provision, but at levels reduced from periods prior to the reversal recorded in
1993.
Noninterest Income. Noninterest income for 1995 was $7,623,800, an
increase of $362,863 or 5.00% compared with noninterest income of $7,260,937 for
1994. The increase is partially due to the additional settlement of $120,000
recovered in arbitration in connection with the 1993 settlement of a lawsuit
stemming from construction defects at one of Kelly Bank's banking facilities.
Additionally, other income for 1995 was $693,000, an increase of $311,000 or
81.41% compared to $382,000 in 1994. The increase in other income is mainly due
to the recoveries of $112,000 on investment securities written off in 1991 and
of $49,000 of loan interest written off in prior years.
Noninterest income for 1994 was $7,260,937, a decrease of $1,234,162 or
14.53% compared with noninterest income of $8,495,099 for 1993. This decrease is
primarily the result of a decline in investment securities gains of $434,799,
and the one time gain in 1993 of $957,676 resulting from the settlement of
litigation described above.
The following table sets forth the various categories of noninterest income
for the years ended 1995, 1994 and 1993.
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 % CHANGE 1994 % CHANGE 1993
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Service charges on deposits............. $4,404 (0.41)% $4,422 4.32% $4,239
Other service charges................... 1,156 5.96 1,091 8.67 1,004
Trust fees.............................. 1,078 (4.69) 1,131 2.91 1,099
Legal settlement........................ 120 100.00 -- (100.00) 958
Gain on sale of securities.............. 65 (63.89) 180 (70.73) 615
Recovery on purchased loans(1).......... 108 96.36 55 (70.27) 185
Other income............................ 693 81.41 382 (3.29) 395
------ ------ ------
Total noninterest income...... $7,624 5.00% $7,261 (14.53 )% $8,495
====== ====== ======
</TABLE>
- ---------------
(1) Represents proceeds realized in excess of the purchase price of loans
acquired from a failed financial institution in 1988.
Noninterest Expense. Noninterest expense was $19,751,503 for 1995, a
decrease of $767,833 or 3.74% compared with noninterest expense of $20,519,336
for 1994. The decrease resulted primarily from a significant decline in FDIC and
OCC assessments of $472,000, a decrease in occupancy expense of $404,000 and a
decrease in net operations of other real estate of $235,000,
54
<PAGE> 61
all of which was partially offset by the loss on the sale of the Groos Bank
downtown facility of $200,000 and by a net increase of $142,000 in all other
noninterest expenses.
Noninterest expense was $20,519,336 for 1994, a decrease of $711,599 or
3.35% compared with noninterest expense of $21,230,935 for 1993. This decrease
resulted principally from a significant decline in the costs of OREO of
$1,009,357, which was partially offset by a net increase in all other
noninterest expenses of $297,758.
Personnel expense, the largest category of noninterest expense, increased
1.26% to $9,137,505 for 1995 compared with $9,024,372 for 1994, which
represented an increase of $234,766 or 2.67% compared with personnel expense of
$8,789,606 for 1993.
Occupancy expense was $901,000 for 1995, a decrease of $404,000 or 30.96%
compared to $1,305,000 for 1994, which represented a decrease of $300,000 or
18.69% compared with occupancy expense of $1,605,000 for 1993. The decrease in
occupancy expense in 1995 is partially attributable to the efficiencies realized
by Groos Bank upon the sale of its downtown banking facility of approximately
33,000 square feet and its relocation to the leased downtown facility of
approximately 4,100 square feet of retail space.
Equipment expense was $1,238,000 for 1995, an increase of $98,000 or 8.60%
compared with equipment expense of $1,140,000 for 1994, which represented an
increase of $120,000 or 11.76% compared with equipment expense of $1,020,000 for
1993. The increases in equipment expense since 1993 were primarily attributable
to equipment acquisitions and upgrades.
Data processing expense was $1,390,000 for 1995, a decrease of $118,000 or
7.82% compared with data processing expense of $1,508,000 for 1994, which
represented a decrease of $56,000 or 3.58% compared with data processing expense
of $1,564,000 for 1993. Groos Bank and Kelly Bank outsource all of their data
processing to Electronic Data Systems ("EDS"). The EDS contracts provide a fixed
price schedule for specified services and allow the Banks to request additional
or enhanced service as needed. The Banks renewed their contracts with EDS in
1994 on more favorable terms than the previous contracts. Increases in data
processing expense may result from enhancements in the types of data processing
services that the Banks may require from time to time. The new contracts expire
in September, 2000.
FDIC and the OCC's assessments were $597,000 in 1995, a decrease of
$472,000 or 44.15% compared to $1,069,000 for 1994, which represented a decrease
of $77,000 or 6.72% compared with $1,146,000 for 1993. The OCC's assessments are
based on asset size and have been increasing yearly with asset growth. The
significant decrease in assessments in 1995 is due to a refund, in September,
1995, of FDIC premiums for the June through September period. The overpayment
refunds to the Banks were based on the newly reduced FDIC rates for
well-capitalized, well-managed banks. Beginning with the January 1, 1996
assessment period, the Banks, based on their A-1 rating, will be required to pay
only $1,000 per semiannual period as mandated by statute. In 1994, the FDIC
assessments, which were based on deposit size and risk classification, decreased
due to the improved risk classification of Groos Bank.
Net OREO expense was $514,000 for 1995, a decrease of $235,000 or 31.36%
compared with OREO expense of $749,000 for 1994, which represented a decrease of
$1,009,000 or 57.45% compared with OREO expense of $1,758,000 for 1993.
Reductions in OREO expense since 1993 have resulted from Benson's successful
efforts to dispose of other real estate owned.
Noninterest expense has decreased steadily since 1993 as a result of
management's continuing consolidation efforts. Additionally, in each of the past
three fiscal years, the ratio of total noninterest expense to average assets has
shown a progressive decrease to 4.24%, 4.41% and 4.71% in 1995, 1994 and 1993,
respectively.
55
<PAGE> 62
The following table sets forth the various categories of noninterest
expense for the years ended 1995, 1994, and 1993.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 % CHANGE 1994 % CHANGE 1993
------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Personnel expense....................... $ 9,138 1.26% $ 9,024 2.66% $ 8,790
Occupancy expense....................... 901 (30.96) 1,305 (18.69) 1,605
Equipment expense....................... 1,238 8.60 1,140 11.76 1,020
Credit card processing.................. 288 (11.93) 327 7.21 305
Data processing......................... 1,390 (7.82) 1,508 (3.58) 1,564
FDIC and OCC assessments................ 597 (44.15) 1,069 (6.72) 1,146
Insurance............................... 182 (17.27) 220 (7.56) 238
Legal and professional fees............. 1,210 0.58 1,203 2.21 1,177
Other real estate expenses, net......... 514 (31.36) 749 (57.39) 1,758
Office expenses......................... 1,461 5.03 1,391 (4.53) 1,457
Other expenses.......................... 2,632 1.90 2,583 18.98 2,171
Loss on sale of building................ 200 100.00 -- -- --
------- ------- ------- ------- -------
Total noninterest expense..... $19,751 (3.74)% $20,519 (3.35)% $21,231
======= ======= =======
</TABLE>
Income Taxes. Benson files a consolidated federal income tax return
(excluding BLIC) on a calendar year basis. Consolidated returns have the effect
of eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur.
In 1995, for federal income tax purposes, Benson fully utilized its
remaining net operating loss and general business tax credit carryforwards. See
Note I of the Notes to Consolidated Financial Statements of Benson.
In 1994, Benson and the IRS agreed to a settlement of all outstanding
issues with respect to an examination of Benson's federal tax returns for the
years 1985 through 1989. Benson recorded the settlement expense of $365,909 in
the first quarter of 1994.
Interest-Rate Sensitivity Management. Net interest income, which
constitutes one of the principal sources of income for the Banks, represents the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. The difference between Benson's
interest-rate sensitive assets and interest-rate sensitive liabilities for a
specified time-frame is referred to as "gap." Interest-rate sensitivity reflects
the potential effect on net interest income of a movement in interest rates. A
company is considered to be asset sensitive, or having a positive gap, when the
amount of its interest-earning assets maturing or repricing within a given
period exceeds the amount of its interest-bearing liabilities also maturing or
repricing within that time period. Conversely, a company is considered to be
liability sensitive, or having a negative gap, when the amount of its
interest-bearing liabilities maturing or repricing within a given period exceeds
the amount of its interest-earning assets also maturing or repricing within that
time period. During a period of rising interest rates, a positive gap would tend
to increase net interest income, while a negative gap would tend to affect
adversely net interest income. During a period of falling interest rates, a
positive gap would tend to affect adversely net interest income, while a
negative gap would tend to increase net interest income.
Management seeks to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. Each Bank maintains an
Asset and Liability Committee (the
56
<PAGE> 63
"ALCO Committees") which reviews, on a monthly basis, the maturity and repricing
of its assets and liabilities. Groos Bank's and Kelly Bank's ALCO Committees
have adopted the long-range objective of achieving and maintaining a cumulative
ratio of interest-earning assets to interest-bearing liabilities of 0.75 to 1.25
and 0.60 to 1.30, respectively. On a consolidated basis, Benson's one year
cumulative ratio of interest-earning assets to interest-bearing liabilities was
1.19:1 at December 31, 1995. Benson became asset sensitive during the last
quarter of 1994 and remained asset sensitive throughout 1995, principally as a
result of the retirement of all outstanding long-term debt subsequent to the
consummation of its IPO.
The following table sets forth the interest-rate sensitive assets and
liabilities of Benson at December 31, 1995, which are expected to mature or are
subject to repricing in each of the time periods indicated.
INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
TERM TO REPRICING AT DECEMBER 31, 1995
--------------------------------------------------------------------------------
181 DAYS MORE
90 DAYS 91-180 TO 1 1-3 3-5 THAN 5
OR LESS DAYS YEAR YEARS YEARS YEARS TOTAL
-------- ------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits........ $ 392 $ 100 $ -- $ -- $ -- $ -- $ 492
Federal funds sold............... 44,650 -- -- -- -- -- 44,650
Investment securities............ 16,378 4,639 16,671 32,805 14,677 12,134 97,304
Loans............................ 58,605 38,465 31,864 99,671 37,820 8,070 274,495
-------- ------- ------- -------- -------- ------- --------
Total interest-earning
assets................... $120,025 $43,204 $ 48,535 $132,476 $ 52,497 $20,204 $416,941
======== ======= ======= ======== ======== ======= ========
Interest-bearing liabilities:
Interest-bearing demand and NOW
accounts (1)................... $ -- $ -- $ 15,064 $ 25,107 $ 40,170 $20,086 $100,427
Savings deposits(1).............. -- -- 7,231 12,052 19,283 9,641 48,207
Money market deposits............ 45,203 -- -- -- -- -- 45,203
Time deposits.................... 52,311 31,281 25,393 14,532 2,662 40 126,219
Borrowed funds................... 1,004 -- -- -- -- -- 1,004
-------- ------- ------- -------- -------- ------- --------
Total interest-bearing
liabilities.............. $ 98,518 $31,281 $ 47,688 $ 51,691 $ 62,115 $29,767 $321,060
======== ======= ======= ======== ======== ======= ========
Interest sensitivity gap per
period........................... $ 21,507 $11,923 $ 847 $ 80,785 $ (9,618) $(9,563) $ 95,881
======== ======= ======= ======== ======== ======= ========
Cumulative gap..................... $ 21,507 $33,430 $ 34,277 $115,062 $105,444 $95,881 $ 95,881
======== ======= ======= ======== ======== ======= ========
Cumulative gap to total assets..... 4.52% 7.03% 7.21% 24.20% 22.18% 20.16% 20.16%
======== ======= ======= ======== ======== ======= ========
Cumulative ratio of
interest-earning assets to
interest-bearing liabilities..... 1.22:1 1.26:1 1.19:1 1.50:1 1.36:1 1.30:1 1.30:1
</TABLE>
- ---------------
(1) The repricing analysis set forth in the table above with respect to
interest-bearing demand and NOW accounts and savings deposits assumes, based
upon management's historical experience, that such interest-bearing
liabilities are generally insensitive to pricing changes.
57
<PAGE> 64
Analysis of Financial Condition.
Loans and Asset Quality. Loans receivable as of December 31, 1995 were
$274,495,135, representing a decrease of $13,698,745 or 4.75% from $288,193,880
at the end of 1994. The decrease is mainly attributable to a decrease of
$9,895,752 in consumer loans (of which $7,265,068 represents a decrease in
indirect dealer paper loans discussed further below), and a decrease of
$4,030,315 in commercial loans. Management believes the increase in loans from
$261,156,042 at the end of 1993 to $288,193,880 as of December 31, 1994, is
primarily attributable to increased loan demand resulting from the improving
economy in the metropolitan San Antonio area and increased business development
activities. The volume of Benson's loans declined in the three year period ended
December 31, 1991, principally as a result of more stringent credit criteria
adopted by the Banks during such period in response to the economic recession
which affected south central Texas.
Installment loans are attractive to the Banks because they typically have a
shorter term and typically carry interest rates higher than those charged on
other types of loans with similar maturities. A substantial portion of the
Banks' loan portfolio is collateralized by liens on automobiles and other
assets. As of December 31, 1995 and 1994, approximately $157,364,000 (57.33%)
and $167,259,000 (58.04%), respectively, of Benson's total loan portfolio was
comprised of consumer installment loans. As of such dates, consumer installment
loans included approximately $78,415,000 (49.83%) and $85,680,000 (51.23%),
respectively, in indirect dealer paper purchased from automobile dealerships. Of
the total indirect dealer paper held at those dates, $39,864,000, (50.84%) and
$48,557,000 (56.67%), respectively, was purchased from automobile dealerships
owned by Mr. Thomas M. Benson, Jr., the principal shareholder of Benson, and
approximately $38,551,000 (49.16%) and $37,123,000 (43.33%), respectively,
consisted of indirect dealer paper purchased from other sources.
Indirect dealer paper loans pose additional risks of collectibility when
compared to more traditional types of loans such as residential mortgage loans.
In many instances, the Banks are required to rely on the borrower's ability to
repay since the collateral may be of reduced value at the time of collection.
Historically, Benson has experienced a net charge-off rate on indirect dealer
paper loans, as a percent of average outstanding loans of this type, of 1.30%,
1.28%, and 1.16% for the years ended December 31, 1995, 1994, and 1993,
respectively.
The Banks' indirect dealer paper programs are administered by a staff
specially trained in evaluating and servicing this particular type of loan.
Additionally, these loans are monitored on a daily basis enabling collection
officers to identify overdue payments in a timely manner, on a dealer by dealer
basis. The Banks' ongoing experience with indirect dealer paper underwriting and
collection has resulted in delinquency rates of 3.18%, 3.11%, and 3.80% as of
December 31, 1995, 1994, and 1993, respectively.
The level of nonperforming loans is also relevant to the credit quality of
a loan portfolio. As of December 31, 1995, 1994 and 1993, nonperforming loans
amounted to approximately $1,766,000, $3,331,000 and $4,177,000 or 0.64%, 1.16%
and 1.60% of total loans and 0.37%, 0.72% and 0.90% of total assets,
respectively.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities or resident in the same geographic region, which
would cause them to be similarly affected by economic or other conditions.
Benson, on a routine basis, evaluates these concentrations for purposes of
policing its concentrations and to make necessary adjustments in its lending
practices that most clearly reflect current economic conditions, loan to deposit
ratios and industry trends. As a result of the Banks' market focus, the Banks
have significant concentrations of customers and assets in the metropolitan San
Antonio area and in the United States military.
58
<PAGE> 65
The following table sets forth the composition of Benson's loan portfolio
by type of loan on the dates indicated.
LOAN PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Aggregate Principal Amount
Type of Loan:
Commercial.................... $ 26,256 $ 30,286 $ 33,522 $ 29,192 $ 33,013
Commercial real estate........ 35,123 36,033 37,795 31,292 35,054
Mortgage...................... 27,455 27,058 27,158 29,596 30,477
Construction.................. 7,463 6,515 3,771 3,983 3,952
Installment(1)................ 157,364 167,259 138,158 138,018 137,763
Credit card................... 16,390 16,511 15,570 10,606 8,025
Other......................... 4,444 4,532 5,182 5,569 6,282
-------- -------- -------- -------- --------
Total...................... $274,495 $288,194 $261,156 $248,256 $254,566
======== ======== ======== ======== ========
Percentage of Loan Portfolio
Type of Loan:
Commercial.................... 9.56% 10.51% 12.84% 11.76% 12.97%
Commercial real estate........ 12.80 12.50 14.47 12.61 13.77
Mortgage...................... 10.00 9.39 10.40 11.92 11.97
Construction.................. 2.72 2.26 1.44 1.60 1.55
Installment................... 57.33 58.04 52.90 55.60 54.12
Credit card................... 5.97 5.73 5.96 4.27 3.15
Other......................... 1.62 1.57 1.99 2.24 2.47
-------- -------- -------- -------- --------
Total...................... 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Installment paper includes indirect dealer paper in the amounts of
$78,415,000, $85,680,000, $66,358,000, $57,657,000, and $51,091,000 at
December 31, 1995, 1994, 1993, 1992 and 1991, respectively.
59
<PAGE> 66
The following table sets forth the maturities of loans outstanding (based
upon contractual dates) as of December 31, 1995, and an analysis of
sensitivities of loans due to changes in interest rates.
MATURITIES AND RATE SENSITIVITY OF LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OVER 1 YEAR
THROUGH 5 YEARS OVER 5 YEARS
------------------- -----------------
ONE YEAR FIXED FLOATING FIXED FLOATING
OR LESS RATE RATE RATE RATE TOTAL
-------- -------- -------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial......................... $ 14,033 $ 4,212 $ 6,086 $ 597 $ 1,328 $ 26,256
Commercial real estate............. 10,289 13,739 8,350 606 2,139 35,123
Mortgage........................... 4,791 12,756 2,687 6,201 1,020 27,455
Construction....................... 3,248 394 3,259 -- 562 7,463
Installment........................ 50,234 106,388 314 417 11 157,364
Credit card........................ 16,390 -- -- -- -- 16,390
Other.............................. 4,444 -- -- -- -- 4,444
-------- -------- ------- ------ ------ --------
Total.................... $103,429 $137,489 $ 20,696 $7,821 $ 5,060 $274,495
======== ======== ======= ====== ====== ========
</TABLE>
Nonperforming Assets. Generally, interest on loans is accrued and credited
to income based upon the principal balance outstanding. It is management's
policy to discontinue the accrual of interest income when principal or interest
is past due 90 days or more and the loan is not adequately collateralized, or
when in the opinion of management, principal or interest is not likely to be
paid in accordance with the terms of the obligation. The Banks will generally
charge-off loans after 120 days of delinquency unless adequately collateralized
and in the process of collection. A loan is considered in the process of
collection if, based on a probable specific event, management believes that the
loan will be repaid or brought current. Loans will not be returned to accrual
status until future payments of principal and interest appear certain. Interest
accrued and unpaid at the time a loan is placed on non-accrual status is charged
against interest income. Subsequent payments received are applied to the
outstanding principal balance.
Real estate acquired by the Banks as a result of foreclosure or by deed in
lieu of foreclosure is classified as OREO. Such loans are reclassified to OREO
and recorded at the lower of cost or fair market value less estimated selling
costs, and the estimated loss, if any, is charged to the allowance for loan
losses at that time. Further allowances for losses are recorded as charges to
other expenses at the time management believes additional deterioration in value
has occurred.
The following table sets forth certain information with respect to the
Banks' impaired loans, accruing loans which are contractually past due 90 days
or more as to principal or interest, and OREO.
60
<PAGE> 67
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Impaired loans.......................... $1,536 $2,853 $ 3,187 $ 3,474 $ 6,650
Accruing loans contractually past due
90 days or more....................... 230 478 990 602 223
------ ------ ------- ------- -------
Total impaired loans.......... 1,766 3,331 4,177 4,076 6,873
OREO.................................... 3,078 4,597 5,855 11,027 16,143
------ ------ ------- ------- -------
Total nonperforming assets.... $4,844 $7,928 $10,032 $15,103 $23,016
====== ====== ======= ======= =======
Total nonperforming assets to total
assets................................ 1.02% 1.72% 2.17% 3.39% 5.38%
</TABLE>
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful, at
which time payments received are recorded as reductions of principal. Total cash
collections on impaired loans during 1995 was approximately $1,282,000, all of
which was credited to the principal balance outstanding on such loans. Interest
that would have been accrued on impaired loans during 1995 was approximately
$140,000. Interest income that would have been accrued on nonaccrual loans
during 1994 and 1993 was approximately $240,000 and $234,000, respectively.
Interest income recognized during 1995 on impaired loans was approximately
$160,000.
In the ordinary course of business, the Banks make loans to directors and
other related parties. Loans to related parties, including companies in which
they are principal owners, amounted to $5,817,000 at December 31, 1995, and
$8,150,000 at December 31, 1994. Loans originated to such borrowers in 1995 and
1994 were approximately $77,000 and $2,955,000, respectively. Repayments on
outstanding loans to such persons were approximately $2,410,000 and $4,498,000
in 1995 and 1994, respectively. During 1995 and 1994, Benson recovered
approximately $130,000 and $0, respectively, of related party loans charged off
in prior years and had no charge-offs on related party loans in either year.
Management regularly reviews and monitors the loan portfolio in order to
identify borrowers experiencing financial difficulties. Management believes that
as of December 31, 1995, all such loans had been identified and included in the
non-accrual or 90 days past due loan totals reflected in the above table.
Management continues to emphasize maintaining a low level of nonperforming
assets and returning nonperforming assets to an earning status.
The following table sets forth a summary of OREO as of December 31, 1995.
OTHER REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET BOOK
NUMBER OF CARRYING APPRAISED
DESCRIPTION PARCELS VALUE VALUE
- ------------------------------------------------------ --------- ---------- ----------
<S> <C> <C> <C>
1-4 family residential property....................... 1 $ 321,972 $ 375,000
Vacant land or unsold lots in subdivisions............ 10 2,755,649 3,250,000
--
---------- ----------
Totals...................................... 11 $3,077,621 $3,625,000
== ========== ==========
</TABLE>
Each property included in OREO is being marketed by the Banks. Based on
current real estate market conditions, management believes that the future
aggregate recoveries on disposals of OREO will exceed the net book carrying
amount of such OREO as of December 31, 1995.
61
<PAGE> 68
Reductions in OREO since 1991 have resulted principally from Benson's
successful efforts to dispose of such other real estate owned. During such
period, Benson established a special assets group with principal responsibility
for such disposal efforts. With the improvement in Benson's financial condition
and the significant decrease in the amount of OREO property, the special assets
group was disbanded in 1994. Currently, Benson markets its own OREO properties
either through the efforts of its full-time facilities manager, or through the
services of various local area realtors.
Allowance for Loan Losses. In originating loans, the Banks recognize that
credit losses will be experienced and the risk of loss will vary with, among
other things, general economic conditions, the type of loan being made, the
creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the quality of the collateral for such loan. Management
maintains an allowance for loan losses based upon, among other things,
historical experience, an evaluation of economic conditions, and regular review
of delinquencies and its evaluation of loan portfolio quality. In addition to
unallocated allowances, specific allowances are provided for individual loans
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realized value of the collateral for the loan. On January 1,
1995, Benson adopted the provisions of SFAS 114 and SFAS 118, and determined the
provision for loan losses for 1995 in accordance with the requirements of these
Statements. See "-- Provision for Loan Losses."
Management continues to actively monitor the Banks' asset quality and to
charge off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the assumptions used in making the initial
determinations. Based upon criteria consistently applied during the period 1991
to 1995, management has reduced the allowance for loan losses from $7,489,000 as
of December 31, 1991 to $3,177,157 as of December 31, 1995. The allowance for
loan losses as a percentage of nonperforming loans increased from 108.96% to
179.90% during the same period.
62
<PAGE> 69
The following table sets forth an analysis of the Banks' allowance for loan
losses for the periods indicated.
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Beginning balance of allowance for loan
losses.................................. $3,673 $4,310 $5,363 $7,489 $11,097
Loans charged-off:
Commercial.............................. 304 207 262 1,333 1,735
Commercial real estate.................. 11 183 486 900 1,359
Mortgage................................ 41 56 230 185 429
Construction............................ -- -- -- 11 518
Installment............................. 1,791 1,468 1,449 1,588 1,837
Credit card............................. 329 294 169 170 161
Other................................... -- -- -- 41 --
------ ------ ------ ------ -------
Total loans charged-off................... 2,476 2,208 2,596 4,228 6,039
Recoveries of loans previously
charged-off:
Commercial.............................. 254 265 513 306 499
Commercial real estate.................. 99 136 143 94 52
Mortgage................................ 30 45 72 43 215
Construction............................ 2 66 28 -- --
Installment............................. 415 285 470 730 527
Credit cards............................ 50 39 37 26 13
------ ------ ------ ------ -------
Total recoveries.......................... 850 836 1,263 1,199 1,306
------ ------ ------ ------ -------
Net loans charged-off..................... 1,626 1,372 1,333 3,029 4,733
Provision for loan losses................. 1,130 735 280 903 1,125
------ ------ ------ ------ -------
Balance at year-end....................... $3,177 $3,673 $4,310 $5,363 $ 7,489
====== ====== ====== ====== =======
Net charge-offs during year to average
loans................................... 0.59% 0.50% 0.54% 1.22% 1.78%
Allowance as a percentage of nonperforming
loans................................... 179.90% 110.27% 103.18% 131.58% 108.96%
</TABLE>
63
<PAGE> 70
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of an allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial......... 228 9.56% $ 488 10.51% $ 467 12.84% $ 732 11.76% $1,212 12.97%
Commercial real
estate........... 176 12.80 271 12.50 554 14.47 475 12.61 865 13.77
Mortgage........... 139 10.00 89 9.39 207 10.40 513 11.92 514 11.97
Construction....... 34 2.72 19 2.26 -- 1.44 64 1.60 153 1.55
Installment(1)..... 1,740 58.95 1,698 59.61 1,620 54.89 1,636 57.81 1,148 56.59
Credit card........ 358 5.97 168 5.73 183 5.96 126 4.30 67 3.15
Unallocated........ 502 -- 940 -- 1,279 -- 1,817 -- 3,530 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for
loan losses...... $3,177 100.00% $3,673 100.00% $4,310 100.00% $5,363 100.00% $7,489 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) For purposes of this table, "Other Loans" as categorized in the Loan
Portfolio Analysis table have been included in Installment loans in
computing the "Percent of Loans in Category to Total Loans" columns.
Investment Activities. Benson's investments of $97,304,262 as of December
31, 1995, consisted primarily of United States Treasury securities, federal
agency obligations, and mortgage-backed securities. The mortgage-backed
securities represent an interest in a pool of underlying mortgages, and are all
issued by United States government agencies. These securities may be more
sensitive to changes in interest rates, and income derived from such securities
may be adversely affected by prepayments of principal on the underlying
mortgages.
64
<PAGE> 71
The following table sets forth the book value of Benson's investment
portfolio as of the dates indicated. Investment securities held to maturity are
stated at cost, adjusted for amortization of premium and accretion of discount.
Investment securities available for sale are stated at fair value in accordance
with SFAS No. 115, "Accounting For Certain Investments in Debt and Equity
Securities". See "-- Accounting Matters" and Note C of the Notes to Consolidated
Financial Statements.
INVESTMENT PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investment Securities:
Available for sale:
U.S. Treasury securities............................... $34,387 $31,227 $64,502
U.S. Government agencies............................... 14,309 4,903 11,304
Other.................................................. -- -- 3,970
------- ------- -------
Total available for sale.......................... $48,696 $36,130 $79,776
======= ======= =======
Held to maturity:
U.S. Treasury securities............................... $19,850 $27,740 $ --
U.S. Government agencies............................... 5,507 6,878 --
Mortgage-backed securities............................. 20,967 23,417 23,096
State, county, and municipal........................... 574 140 180
Other.................................................. 1,710 1,670 1,633
------- ------- -------
Total held to maturity............................ $48,608 $59,845 $24,909
======= ======= =======
</TABLE>
- ---------------
As permitted by the Financial Accounting Standards Board, in 1995 Benson
transferred held to maturity investments with a carrying value of $11,983,080 to
the available for sale category. The investments transferred had unrealized
gains of $265,822 on the transfer date.
In the second quarter of 1994, as a result of a change in its management
and a consequent change in its investment strategy, Groos Bank adopted an
investment policy which limits investment securities classified as available for
sale to 25% to 50% of its total investment securities portfolio. Groos Bank
transferred approximately $23,000,000 of U.S. Treasury securities and $8,000,000
of U.S. Government agencies previously classified as available for sale to held
to maturity, effective as of April 1, 1994. Kelly Bank has not adopted formal
guidelines with respect to the percentage of its investment securities that are
required to be classified as available for sale or held to maturity.
65
<PAGE> 72
The following table sets forth the maturity distribution and weighted
average yield of the investment portfolio of Benson as of December 31, 1995. The
calculation of the weighted average yields is based on yield, weighted by the
respective costs of the securities.
INVESTMENT PORTFOLIO -- MATURITY AND YIELDS
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
1 YEAR 1 YEAR TO 5 YEARS TO AFTER 10
OR LESS 5 YEARS 10 YEARS YEARS
------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity Distribution:
U.S. Treasury securities....................... $13,013 $ 21,374 $ -- $ --
U.S. Government agencies....................... 999 5,028 8,282 --
Mortgage-backed securities..................... -- -- -- --
State, county and municipal (1)................ -- -- -- --
Other.......................................... -- -- -- --
------- --------- ---------- --------
Total....................................... $14,012 $ 26,402 $8,282 $ --
======== ======== ======== ======
Weighted Average Yield:
U.S. Treasury securities....................... 4.83% 5.99% % %
U.S. Government agencies....................... 5.61 6.92 7.32 --
Mortgage-backed securities..................... -- -- -- --
State, county, and municipal(1)................ -- -- -- --
Other....................................... -- -- -- --
</TABLE>
INVESTMENT PORTFOLIO -- MATURITY AND YIELDS
HELD TO MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
1 YEAR 1 YEAR TO 5 YEARS TO AFTER 10
OR LESS 5 YEARS 10 YEARS YEARS
------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity Distribution:
U.S. Treasury securities....................... $ 6,995 $ 12,855 $ -- $ --
U.S. Government agencies....................... -- 3,508 1,999 --
Mortgage-backed securities..................... -- 5,770 -- 15,197
State, county and municipal(1)................. 15 110 399 50
Other.......................................... -- 250 25 1,435
------- --------- ---------- --------
Total....................................... $ 7,010 $ 22,493 $2,423 $ 16,682
====== ======== ======== ========
Weighted Average Yield:
U.S. Treasury securities....................... 5.28% 6.01% % %
U.S. Government agencies....................... -- 6.28 7.18 --
Mortgage-backed securities..................... -- 5.66 -- 6.47
State, county, and municipal(1)................ 6.75 7.00 5.11 5.00
Other.......................................... -- 8.00 8.25 6.22
</TABLE>
- ---------------
(1) The yields on the tax-exempt portfolio were not computed on a tax-equivalent
basis as they are not material.
Deposit Activities. Deposits are attracted through the offering of a broad
variety of deposit instruments, including checking accounts, money market
accounts, regular savings accounts, term
66
<PAGE> 73
certificate accounts (including "jumbo" certificates in denominations of
$100,000 or more), and retirement savings plans.
Benson's average balance of total deposits was $409,994,000 for the year
ended December 31, 1995, a decrease of $3,547,000 or 0.86% compared with the
average balance of total deposits for the year ended 1994. Benson's average
balance of total deposits was $413,541,000 for the year ended 1994, an increase
of $7,628,000 or 1.88% compared with the average balance of total deposits of
$405,913,000 for the year ended 1993. The following table sets forth the average
balances and weighted average rates for the Banks' categories of deposits for
the periods indicated.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE % OF TOTAL AVERAGE AVERAGE % OF TOTAL AVERAGE AVERAGE % OF TOTAL
BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS
-------- ------- ---------- -------- ------- ---------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits.................. $ 95,179 --% 23.21% $ 97,131 --% 23.49% $ 94,900 --% 23.38%
Interest-bearing demand
deposits................. 100,876 2.24 24.60 106,766 2.17 25.82 101,012 2.21 24.89
13.94
Savings deposits........... 49,532 2.70 12.08 57,635 2.52 55,742 2.78 13.73
Money market accounts...... 45,162 3.53 11.02 50,492 2.78 12.21 48,153 2.57 11.86
Time deposits.............. 119,245 5.00 29.09 101,517 3.51 24.54 106,106 3.40 26.14
-------- ------- ---------- -------- ------- ---------- -------- ------- ----------
Total...................... $409,994 100.00% $413,541 100.00% $405,913 100.00%
========= ========== ========= ========== ========= ==========
Weighted average rate...... 2.72% 2.11% 2.13%
======== ======== ========
</TABLE>
As of December 31, 1995, time deposits over $100,000 represented 7.28% of
total deposits, compared with 5.37% of total deposits as of December 31, 1994
and 4.48% as of December 31, 1993. As of December 31, 1995, jumbo certificates
in excess of $100,000 accounted for $30,633,000 of the Banks' deposits. Of this
amount, $21,935,000 had a term of six months or less. The Banks do not have and
do not solicit brokered deposits.
The following table sets forth the amount of the Banks' certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1995.
TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
MATURITY PERIOD (DOLLARS IN THOUSANDS)
---------------------------------------------------------------- ----------------------
<S> <C>
Three months or less............................................ $ 12,985
Over three months through six months............................ 8,950
Over six months through twelve months........................... 6,115
Over twelve months.............................................. 2,583
-------
Totals................................................ $ 30,633
=======
</TABLE>
67
<PAGE> 74
Return on Equity and Assets. The following table sets forth Benson's
performance ratios for the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Return on average assets........................................... 1.38% 1.23% 1.45%
Return on average equity:
Excluding exchangeable redeemable preferred stock(1)............. 13.19 21.83 43.63
Including exchangeable redeemable preferred stock(1)............. 13.08 20.84 --
Dividend payout ratio(2)........................................... 6.62 -- --
Return on average common equity.................................... 16.07 27.95 63.89
Average equity to average total assets:
Excluding exchangeable redeemable preferred stock(1)............. 10.45 5.62 --
Including exchangeable redeemable preferred stock(1)............. 10.54 5.89 --
Average common equity to average total assets...................... 8.58 4.39 2.26
Efficiency ratio(3)................................................ 69.06 76.39 78.85
</TABLE>
- ---------------
(1) The exchangeable redeemable preferred stock was fully redeemed on January
31, 1995.
(2) On June 8, 1995, Benson declared a dividend of $0.10 on its common stock
payable to shareholders of record as of June 22, 1995. The dividends were
paid to shareholders on July 6, 1995.
(3) Represents the ratio of noninterest expense to the sum of net interest
income and noninterest income, excluding investment security gains.
Liquidity. Benson's principal source of funds consists of dividends
received from the Banks, which derive their funds from deposits, interest and
principal payments on loans and investment securities, sales of investment
securities and borrowings. For the year ended December 31, 1995, Benson realized
proceeds from sales and maturities of investment securities of $23,808,496, a
net increase in deposits of $13,354,675, loan collections in excess of
originations and advances of $11,665,539, and net cash provided by operating
activities of $9,994,881. Funds were used to acquire $23,346,767 of investment
securities and to fully redeem $5,000,000 Exchangeable Redeemable Preferred
Stock at a cost of $3,250,000. Benson paid a total of $1,204,071 in dividends to
common and preferred shareholders in 1995. The amount of dividends available for
declaration by the Banks, without prior regulatory approval, is approximately
$8,484,000 at December 31, 1995.
For the year ended December 31, 1994, Benson realized proceeds from sales
of investment securities and maturing investment securities of $56,076,389, net
proceeds of $17,502,144 from its IPO and net cash provided by operating
activities of $6,606,144. These proceeds were offset by a decrease in deposits
during such period of $4,175,587. Funds were also used to acquire $50,273,833 of
investment securities and for net loan originations of $28,795,889. Benson also
repaid borrowings of $14,100,000 and redeemed $2,000,000 (20,000 shares of
nonvoting Benson Series C) in preferred stock. Benson was previously prohibited
from declaring dividends on its Common Stock by the terms of the Memorandum,
without prior approval of the Federal Reserve Board. On February 2, 1995, Benson
received notification by the Federal Reserve Board that the Memorandum was
terminated.
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
These include cash, federal funds sold and U.S. Government-backed securities.
Benson's liquidity ratio, defined as cash, U.S. Government-backed securities,
and federal funds sold as a percentage of deposits, was 39.6%, 32.2%, and 37.8%
as of December 31, 1995, 1994 and 1993, respectively. Liability liquidity is
provided by access to core funding sources, principally various customers'
interest-bearing and noninterest-bearing deposit accounts in Benson's market
area. The Banks do not have and do not solicit brokered deposits.
68
<PAGE> 75
Federal funds purchased and short-term borrowings by the Banks are additional
sources of liquidity. These sources of liquidity are short-term in nature and
are used by the Banks as necessary to fund asset growth and meet short-term
liquidity needs. As of December 31, 1995 and 1994, the Banks had no federal
funds purchased, no borrowings from the Federal Reserve Board, and no borrowings
on securities sold under repurchase agreements. As of December 31, 1995, the
Banks' other borrowings were $1,003,718, consisting of balances in the U.S.
Treasury tax and loan note option account of $514,249 and $489,469 in lease
financing liability.
In October, 1994, with proceeds from its IPO, Benson repaid $13,100,000 of
outstanding indebtedness due to an unaffiliated bank. In connection therewith,
Benson exchanged 50,000 shares of its $100 par value Exchangeable Redeemable
Preferred Stock for a $5,000,000 note payable due to such unaffiliated bank,
with unpaid interest of $1,026,330 being forgiven resulting in an extraordinary
gain on forgiveness of debt of $676,330, net of taxes of $350,000. Benson also
exchanged $6,000,000 principal amount of its subordinated notes and $4,694,680
of Series A Preferred Stock into Benson Series C nonvoting Preferred Stock. See
Note B of the Notes to Consolidated Financial Statements.
On January 31, 1995, all 50,000 outstanding shares of Exchangeable
Redeemable Preferred Stock were fully redeemed by Benson for $3,250,000. The
redemption was financed in part by a $2,250,000 prime interest rate loan, with
an unaffiliated financial institution, which was paid in full on May 30, 1995.
See Note J of Notes to Consolidated Financial Statements.
Capital Resources. Total stockholders' equity as of December 31, 1995 was
$51,262,969, an increase of $6,654,247 or 14.92% compared with stockholders'
equity of $44,608,722 as of December 31, 1994. Of the total increase, $6,413,064
was from net earnings, and $1,270,357 was from increases in unrealized gains on
securities. These increases were offset by dividends of $656,772 on outstanding
preferred stock and $372,402 in dividends on outstanding Benson Common Stock.
See "Consolidated Financial Statements -- Consolidated Statements of Changes in
Stockholders Equity".
Total stockholders' equity as of December 31, 1994 was $44,608,722, an
increase of $24,681,073 or 123.85% compared with stockholders' equity of
$19,927,649 as of December 31, 1993. Of the total increase, $17,502,144 is
attributable to the sale of 1,750,000 common shares in the IPO, $6,000,000 is
attributable to the exchange of debt for preferred stock and $5,710,035 was from
net earnings for 1994. These increases were offset by $2,356,209 in unrealized
depreciation on securities, $2,000,000 related to the redemption of Benson
Series C Preferred Stock and $174,897 in dividends on outstanding preferred
stock.
The Federal Reserve Board has established certain minimum risk-based
capital standards that apply to bank holding companies. As of December 31, 1995,
Benson's Tier I risk-based capital ratio was 16.51%, its total risk-based
capital ratio was 17.54% and its leverage ratio was 10.68%. As of December 31,
1994, Benson's Tier I risk-based capital ratio was 15.27%, its total risk-based
capital ratio was 16.87% and its leverage ratio was 10.63%.
The following table sets forth an analysis of Benson's and the Banks
capital ratios.
69
<PAGE> 76
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
MINIMUM WELL-
CAPITAL CAPITALIZED
1995 1994 1993 RATIOS RATIOS
-------- -------- -------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COMPANY:
Tier I risk-based capital.......... $ 50,788 $ 48,953 $ 18,201
Tier II risk-based capital......... 3,177 5,113 3,950
Total capital...................... 53,965 54,066 22,151
Risk-weighted assets............... 307,592 320,581 304,001
CAPITAL RATIOS:
Tier I risk-based capital.......... 16.51% 15.27% 5.99% 4.00% 6.00%
Total risk-based capital........... 17.54 16.87 7.29 8.00 10.00
Leverage ratio (Tier I risk-based
capital to adjusted total
assets)......................... 10.68 10.63 3.94 4.00 5.00
BANKS:
Tier I capital:
Groos Bank...................... $ 23,874 $ 20,827 $ 16,999
Kelly Bank...................... 19,311 17,010 14,603
Tier II capital:
Groos Bank...................... 2,058 2,132 2,060
Kelly Bank...................... 877 993 1,162
Total risk-based capital:
Groos Bank...................... 25,932 22,959 19,059
Kelly Bank...................... 20,188 18,003 15,765
Risk-weighted assets:
Groos Bank...................... 164,364 169,992 163,660
Kelly Bank...................... 136,544 139,272 128,828
Capital Ratios:
Tier I risk-based capital:
Groos Bank.................... 14.53% 12.25% 10.39% 4.00% 6.00%
Kelly Bank.................... 14.14 12.21 11.34 4.00 6.00
Total risk-based capital:
Groos Bank......................... 15.78 13.51 11.65 8.00 10.00
Kelly Bank......................... 14.78 12.93 12.24 8.00 10.00
Leverage (Tier I risk-based capital
to adjusted total assets):
Groos Bank......................... 9.35 8.33 6.52 4.00 5.00
Kelly Bank......................... 9.06 8.26 7.11 4.00 5.00
</TABLE>
Accounting Matters.
Accounting for Loan Impairment. Effective January 1, 1995, Benson adopted
SFAS 114 and SFAS 118. See "-- Provision for Loan Losses." The adoption of these
statements did not have a significant impact on Benson's financial position nor
on its results of operations for the year ended December 31, 1995.
Accounting for Certain Investments in Debt and Equity Securities. In May
1993, the FASB issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", ("SFAS No.
115"). SFAS No. 115 addresses the accounting and
70
<PAGE> 77
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. Those investments are to
be classified in one of three categories: (i) debt securities that the
enterprise has the positive intent and ability to hold to maturity are
classified as "held-to-maturity securities", and are reported at amortized cost;
(ii) debt and securities that are bought and held principally for the purpose of
selling them in the near term are classified as "trading securities" and are
reported at fair value, with unrealized gains and losses included in earnings;
and (iii) debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as "available-for-sale
securities" and are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholders'
equity. Benson adopted SFAS No. 115 as of December 31, 1993. In 1995, as
permitted by the Financial Accounting Standards Board, Benson transferred
certain held to maturity investments to the available for sale category.
Impact of Inflation, Changing Prices, Monetary Policies and Foreign
Currencies. The financial statements and related financial data concerning
Benson presented in this report have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of Benson is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of the Banks, including
the influence of domestic and foreign economic conditions and the monetary and
fiscal policies of the United States government and federal agencies,
particularly the Federal Reserve Board. The Federal Reserve Board implements
national monetary policy such as seeking to curb inflation and combat recession
by its open market operations in United States government securities, control of
the discount rate applicable to borrowing by banks and establishment of reserve
requirements against bank deposits. The actions of the Federal Reserve Board in
these areas influence the growth of bank loans, investments and deposits, and
affect the interest rates charged on loans and paid on deposits. The nature,
timing and impact of any future changes in federal monetary and fiscal policies
on the Banks and their results of operations are not predictable.
In December 1994, the Mexican peso was devalued by the Mexican government
and as of the date of this Proxy Statement-Prospectus, remains at a floating
rate. Despite the devaluation of the peso, however, deposits at the Banks from
Mexican customers have remained stable. Management believes the devaluation and
the current floating rate of the Mexican peso has not had, and based upon
current circumstances, will not have any significant impact on the Banks.
71
<PAGE> 78
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
Norwest Common Stock is listed on the NYSE and Benson Common Stock is
traded on the Nasdaq National Market. The following table sets forth the high
and low sales prices per share of the Norwest Common Stock as reported on the
NYSE Composite Tape and Benson Common Stock as reported on the Nasdaq National
Market, and the cash dividends paid on such Norwest Common Stock and Benson
Common Stock, for the below quarterly periods, which correspond to the
companies' respective quarterly fiscal periods for financial reporting purposes.
<TABLE>
<CAPTION>
NORWEST BENSON
COMMON STOCK COMMON STOCK
---------------------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------ --------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
1993
First Quarter.......................... $26.000 20.625 0.145
Second Quarter......................... 28.375 22.875
Third Quarter.......................... 28.000 25.625
Fourth Quarter......................... 29.000 22.500 0.165
1994
First Quarter.......................... 27.375 22.250 0.185
Second Quarter......................... 28.250 23.125 0.185
Third Quarter(1)....................... 27.500 24.750 0.185 12.62 11.50
Fourth Quarter......................... 25.000 21.000 0.210 12.62 9.50
1995
First Quarter.......................... 26.250 22.625 0.210 11.98 11.43
Second Quarter......................... 29.375 25.125 0.210 13.26 10.50
Third Quarter.......................... 32.750 26.875 0.240 18.68 13.43 0.10
Fourth Quarter......................... 34.750 29.250 0.240 18.34 16.71
1996
First Quarter.......................... 37.125 30.500 0.240 20.00 18.50
Second Quarter......................... 37.500 34.375 20.25 19.50
(through April 23, 1996) ------ ------ ----- -----
</TABLE>
- ---------------
(1) From September 27, 1994, the date on which Benson Common Stock commenced
trading on the Nasdaq National Market.
72
<PAGE> 79
CERTAIN REGULATORY CONSIDERATIONS
PERTAINING TO NORWEST
GENERAL
As a bank holding company, Norwest is subject to supervision and
examination by the Federal Reserve Board. Under the Bank Holding Company Act, a
bank holding company generally may not directly or indirectly acquire the
ownership or control of more than 5% of the voting securities or all or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. In addition, a bank holding company
is generally prohibited under the Bank Holding Company Act from engaging in
nonbanking activities, subject to certain exceptions. Various proposals are
pending before Congress that would allow affiliations between a bank holding
company and nonbank entities that are prohibited or restricted under current
law. Whether Congress will adopt any of these proposals, and if so in what form,
is not known at this time.
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; 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
73
<PAGE> 80
creditors of such subsidiary, except to the extent that claims of Norwest in its
capacity as a creditor may be recognized. The principal sources of Norwest's
revenues are dividends and fees from its subsidiaries.
Norwest's banking subsidiaries are subject to restrictions under federal
law which limit the transfer of funds by the subsidiary banks to Norwest and its
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. sec.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.
ACQUISITIONS
Effective September 29, 1995, under the provisions of the Reigle-Neal
Interstate Banking and Branching Act of 1994 (the "Reigle-Neal Act"), Norwest's
banking subsidiaries are permitted to acquire banks located in any state in
which the acquiring subsidiary bank is located (an intrastate merger). Effective
June 1, 1997, Norwest's banking subsidiaries will be permitted to acquire a bank
located in a state other than the state in which the acquiring subsidiary bank
is located (an interstate merger) through merger, consolidation or purchase of
assets and assumption of liabilities, unless the state in which either of the
banks is located has opted out of the interstate banking provisions of the
Reigle-Neal Act. An interstate merger may occur before June 1, 1997 if the
states in which the merging banks are located have enacted a law authorizing
interstate bank mergers.
All of Norwest's acquisitions of banking institutions and other companies
are subject to the prior approval of the Federal Reserve Board and any
applicable federal or state regulatory authorities. In addition, under the
provisions of the Reigle-Neal Act, bank mergers are subject to deposit
concentration limits of 10% nationwide and 30% in any one state, unless it is
Norwest's initial entry into the state.
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<PAGE> 81
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
stockholders' equity, 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. The risk-based guidelines also specify that
all intangibles, including core deposit intangibles, as well as mortgage
servicing rights ("MSRs") and purchased credit card relationships ("PCCRs"), be
deducted from Tier 1 capital. The guidelines, however, grandfather identifiable
assets (other than MSRs and PCCRs) acquired on or before February 19, 1992 and
permit the inclusion of readily marketable MSRs and PCCRs in Tier 1 capital to
the extent that (i) MSRs and PCCRs do not collectively exceed 50% of Tier 1
capital and (ii) PCCRs do not exceed 25% of Tier 1 capital. For such purposes,
MSRs and PCCRs each are included in Tier 1 capital only up to the lesser of (i)
90% of their fair market value (which must be determined quarterly) and (ii)
100% of the remaining unamortized book value of such assets. The OCC has adopted
substantially similar regulations.
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 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, Benson or the Bank believes that these recent proposals and revisions
to the capital guidelines will materially impact its operations.
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<PAGE> 82
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 Federal Deposit
Insurance Corporation (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 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
76
<PAGE> 83
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 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, 1995, all of Norwest's banking subsidiaries were
well capitalized and therefore were not subject to these restrictions.
FDIC INSURANCE
Each BIF member institution pays FDIC insurance premiums based on the
institution's annual assessment rate assigned to it by the FDIC. The assessment
rate is based on the institution's capitalization risk category and "supervisory
subgroup." An institution's capitalization risk category is based on the FDIC's
determination of whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. An institution's supervisory
subgroup is based on the FDIC's assessment of the financial condition of the
institution and the probability that FDIC intervention or other corrective
action will be required. Subgroup A institutions are financially sound
institutions with few minor weaknesses; Subgroup B institutions are institutions
that demonstrate weaknesses which, if not corrected, could result in significant
deterioration; and Subgroup C institutions are institutions for which there is a
substantial probability that the FDIC will suffer a loss in connection with the
institution unless effective action is taken to correct the areas of weakness.
The FDIC assessment rate ranges from zero to 27 cents per $100 of domestic
deposits, with Subgroup A institutions assessed at a rate of zero and Subgroup C
institutions assessed at a rate of 27 cents. The FDIC may increase or decrease
the assessment rate schedule on a semiannual basis. An increase in the rate
assessed one or more of Norwest's banking subsidiaries could have a material
adverse effect on Norwest's earnings, depending on the amount of the increase.
The FDIC is authorized to terminate a depository institution's deposit insurance
upon a finding by the FDIC that the institution's financial condition is unsafe
or unsound or that the institution has engaged in unsafe or unsound practices or
has violated any applicable rule, regulation, order or condition enacted or
imposed by the institution's regulatory agency. The termination of deposit
insurance with respect to one or more of Norwest's subsidiary depository
institutions could have a material adverse effect on Norwest's earnings,
depending on the collective size of the particular institutions involved.
Deposits insured by the SAIF held by Norwest's 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 recently proposed legislation that would, among other
things, recapitalize the SAIF by imposing a special one-time assessment on SAIF
deposits. The proposed legislation also contemplates the consolidation or merger
of the BIF and the SAIF into
77
<PAGE> 84
one insurance fund after the SAIF is recapitalized. Management of Norwest does
not anticipate that the impact of the proposed legislation will be material to
Norwest; however, to provide for such a 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.
DEPOSITOR PREFERENCE
Under the FDIA, claims of holders of domestic deposits and certain claims
of administrative expenses and employee compensation against an FDIC-insured
depository institution have priority over other general unsecured claims against
the institution in the "liquidation or other resolution" of the institution by a
receiver.
EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, incorporated by reference herein, have been
incorporated herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Benson Financial Corporation as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 included in this Proxy Statement-Prospectus have been audited
by Grant Thornton LLP, independent certified public accountants as stated in
their report appearing herein, and have been so 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 of the tax consequences of the Merger to Benson's shareholders will
be passed upon for Benson by Kramer, Levin, Naftalis, Nessen, Kamin & Frankel,
919 Third Avenue, New York, New York 10022.
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, 1995, which is incorporated in this Proxy Statement-Prospectus by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders
of Benson desiring copies of such documents may contact Norwest or Benson, as
appropriate, at the addresses or phone numbers indicated under "AVAILABLE
INFORMATION."
78
<PAGE> 85
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Benson Financial Corporation
We have audited the accompanying consolidated balance sheets of Benson
Financial Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Benson
Financial Corporation and Subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ GRANT THORNTON LLP
Grant Thornton LLP
Dallas, Texas
February 8, 1996
F-1
<PAGE> 86
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash and due from banks...................................... $ 26,621,068 $ 25,521,393
Interest-bearing deposits with banks......................... 491,910 549,820
Federal funds sold........................................... 44,650,000 11,050,000
------------ ------------
Cash And Cash Equivalents.......................... 71,762,978 37,121,213
Investment securities:
Available for sale......................................... 48,695,719 36,130,466
Held to maturity (market value of $48,795,740 and
$57,375,239, respectively).............................. 48,608,543 59,844,569
Loans........................................................ 271,317,978 284,520,489
Premises and equipment....................................... 26,173,376 29,862,637
Other real estate owned...................................... 3,077,621 4,596,831
Accrued interest receivable.................................. 3,095,055 2,774,097
Deferred income taxes........................................ 389,000 2,900,000
Other assets................................................. 2,362,948 2,870,419
------------ ------------
$475,483,218 $460,620,721
============ ============
LIABILITIES
Deposits:
Noninterest-bearing........................................ $100,875,206 $ 98,153,066
Interest-bearing........................................... 320,056,656 309,424,121
------------ ------------
420,931,862 407,577,187
Other borrowed funds......................................... 1,003,718 891,910
Accrued interest payable..................................... 784,714 567,541
Other liabilities............................................ 1,499,955 1,975,361
------------ ------------
Total Liabilities.................................. 424,220,249 411,011,999
COMMITMENTS AND CONTINGENCIES
EXCHANGEABLE REDEEMABLE PREFERRED STOCK...................... 5,000,000
STOCKHOLDERS' EQUITY
Preferred Stock.............................................. 8,707,492 8,721,242
Common Stock, par value $.10 per share
Authorized -- 20,000,000 shares
Issued -- 3,724,500 shares in 1995 and 3,723,982 in 1994... 372,451 372,399
Surplus...................................................... 37,668,133 37,654,435
Retained earnings (deficit).................................. 4,202,045 (1,181,845)
Unrealized gains (losses) on available for sale securities,
net of taxes (benefit) of $161,165 in 1995 and ($500,000)
in 1994.................................................... 312,848 (957,509)
------------ ------------
Total Stockholder's Equity......................... 51,262,969 44,608,722
------------ ------------
$475,483,218 $460,620,721
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 87
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans, including fees........................... $25,328,404 $23,881,800 $22,957,021
Investment securities:
Taxable...................................... 5,664,907 5,317,814 5,542,879
Tax-exempt................................... 20,051 10,041 12,822
Federal funds sold.............................. 1,424,004 756,714 857,957
Deposits in other institutions.................. 20,809 15,575 16,518
----------- ----------- -----------
TOTAL INTEREST INCOME................... 32,458,175 29,981,944 29,387,197
Interest expense:
Deposits........................................ 11,149,231 8,740,111 8,631,960
Notes payable................................... 56,219 1,348,948 1,615,798
Other borrowed funds............................ 210,386 112,206 93,833
----------- ----------- -----------
TOTAL INTEREST EXPENSE.................. 11,415,836 10,201,265 10,341,591
----------- ----------- -----------
NET INTEREST INCOME................... 21,042,339 19,780,679 19,045,606
Provision for loan losses......................... 1,130,000 735,000 280,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES........................... 19,912,339 19,045,679 18,765,606
Other income:
Service charges on deposit accounts............. 4,404,174 4,422,345 4,239,186
Trust fees...................................... 1,078,007 1,130,701 1,099,460
Gain on sale of securities...................... 64,537 180,000 614,799
Litigation settlement........................... 957,696
Other operating income.......................... 2,077,082 1,527,891 1,583,958
----------- ----------- -----------
TOTAL OTHER INCOME...................... 7,623,800 7,260,937 8,495,099
Other expenses:
Salaries, wages, and benefits................... 9,137,505 9,024,372 8,789,606
Occupancy and equipment expenses................ 2,138,593 2,444,290 2,625,655
Other real estate operations, net............... 513,794 748,518 1,757,875
Other operating expenses........................ 7,762,006 8,302,156 8,057,799
Loss on sale of building........................ 199,605
----------- ----------- -----------
TOTAL OTHER EXPENSES.................... 19,751,503 20,519,336 21,230,935
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY
CREDIT.......................................... 7,784,636 5,787,280 6,029,770
Income tax expense (benefit)...................... 2,526,572 753,575 (498,400)
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY CREDIT................ 5,258,064 5,033,705 6,528,170
Extraordinary credit, net of tax.................. 1,155,000 676,330
----------- ----------- -----------
NET EARNINGS............................ $ 6,413,064 $ 5,710,035 $ 6,528,170
=========== =========== ===========
Earnings per common share:
Before extraordinary credit..................... $ 1.21 $ 1.96 $ 3.26
Extraordinary credit............................ .30 .27
----------- ----------- -----------
Earnings per share........................... $ 1.51 $ 2.23 $ 3.26
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding................... 3,811,605 2,484,914 2,001,270
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 88
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET
RETAINED UNREALIZED
PREFERRED COMMON EARNINGS GAINS
STOCK STOCK SURPLUS (DEFICIT) (LOSSES) TOTAL
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993.............. $ 4,746,617 $ 1,959,365 $18,513,498 $(13,245,153) $ $11,974,327
Change in common stock par value from
$1 to $.10 per share................ (1,763,428) 1,763,428
Conversion of 2,500 preferred shares
into
238 common shares................... (6,250) 24 6,226
Sale of 38,660 common shares.......... 3,866 22,586 26,452
Unrealized gains on available for sale
securities.......................... 1,398,700 1,398,700
Net earnings for 1993................. 6,528,170 6,528,170
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1993............ 4,740,367 199,827 20,305,738 (6,716,983) 1,398,700 19,927,649
Sale of 1,725,000 common shares in
initial public offering, net of
expenses, and exchange of debt for
preferred stock..................... 6,000,000 172,500 17,329,644 23,502,144
Redemption of preferred stock......... (2,000,000) (2,000,000)
Conversion of 7,650 preferred shares
into
727 common shares................... (19,125) 72 19,053
Unrealized losses on available for
sale securities, net of tax benefit
of $500,000......................... (2,356,209) (2,356,209)
Dividends............................. (174,897) (174,897)
Net earnings for 1994................. 5,710,035 5,710,035
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1994............ 8,721,242 372,399 37,654,435 (1,181,845) (957,509) 44,608,722
Conversion of 5,500 preferred shares
into
523 common shares................... (13,750) 52 13,698
Unrealized gains on available for sale
securities, net of taxes of
$661,165............................ 1,270,357 1,270,357
Dividends............................. (1,029,174) (1,029,174)
Net earnings for 1995................. 6,413,064 6,413,064
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 1995............ $ 8,707,492 $ 372,451 $37,668,133 $ 4,202,045 $ 312,848 $51,262,969
=========== =========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 89
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings........................................... $ 6,413,064 $ 5,710,035 $ 6,528,170
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses............................ 1,130,000 735,000 280,000
Other loss provisions................................ 277,988 731,329 1,477,179
Depreciation......................................... 1,377,816 1,766,795 1,690,318
Amortization......................................... 321,197 397,731 261,609
Deferred income taxes................................ 1,850,000 900,000 (500,000)
Accretion of discounts............................... (198,250) (182,390) (133,601)
Loss on sale of other assets......................... 151,927
Gain on sale of securities........................... (64,537) (180,000) (614,799)
Extraordinary credit, net of tax..................... (1,155,000) (676,330)
Changes in operating assets and liabilities:
Accrued interest receivable........................ (320,958) (434,502) 27,526
Accrued interest payable........................... 217,173 (1,545,357) 960,230
Other, net......................................... (5,539) (616,167) 247,747
------------ ------------ ------------
Net Cash Provided By Operating Activities....... 9,994,881 6,606,144 10,224,379
INVESTING ACTIVITIES
Proceeds from sales of securities:
Available for sale................................... 3,005,788 19,014,371 19,091,477
Proceeds from maturities of securities:
Held to maturity..................................... 10,810,802 23,062,018
Available for sale................................... 9,991,906 14,000,000 41,041,852
Purchases of securities:
Held to maturity..................................... (11,477,565) (28,334,649)
Available for sale................................... (11,869,202) (21,939,184) (79,322,147)
Loan origination and advances, less loan collections... 11,665,539 (28,795,889) (13,305,397)
Proceeds from sales of other assets.................... 5,150,387 1,112,621 2,768,884
Purchases of other assets.............................. (1,342,675) (1,065,189) (1,445,491)
------------ ------------ ------------
Net Cash Provided (Used) By Investing
Activities.................................... 15,934,980 (22,945,901) (31,170,822)
FINANCING ACTIVITIES
Change in checking, NOW, savings, and money market
deposits............................................. (8,122,325) 3,173,049 (3,684,238)
Change in time deposits................................ 21,477,000 (7,348,636) 11,704,421
Borrowings on notes payable............................ 2,250,000
Repayments of notes payable............................ (2,250,000) (14,100,000)
Net proceeds from initial public offering of stock..... 17,502,144
Redemption of preferred stock.......................... (2,000,000)
Redemption of exchangeable redeemable preferred
stock................................................ (3,250,000)
Other issuances of stock for cash...................... 26,452
Dividends.............................................. (1,204,071)
Other, net............................................. (188,700) (668,907) 141,098
------------ ------------ ------------
Net Cash Provided (Used) By Financing
Activities.................................... 8,711,904 (3,442,350) 8,187,733
------------ ------------ ------------
Increase (Decrease) In Cash And Cash
Equivalents................................... 34,641,765 (19,782,107) (12,758,710)
Cash and cash equivalents at beginning of year........... 37,121,213 56,903,320 69,662,030
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................. $ 71,762,978 $ 37,121,213 $ 56,903,320
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 90
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Benson Financial Corporation and Subsidiaries (The Company) owns two banks,
Groos Bank, N.A. and Kelly Field National Bank (the Banks) located in San
Antonio, Texas. The Company's primary sources of revenues are from providing
loans and services to customers and from investing funds received from
depositors.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows. The accounting
principles followed by the Company and the methods of applying them are in
conformity with both generally accepted accounting principles and prevailing
practices of the banking industry.
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of Benson Financial Corporation and its wholly owned
subsidiaries Kelly Field National Bank (Kelly), Groos Bank, N.A. (Groos), and
Bancshares Life Insurance Company (Bancshares Life). All significant
intercompany accounts and transactions are eliminated in consolidation.
Reclassifications: Certain amounts for 1994 and 1993 have been reclassified
for comparative purposes.
Investment Securities: As of December 31, 1993, the Company elected early
adoption of Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities". In
accordance with SFAS 115, the Company classifies investments as either held to
maturity, when the Company has positive intent and ability to hold securities to
maturity, or available for sale. Securities classified as held to maturity are
reported at amortized cost. Securities classified as available for sale are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of stockholders' equity, net of tax.
Realized gains and losses on sales of securities classified as available
for sale and held to maturity are reported in earnings in the year of sale using
the specific-identification method.
Indirect Dealer Paper: Indirect dealer paper, representing vehicle loans
purchased from various automobile dealerships, are included in loans. The loans
are purchased at a discount from their contractual amounts. Discounts from
contractual amounts are recognized in income over the life of the loan using the
interest method. The Company does not pay premiums with respect to indirect
dealer paper which it purchases.
Allowance for Loan Losses: Loans are reported at their outstanding
principal adjusted for any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Banks' past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. However, it is at least
reasonably possible that this estimate may change in the near term based on
unanticipated changes in the financial strength of borrowers or in values of the
underlying collateral.
Effective January 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 114 (SFAS 114), "Accounting by Creditors
for Impairment of a Loan". The Statement requires impairment on nonperforming
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, its observable
F-6
<PAGE> 91
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market price, or fair value of collateral if the loan is collateral dependent. A
loan is identified as impaired when it is probable that interest and principal
will not be collected according to the contractual terms of the loan agreement.
Adoption of SFAS 114 did not have a significant impact on financial position or
results of operations.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, a federal regulatory agency, as an integral part of
their examination process, periodically reviews the Banks' allowances for loan
losses. Such agency may require the Banks to recognize additions to the
allowance based on their judgment of information available to them at the time
of their examination.
Interest on Loans: Interest on commercial and real estate loans is credited
to operations on a daily basis based upon the principal amount outstanding.
Interest on installment loans is credited to income using a method that
approximates the interest method.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed using the straight-line
method over the following estimated useful lives: furniture and equipment, 2-5
years; buildings and improvements, 5-30 years.
The cost of major additions and improvements is capitalized; expenditures
for maintenance and repairs are expensed as incurred. When assets are sold,
retired, or otherwise disposed of, cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in current
operations.
Other Real Estate Owned: Other real estate owned is comprised of properties
acquired through foreclosure proceedings or acceptance of deeds in lieu of
foreclosure. Foreclosed assets are initially recorded at fair value less
estimated costs to sell (net fair value), establishing a new cost basis. Such
determination is made on an individual asset basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of the carrying amount or net fair value. Changes in the
valuation allowance are charged or credited to income.
Federal Income Taxes: The Company and its subsidiaries, other than
Bancshares Life, file a tax return on a consolidated basis. Deferred tax assets
and liabilities are recognized for temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial
statements. A valuation allowance is provided against net deferred tax assets
when realization is doubtful.
Off-Balance Sheet Financial Instruments: In the ordinary course of
business, the Company has entered into off-balance sheet financial instruments
consisting of commitments to extend credit and letters of credit. Such financial
instruments are recorded in the financial statements when they are funded or
related fees are incurred or received.
Use of Estimates: The preparation of 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Employee Benefit Plans: The Company and its bank subsidiaries have 401(k)
profit sharing plans and an Employee Stock Ownership Plan that cover
substantially all employees. Contributions to the plans amounted to $287,500 in
1995, $247,000 in 1994, and $306,000 in 1993. The contributions are determined
each year by the Boards of Directors.
F-7
<PAGE> 92
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statements of Cash Flows: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, interest bearing
deposits in other banks, and federal funds sold.
Earnings Per Share: Earnings per common and common equivalent share are
computed by dividing net earnings less current period preferred dividends by the
weighted average number of common and common equivalent shares outstanding
during each year. Common equivalent shares include the dilutive effect of
outstanding stock options. The effect on earnings per share of the Participating
Convertible Preferred Stock is insignificant.
Reverse Stock Split: A reverse stock split of .2852325 common shares for
each share of common stock issued and outstanding was effected immediately prior
to the initial public offering. The consolidated financial statements and all
references to share and per share data have been adjusted to reflect the split
retroactively.
Fair Value of Financial Instruments: The financial statements include
estimated fair value information of financial instruments as required by
Statement of Financial Accounting Standards No. 107 (SFAS 107). Such information
is based on the requirements set forth in SFAS 107 and does not purport to
represent the aggregate net fair value of the Company. Further, the fair value
estimates are based on various assumptions, methodologies and subjective
considerations which vary widely among different financial institutions and
which are subject to change. The following methods and assumptions were used by
the Company in estimating financial instrument fair values:
Cash and Cash Equivalents: The balance sheet carrying amounts
approximate the estimated fair values of such assets.
Investment Securities: Fair values for investment securities are based
on quoted market prices, if available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable rate loans that reprice frequently and entail no
significant change in credit risk, fair values are based on the carrying
values. The fair values of other loans are estimated based on discounted
cash flow analysis using interest rates currently offered for loans with
similar terms to borrowers of similar credit quality. The carrying amount
of accrued interest approximates its fair value.
Deposit Liabilities: The fair values estimated for demand deposits
(interest and non-interest bearing accounts) are, by definition, equal to
the amount payable on demand at the reporting date (i.e., their carrying
amounts). The carrying amounts of variable rate, fixed-term money market
accounts and certificates of deposit approximate their fair values. Fair
values of fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered to a schedule of aggregated expected maturities. The carrying
amount of accrued interest payable approximates its fair value.
NOTE B -- INITIAL PUBLIC OFFERING AND EXTRAORDINARY CREDITS
In October, 1994, the Company consummated an initial public offering of
1,725,000 shares of its common stock at $11.50 per share, and received
$17,502,144 in proceeds from the offering, net of underwriting discount and
other expenses of $2,335,356. The Company applied $13,100,000 of the proceeds to
extinguish outstanding notes payable to an unaffiliated bank and $750,000 to pay
interest on subordinated debt. Concurrently with the public offering, a
$5,000,000 note payable with an unaffiliated bank was converted to Exchangeable
Redeemable Preferred Stock with unpaid interest of $1,026,330 being forgiven,
resulting in an extraordinary credit on forgiveness of debt of
F-8
<PAGE> 93
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$676,330, net of federal income tax of $350,000, and subordinated capital notes
of $6,000,000 and Series A Preferred Stock of $4,694,680 were converted to
Series C nonvoting Preferred Stock.
On January 31, 1995, all 50,000 outstanding shares of Exchangeable
Redeemable Preferred Stock were fully redeemed by the Company for $3,250,000,
resulting in an extraordinary credit in 1995 on the redemption of $1,155,000,
net of federal income tax of $595,000.
NOTE C -- INVESTMENT SECURITIES
Investment securities consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS (LOSSES) VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1995:
Available for sale:
U.S. Treasury............. $34,057,085 $ 392,034 $ (63,001) $34,386,118
U.S. Government
agencies................ 13,945,812 364,414 (625) 14,309,601
----------- -------- --------- -----------
$48,002,897 $ 756,448 $ (63,626) $48,695,719
=========== ======== ========= ===========
Held to maturity:
U.S. Treasury............. $19,850,115 $ 153,094 $ (1,022) $20,002,187
U.S. Government
agencies................ 5,506,665 78,486 5,585,151
Mortgage-backed........... 20,966,564 85,429 (139,988) 20,912,005
State, county, and
municipal............... 574,049 11,844 (646) 585,247
Other..................... 1,711,150 1,711,150
----------- -------- --------- -----------
$48,608,543 $ 328,853 $ (141,656) $48,795,740
=========== ======== ========= ===========
December 31, 1994:
Available for sale:
U.S. Treasury............. $32,293,355 $ 19,427 $(1,085,441) $31,227,341
U.S. Government
agencies................ 4,990,203 6,984 (94,062) 4,903,125
----------- -------- --------- -----------
$37,283,558 $ 26,411 $(1,179,503) $36,130,466
=========== ======== ========= ===========
Held to maturity:
U.S. Treasury............. $27,739,137 $ $ (957,584) $26,781,553
U.S. Government
agencies................ 6,878,073 (316,198) 6,561,875
Mortgage-backed........... 23,417,105 7,993 (1,207,085) 22,218,013
State, county, and
municipal............... 140,004 3,544 143,548
Other..................... 1,670,250 1,670,250
----------- -------- --------- -----------
$59,844,569 $ 11,537 $(2,480,867) $57,375,239
=========== ======== ========= ===========
</TABLE>
As permitted by the Financial Accounting Standards Board, in 1995 the
Company transferred held to maturity investments with a carrying value of
$11,983,080 to the available for sale category. The investments transferred had
unrealized gains of $265,822 on the transfer date.
F-9
<PAGE> 94
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated market value of investment securities at
December 31, 1995 by contractual maturity date are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Available for sale:
Due in one year or less.............................. $14,023,691 $14,012,359
Due after one year through five years................ 25,993,504 26,400,946
Due after five years through ten years............... 7,985,702 8,282,414
----------- -----------
$48,002,897 $48,695,719
=========== ===========
Held to maturity:
Due in one year or less.............................. $ 7,009,726 $ 7,012,399
Due after one year through five years................ 16,723,356 16,917,311
Due after five years through ten years............... 2,422,747 2,467,859
Due after ten years.................................. 1,486,150 1,486,166
Mortgage-backed securities........................... 20,966,564 20,912,005
----------- -----------
$48,608,543 $48,795,740
=========== ===========
</TABLE>
Realized gains and losses were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- --------- --------
<S> <C> <C> <C>
Realized gains and losses:
Available for sale:
Gross gains on sales....................... $64,537 $ 331,376
Gross losses on sales...................... -- (151,376)
------- --------
$64,537 $ 180,000
======= ========
Unclassified:
Gross gains on sales....................... $632,946
Gross losses on sales...................... (18,147)
--------
$614,799
========
</TABLE>
Investment securities with a book and market value of approximately $14
million and $10 million at December 31, 1995 and 1994, respectively, were
pledged to secure public deposits and for other purposes as required or
permitted by law.
F-10
<PAGE> 95
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- LOANS AND OTHER REAL ESTATE
Loans, net of unearned discounts of $544,203 and $1,656,729, consisted of
the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial........................................... $ 26,255,635 $ 30,285,950
Commercial real estate............................... 35,123,138 36,033,266
Mortgage............................................. 27,454,858 27,057,759
Construction......................................... 7,463,537 6,514,666
Installment.......................................... 157,363,478 167,259,230
Credit card.......................................... 16,390,082 16,510,714
Other................................................ 4,444,407 4,532,295
------------ ------------
Total loans................................ 274,495,135 288,193,880
Less allowance for loan losses....................... (3,177,157) (3,673,391)
------------ ------------
Net loans.......................................... $271,317,978 $284,520,489
============ ============
</TABLE>
Nonperforming assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Impaired loans....................................... $ 1,766,270 $ 3,330,975
Other real estate.................................... 3,077,621 4,596,831
------------ ------------
$ 4,843,891 $ 7,927,806
============ ============
</TABLE>
NOTE D -- LOANS AND OTHER REAL ESTATE
The carrying amounts and estimated fair values of performing loans, which
includes other loans past due 90 days or more that are not nonaccrual, are as
follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
PERFORMING LOANS AMOUNT FAIR VALUE
---------------- ------------- -------------
<S> <C> <C>
December 31, 1995:
Commercial......................................... $ 25,833,572 $ 26,175,596
Commercial real estate............................. 34,510,401 34,892,968
Mortgage........................................... 27,080,383 27,204,041
Construction....................................... 7,463,537 7,456,994
Installment........................................ 157,236,321 158,693,280
Credit card........................................ 16,390,082 16,390,082
Other.............................................. 4,444,263 4,444,407
------------ ------------
$ 272,958,559 $ 275,257,368
============ ============
December 31, 1994:
Commercial......................................... $ 28,732,451 $ 29,052,005
Commercial real estate............................. 35,265,018 35,608,232
Mortgage........................................... 26,628,218 26,574,284
Construction....................................... 6,507,055 6,478,086
Installment........................................ 167,165,356 167,925,123
Credit card........................................ 16,510,714 16,510,714
Other.............................................. 4,532,294 4,528,863
------------ ------------
$ 285,341,106 $ 286,677,307
============ ============
</TABLE>
F-11
<PAGE> 96
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loan impairment is measured by estimating the expected future cash flows
and discounting them at the respective effective interest rate or by valuing the
underlying collateral. The recorded investment in these loans at December 31,
1995, and the valuation allowance for credit losses related to the loan
impairment for the year then ended are as follows:
<TABLE>
<S> <C>
Principal amount of impaired loans...................................... $1,766,270
Less valuation allowance................................................ (186,000)
----------
$1,580,270
==========
</TABLE>
The average recorded investment in impaired loans for the year ended
December 31, 1995, was $1,773,417.
With the adoption of SFAS 114 effective January 1, 1995, a valuation for
credit losses related to impaired loans was established. The activity in the
allowance is as follows:
<TABLE>
<S> <C>
Valuation allowance at January 1, 1995.................................. $ 368,000
Net charges to operations for impairment................................ 96,000
Transfers to performing loans........................................... (278,000)
---------
Valuation allowance at December 31, 1995................................ $ 186,000
=========
</TABLE>
This valuation allowance is included in the allowance for loan losses on
the balance sheet.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful, at
which time payments received are recorded as reductions of principal. Total cash
collections on impaired loans during 1995 were approximately $1,282,000, all of
which was credited to the principal balance outstanding on such loans. Interest
that would have been accrued on impaired loans during 1995 was approximately
$140,000. Interest income that would have been accrued on nonaccrual loans
during 1994 and 1993 was approximately $240,000 and $234,000, respectively.
Interest income recognized during 1995 on impaired loans was approximately
$160,000.
Other real estate of $3,077,621 and $4,596,831 at December 31, 1995 and
1994, respectively, is valued at the lower of fair value, minus estimated costs
to sell (net fair value), or cost. Net fair value of other real estate was
approximately $3,895,000 and $5,820,000 at December 31, 1995 and 1994
respectively. Management expects to dispose of a significant portion of its
other real estate owned in 1996.
In the ordinary course of business, the Banks make loans to directors and
other related parties. Loans to related parties, including companies in which
they are principal owners, amounted to $5,817,000 and $8,150,000 at December 31,
1995 and 1994, respectively. New loans to such borrowers were approximately
$77,000 and $2,955,000 in 1995 and 1994, respectively. Repayments were
approximately $2,410,000 and $4,498,000 in 1995 and 1994, respectively. During
1995, the Banks recovered approximately $130,000 of related party loans charged
off in prior years, and had no charge-offs. During 1994, the Banks did not
recover or charge-off any related party loans. In addition, the Banks purchase
indirect dealer paper from automobile dealerships owned by the Company's
Chairman. Loans purchased amounted to approximately $17,100,000 and $27,800,000
during 1995 and 1994, respectively, and the principal balances for all such
purchased loans amounted to approximately $39,800,000 and $48,500,000 at
December 31, 1995 and 1994, respectively.
F-12
<PAGE> 97
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Banks extend credit on both a secured and unsecured basis to customers
located in San Antonio, Texas and the surrounding area. Kelly also extends
credit, primarily through installment loans, to active and retired military
personnel and families located outside of the San Antonio area. Collateral on
secured loans generally consists of real estate (commercial, residential, and
agricultural), business inventories, receivables and equipment, vehicles, and
liquid assets.
Loan commitments (unfunded loans and unused lines of credit) are made to
accommodate the financial needs of the banks' customers. Standby letters of
credit are provided to certain customers and are conditional commitments by the
banks to guarantee performance of a customer to a third party. Both arrangements
have credit risk essentially the same as that involved in extending loans to
customers and are subject to the banks' normal credit policies. A customer's
credit worthiness is evaluated on a case by case basis and the amount of
collateral obtained, if any, is based on management's credit evaluation of the
customer. At December 31, 1995, unfunded loan commitments totaled $55,683,000
(credit card lines of $31,659,000, executive credit lines of $13,062,000, and
home equity and commercial loans of $10,962,000), most of which expire in 1996.
At December 31, 1995, commitments under standby letters of credit totaled
$886,000. There is no material difference between the carrying amount and
estimated fair value of these off-balance sheet items.
NOTE E -- ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1...................... $ 3,673,391 $ 4,310,324 $ 5,362,542
Additions charged to operations........... 1,130,000 735,000 280,000
Recoveries credited to the allowance...... 850,390 836,553 1,262,737
Losses charged to the allowance........... (2,476,624) (2,208,486) (2,594,955)
----------- ----------- -----------
Balance at December 31.................... $ 3,177,157 $ 3,673,391 $ 4,310,324
=========== =========== ===========
</TABLE>
NOTE F -- PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land................................................. $ 8,030,148 $ 11,018,765
Buildings and improvements........................... 27,756,386 29,810,540
Furniture and equipment.............................. 6,594,759 6,128,850
------------ ------------
42,381,293 46,958,155
Less accumulated depreciation........................ (16,207,917) (17,095,518)
------------ ------------
$ 26,173,376 $ 29,862,637
============ ============
</TABLE>
The Banks also lease certain equipment and office space under short-term
operating leases. Expenses and future obligations relating to operating leases
are not significant.
F-13
<PAGE> 98
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- DEPOSIT LIABILITIES
The carrying amounts and estimated fair values of deposits consisted of the
following at December 31:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
-------------- ------------
<S> <C> <C>
December 31, 1995:
Noninterest-bearing $ 100,875,206 $100,875,206
Interest-bearing 320,056,656 320,287,644
------------ ------------
$ 420,931,862 $421,162,850
============ ============
December 31, 1994:
Noninterest-bearing $ 98,153,066 $ 98,153,066
Interest-bearing 309,424,121 309,107,847
------------ ------------
$ 407,577,187 $407,260,913
============ ============
</TABLE>
Interest bearing certificates of deposit of $100,000 or more amounted to
$30,633,000 and $21,886,000 at December 31, 1995 and 1994, respectively.
NOTE H -- CASH FLOW DATA
Cash payments for interest and taxes were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Interest:
Deposits................................ $10,932,058 $8,665,418 $8,645,978
Notes payable and subordinated debt..... 56,219 1,942,668 547,717
Other borrowed funds.................... 210,386 112,206 93,833
Taxes..................................... 1,360,000 203,575 1,600
</TABLE>
During 1995, 1994, and 1993, the Banks foreclosed on loans amounting to
$406,972, $386,118 and $151,791, respectively, with the balances being recorded
as other real estate upon foreclosure. The Banks also financed the sale of other
real estate in the amount of $258,134, $464,126 and $1,922,146 in 1995, 1994 and
1993, respectively.
During 1994, subordinated capital notes of $6,000,000 and Series A
Preferred Stock of $4,694,680 were converted to Series C nonvoting Preferred
Stock.
During 1994, $5,000,000 of notes payable were converted to Exchangeable
Redeemable Preferred Stock.
F-14
<PAGE> 99
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- INCOME TAXES
Deferred income taxes resulted from the following temporary differences and
loss carryforwards at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses............................... $1,080,000 $1,250,000
Other real estate owned................................. 629,000 1,065,000
Loss and tax credit carryforwards....................... 1,030,000
Unrealized losses on available for sale securities...... 500,000
---------- ----------
Gross deferred tax asset........................ 1,709,000 3,845,000
Deferred tax liabilities:
Premises and equipment.................................. 348,000 886,000
Deferred gain........................................... 595,000
Unrealized gains on available for sale securities....... 161,000
Other................................................... 216,000 59,000
---------- ----------
Gross deferred tax liability.................... 1,320,000 945,000
---------- ----------
Net deferred tax asset.................................... $ 389,000 $2,900,000
========== ==========
</TABLE>
Income tax expense (benefit) from continuing operations consisted of the
following for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- ---------
<S> <C> <C> <C>
Current....................................... $1,271,572 $203,575 $ 1,600
Deferred...................................... 1,255,000 550,000 (500,000)
---------- -------- ---------
Total income tax expense
(benefit)......................... $2,526,572 $753,575 $(498,400)
========== ======== =========
</TABLE>
Income tax expense (benefit) for financial reporting purposes differs from
the amount computed by applying the statutory federal income tax rate (34%) to
the earnings before income taxes for the years ended December 31, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Expense at statutory rate.................. $2,646,776 $ 1,967,675 $ 2,050,121
Tax effects of:
Tax exempt interest...................... (6,802) (7,710) (17,055)
Changes in valuation allowance........... (1,758,000) (2,486,935)
Settlement of prior years' tax
examinations.......................... 548,866
Other.................................... (113,402) 2,744 (44,531)
---------- ----------- -----------
$2,526,572 $ 753,575 $ (498,400)
========== =========== ===========
</TABLE>
In 1991, the IRS initiated an examination of the Company's federal income
tax returns for the years 1985 through 1989. As a result of such examinations,
the IRS sought to disallow portions of amortization charges taken during the
period 1985 through 1987. In 1994, the Company and the IRS agreed to a
settlement of all outstanding issues with respect to the 1985 through 1989
federal income tax returns. As a result of the settlement, the Company paid the
IRS $190,575 in federal income taxes, $175,334 in interest, and reduced its
available net operating loss carryforward by $1,053,797, resulting in a deferred
tax asset adjustment of $358,291.
F-15
<PAGE> 100
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- PREFERRED STOCK
Preferred Stock included in stockholders' equity consisted of the following
at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Participating Convertible Preferred Stock, par value $2.50
per share:
Authorized -- 18,275 shares
Issued and outstanding -- 5,125 shares in 1995 and
10,625 shares in 1994................................ $ 12,792 $ 26,542
Series C Preferred Stock, par value $100 per share:
Authorized -- 150,000 shares
Issued and outstanding -- 86,947 shares................. 8,694,700 8,694,700
---------- ----------
$8,707,492 $8,721,242
========== ==========
</TABLE>
Participating Convertible Preferred Stock
Holders of nonvoting Participating Convertible Preferred Stock are entitled
to receive dividends at a rate per share equal to one third the per share rate
of any dividends declared and paid on Common Stock. Such stock may be converted
into Common Stock at the election of the holder at a rate of 10.5177 shares for
one share of Common Stock. The stock may be redeemed at par value at the
election of the Company.
Series C Preferred Stock
The Series C Preferred Stock was issued simultaneously with the initial
public offering to the majority shareholder of the Company in exchange for
subordinated debt of $6,000,000 previously due the shareholder and $4,694,680
Series A Preferred Stock. $2,000,000 of the Series C Preferred Stock was
subsequently redeemed.
The Series C Preferred Stockholders are entitled to noncumulative dividends
at a rate of 7.5%. Shares may not be redeemed if any shares of Exchangeable
Redeemable Preferred Stock are outstanding.
Exchangeable Redeemable Preferred Stock
The Company has authorized 200,000 shares of Exchangeable Redeemable
Preferred Stock, par value $100 per share. There were 50,000 outstanding shares
at December 31, 1994, all of which were redeemed in 1995.
NOTE K -- STOCK OPTIONS
The Company has two separate stock option plans at December 31, 1995:
Old Stock Option Plan: The Company has a non-qualified Stock Option Plan
that provided for the granting of options to officers and directors of the
Company and its subsidiaries. A total of 99,831 shares of Common Stock have been
reserved for the granting of options under this plan. In March 1993, options to
purchase 99,831 shares of Common Stock at $5.26 per share were issued to certain
officers and directors of the Company. Such options expire March 30, 2003, with
earlier expiration in certain situations.
1994 Incentive Stock Option Plan: The 1994 Incentive Stock Option Plan
provides for the granting of options to officers and employees of the Company
and its subsidiaries. A total of
F-16
<PAGE> 101
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
350,000 shares of Common Stock have been reserved for granting of options under
this plan. Awards under this plan may be made in the form of incentive stock
options, non-qualified stock options, stock appreciation rights and restricted
stock. The option exercise price shall be no less than the fair market value of
a share of Common Stock on the date of grant. Generally, an option will not be
exercisable less than one year after the date of grant and will become
exercisable in equal installments on the first through fourth anniversaries of
grant. Expiration of the options occur following termination of employment.
During 1995, the Company granted options to certain directors, officers and
employees allowing for the purchase of 105,000 shares of the Company's common
stock. The options are exercisable at the fair market value of the Company's
common stock on date of grant and expire upon termination of employment.
NOTE L -- CONTINGENCIES
The Banks are defendants in various matters in litigation which have arisen
in the normal course of conducting a commercial banking business. In the opinion
of management the disposition of such pending litigation will not have a
material effect on the Company's consolidated financial condition or results of
operations.
NOTE M -- REGULATORY MATTERS
On February 2, 1995 the Company received notification that the Memorandum
of Understanding with the Federal Reserve Bank was terminated.
The Company and the Banks are subject to various regulatory capital
requirements administered by federal banking agencies. These capital
requirements represent quantitative measures of the Company's and the Banks'
assets, liabilities, and certain off balance sheet items as calculated under
regulatory accounting principles. The Company's and the Banks' capital
classifications are also subject to qualitative judgements by the regulators
about components, risk weighting, and other factors. Management believes that as
of December 31, 1995, the Company and Banks exceeded the required capital
requirements to which they are subject.
The amount of dividends available for declaration by the Banks, without
prior regulatory approval, is $8,484,270 at December 31, 1995.
NOTE N -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides summary information on the fair value of
financial instruments and also references to the location in the financial
statements where more detailed information can be obtained.
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT OF FAIR VALUE OF AMOUNT OF FAIR VALUE OF
ASSETS ASSETS ASSETS ASSETS
(LIABILITIES) (LIABILITIES) (LIABILITIES) (LIABILITIES)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and equivalents (Note A)... $ 71,762,978 $ 71,762,978 $ 37,121,213 $ 37,121,213
Investment securities (Note
C)............................ 97,304,262 97,491,459 95,975,035 93,505,705
Performing loans (Note D)....... 272,958,559 275,257,368 285,341,106 286,677,307
Other real estate (Note D)...... 3,077,621 3,625,000 4,596,831 5,820,000
Deposits (Note G)............... (420,931,862) (421,162,850) (407,577,187) (407,260,913)
</TABLE>
F-17
<PAGE> 102
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- MERGER WITH NORWEST CORPORATION
On December 21, 1995, the Company and Norwest Corporation (Norwest) signed
a definitive agreement pursuant to which the Company will merge with a
subsidiary of Norwest.
Under the terms of the Agreement, each share of the Company will be valued
at $20 and will be exchanged for shares of common stock of Norwest. The Norwest
stock will be valued at not less than $28.50 nor more than $36.50 per share,
based on the average of closing prices on the New York Stock Exchange during the
10 trading days immediately prior to the meeting the Company's stockholders hold
to vote on the Agreement. The Company has the right to terminate the transaction
if the applicable value of the Norwest stock is less than $27.00 per share.
The consummation of the Agreement is subject to the approval by the
Company's stockholders and by certain federal and state regulatory authorities,
and to certain other conditions. If successful, the Agreement is expected to be
closed by May 31, 1996; however, there are no assurances the Agreement will be
approved by all relevant parties. The Agreement may be terminated by mutual
written consent of the companies or by either company if the merger is not
consummated by August 31, 1996.
F-18
<PAGE> 103
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE P -- CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash and due from banks........................................ $ 344,170 $ 21,328
Interest-bearing deposits...................................... 6,434 1,443,959
Investment in subsidiaries:
Kelly Field National Bank.................................... 23,624,965 20,766,349
Groos Bank, N.A.............................................. 24,159,948 22,438,646
Bancshares Life Insurance Company............................ 616,977 527,017
----------- -----------
48,401,890 43,732,012
Premises and equipment......................................... 42,166 19,518
Income taxes receivable........................................ 520,067 542,700
Deferred income tax asset...................................... 1,016,047
Other assets................................................... 3,227,801 3,090,126
----------- -----------
$52,542,528 $49,865,690
============ ============
LIABILITIES
Deferred income tax liability.................................. $ 1,220,000 $
Other liabilities.............................................. 59,559 256,968
----------- -----------
Total Liabilities.................................... 1,279,559 256,968
EXCHANGEABLE REDEEMABLE PREFERRED STOCK........................ 5,000,000
STOCKHOLDERS' EQUITY
Preferred Stock................................................ 8,707,492 8,721,242
Common Stock................................................... 372,451 372,399
Surplus........................................................ 37,668,133 37,654,435
Retained earnings (deficit).................................... 4,202,045 (1,181,845)
Unrealized gains (losses) on securities........................ 312,848 (957,509)
----------- -----------
Total Stockholders' Equity........................... 51,262,969 44,608,722
----------- -----------
$52,542,528 $49,865,690
============ ============
</TABLE>
F-19
<PAGE> 104
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries...................... $3,500,000 $ $2,500,000
Equity in undistributed net earnings of
subsidiaries.................................. 3,185,342 7,323,465 4,460,204
Other operating income........................... 1,110,780
Interest income.................................. 14,809 38,019 6,741
---------- ---------- ----------
TOTAL INCOME............................. 7,810,931 7,361,484 6,966,945
Expenses:
Interest expense................................. 56,219 1,348,948 1,615,798
Salaries and benefits............................ 1,579,654 417,421 99,031
Occupancy and equipment expenses................. 140,248 111,372 103,865
Other operating expenses......................... 819,289 557,738 596,681
---------- ---------- ----------
TOTAL EXPENSES........................... 2,595,410 2,435,479 2,415,375
---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY CREDIT................... 5,215,521 4,926,005 4,551,570
Income tax benefit................................. 42,543 107,700 1,976,600
Extraordinary credit, net of tax................... 1,155,000 676,330
---------- ---------- ----------
NET EARNINGS............................. $6,413,064 $5,710,035 $6,528,170
========== ========== ==========
</TABLE>
F-20
<PAGE> 105
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings............................... $ 6,413,064 $ 5,710,035 $ 6,528,170
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation............................ 111,493 111,372 103,865
Amortization............................ 11,100 11,100 11,100
Deferred income taxes................... 1,641,047 1,580,083 (330,000)
Equity in undistributed net earnings of
subsidiaries.......................... (3,185,342) (7,323,465) (4,460,204)
Extraordinary credit, net of tax........ (1,155,000) (676,330)
Changes in operating assets and
liabilities:
Accrued interest payable.............. (1,620,050) 974,248
Other, net............................ (448,683) 634,472 (724,322)
----------- ------------ -----------
Net Cash Provided (Used) By Operating
Activities.............................. 3,387,679 (1,572,783) 2,102,857
INVESTING ACTIVITIES
Investments in subsidiaries................ (1,000,000)
Purchases of equipment..................... (48,292) (27,025)
----------- ------------ -----------
Net Cash (Used) By Investing Activities.... (48,292) (27,025) (1,000,000)
FINANCING ACTIVITIES
Borrowings on notes payable................ 2,250,000
Payments on notes payable.................. (2,250,000) (16,100,000)
Net proceeds from initial public offering
of stock................................ 17,502,144
Other issuances of stock................... 26,452
Redemption of preferred stock.............. (3,250,000)
Dividends paid............................. (1,204,070)
----------- ------------ -----------
Net Cash Provided (Used) By Financing
Activities.............................. (4,454,070) 1,402,144 26,452
----------- ------------ -----------
Increase (Decrease) In Cash................ (1,114,683) (197,664) 1,129,309
Cash at beginning of year.................... 1,465,287 1,662,951 533,642
----------- ------------ -----------
CASH AT END OF YEAR.......................... $ 350,604 $ 1,465,287 $ 1,662,951
=========== ============ ===========
</TABLE>
F-21
<PAGE> 106
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following quarterly information is unaudited. However, in the opinion
of management, the information fairly presents the financial condition and
results of operations for such periods.
CONSOLIDATED EARNINGS AND EARNINGS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
1995
---------------------------------------
1ST 2ND 3RD 4TH
------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Interest income...................................... $7,746 $8,063 $8,256 $8,393
Interest expense..................................... 2,579 2,822 2,995 3,020
------ ------ ------ ------
Net interest income........................ 5,167 5,241 5,261 5,373
Provision for losses................................. 150 265 405 310
Noninterest income................................... 1,921 1,810 1,888 2,005
Noninterest expense.................................. 5,049 5,112 4,555 5,035
------ ------ ------ ------
Net earnings before income tax and
extraordinary credit..................... 1,889 1,674 2,189 2,033
Income tax expense................................... 528 576 737 686
Extraordinary credit, net of tax..................... 1,155
------ ------ ------ ------
Net earnings............................... $2,516 $1,098 $1,452 $1,347
====== ====== ====== ======
Earnings Per Common Share
Before extraordinary credit.......................... $ 0.32 $ 0.25 $ 0.33 $ 0.31
Extraordinary credit................................. 0.30
------ ------ ------ ------
Earnings per share......................... $ 0.62 $ 0.25 $ 0.33 $ 0.31
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------
1ST 2ND 3RD 4TH
------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Interest income...................................... $7,197 $7,377 $7,577 $7,831
Interest expense..................................... 2,503 2,585 2,718 2,395
------ ------ ------ ------
Net interest income........................ 4,694 4,792 4,859 5,436
Provision for losses................................. 230 180 150 175
Noninterest income................................... 2,107 1,671 1,784 1,699
Noninterest expense.................................. 5,287 4,990 4,965 5,277
------ ------ ------ ------
Net earnings before income tax and
extraordinary credit..................... 1,284 1,293 1,528 1,683
Income tax expense (benefit)......................... 228 (29) 3 552
Extraordinary credit, net of tax..................... -- -- -- 676
------ ------ ------ ------
Net earnings............................... $1,056 $1,322 $1,525 $1,807
====== ====== ====== ======
Earnings Per Common Share
Before extraordinary credit.......................... $ 0.53 $ 0.63 $ 0.74 $ 0.25
Extraordinary credit................................. -- -- -- .18
------ ------ ------ ------
Earnings per share......................... $ 0.53 $ 0.63 $ 0.74 $ 0.43
====== ====== ====== ======
</TABLE>
F-22
<PAGE> 107
BENSON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATED BALANCE SHEETS -- SELECTED AVERAGES
(UNAUDITED)
<TABLE>
<CAPTION>
1995
--------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total assets................................... $458,919 $461,257 $470,465 $470,887
Loans, net..................................... 282,343 278,159 274,461 271,553
Deposits....................................... 309,209 311,173 319,302 319,576
Stockholders' equity........................... 46,028 48,218 49,496 50,754
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total assets................................... $462,713 $463,062 $467,330 $467,498
Loans, net..................................... 257,684 259,327 272,869 281,933
Deposits....................................... 411,839 412,401 415,763 412,473
Stockholders' equity........................... 19,778 19,803 20,945 44,045
</TABLE>
F-23
<PAGE> 108
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 109
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 21st day of December, 1995, as amended, by and between BENSON FINANCIAL
CORPORATION ("BENSON"), 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 Benson (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
Benson of the par value of $.10 per share ("Benson Common Stock") and Series C
Preferred Stock, $100 par value per share ("Series C 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 Benson pursuant to the Merger Agreement, with
Benson as the surviving corporation, in which merger:
(i) each share of Benson 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 and
other than shares of Common Stock held in Benson's treasury) will be
converted into and exchanged for the number of fully paid and nonassessable
shares of Norwest Common Stock determined by dividing $20 by the Norwest
Measurement Price (defined below) (the "Exchange Ratio");
(ii) each share of Series C Preferred Stock issued and outstanding
immediately prior to the Effective Time of the Merger (other than shares of
Series C Preferred Stock held in Benson's treasury), will be converted into
and exchanged for the number of shares of Norwest Common Stock determined
by dividing the "Redemption Price Per Share" by the Norwest Measurement
Price. For purposes of the foregoing, the Redemption Price Per Share shall
equal the par value per share plus accrued but unpaid dividends per share
to the Effective Time of the Merger;
(iii) the shares of Benson Common Stock subject to each unexercised
1994 Option (as defined in paragraph 4(p)) of the Agreement) having an
exercise price that is less than the "Fair Market Value" (as defined below)
per share of Benson Common Stock and whose holder shall have entered into
an agreement with Benson pursuant to paragraph 4(p) hereof (the "Option
Shares"), shall be converted into and exchanged for that number of fully
paid and nonassessable shares of Norwest Common Stock determined as
follows: (A) by dividing (1) the aggregate Fair Market Value of the Option
Shares less the aggregate exercise price thereof by (2) the Fair Market
Value of one share of Benson Common Stock and then (B) multiplying the
number obtained as the result of such division by the Exchange Ratio; and
(iv) all shares of Benson Common Stock owned by Benson or any
subsidiary thereof, or by Norwest, or Merger Co. shall be canceled. Each
share of Merger Co. common stock shall be converted into and exchanged by
virtue of the Merger into shares of the surviving corporation.
A-1
<PAGE> 110
For purposes of the above, the term "Fair Market Value" with respect to
Benson Common Stock shall mean $20. The "Norwest Average 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 10
trading days ending on the day immediately preceding the meeting of shareholders
required by paragraph 4(c) of this Agreement and on which the vote referred to
therein is taken. The "Norwest Measurement Price" means (i) the Norwest Average
Price if such average is greater than $28.50 and less than $36.50, (ii) $28.50
if such average is equal to or less than $28.50, or (iii) $36.50 if such average
is equal to or greater than $36.50.
(b) At the Effective Time, each option granted by Benson to purchase shares
of Benson Common Stock under Benson's 1992 Nonqualified Stock Option Plan ("1992
Plan") which is outstanding and unexercised immediately prior to thereto ("1992
Stock Options") shall be converted automatically into an option to purchase
shares of Norwest Common Stock in an amount and at an exercise price determined
as provided below (and otherwise subject to the terms of the 1992 Plan and
related original option agreement between Benson and a 1992 Stock Option holder,
if granted thereunder);
(i) The number of shares of Norwest Common stock to be subject to the
new option shall be equal to the product of the number of shares of Benson
Common Stock subject to the original option and the Exchange Ratio,
provided that any fractional shares of Norwest Common Stock resulting from
such multiplication shall be rounded down to the nearest share; and
(ii) The exercise price per share of Norwest Common Stock under the
new option shall be equal to the exercise price per share of Benson Common
Stock under the original option divided by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 22 of the Code) shall be and is
intended to be effected in a manner which is consistent with Section 424(a) of
the Code. The shares of Norwest Common Stock which will be issued pursuant to
this Agreement pursuant to a conversion of a share of Benson Common Stock with
forfeiture restrictions under the 1992 Plan immediately prior to the Effective
Time shall be subject to such restrictions and the terms of such plan and any
related agreements as if such shares of Norwest Common Stock had remained shares
of Benson Stock.
(c) Norwest Common Stock Adjustments. If, between the date hereof and the
Effective Time of the Merger, shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared with a
record date within such period (a "Common Stock Adjustment"), then (i) the
number of shares of Norwest Common Stock into which a share of Benson Common
Stock or Series C Preferred Stock shall be converted pursuant to subparagraph
(a), above, will be appropriately and proportionately adjusted so that the
number of such shares of Norwest Common Stock into which a share of Benson
Common Stock or Series C Preferred Stock shall be converted will equal the
number of shares of Norwest Common Stock which holders of shares of Benson
Common Stock or Series C Preferred Stock would have received pursuant to such
Common Stock Adjustment had the record date therefor been immediately following
the Effective Time of the Merger; and (ii) if a Norwest Common Stock Adjustment
occurs between the date hereof and any date that the closing price of a share of
Norwest Common Stock is used for purpose of this Agreement or the Merger
Agreement, the closing price of a share of Norwest Common Stock for such
purposes shall be the sum of the closing prices on the date of each such
determination of the number of shares of Norwest Common Stock and/or securities,
if any, (in each case as reported on the consolidated tape of the New York Stock
Exchange on such date) issued with respect to one share of Norwest Common Stock
as a result of the Norwest Common Stock Adjustment.
A-2
<PAGE> 111
(d) Fractional Shares. No fractional shares of Norwest Common Stock and no
certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest to
which such holder is entitled by the Norwest Average Price.
(e) 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 one (1) business day 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 and,
subject to the terms and conditions of this Agreement, to use their reasonable
best efforts to cause the Merger to be effective by May 31, 1996. 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. Minneapolis, Minnesota 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 Benson 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 BENSON. Benson represents and
warrants to Norwest as follows:
(a) Organization and Authority. Benson 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 Benson and the Benson 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. Benson 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"). Benson has furnished Norwest true and correct
copies of its articles of incorporation and by-laws, as amended.
(b) Benson's Subsidiaries. Schedule 2(b) sets forth a complete and correct
list of all of Benson's subsidiaries as of the date hereof (individually a
"Benson Subsidiary" and collectively the "Benson 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 Benson. No equity security of any
Benson Subsidiary is or may be required to be issued by reason of any option,
warrant, scrip, preemptive right, right to subscribe to, call or commitment of
any character whatsoever relating to, 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 Benson 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. sec. 55 (1982) and the Texas Business Corporation Act, all of such
shares so owned by Benson 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 Benson 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), Benson does not own beneficially, directly or indirectly, more
than 5% of any class
A-3
<PAGE> 112
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 Benson consists of
20,000,000 shares of Benson Common Stock, $.10 par value, of which as of the
close of business on September 30, 1995, 3,724,406 shares were outstanding and
no shares were held in the treasury, 18,275 shares of Convertible Participating
Preferred Stock, $2.50 par value, of which as of the close of business on
September 30, 1995, 6,125 shares were outstanding and no shares were held in the
treasury ("Participating Preferred Stock"), 150,000 shares of Series C Preferred
Stock of which 86,947 shares were outstanding and no shares were held in the
treasury, 50,000 shares of TCB Exchangeable Preferred Stock, $100 par value, of
which no shares were outstanding or held in the treasury, 1,000,000 shares of
Series A Preferred Stock, $10.00 par value, of which no shares were outstanding
or held in the treasury and 5,781,725 shares of preferred stock, $.10 par value
undesignated as to series, of which no shares were outstanding or held in the
treasury. The maximum number of shares of Benson Common Stock (assuming for this
purpose that phantom shares and other share-equivalents constitute Benson Common
Stock) that would be outstanding as of the Effective Date of the Merger if all
options, warrants, conversion rights and other rights with respect thereto, were
exercised is 3,929,820. All of the outstanding shares of capital stock of Benson
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 Benson or any Benson Subsidiary to
issue, sell or otherwise dispose of, or to purchase, redeem or otherwise
acquire, any shares of capital stock of Benson or any Benson Subsidiary. Since
September 30, 1995, except as permitted or contemplated by this Agreement, no
shares of Benson capital stock have been purchased, redeemed or otherwise
acquired, directly or indirectly, by Benson or any Benson Subsidiary and no
dividends or other distributions have been declared, set aside, made or paid to
the shareholders of Benson.
There are no cumulated and unpaid dividends with respect to the
Participating Preferred Stock or Series C Preferred Stock. The Conversion Price
is as defined in the "Restatement of Designated Rights and Preferences of
Preferred Stock, Par Value $2.50" filed on September 26, 1990 at the Office of
the Secretary of State of Texas. Except as stated on Schedule 2(c), there have
been no adjustments to the Conversion Price for each share of Participating
Preferred Stock.
(d) Authorization. Benson 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 Benson and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of
Benson. Subject to such approvals of shareholders and of government agencies and
other governing boards having regulatory authority over Benson as may be
required by statute or regulation, this Agreement and the Merger Agreement are
valid and binding obligations of Benson enforceable against Benson in accordance
with their respective terms.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by Benson of this Agreement or the Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor compliance
by Benson 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 Benson or any Benson 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 Benson or
any Benson Subsidiary is a party or by which it may be bound, or to which
A-4
<PAGE> 113
Benson or any Benson Subsidiary or any of the properties or assets of Benson or
any Benson 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 Benson, violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to Benson or any Benson
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
Benson of the transactions contemplated by this Agreement and the Merger
Agreement.
(e) Benson Financial Statements. The consolidated balance sheets of Benson
and Benson's Subsidiaries as of December 31, 1994 and 1993 and related
consolidated statements of earnings, shareholders' equity and cash flows for the
three years ended December 31, 1994, together with the notes thereto, certified
by Grant Thornton LLP and included in Benson's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (the "Benson 10-K") as filed with the
Securities and Exchange Commission (the "SEC"), and the unaudited consolidated
statements of financial condition of Benson and Benson's Subsidiaries as of
September 30, 1995 and the related unaudited consolidated statements of
earnings, shareholders' equity and cash flows for the 9 months then ended
included in Benson's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995 as filed with the SEC (collectively, the "Benson 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 Benson and Benson's
Subsidiaries at the dates and the consolidated results of operations and cash
flows of Benson and Benson's Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1990, Benson and each Benson 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 Federal Deposit Insurance Corporation (the
"FDIC"), (iv) the United States Comptroller of the Currency (the "Comptroller")
and (v) any applicable state securities or banking authorities. All such reports
and statements filed with any such regulatory body or authority are collectively
referred to herein as the "Benson Reports". As of their respective dates, the
Benson Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and applicable state securities or banking authorities, as the case
may be, and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Copies of all the Benson Reports have been made available
to Norwest by Benson.
(g) Properties and Leases. Except as may be reflected in the Benson
Financial Statements and except for any lien for current taxes not yet
delinquent, Benson and each Benson 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 Benson's
consolidated balance sheet as of September 30, 1995 included in Benson'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 as has been disposed of in the ordinary course of business. All leases
of real property and all other leases material to Benson or any Benson
Subsidiary pursuant to which Benson or such Benson Subsidiary, as lessee, leases
real or personal property, which leases are
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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 Benson or such Benson Subsidiary or any event which, with notice or
lapse of time or both, would constitute such a material default. Substantially
all Benson's and each Benson 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 Benson and the Benson Subsidiaries has filed all
federal, state, county, local and foreign tax returns, including information
returns, required to be filed by it, and paid all taxes owed by it, including
those with respect to income, withholding, social security, unemployment,
workers compensation, franchise, ad valorem, premium, excise and sales taxes,
and no taxes shown on such returns to be owed by it or assessments received by
it are delinquent. The federal income tax returns of Benson and the Benson
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 Benson nor any Benson 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 Benson or any Benson
Subsidiary which has not been settled, resolved and fully satisfied. Each of
Benson and the Benson 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 Benson and the Benson Subsidiaries with respect
to all periods through the date thereof.
(i) Absence of Certain Changes. Since December 31, 1994 there has been no
change in the business, financial condition or results of operations of Benson
or any Benson 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 Benson and the Benson 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).
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
neither Benson nor any Benson 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 Benson or such Benson 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 containing covenants which limit the ability of
Benson or any Benson Subsidiary to compete in any line of business or with
any person or which involve any restriction of the geographical area in
which, or method by which, Benson or any Benson Subsidiary may carry on its
business (other than as may be required by law or applicable regulatory
authorities);
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(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $25,000 or
more; or
(vii) any agreement or commitment with respect to the Community
Reinvestment Act with any state or federal bank regulatory authority or any
other party; or
(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.
(k) Litigation and Other Proceedings. Benson has furnished Norwest copies
of (i) all attorney responses to the request of the independent auditors for
Benson with respect to loss contingencies as of December 31, 1994 in connection
with the Benson financial statements included in the Benson 10-K, and (ii) a
written list of legal and regulatory proceedings filed against Benson or any
Benson Subsidiary since said date. Neither Benson nor any Benson Subsidiary is a
party to any pending or, to the best knowledge of Benson, 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 Benson and the Benson
Subsidiaries taken as a whole.
(l) Insurance. Except as set forth on Schedule 2(l), Benson and each
Benson Subsidiary is presently insured, and during each of the past five
calendar years (or during such lesser period of time as Benson has owned such
Benson 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. Benson and each Benson Subsidiary has all
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to own
or lease its properties and assets and to carry on its business as presently
conducted and that are material to the business of Benson or such Benson
Subsidiary; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best knowledge of Benson, no
suspension or cancellation of any of them is threatened; and all such filings,
applications and registrations are current. The conduct by Benson and each
Benson 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 Benson nor any Benson 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 Benson or any Benson Subsidiary
which reasonably could be expected to have a material adverse effect on the
business or properties of Benson and the Benson Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Benson or any Benson Subsidiary is
pending or, to the best knowledge of Benson, threatened. Neither Benson nor any
Benson 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 Benson or such Benson
Subsidiary. Employees of Benson and the Benson Subsidiaries are not represented
by any labor union nor are any collective bargaining agreements otherwise in
effect with respect to such employees.
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(o) Material Interests of Certain Persons. Except as set forth on Schedule
2(o), to the best knowledge of Benson no officer or director of Benson or any
Benson Subsidiary, or any "associate" (as such term is defined in Rule 14a-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 Benson or any Benson Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from
Benson or any Benson Subsidiary to any present officer, director, employee or
any affiliate or related interest of any such person and any loan to such person
which was required under Regulation O of the Federal Reserve Board to be
approved by or reported to a Benson Subsidiary's Board of Directors.
(p) Benson 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 Benson or any Benson Subsidiary acts as the plan
sponsor as defined in ERISA Section 3(16)(B), or with respect to which any
material liability under ERISA otherwise exists or may be incurred by
Benson or any Benson 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), Benson or the Benson subsidiaries have
received favorable determination letters from the Internal Revenue Service
under the provisions of the Tax Equity and Fiscal Responsibility Act
("TEFRA"), the Deficit Reduction Act ("DEFRA") and the Retirement Equity
Act ("REA") for each of the Plans to which the qualification requirements
of Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), apply. Benson knows of no reason that any Plan which is subject to
the qualification provisions of Section 401(a) of the Code is not
"qualified" within the meaning of Section 401(a) of the Code and that each
related trust is not exempt from taxation under Section 501(a) of the Code.
(iii) The present value of all benefits vested and all benefits
accrued under each Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Plan as of the end of the most
recent Plan year exceed the value of the assets of the Plan allocable to
such vested or accrued benefits.
(iv) Except as disclosed in Schedule 2(p), and to the best knowledge
of Benson, 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) with respect thereto, or violated any of the
fiduciary standards under Part 4 of Title I of ERISA which could subject,
to the best knowledge of Benson, such Plan or trust, or any trustee,
fiduciary or administrator thereof, to the tax or penalty on prohibited
transactions imposed by said sections which would result in material
liability to Benson and the Benson Subsidiaries taken as a whole.
(v) No Plan which is subject to Title IV of ERISA or any trust created
thereunder has been terminated, nor have there been any "reportable events"
as that term is defined in Section 4043 of ERISA, with respect to any Plan,
other than those events which may result from the transactions contemplated
by this Agreement and the Merger Agreement.
(vi) No Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), since the effective date of ERISA.
(vii) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement nor the consummation of
the transactions contemplated
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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 Benson or any Benson Subsidiary under any Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Plan or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits to any material extent.
(q) Proxy Statement, etc. None of the information regarding Benson and the
Benson Subsidiaries supplied or to be supplied by Benson 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 Benson Common Stock pursuant to the provisions of the Merger Agreement
(the "Registration Statement"), (ii) the proxy statement to be mailed to
Benson'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 Benson and the Benson
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 Benson nor any Benson Subsidiary is under any obligation, contingent or
otherwise, by reason of any agreement to register any of its securities under
the Securities Act.
(s) Brokers and Finders. Except for Hoefer & Arnett, neither Benson nor
any Benson 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 Benson or any Benson
Subsidiary in connection with this Agreement and the Merger Agreement or the
transactions contemplated hereby and thereby.
(t) Administration of Trust Accounts. Benson and each Benson Subsidiary
has properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of Benson and the Benson
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 Benson, any Benson
Subsidiary, nor any director, officer or employee of Benson or any Benson
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 Benson and the Benson 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 Benson nor any Benson 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
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has had or could reasonably be expected to have a material adverse effect upon
Benson and the Benson Subsidiaries, taken as a whole. To the best of Benson's
knowledge, all parties with whom Benson or any Benson Subsidiary has material
leases, agreements or contracts or who owe to Benson or any Benson Subsidiary
material obligations other than with respect to those arising in the ordinary
course of the banking business of the Benson Subsidiaries are in compliance
therewith in all material respects.
(v) Environmental Liability. Except with respect to the property described
on Schedule 2(v), 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 Benson or any Benson Subsidiary, any liability relating to the
release of hazardous substances as defined under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or to the best of Benson's knowledge, threatened
against Benson or any Benson Subsidiary the result of which has had or could
reasonably be expected to have a material adverse effect upon Benson and
Benson's Subsidiaries taken as a whole; to the best of Benson's knowledge there
is no reasonable basis for any such proceeding, claim or action; and to the best
of Benson's knowledge neither Benson nor any Benson 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. Benson 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. No act or omission has occurred
while Groos Bank National Association ("Groos Bank") owned the property
described on Schedule 2(v) which would cause liability to attach to Groos Bank
or Benson, or their successors or assigns, for investigation or remediation of
any hazardous substance.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Benson 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 has furnished to Benson true
and correct copies of its Certificate of Incorporation and By-laws, as amended,
as of the date hereof. Norwest is registered as a bank holding company with the
Federal Reserve Board under the BHC Act.
(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
list as of 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. sec. 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
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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 and 980,000 shares of Cumulative
Tracking Preferred Stock, 13,311 shares of ESOP Cumulative 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 Preferred Stock, without par value, of which on 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 (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, LLP and included in Norwest's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (the "Norwest 10-K") as filed with
the SEC, 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
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for the 9 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 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
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Subsidiaries has paid all taxes owed or which it is required to withhold from
amounts owing to employees, creditors or other third parties.
(i) Absence of Certain Changes. Since December 31, 1994, there has been no
change in the business, financial condition or results of operations of Norwest
or any Norwest Subsidiary which has had, or may reasonably be expected to have,
a material adverse effect on the business, financial condition or results of
operations of Norwest and the Norwest 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 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
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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 December 15, 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) or
with respect to which any material liability under ERISA or otherwise
exists or may be incurred by Norwest or any Norwest Subsidiary are those
set forth on Schedule 3(o) (the "Norwest Plans"). No Norwest Plan is a
"multi-employer plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable
law. Except as set forth on Schedule 3(o), Norwest or the Norwest
Subsidiaries have received favorable determination letters from the
Internal Revenue Service under the provisions of TEFRA, "DEFRA" and REA for
each of the Norwest Plans to which the qualification requirements of
Section 401(a) of the Code apply. Norwest knows of no reason that any
Norwest Plan which is subject to the qualification provisions of Section
401(a) of the Code is not "qualified" within the meaning of Section 401(a)
of the Code and that each related trust is not exempt from taxation under
Section 501(a) of the Code.
(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 disclosed 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) with respect thereto, or violated any of the
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, to the tax or penalty on
prohibited transactions imposed by said sections which would result in
material liability to Norwest and its subsidiaries taken as a whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other
than those events which may result from the transactions contemplated by
this Agreement and the Merger Agreement.
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated
hereby and thereby will (i) result in any material payment (including,
without limitation, severance, unemployment compensation, golden parachute
or otherwise) becoming due to any director or employee or former employee
of Norwest or any of the Norwest Subsidiaries 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.
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(p) Registration Statement, etc. None of the information regarding Norwest
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Merger Agreement will, at
the respective times such documents are filed with the SEC or any regulatory
authority and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the meeting of shareholders referred to in paragraph 4(c), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for such meeting. All documents which Norwest and
the Norwest Subsidiaries are responsible for filing with the SEC and any other
regulatory authority in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor
any of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole. To the best
of Norwest's knowledge, all parties with whom Norwest or any Norwest Subsidiary
has material leases, agreements or contracts or who owe to Norwest or any
Norwest Subsidiary material obligations other than with respect to those arising
in the ordinary course of the banking business of the Norwest Subsidiaries are
in compliance therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
result in the imposition, on Norwest or any Norwest Subsidiary of any liability
relating to the release of hazardous substances as defined under any local,
state or federal environmental statute, regulation or ordinance including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or to the best of Norwest's
knowledge, threatened against Norwest or any Norwest Subsidiary, the result of
which has had or could reasonably be expected to have a material adverse effect
upon Norwest and its subsidiaries taken as a whole; to the best of Norwest's
knowledge there is no reasonable basis for any such proceeding, claim or action;
and to the best of Norwest's knowledge neither Norwest nor any Norwest
Subsidiary is subject to any agreement, order, judgment, or decree by or with
any court, governmental authority or third party imposing any such environmental
liability.
(t) Administration of Trust Accounts. Norwest and each Norwest Subsidiary
has properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of Norwest and the Norwest
Subsidiaries taken as a whole on 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.
Neither Norwest, any Norwest Subsidiary, nor any director, officer, or employee
of Norwest or any Norwest 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 Norwest and the Norwest
Subsidiaries taken as a whole.
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(u) Merger Co. As of the Closing Date, Merger Co. will be a corporation
duly organized, validly existing, duly qualified to do business and in good
standing under the laws of its jurisdiction of incorporation, and will have
corporate power and authority to own or lease its properties and assets and to
carry on its business and to enter into and perform its obligations under the
Merger Agreement and the execution and delivery by Merger Co. of the Merger
Agreement shall have been duly authorized by the Board of Directors and sole
shareholder of Merger Co.
4. COVENANTS OF BENSON. Benson covenants and agrees with Norwest as
follows:
(a) Maintain Corporate Existence; Conduct Business in Ordinary Course;
Limitations on Loans; Compliance With Laws; Examination of Books and Records,
Etc. Except as otherwise permitted or required by this Agreement, from the date
hereof until the Effective Time of the Merger, Benson, and each Benson
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 (which consent
shall be deemed to have been given as to any loan approval request to which
Norwest had made no response by the later of 72 hours or at the end of the third
business day following receipt by Norwest of a request to consent), 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 $1,000,000; maintain proper
business and accounting records in accordance with generally accepted
principles; maintain its properties in good repair and condition, ordinary wear
and tear excepted; maintain in all material respects presently existing
insurance coverage; use its best efforts to preserve its business organization
intact, to keep the services of its present principal employees and to preserve
its good will and the good will of its suppliers, customers and others having
business relationships with it; use its best efforts to obtain any approvals or
consents required to maintain existing leases and other contracts in effect
following the Merger; comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable to the
properties and operations of Benson and each Benson Subsidiary the
non-compliance with which reasonably could be expected to have a material
adverse effect on Benson and the Benson Subsidiaries taken as a whole; and
permit Norwest and its representatives (including KPMG Peat Marwick LLP) to
examine its and its subsidiaries books, records and properties and to interview
officers, employees and agents at all reasonable times when it is open for
business and upon reasonable notice to Benson. 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 Benson herein expressed.
(b) No Amendment of Articles or Bylaws; No Stock or Debt Issuance;
Limitations on Liens, Contracts, Investments, Plan Amendments and Investments,
Dividends, Redemptions and Compensation; No Sale of Stock; Limitation on Sales
of Assets. Except as otherwise contemplated or required by this Agreement, from
the date hereof until the Effective Time of the Merger, Benson and each Benson
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, except that Benson may issue shares of Benson Common Stock upon
the exercise of outstanding stock options described in Schedule 4(b); authorize
or incur any long-term debt (other than deposit liabilities); mortgage, pledge
or subject to lien or other encumbrance any of its properties, except in the
ordinary course of business; enter into any material agreement, contract or
commitment in excess of $25,000 except banking transactions in the ordinary
course of business and in accordance with policies and procedures in effect on
the date hereof; make any investments except investments made by bank
subsidiaries in the ordinary course of business for terms of up to one year and
in amounts of $100,000 or less; amend or terminate any Plan except as required
by law; make any contributions to any Plan except as required by the terms of
such Plan in effect as of
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the date hereof or as otherwise provided in this paragraph 4(b); declare, set
aside, make or pay any dividend or other distribution with respect to its
capital stock except any dividend declared by a Benson Subsidiary's Board of
Directors in accordance with applicable law and regulation and except for semi
annual dividends on the Series C Preferred Stock in an amount equal to 7.5% per
annum consistent with past practices, provided, further, that if the Effective
Date of the Merger is after the record date for Norwest's regular third quarter
Norwest Common Stock dividend ("Norwest Record Date"), Benson may declare and
pay a cash dividend on Benson Common Stock, payable immediately prior to the
Closing Date, in an amount not to exceed the dividend shareholders of Benson
would have received on Norwest Common Stock issued in connection with the Merger
if the Effective Date of the Merger had occurred immediately prior to the
Norwest Record Date; redeem, purchase or otherwise acquire, directly or
indirectly, any of the capital stock of Benson, except that, prior to the
Effective Time of the Merger, Benson shall redeem all of the Participating
Preferred Stock and may redeem up to 100% of the Series C Preferred Stock in
accordance with the terms thereof; increase the compensation of any officers,
directors or executive employees, except increases granted pursuant to existing
compensation plans and practices and any year-end bonuses awarded in conformity
with existing bonus award programs, plans and practices; sell or otherwise
dispose of any shares of the capital stock of any Benson Subsidiary; or sell or
otherwise dispose of any of its assets or properties other than in the ordinary
course of business. With respect to the Benson Financial Corporation Employee
Stock Ownership Plan ("ESOP") and the Benson Financial Corporation Profit
Sharing & 401(k) Plan ("401(k) Plan") as currently in effect, Benson may make
contributions for 1995 and 1996 as follows: (1) $200,000 to the ESOP as of
December 31, 1995, to be allocated to eligible ESOP participants in accordance
with the terms of the ESOP; and (2) matching contributions under the 401(k) Plan
equal to 50% of the first $2,000 in employee salary deferrals made by a
participant to the 401(k) Plan in 1995 and pro rated through the Effective Date
of the Merger in 1996, in accordance with the terms of the 401(k) Plan.
(c) Shareholder Meetings. The Board of Directors of Benson 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 Benson 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) Registration Statement. Benson will furnish or cause to be furnished
to Norwest all the information concerning Benson 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 Grant Thornton LLP to use such
opinion in such Registration Statement.
(e) Approvals. Benson 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 Benson 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) Opinions and Certificates. Benson 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) Confidentiality. Benson will hold in confidence all documents and
information concerning Norwest and its subsidiaries furnished to Benson and its
representatives in connection with the transactions contemplated by this
Agreement and will not release or disclose such information to
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any other person, except as required by law and except to Benson's outside
professional advisers in connection with this Agreement, with the same
undertaking from such professional advisers. If the transactions contemplated by
this Agreement shall not be consummated, such confidence shall be maintained and
such information shall not be used in competition with Norwest (except to the
extent that such information can be shown to be previously known to Benson, in
the public domain, or later acquired by Benson from other legitimate sources)
and, upon request, all such documents, any copies thereof and extracts therefrom
shall immediately thereafter be returned to Norwest.
(h) Exclusivity. Neither Benson, nor any Benson 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 Benson or any Benson 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 Benson or any Benson
Subsidiary except in the ordinary course of business, or (iv) to merge,
consolidate or otherwise combine with Benson or any Benson Subsidiary. If any
corporation, partnership, person or other entity or group makes an offer or
inquiry to Benson or any Benson Subsidiary concerning any of the foregoing,
Benson or such Benson Subsidiary will promptly disclose such offer or inquiry,
including the terms thereof, to Norwest.
(i) Press Release. Benson 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) Plans. Benson and each Benson Subsidiary will take all action
necessary or required (i) to terminate or amend, if requested by Norwest, (A)
all welfare benefit plans to facilitate the merger of such plans with Norwest
plans without gaps in coverage for participants in the plans under comparable
Norwest plans and without duplication of costs caused by the continuation of
such plans after coverage is available under Norwest plans, and (B) all
qualified retirement plans and non-qualified benefit plans and compensation
arrangements as of the Effective Time, and (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. With respect to the Benson
ESOP, the Benson 401(k) Plan and the Benson Financial Corporation 1992 Stock
Option Plans ("1992 Stock Option Plan"), as of the Effective Date of the Merger,
Benson with full cooperation of Norwest shall take all action necessary and
appropriate (a) to permit the trustees of the Benson ESOP and the Benson 401(k)
Plan to substitute the equivalent Norwest Common Stock for Benson securities
held by each such plan, and (b) to take all action necessary and appropriate to
facilitate the substitution by Norwest of Norwest options on Norwest Common
Stock for Benson options issued under the 1992 Stock Option Plan.
(k) Pooling of Interests. Neither Benson nor any Benson Subsidiary shall
take any action which with respect to Benson would disqualify the Merger as a
"pooling of interests" for accounting purposes.
(l) Affiliate Letters. Benson 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 Benson who may
reasonably be deemed an "affiliate" of Benson within the meaning of such term as
used in Rule 145 under the Securities Act.
(m) Additional Accruals and Reserves. Benson shall establish such
additional accruals and reserves as may be necessary to conform Benson's
accounting and credit loss reserve practices and methods to those of Norwest and
Norwest's plans with respect to the conduct of Benson's
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business following the Merger and to provide for the costs and expenses relating
to the consummation by Benson of the Merger and the other transactions
contemplated by this Agreement.
(n) Environment, Etc. Benson shall obtain, at its sole expense (unless
otherwise agreed to by Norwest and Benson), Phase I environmental assessments
for each bank facility and each non-residential OREO property. Oral reports of
such environmental assessments shall be delivered to Norwest no later than four
(4) weeks and written reports shall be delivered to Norwest no later than eight
(8) weeks from the date of this Agreement. Benson shall obtain, at its sole
expense (unless otherwise agreed to by Norwest and Benson), Phase II
environmental assessments for properties identified by Norwest on the basis of
the results of such Phase I environmental assessments. Benson shall obtain, at
its sole expense (unless otherwise agreed to by Norwest and Benson), 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) Title Insurance, Etc. Benson shall obtain, at its sole expense (unless
otherwise agreed to by Norwest and Benson), commitments for title insurance and
boundary surveys for each bank facility which shall be delivered to Norwest no
later than four (4) weeks from the date of this Agreement.
(p) Option Plans. Benson shall take all action necessary to terminate its
1994 Stock Option Plan (the "1994 Option Plan") and to provide for the
acceleration of the vesting rights of the options ("1994 Options") issued under
the 1994 Option Plan to permit such 1994 Options to be immediately exercisable
as provided in the 1994 Option Plan and to provide for the cancellation of any
unexercised 1994 Options prior to the Effective Time of the Merger and shall
obtain the written consent or acknowledgment of the holders of such 1994 Options
to such termination in exchange for the exchange of such Options for shares of
Norwest Common Stock as set forth in paragraph 1(a)(iv).
(q) Employment Agreement. Benson shall use its best efforts to negotiate
the employment agreement between Benson and R. Tom Roddy described on Schedule
4(q) ("Employment Agreement") to include the following provisions:
(i) "Anything in this Agreement to the contrary notwithstanding, if it
shall be determined that any payment or distribution by Employer to or for
the benefit of the Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment") would impose an excise tax liability on the Employee pursuant to
Sections 1 and 4999 of the Code and its regulations, or any interest or
penalties would be incurred by the Employee, then the cash payments due to
the Employee from Employer pursuant to this Agreement shall be reduced to
an amount such that no excise tax liability will be due pursuant to Section
1 and 4999 of the Code. All determinations to be required under this
Section including whether an excise tax liability would exist upon payment
and the necessary reduction in the cash payment to the Employee to avoid
any such liability shall be made by Arthur Andersen & Co. or another "big
six" accounting firm selected by the Employee within 5 days after the date
of determination ("Accounting Firm") which shall provide detailed
supporting calculations both to Employer and to the Employee within fifteen
(15) business days of the date of determination, if applicable, or such
earlier time as is requested by Employer. All fees and expenses of the
Accounting Firm shall be borne solely by the Employer."
(ii) "In view of the importance of Employee to Employer during and
after closing of the acquisition of Employer by Norwest Corporation and to
facilitate the transition in connection therewith, unless Employee is
terminated pursuant to Section 5 hereof, Employee shall be entitled to a
bonus of $25,000 in the event Employee is employed by Employer until
December 31, 1996."
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(r) Certain Property. Benson shall cause the property located at 7218
South W.W. White Road, Bexar County, Texas, known as the Old Southeast Landfill,
also known as the Riley Landfill, and legally described on attached Schedule
2(v), (the "Property") to be completely conveyed and transferred by Groos Bank
in compliance with the following:
(i) The transferee/grantee shall not be affiliated with Groos Bank
and/or Benson. The terms "affiliated" for purposes of this subsection shall
mean any person or entity controlled by or under common control with Groos
Bank or Benson.
(ii) The transferee/grantee must give adequate consideration for the
Property. The term "adequate consideration" for purposes of this subsection
shall mean at least 70% of the current appraised market value of the
Property as determined by a licensed M.A.I. appraiser.
(iii) The transferee/grantee must be adequately capitalized with a
minimum current net worth of at least $200,000, exclusive of the Property.
(iv) The transferee/grantee must indemnify and hold Gross Bank, its
successors and assigns, harmless from any claims, costs, damages or
expenses arising from or related to the Property including, but not limited
to, any investigation or remediation costs associated with any hazardous
on, in or emanating from the Property. "Hazardous substance" as used herein
shall mean any hazardous or toxic waste, chemicals or other substances, the
generation or possession of which are governed by local, state and/or
federal environmental laws, ordinances, decrees, regulations or statutes.
(v) No act or omission will have occurred while Groos Bank owned the
Property which would cause liability to attach to Groos Bank or Benson or,
their successors or assigns, for investigation or remediation of any
hazardous substance.
(s) Registration Rights. Benson shall take all action necessary to
terminate any registration or similar rights with respect to the Series C
Preferred Stock.
(t) Norwest Options. Benson shall take all action necessary and
appropriate to facilitate the substitution by Norwest of options for Norwest
Common Stock for options for Benson Common Stock issued under the 1992 Stock
Option Plan.
(u) Participating Preferred Stock. Benson shall redeem all of the
Participating Preferred Stock prior to the mailing of the notice of
shareholders' meeting referred to in paragraph 4(c) hereof.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Benson as
follows:
(a) Maintain Corporate Existence. From the date hereof until the Effective
Time of the Merger, Norwest will maintain its corporate existence in good
standing; conduct, and cause the Norwest Subsidiaries to conduct, their
respective businesses in compliance with all material obligations and duties
imposed on them by all laws, governmental regulations, rules and ordinances, and
judicial orders, judgments and decrees applicable to Norwest or the Norwest
Subsidiaries, their businesses or their properties; maintain all books and
records of it and the Norwest Subsidiaries, including all financial statements,
in accordance with the accounting principles and practices consistent with those
used for the Norwest Financial Statements, except for changes in such principles
and practices required under generally accepted accounting principles.
(b) Proxy Statement. Norwest will furnish to Benson all the information
concerning Norwest required for inclusion in a proxy statement or statements to
be sent to the shareholders of Benson, or in any statement or application made
by Benson to any governmental body in connection with the transactions
contemplated by this Agreement.
(c) Registration Statement. As promptly as practicable after approval of
the Merger by the Federal Reserve Board, 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 Benson pursuant to
the
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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 Benson shareholders, at the time of the Benson 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
Benson or any Benson subsidiary for use in the Registration Statement or the
Prospectus.
(d) Stock Exchange Listings. 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) Shares to be Issued. The shares of Norwest Common Stock to be issued
by Norwest to the shareholders of Benson 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 Benson pursuant to the Merger Agreement are and will be free of
any preemptive rights of the stockholders of Norwest.
(f) Blue Sky. Norwest will file all documents required to obtain, prior to
the Effective Time of the Merger, all necessary Blue Sky permits and approvals,
if any, required to carry out the transactions contemplated by this Agreement,
will pay all expenses incident thereto and will use its best efforts to obtain
such permits and approvals.
(g) Corporate and Other Approvals. 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 Benson to obtain all such approvals and
consents required by Benson.
(h) Confidentiality. Norwest will hold in confidence all documents and
information concerning Benson and Benson'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 Benson (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 Benson.
(i) Filing of Documents. Norwest will file any documents or agreements
required to be filed in connection with the Merger under the Texas Business
Corporation Act.
(j) Opinions and Certificates. Norwest will use its best efforts to
deliver to the Closing all opinions, certificates and other documents required
to be delivered by it at the Closing.
(k) Press Release. Norwest shall consult with Benson 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.
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(l) Notice of Approvals. Norwest shall give Benson notice of receipt of
the regulatory approvals referred to in paragraph 7(e).
(m) Examination of Books and Records. For a period not exceeding fifteen
days prior to the Closing Date, Norwest will permit Benson 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 Benson or its representatives shall in
any way affect, diminish or terminate any of the representations, warranties or
covenants of Norwest herein expressed.
(n) D & O Coverage. For a period of three years after the Effective Time
of the Merger, Norwest shall use all reasonable efforts to cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by Benson (provided that Norwest may substitute therefor
policies of at least the same coverage and amount containing terms and
conditions which are substantially no less advantageous) with respect to claims
arising from facts or events which occurred before the Effective Time of the
Merger; provided, however, that in no event shall Norwest be obligated to
expend, in order to maintain or provide insurance coverage pursuant to this
paragraph 5(n), any amount in excess of 150% of the amount of the annual
payments paid as of the date hereof by Benson (the "Maximum Amount") and
provided further that, prior to the Effective Time, Benson shall notify the
appropriate directors' and officers' liability insurers of the Merger and of all
pending or threatened claims, actions, suits, proceedings or investigations
asserted or claimed against any Indemnified Party, or circumstances likely to
give rise thereto, in accordance with terms and conditions of the applicable
policies. If the amount of the premiums necessary to maintain or procure such
insurance coverage exceeds the Maximum Amount, Norwest shall use reasonable
efforts to maintain the most advantageous policies of directors' and officers'
insurance obtainable for a premium equal to the Maximum Amount.
6. CONDITIONS PRECEDENT TO OBLIGATION OF BENSON. The obligation of Benson
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
Benson:
(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) Benson 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
Benson required for approval of a plan of merger in accordance with the
provisions of Benson'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.
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(f) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement.
(g) The shares of Norwest Common Stock to be delivered to the stockholders
of Benson pursuant to this Agreement and the Merger Agreement shall have been
authorized for listing on the New York Stock Exchange and the Chicago Stock
Exchange.
(h) Benson shall have received an opinion, dated the Closing Date, of
counsel to Benson, 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 Benson Common Stock and Series C 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 Benson will be the same as the basis of Benson Common Stock and
Series C Preferred Stock exchanged therefor; and (iv) the holding period of the
shares of Norwest Common Stock received by the shareholders of Benson will
include the holding period of the Benson Common Stock and Series C Preferred
Stock, provided such shares were held as a capital asset as of the Effective
Time of the Merger.
(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) Prior to the mailing of the Proxy Statement for the meeting referred to
in paragraph 4(c), Benson and the Board of Directors of Benson shall have
received an opinion of its financial advisor addressed to Benson and the Board
of Directors of Benson, and for their exclusive benefit, for inclusion in said
Proxy Statement and dated effective as of the date of mailing of such Proxy
Statement, based on such matters as Benson deems appropriate or necessary, to
the effect that the consideration to be received by stockholder of Benson
pursuant to the Merger is fair from a financial point of view. Benson shall
promptly provide a copy of such opinion to Norwest upon receipt.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of
Norwest to effect the Merger shall be subject to the satisfaction at or before
the Time of Filing of the following conditions, which may be waived in writing
by Norwest:
(a) 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 Benson and the Benson Subsidiaries taken as a whole as if
made at the Time of Filing.
(b) Benson 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
Benson required for approval of a plan of merger in accordance with the
provisions of Benson'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 Benson, 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 Benson or any Benson Subsidiary that, in the good faith judgment of Norwest,
is unreasonably burdensome to Norwest.
(f) Benson and each Benson Subsidiary shall have obtained any and all
material consents or waivers from other parties to loan agreements, leases or
other contracts material to Benson's or such subsidiary's business required for
the consummation of the Merger, and Benson and each Benson 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 Grant Thornton LLP an opinion to
the effect that the activities of Benson would not preclude the Merger from
being accounted for as a pooling of interests.
(i) At any time since the date hereof the total number of shares of Benson
Common Stock outstanding and Series C Preferred Stock and subject to issuance
upon exercise (assuming for this purpose that phantom shares and other
share-equivalents constitute Benson Common Stock) of all warrants, options,
conversion rights (including equity securities convertible into Benson Common
Stock), phantom shares or other share-equivalents, other than any option held by
Norwest, shall not have exceeded 3,929,820 in the case of Benson Common Stock
and 86,947 of Series C Preferred Stock.
(j) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened or be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(k) Norwest shall have received from the Chief Executive Officer and Chief
Financial Officer of Benson 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 Benson 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 Benson;
(ii) the amounts reported in the interim quarterly financial
statements of Benson agree with the general ledger of Benson;
(iii) the annual and quarterly financial statements of Benson and the
Benson 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;
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(iv) from September 30, 1995 (or, if later, since the date of the most
recent unaudited consolidated financial statements of Benson and the Benson
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 Benson and the
Benson 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 Benson and the Benson 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 Benson and the Benson 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 Benson and the
Benson Subsidiaries and have found them to be in agreement with financial
records and analyses prepared by Benson included in the annual and
quarterly financial statements, except as disclosed in such letters.
(l) Benson and the Benson 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
Benson or any Benson Subsidiary of, any liability relating to the release of
hazardous substances as defined under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 as
amended, which has had or could reasonably be expected to have a material
adverse effect upon Benson 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 Benson and the Benson 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) Benson shall have terminated the 1994 Option Plan and all outstanding
1994 Options shall have been exercised or converted as required in paragraph
4(p).
(p) The amount owing on the loans identified on Schedule 7(p) shall have
been paid in full or shall have been sold or transferred for fair market value
as determined by an independent loan appraisal.
(q) The Employment Agreement shall have been amended as provided in
paragraph 4(q).
(r) Benson shall have taken the actions required by paragraph 4(r).
(s) Benson shall have taken the actions required by paragraph 4(s).
(t) Benson shall have taken the actions required by paragraph 4(t).
(u) Benson shall have taken the actions required by paragraph 4(u).
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8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Benson or any
Benson Subsidiary as of the Effective Date of the Merger ("Benson 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 Benson employee (and to the
extent any employee welfare plan of Norwest covers dependents, the eligible
dependents of such Benson employees) shall be eligible for participation in the
employee welfare benefit plans of Norwest listed below subject to any
eligibility requirements applicable to such plans (with full credit for years of
past service to Benson and the Benson Subsidiaries, to the extent credited under
the respective employee welfare benefit plans of Benson and the Benson
Subsidiaries, but not subject to any pre-existing conditions or exclusions
except for the Norwest Long Term Care Plan) and shall enter each plan not later
than the first day of the calendar quarter which begins at least 32 days after
the Effective Date of the Merger; provided, however, that until the effective
date of coverage for Benson Employees under the Norwest employee welfare benefit
plans listed below, the employee welfare benefit plans of Benson, as in effect
prior to the Effective Date of the Merger, shall be maintained for the benefit
of Benson Employees on the terms and conditions previously in effect, including
with respect to employer contributions, to ensure that no gap in coverage
occurs:
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 Benson Employee's benefit for the year
in which the Merger occurs under the Norwest vacation program, vacation taken by
a Benson Employee in the year in which the Merger occurs will be deducted from
the total Norwest benefit. Norwest shall credit each Benson Employee for the
year during which coverage under any Norwest Medical or Dental "indemnity" Plan
begins, with any deductibles (but not office co-pays) previously incurred during
calendar year 1996 under a Benson indemnity medical or dental plan. After the
Effective Date of the Merger, Benson Employees will be subject to Norwest's
Vacation Program in accordance with the terms of that Program, with full credit
for years of past service to Benson and the Benson Subsidiaries. For purposes of
the Short Term Disability Plan and Severance Policy, Benson Employees will
receive full credit for years of past service with Benson and the Benson
Subsidiaries. A Benson Employee who is not a participant in a Benson employee
welfare plan at the time such plan is terminated or ceases to exist shall be
subject to the eligibility (crediting service with Benson as service with
Norwest) requirements of the applicable Norwest employee welfare plan. Benson
Employees shall not be entitled to past service credit with regard to retiree
medical benefits.
(b) Employee Retirement Benefit Plans. Each Benson Employee shall be
eligible for participation in the Norwest Savings-Investment Plan (the "SIP"),
subject to any eligibility requirements applicable to the SIP (with full credit
for years of past service to Benson and the Benson Subsidiaries for the purpose
of satisfying any eligibility and vesting periods applicable to the SIP), and
shall enter the SIP not later than the first day of the calendar quarter which
begins at least 32 days after the Effective Date of the Merger.
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Each Benson Employee shall be eligible for participation, as a new
employee, in the Norwest Pension Plan under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of
Filing:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Merger shall not have been consummated by August 31, 1996
unless such failure of consummation shall be due to the failure of the
party seeking to terminate to perform or observe in all material respects
the covenants and agreements hereof to be performed or observed by such
party; or
(iii) by Benson 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 Benson, within one business day after the meeting of
shareholders referred to in paragraph 4(c) if the Norwest Average Price is
less than $27.00.
(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 willful
and material breach of the warranties and representations made by it, or willful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by Benson and Benson Subsidiaries shall be borne by
Benson, and all such expenses incurred by Norwest shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
13. NOTICES. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be delivered in
person or shall be mailed by first class registered or certified mail, postage
prepaid, addressed as follows:
If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to Benson:
Benson Financial Corporation
40 N.E. Loop 410
San Antonio, TX 78216
Attention: R. Tom Roddy
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
Benson shall be made which changes in a manner adverse to such shareholders the
consideration to be provided to said shareholders pursuant to this Agreement and
the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreement shall survive the
Merger or except as set forth in paragraph 9(b), the termination of this
Agreement. Paragraph 10 shall survive the Merger.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<TABLE>
<S> <C>
NORWEST CORPORATION BENSON FINANCIAL CORPORATION
By: s/s JOHN E. GANOE By: s/s R. TOM RODDY
------------------------- ----------------------------
John E. Ganoe R. Tom Roddy
Its: Executive Vice President Its: President
</TABLE>
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<PAGE> 137
APPENDIX B
OPINION OF HOEFER & ARNETT INCORPORATED
<PAGE> 138
April 26, 1996
Members of the Board of Directors
Benson Financial Corporation
40 N.E. Loop 410
San Antonio, TX 78216
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the common shareholders of Benson Financial
Corporation ("Benson") of the consideration to be received by such common
shareholders pursuant to the Agreement and Plan of Reorganization, dated
December 21, 1995 between Benson and Norwest Corporation ("Norwest") as amended
(the "Merger Agreement"). Pursuant to the Merger Agreement, a wholly-owned
subsidiary of Norwest will merge with and into Benson and Benson will become a
wholly-owned subsidiary of Norwest, and each holder of Benson common shares will
receive Norwest common shares based on the Exchange Ratio (as defined in the
Merger Agreement).
We have acted for Benson and for its Board of Directors as financial
advisor in connection with this transaction and will receive a fee for our
services. We have previously provided investment banking and financial advisory
services to Benson. On October 3, 1994 we completed an initial public offering
of securities for Benson and we currently are a market maker in Benson common
shares.
In arriving at our opinion, we have reviewed and analyzed, among other
things, the following: (i) the Merger Agreement (ii) Annual Reports to
Shareholders of Benson and Norwest for the years ended December 31, 1993 and
1994 and an annual report on Form 10-K for Norwest for the year ended December
31, 1994; (iii) Quarterly Reports on Form 10-Q of Norwest and Benson for the
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; (iv)
certain other publicly available financial and other information concerning
Benson and Norwest and the trading markets for the publicly traded securities of
Benson and Norwest; (v) publicly available information concerning other banks
and holding companies, the trading markets for their securities and the nature
and terms of certain other merger transactions we believe relevant to our
inquiry; and (vi) evaluations and analyses prepared and presented to the Board
of Directors of Benson or a committee thereof in connection with this business
combination with Norwest. We have held discussions with senior management of
Benson and of Norwest concerning their past and current operations, financial
condition and prospects.
We have reviewed with senior management of Benson earnings projections for
1996 through 2000 for Benson as a stand-alone entity, assuming the Merger does
not occur, prepared by Hoefer & Arnett. We reviewed earnings projections
prepared by several independent research analysts of major wall street
investment firms through the year 1997 for Norwest as a stand-alone entity,
assuming the Merger does not occur. Certain pro forma financial projections for
the years 1996 through 2000 for the combined entity were derived by us based
partially upon the projections discussed above, as well as our own assessment of
general economic, market and financial conditions.
In conducting our review and in arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the financial and other
information provided to us or publicly available, and we have not assumed any
responsibility for independent verification of the same. We have relied upon the
management of Benson as to the reasonableness of the financial and operating
forecasts, projections and projected operating cost savings (and the assumptions
and bases therefor) provided to us, and we have assumed that such forecasts,
projections and projected operating cost savings reflect the best currently
available estimates and judgments of the applicable managements. We have also
assumed, without assuming any responsibility for the independent
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<PAGE> 139
verification of same, that the aggregate allowances for loan losses for Benson
and Norwest are adequate to cover such losses. We have not made or obtained any
evaluations or appraisals of the property of Benson or Norwest, nor have we
examined any individual loan credit files. For purposes of this opinion, we have
assumed that the Merger will have the tax, accounting and legal effects
(including, without limitation, that the Merger will be accounted for as a
pooling-of-interests) described in the Merger Agreement and assumed the accuracy
of the disclosures set forth in the Merger Agreement. Our opinion as expressed
herein is limited to the fairness, from a financial point of view, to the
holders of Benson common shares of the consideration pursuant to the Merger
Agreement and does not address Benson's underlying business decision to proceed
with the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Benson and Norwest, including interest income, interest expense, net interest
income, net interest margin, provision for loan losses, non-interest income,
non-interest expense, earnings, dividends, internal capital generation, book
value, intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
Benson and for Norwest; (ii) the assets and liabilities of Benson and Norwest,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and liquidity;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. We have also taken into account our assessment
of general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and our
knowledge of the banking industry generally. Our opinion is necessarily based
upon conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
It is understood that this letter is for the information of the Board of
Directors of Benson. This letter does not constitute a recommendation to the
Board of Directors of Benson or to any shareholder of Benson with respect to any
approval of the Merger.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the consideration to be received
by the Benson common shareholders pursuant to the Merger Agreement is fair, from
a financial point of view, to such common shareholders.
Very truly yours,
HOEFER & ARNETT INCORPORATED
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<PAGE> 140
APPENDIX C
TEXAS BUSINESS CORPORATION ACT
ARTICLES 5.11, 5.12 AND 5.13
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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
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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 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
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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 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.
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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 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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