<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1997
Registration No. 333-[file no.]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
Form S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------
Norwest Corporation
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0449260
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
Stanley S. Stroup
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:
Robert J. Kaukol Stephen A. Hellerstein
Norwest Corporation Hellerstein, Hellerstein & Shore, P.C.
Norwest Center P.O. Box 5637
Sixth and Marquette Denver, Colorado 80217
Minneapolis, Minnesota 55479-1026
------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
Title of Securities Amount Proposed Maximum Proposed Maximum Amount of
to Be to Be Offering Price Aggregate Registration
Registered Registered Per Share Offering Price Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 350,000 N/A $5,189,902 (2) $1,572.70
(par value $1-2/3 per share) (1)
===================================================================================================
</TABLE>
(1) Each share of the registrant's common stock includes one preferred stock
purchase right.
(2) Estimated solely for the purpose of computing the registration fee, in
accordance with Rule 457(f), based upon the book value as of December 31,
1996 of all shares of common stock to be acquired by the registrant in the
transaction described herein.
--------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------
<PAGE>
[Southwest letterhead]
July 29, 1997
Dear Shareholder:
Your board of directors has approved the acquisition of The Bank of the
Southwest by Norwest Corporation. Norwest will acquire Southwest through the
consolidation of Southwest with a newly-formed, wholly-owned subsidiary bank of
Norwest. Southwest will be the surviving bank in the consolidation. If the
consolidation is completed, Southwest will become a wholly-owned subsidiary of
Norwest and you will receive shares of Norwest common stock for your shares of
Southwest common stock.
In the proposed consolidation, Norwest will exchange $14,700,000 in Norwest
common stock for all of the outstanding shares of Southwest common stock. Based
on 5,500 shares of Southwest common stock outstanding, this works out to
approximately $2,673 in Norwest common stock for each share of Southwest common
stock. The Norwest common stock to be exchanged in the consolidation will be
valued at the average closing price for Norwest common stock over a fixed
measurement period. For each share of Southwest common stock you own, you will
receive that number of shares of Norwest common stock equal to $2,673 divided by
this average.
Norwest cannot acquire Southwest without the approval of Southwest's
shareholders. We've called a special shareholders meeting to vote on the
matter. The meeting will be held on August 28, 1997 at 10:00 a.m. at the
Strater Hotel, 699 Main Avenue, Durango, Colorado. If shareholders do not
approve the acquisition, Southwest will continue to operate as an independent
bank.
Please read the following materials for information concerning the
consolidation and the special meeting. Also, please sign and return the
accompanying proxy card in the postage-paid envelope. This way, your shares
will be voted as you direct even if you can't attend the meeting.
R.W. "Nick" Turner Jr.
Chairman of the Board of Directors
- --------------------------------------------------------------------------------
Whether or not you plan to attend the special meeting, please fill in, sign,
date, and promptly return the accompanying proxy card in the enclosed envelope.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS.................................
DEFINED TERMS.............................................................
WHAT "INCORPORATED BY REFERENCE" MEANS....................................
PROXY STATEMENT-PROSPECTUS................................................
SUMMARY
Parties to the Consolidation..........................................
Reasons for the Consolidation.........................................
Recommendation of the Southwest Board.................................
Approval of the Consolidation.........................................
The Consolidation.....................................................
Comparative Per Common Share Data.....................................
Selected Historical Financial Information.............................
Share Prices and Dividends for Norwest Common Stock...................
SPECIAL MEETING OF SHAREHOLDERS.........................................
Record Date...........................................................
Voting Rights; Votes Required for Approval............................
Voting and Revocation of Proxies......................................
Solicitation of Proxies...............................................
Other Matters.........................................................
THE CONSOLIDATION.......................................................
Purpose and Effect of the Consolidation...............................
Background of and Reasons for the Consolidation.......................
Appraisal Rights......................................................
Additional Interests of Southwest's Management in the
Consolidation........................................................
Exchange of Certificates..............................................
Regulatory Approvals..................................................
Effect on Southwest Employee Benefit Plans............................
Certain U.S. Federal Income Tax Consequences..........................
Resale of Norwest Common Stock........................................
Stock Exchange Listing................................................
Accounting Treatment..................................................
DEFERRED COMPENSATION PAYMENT...........................................
THE REORGANIZATION AGREEMENT............................................
Basic Plan of Reorganization..........................................
Representations and Warranties........................................
Certain Covenants.....................................................
Conditions to the Completion of the Consolidation.....................
Termination of the Reorganization Agreement...........................
Effect of Termination.................................................
Waiver and Amendment..................................................
Expenses..............................................................
COMPARISON OF RIGHTS OF SOUTHWEST COMMON STOCK AND NORWEST COMMON
STOCK...................................................................
Capital Stock.........................................................
Rights Plan...........................................................
Directors.............................................................
Amendment of Charter Document and Bylaws..............................
Shareholder Approval of Mergers and Asset Sales.......................
Appraisal Rights......................................................
Special Meetings......................................................
Directors Duties......................................................
Action Without a Meeting..............................................
Limitation of Director Liability......................................
Indemnification of Officers and Directors.............................
Dividends.............................................................
Corporate Governance Procedures; Nomination of Directors..............
INFORMATION ABOUT SOUTHWEST.............................................
General...............................................................
Competition...........................................................
Regulation and Supervision............................................
Properties............................................................
Legal Proceedings.....................................................
Market Information and Dividends......................................
Principal Shareholders and Security Ownership of Management of
Southwest............................................................
Board of Directors....................................................
SOUTHWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.....................................
General...............................................................
Financial Condition...................................................
Results of Operations.................................................
Certain Selected Statistical Disclosure...............................
CERTAIN REGULATORY AND OTHER
CONSIDERATIONS PERTAINING TO NORWEST....................................
Bank Regulatory Agencies..............................................
Bank Holding Company Activities; Interstate Banking...................
Dividend Restrictions.................................................
Holding Company Structure.............................................
Regulatory Capital Standards and Related Matters......................
FDIC Insurance........................................................
Fiscal and Monetary Policies..........................................
Competition...........................................................
EXPERTS.................................................................
LEGAL MATTERS...........................................................
INFORMATION CONCERNING NORWEST MANAGEMENT...............................
WHERE YOU CAN FIND MORE INFORMATION.....................................
INDEX TO SOUTHWEST FINANCIAL STATEMENTS.................................
APPENDIX A AMENDMENT TO AGREEMENT (A-1 - A-2)...........................
<PAGE>
AGREEMENT AND PLAN OF
REORGANIZATION
(A-3 - A-28)
APPENDIX B DEFERRED COMPENSATION
AGREEMENT
APPENDIX C UNITED STATES CODE TITLE
12, SECTION 215
APPENDIX D BANKING CIRCULAR 259
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting of shareholders of The Bank of the Southwest, National
Association will be held on August 28, 1997 at 10:00 a.m. at the Strater Hotel,
699 Main Avenue, Durango, Colorado. The purposes of the meeting are as follows:
1. To vote on a proposal to approve the agreement and plan of
reorganization between Southwest and Norwest Corporation, as amended.
This agreement provides for the consolidation of a newly-formed,
wholly-owned subsidiary bank of Norwest with Southwest, and for
Southwest to be the surviving bank. If the consolidation is completed,
Southwest will become a wholly-owned subsidiary of Norwest and
Southwest shareholders will receive shares of Norwest common stock for
their shares of Southwest common stock.
2. To vote on a proposal to approve the payment of deferred compensation
of $1,176,000 to Marion O. Francis, Jr., president of Southwest, in
connection with the change in ownership of Southwest that will occur
as a result of the consolidation. The deferred compensation is payable
in shares of Norwest common stock upon completion of the transaction.
Shareholder approval of this payment will allow Norwest to deduct the
entire payment as an expense for federal income tax purposes.
Shareholder approval will also result in Mr. Francis not having to pay
a 20% nondeductible excise tax on any portion of the payment.
The record date for the special meeting is July 28, 1997. Only shareholders
of record at the close of business on that date can vote at the meeting.
Sue Gast
Corporate Secretary
1
<PAGE>
DEFINED TERMS
Following are the definitions of certain terms used in this Proxy
Statement-Prospectus. Each term should be considered in the context in which it
is used.
<TABLE>
<CAPTION>
<S> <C>
Adjusted Norwest Shares....................... the number equal to $14,700,000 divided by the Norwest
Measurement Price.
Bank Holding Company Act...................... Bank Holding Company Act of 1956.
Consolidation................................. the consolidation of Southwest with Norwest Interim Bank
Southwest, National Association, as a result of which Southwest
will become a wholly-owned subsidiary of Norwest.
DGCL.......................................... Delaware General Corporation Law.
Deferred Compensation Agreement............... the deferred compensation agreement dated July 18, 1997 between
Southwest and Marion O. Francis, Jr., president of Southwest.
Exchange Act.................................. Securities Exchange Act of 1934.
Federal Reserve Board......................... Board of Governors of the Federal Reserve System.
FDI Act....................................... Federal Deposit Insurance Act.
FDIC.......................................... Federal Deposit Insurance Corporation.
Interstate Banking Act........................ Reigle-Neal Interstate Banking and Branching Act.
National Bank Act............................. National Bank Act.
Norwest....................................... Norwest Corporation and its consolidated subsidiaries.
Norwest Board................................. Norwest's board of directors.
Norwest Bylaws................................ Norwest's bylaws.
Norwest Certificate........................... Norwest's restated certificate of incorporation.
Norwest Common Stock.......................... Norwest's common stock, par value $1-2/3 per share.
Norwest Interim Bank Southwest, a wholly-owned subsidiary of Norwest incorporated for the
National Association.......................... limited purpose of consolidating with Norwest.
Norwest Measurement Price..................... the average of the closing prices of a share of Norwest Common
Stock as reported on the composite tape of the New York Stock
Exchange during the period of 20 trading days ending on the day
immediately before the special meeting of Southwest
shareholders.
OCC........................................... Officer of the Comptroller of the Currency.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
OTS........................................... Office of Thrift Supervision.
Reorganization Agreement...................... the Agreement and Plan of Reorganization dated March 18, 1997
between Southwest and Norwest, as amended April 11, 1997.
SEC........................................... Securities and Exchange Commission.
Securities Act................................ Securities Act of 1933.
Southwest..................................... The Bank of the Southwest, National Association.
Southwest Articles............................ Southwest's articles of association.
Southwest Board............................... Southwest's board of directors.
Southwest Bylaws.............................. Southwest's bylaws.
Southwest Common Stock........................ Southwest's common stock, par value $100 per share.
</TABLE>
3
<PAGE>
WHAT "INCORPORATED BY REFERENCE" MEANS
Incorporation by reference is a concept that allows Norwest not to include
in this Proxy Statement-Prospectus some of the information about Norwest that
may be important to your decision whether to approve the Consolidation. The
information is instead "incorporated" into this Proxy Statement-Prospectus by
reference to one or more documents previously filed by Norwest with the SEC.
For example, the information contained in Norwest's consolidated financial
statements for the years ended December 31, 1996 and 1995 may be important to
your decision, as may be a detailed description of Norwest's business. None of
this information is physically included in this Proxy Statement-Prospectus.
Instead, this Proxy Statement-Prospectus refers you to Norwest's annual report
on Form 10-K, which is the document that physically contains the financial
statements and the most recent description of Norwest's business.
Information that has been incorporated by reference is considered part of
this Proxy Statement-Prospectus, even though it is not physically included. As
a result, the information is considered to have been disclosed to you, whether
or not you obtain a copy of the document containing the information.
This Proxy Statement-Prospectus will indicate when information has been
incorporated by reference. It will also specify the document that physically
contains the information. As you read this Proxy Statement-Prospectus, please
make a list of the documents that you want to review in deciding whether to
approve the Consolidation. The section entitled "Where You Can Find More
Information" explains how to get copies of these documents.
PROXY STATEMENT-PROSPECTUS
This document serves as both a proxy statement of Southwest and a
prospectus of Norwest. As a proxy statement, it is being provided to you because
the Southwest Board is soliciting your proxy for use at the special meeting. As
a prospectus, it is being provided to you because Norwest will issue shares of
Norwest Common Stock to you in the Consolidation in exchange for your shares of
Southwest Common Stock.
At the special meeting, Southwest shareholders will vote on the
Reorganization Agreement. The Reorganization Agreement provides for the
consolidation of Southwest with a newly-formed, wholly-owned subsidiary bank of
Norwest, with Southwest being the surviving bank. If the Consolidation is
completed, Southwest will become a wholly-owned subsidiary of Norwest and
Southwest shareholders will receive shares of Norwest Common Stock for their
shares of Southwest Common Stock.
Southwest shareholders will also vote on the payment of deferred
compensation of $1,176,000 to Marion O. Francis, Jr., president of Southwest, in
connection with the change in ownership of Southwest that will occur as a result
of the Consolidation. The deferred compensation is payable in shares of Norwest
Common Stock upon completion of the Consolidation. If shareholders approve this
payment, Norwest will be allowed to deduct the entire payment as an expense for
federal income tax purposes and Mr. Francis will not be required to pay a 20%
nondeductible excise tax on portion of the payment.
This Proxy Statement-Prospectus provides detailed information concerning
the Consolidation and the special meeting. The Reorganization Agreement is
attached to this Proxy Statement-Prospectus as Appendix A and is considered part
of this Proxy Statement-Prospectus. Southwest and Norwest encourage you to read
this entire Proxy Statement-Prospectus (including the appendixes) carefully.
____________________________
In deciding whether to vote for the Consolidation and receive shares of
Norwest Common Stock in exchange for your shares of Southwest Common Stock, you
should be aware that:
4
<PAGE>
. Neither the SEC nor any state securities regulators have approved the Norwest
Common Stock offered by this Proxy Statement-Prospectus or determined whether
this Proxy Statement-Prospectus is accurate or adequate. Any representation
to the contrary is a criminal offense.
. The shares of Norwest Common Stock offered by this Proxy Statement-Prospectus
are not savings accounts, deposits or other obligations of any bank or
nonbank subsidiary of Norwest and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
. Norwest, its banking subsidiaries and many of its nonbanking subsidiaries are
subject to extensive regulation by a number of federal and state agencies.
This regulation may affect, among other things, Norwest's earnings and/or
restrict its ability to pay dividends on Norwest Common Stock. See "Certain
Regulatory and Other Considerations Pertaining to Norwest.
----------------------------
This Proxy Statement-Prospectus is dated July 29, 1997.
It is first being mailed to Southwest shareholders on or about July 29, 1997.
5
<PAGE>
SUMMARY
-------
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Consolidation fully, and for a more complete description of the legal terms of
the Consolidation, you should carefully read this document and the other
information available to you. See "Where You Can Find More Information."
<TABLE>
Parties to the Consolidation
<S> <C>
Norwest Corporation......................... Norwest is a diversified financial services company organized
Sixth and Marquette under the laws of Delaware and registered under the Bank Holding
Minneapolis, Minnesota 55479 Company Act. Through its subsidiaries and affiliates, Norwest
(612) 667-1234 provides retail, commercial and corporate banking services, as
well as a variety of other financial services, including 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 March 31, 1997, Norwest had consolidated total assets of $83.6
billion, total deposits of $52.0 billion and total stockholders'
equity of $6.2 billion. Based on total assets at March 31, 1997,
Norwest was the 11th largest commercial banking organization in
the United States.
The Bank of the Southwest................... Southwest is an independently-owned bank headquartered in Pagosa
523 San Juan Street Springs, Colorado, with branches both in Pagosa Springs and
Pagosa Springs, Colorado 81147 Durango. Southwest provides a full range of commercial, consumer
(970) 264-4111 and real estate banking services to individuals and small market
businesses in both Pagosa and Durango. As of December 31, 1996,
Southwest had total assets of $73.9 million and total
stockholders' equity of $5. 2. On December 31, 1996, Southwest
employed approximately 52 full-time equivalent employees.
Reasons for the Consolidation................. The Southwest Board's reasons for the Consolidation include (a)
the current and prospective economic environment and competitive
constraints facing independent banks such as Southwest in
Southwest Colorado, (b) the value of the Norwest Common Stock to
be received by Southwest shareholders in the Consolidation in
absolute terms and as compared to a competing offer for Southwest
from another bank holding company, and (c) the benefits of
consolidating with Norwest including access to Norwest's
financial and management resources.
Recommendation of the Southwest Board......... The Southwest Board believes the Consolidation is in your best
interest and unanimously recommends that you vote FOR the
proposal to approve the Reorganization Agreement and the Plan of
Consolidation.
Approval of the Consolidation................. The affirmative vote of at least two-thirds of the shares of
Southwest Common Stock outstanding is required to approve the
Consolidation. Southwest's directors and officers, together with
6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
their affiliates, own approximately 64.4% of the outstanding
shares of Southwest Common Stock. These individuals have informed
Southwest that they intend to vote for the Consolidation.
The Consolidation does not require the approval of Norwest's
stockholders.
The Consolidation............................. In the Consolidation, a newly-formed, wholly-owned subsidiary
bank of Norwest, will consolidate with Southwest. Southwest will
be the surviving bank in the Consolidation. If the Consolidation
is completed, Southwest will become a wholly-owned subsidiary of
Norwest and Southwest shareholders will receive shares of Norwest
Common Stock for their shares of Southwest Common Stock.
The terms of the Consolidation are governed by the Reorganization
Agreement and the Plan of Consolidation. You are encouraged to
read both of these documents carefully.
What Southwest Shareholders
Will Receive (see page __).................. In the Consolidation, Norwest will exchange $14,700,000 in
Norwest Common Stock for all of the outstanding shares of
Southwest Common Stock. Based on 5,500 shares of Southwest
Common Stock outstanding, this works out to approximately $2,673
in Norwest Common Stock for each share of Southwest Common Stock.
The Norwest Common Stock to be exchanged in the Consolidation
will be valued at the Norwest Measurement Price. The Norwest
Measurement Price is the average of the closing prices of a share
of Norwest Common Stock as reported on the New York Stock
Exchange for the 20-trading day measurement period ending on the
last trading day before the special meeting. For each share of
Southwest Common Stock you own, you will receive that number of
shares of Norwest Common Stock equal to $2,673 divided by this
average. For example, if the Norwest Measurement Price is $55,
then you would receive approximately 48.60 shares of Norwest
Common Stock for each share of Southwest Common Stock. If the
Norwest Measurement Price is $60, then you would receive
approximately 44.55 shares.
Management of Southwest After
the Consolidation (see ______).............. When the Consolidation is complete, Norwest will own all of the
outstanding shares of Southwest Common Stock. As a result,
Norwest will be able to elect or appoint all of the directors and
officers of Southwest.
Deferred Compensation Payment
(see page __ and Appendix B)................ In connection with the change in control of Southwest that will
occur as a result of the Consolidation, Southwest will pay Marion
O. Francis, Jr., president of Southwest, deferred compensation of
$1,176,000. The deferred compensation is payable in shares of
Norwest Common Stock upon completion of the Consolidation. Mr.
Francis will receive that number of shares of Norwest
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Common Stock equal to $1,176,000 divided by the Norwest Measurement
Price.
At the special meeting, shareholders of Southwest will vote on a
proposal to approve the deferred compensation payment. If
shareholders approve this payment, Norwest will be allowed to
deduct the entire payment as an expense for federal income tax
purposes and Mr. Francis will not be required to pay a 20%
nondeductible excise tax on any portion of the payment.
Norwest is not required to complete the Consolidation if
Southwest shareholders do not approve the deferred compensation
payment.
Additional Interests of Southwest's
Management (see page ___)................... In deciding whether to approve the Consolidation, you should be
aware that members of Southwest's management have other interests
that are in addition to or different from those of Southwest
shareholders generally. These interests consist of the deferred
compensation payment described above and employment agreements
between certain members of management and Southwest and Norwest.
Conditions to the Consolidation
(see page__)................................ A number of conditions must be satisfied before the Consolidation
can be completed. Each party's representations and warranties in
the Reorganization Agreement must be true, and each party must
perform its obligations under the Reorganization Agreement. Also,
there cannot be any change that has had, or might reasonably be
expected to have, an adverse effect on Southwest. Some of the
conditions to the Consolidation are subject to exceptions and to
a "materiality" standard. Certain conditions may also be waived
by the party entitled to assert the condition.
Regulatory Approvals (see page ___)......... The Consolidation is subject to approval by the Federal Reserve
Board, the OCC and the Colorado Banking Commissioner. Norwest
has filed applications with these agencies requesting approval of
the Consolidation. Each agency may place conditions on its
approval of the Consolidation. Under the Reorganization
Agreement, Norwest may elect not to complete the Consolidation if
any of these conditions is unreasonably burdensome to Norwest.
Termination of the Reorganization
Agreement (see page __)..................... Norwest and Southwest can agree to terminate the Reorganization
Agreement without completing the Consolidation. Also, either
party can terminate the Reorganization Agreement before
completion of the Consolidation under various circumstances,
including (a) if a court or other governmental authority
prohibits the Consolidation or (b) if the Consolidation is not
completed by September 30, 1997 (provided this right to terminate
will not be available to a party whose failure to perform in all
material respects any obligation under the Reorganization
Agreement prevented the Consolidation from being completed by
that date).
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Accounting Treatment (see page __).......... Norwest expects to account for the Consolidation using the
purchase method of accounting. This means that the results of
Southwest's operations will be included in Norwest's results of
operations going forward from the date the Consolidation is
completed.
Appraisal Rights (see page ___
and Appendix C)............................. Southwest shareholders who dissent from the Consolidation are
entitled to the receive a cash payment equal to the fair value of
their shares of Southwest Common Stock. To exercise your
appraisal rights and receive this cash payment, you must follow
the procedures outlined in Appendix C. You will lose your
appraisal rights if you do not strictly comply with these
procedures.
U.S. Federal Income Tax
Consequences (see page ___)................. The Consolidation has been structured so that Southwest
shareholders will not recognize any gain or loss for U.S. federal
income tax purposes as a result of the Consolidation (except for
cash received in lieu of fractional shares). The Consolidation
is conditioned on the receipt by Southwest of a legal opinion to
this effect.
Market Information (see page ___)........... Norwest Common Stock is listed on the New York Stock Exchange and
the Chicago Stock Exchange under the symbol NOB. On March 17,
1997, the last full trading day before public announcement of the
Consolidation, Norwest Common Stock closed at $50.375 per share.
On ____________, 1997, Norwest Common Stock closed at $___ per
share.
There is no public market for Southwest Common Stock.
</TABLE>
9
<PAGE>
Comparative Per Common Share Data
The following table presents selected comparative per common share data for
Norwest Common Stock on a historical and pro forma combined basis and for
Southwest Common Stock on a historical and pro forma equivalent basis. The pro
forma data in the table shows the effect of the Consolidation using the purchase
method of accounting. See "The Merger--Accounting Treatment." The historical
information should be read with (a) the selected financial data (and related
notes) for Norwest and Southwest appearing elsewhere in this Proxy Statement-
Prospectus, (b) the complete financial statements of Southwest appearing
elsewhere in this Proxy Statement-Prospectus and (c) the complete consolidated
financial statements of Norwest included in the documents incorporated by
reference in this Proxy Statement-Prospectus. See "Where You Can Find More
Information."
The pro forma information assumes that 294,000 shares of Norwest Common
Stock will be issued in the Consolidation. This is the number of shares that
would be issued if the Norwest Measurement Price is $50. Based on 5,500 shares
of Southwest Common Stock outstanding, this would result in approximately 53.45
shares of Norwest Common Stock being issued for each share of Southwest Common
Stock. The ratio of 53.45 shares of Norwest Common Stock for each share of
Southwest Common Stock is referred to in the footnotes to the table as the
"assumed exchange ratio." The actual Norwest Measurement Price (and thus the
actual exchange ratio) will not be determined until the end of a 20-trading day
measurement period ending on the last trading day before the special meeting.
The information in the following table is not necessarily indicative of the
results of the future operations of the combined entity or the actual results
that would have occurred had the Consolidation become effective prior to the
periods indicated.
<TABLE>
<CAPTION>
Norwest Common Stock Southwest Common Stock
--------------------- ----------------------
Pro Forma Pro Forma
Historical Combined Historical Equivalent
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
March 31, 1997 $15.96 15.96 966.18 853.06
December 31, 1996 15.94 15.94 943.62 851.99
DIVIDENDS DECLARED (2):
Three Months Ended March 31, 1997 0.30 0.30 4.50 16.04
Year Ended December 31, 1996 1.05 1.05 18.00 56.12
NET INCOME (3):
Three Months Ended March 31, 1997 0.84 0.84 40.00 44.90
Year Ended December 31, 1996 3.07 3.07 201.75 164.09
- ------------------------------------------------------------------------------------
</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 Southwest divided by total pro forma common shares of the
combined entities. The pro forma equivalent book value per share of
Southwest Common Stock represents the pro forma combined book value per
share of Norwest Common Stock multiplied by the assumed exchange ratio of
53.45.
(2) Assumes no changes in cash dividends per share by Norwest. The pro forma
equivalent dividends per share of Southwest Common Stock represent cash
dividends declared per share of Norwest Common Stock multiplied by the
assumed exchange ratio of 53.45.
(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 Southwest divided by the average pro forma common and common
equivalent shares of the combined entities. The pro forma equivalent net
income per share of Southwest Common Stock represents the pro forma combined
net income per share multiplied by the assumed exchange ratio of 53.45.
10
<PAGE>
Selected Historical Financial Information
The following selected financial information is to aid you in your analysis
of the financial aspects of the Consolidation. The information for Norwest is
derived from its historical financial statements (and related notes) contained
in its annual and quarterly reports and other information filed with the SEC and
should be read with that information. These reports and other information are
incorporated by reference into this document. See "What Incorporated by
Reference Means" and "Where You Can Find More Information." The information
for Southwest is derived from its historical financial statements (and related
notes) contained elsewhere in this Proxy Statement-Prospectus. The historical
financial statements for Norwest and for Southwest for each of the full years
shown have been audited; those for interim periods have not been audited. The
unaudited financial information reflects, in the respective opinion of Norwest's
and Southwest's management, all adjustments (consisting only of normal recurring
adjustments) that are considered necessary to present fairly the financial
information for such periods. The results of operations for any interim period
are not necessarily indicative of results for a full year, and historical
results are not necessarily indicative of future results.
Continued on the following two pages
11
<PAGE>
Norwest Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31
--------------------------------------------------------------------------
1996 1997 1996 1995 1994 1993(1) 1992(2)
---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(In millions except per share amounts)
INCOME STATEMENT DATA
Interest income................................... $ 1,607.4 1,524.0 $ 6,318.3 5,717.3 4,393.7 3,946.3 3,806.4
Interest expense.................................. 649.1 633.2 2,617.0 2,448.0 1,590.1 1,442.9 1,610.6
--------- -------- --------- -------- -------- -------- --------
Net interest income.............................. 958.3 890.8 3,701.3 3,269.3 2,803.6 2,503.4 2,195.8
Provision for credit losses....................... 109.0 87.8 394.7 312.4 164.9 158.2 270.8
Non-interest income............................... 690.6 552.8 2,564.6 1,848.2 1,638.3 1,585.0 1,273.7
Non-interest expenses............................. 1,047.5 943.2 4,089.7 3,382.3 3,096.4 3,050.4 2,553.1
--------- -------- --------- -------- -------- -------- --------
Income before income taxes....................... 492.4 412.6 1,781.5 1,422.8 1,180.6 879.8 645.6
Income tax expense................................ 170.5 141.2 627.6 466.8 380.2 266.7 175.6
--------- -------- --------- -------- -------- -------- --------
Income before cumulative effect of a
change in accounting method...................... 321.9 271.4 1,153.9 956.0 800.4 613.1 470.0
Cumulative effect on years prior to 1992 of
change in accounting method....................... -- -- -- -- -- -- (76.0)
--------- -------- --------- -------- -------- -------- --------
Net income........................................ $ 321.9 271.4 $ 1,153.9 956.0 800.4 613.1 394.0
========= ======== ========= ======== ======== ======== ========
PER COMMON SHARE DATA
Net income per share:
Primary:
Before cumulative effect of a
change in accounting method..................... $ 0.84 0.74 3.07 2.76 2.45 1.89 1.44
Cumulative effect on years prior to 1992
of change in accounting method.................. -- -- -- -- -- -- (0.25)
--------- -------- --------- -------- -------- -------- --------
Net income...................................... $ 0.84 0.74 3.07 2.76 2.45 1.89 1.19
========= ======== ========= ======== ======== ======== ========
Fully diluted:
Before cumulative effect of a change in
accounting method.............................. $ 0.84 0.74 3.07 2.73 2.41 1.86 1.42
Cumulative effect on years prior to 1992
of change in accounting method.................. -- -- -- -- -- -- (0.23)
--------- -------- --------- -------- -------- -------- --------
Net income...................................... $ 0.84 0.74 3.07 2.73 2.41 1.86 1.19
========= ======== ========= ======== ======== ======== ========
Dividends declared per common share............... $ 0.300 0.240 1.050 0.900 0.765 0.640 0.540
BALANCE SHEET DATA
At period end:
Total assets..................................... $83,580.3 73,942.1 80,175.4 72,134.4 59,315.9 54,665.0 50,037.0
Long-term debt................................... 11,971.4 14,336.2 13,082.2 13,676.8 9,186.3 6,850.9 4,553.2
Total shareholders' equity....................... 6,187.2 5,446.5 6,064.2 5,312.1 3,846.4 3,760.9 3,371.8
</TABLE>
- --------------------
(1) On January 14, 1994, Norwest acquired First United Bank Group, Inc. ("First
United"), a $3.9 billion bank holding company headquartered in Albuquerque,
New Mexico, 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, Norwest acquired Lincoln Financial Corporation
("Lincoln"), a $2.0 billion bank holding company headquartered in Fort
Wayne, Indiana, 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.
12
<PAGE>
The Bank of the Southwest, National Association
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31 December 31
---------------------------------------
1997 1996 1996 1995
--------- --------- ------- -------
<S> <C> <C> <C> <C>
(In millions except per share amounts)
Income Statement Data
Interest Income................................... $ 1.5 1.3 5.8 4.6
Interest Expense.................................. (0.6) (0.5) (2.3) (1.7)
------ ----- ------ ------
Net Interest Income............................. 0.9 0.8 3.5 2.9
Provision for credit losses....................... - - - -
Non-interest income............................... 0.2 0.1 0.9 0.6
Non-interest expenses............................. (0.8) (0.6) (2.8) (2.2)
------ ----- ------ ------
Income before income taxes...................... 0.3 0.3 1.6 1.2
Income tax expense................................ (0.1) (0.1) (0.5) (0.3)
------ ----- ------ ------
Income before cumulative effective of a
change in accounting method................... 0.2 0.2 1.1 0.9
Cumulative effect on years prior to 1992 of
change in accounting method..................... - - - -
------ ----- ------ ------
Net Income........................................ $ 0.2 0.2 1.1 0.9
====== ===== ====== ======
Per Common Share Data
Net Income per share:
Primary:
Before cumulative effect of a change in
accounting method.............................. $40.00 43.64 201.75 155.21
Cumulative effect on years prior to 1992
of change in accounting method................. - - - -
------ ----- ------ ------
Net Income $40.00 43.64 201.75 155.21
====== ===== ====== ======
Fully diluted:
Before cumulative effect of a change in
accounting method.............................. $40.00 43.64 201.75 155.21
Cumulative effect on years prior to 1992
of change in accounting method................. - - - -
------ ----- ------ ------
Net Income $40.00 43.64 201.75 155.21
====== ===== ====== ======
Dividends declared per common share................ $ 4.50 4.50 18.00 18.00
Balance Sheet Data
A period end:
Total assets $ 73.4 66.2 73.6 61.0
Long-term debt 0.1 0.3 0.3 0.3
Total shareholders'equity 5.3 4.3 5.2 4.2
</TABLE>
13
<PAGE>
Share Prices and Dividends for Norwest Common Stock
The following table sets forth the high and low sales prices per share of
the Norwest Common Stock, and the cash dividends paid on Norwest Common Stock,
for the quarterly periods indicated. The prices for Norwest Common Stock are as
reported on the New York Stock Exchange. There is no public market for Southwest
Common Stock.
<TABLE>
<CAPTION>
Norwest Common Stock
--------------------
High Low Dividends
------- ------ ---------
<S> <C> <C> <C>
1995
First Quarter $26.250 22.625 0.210
Second Quarter 29.375 25.125 0.210
Third Quarter 32.750 26.875 0.240
Fourth Quarter 34.750 29.250 0.240
1996
First Quarter 37.125 30.500 0.240
Second Quarter 37.500 33.000 0.270
Third Quarter 41.000 32.000 0.270
Fourth Quarter 46.875 40.750 0.270
1997
First Quarter 53.250 42.750 0.300
Second Quarter 59.250 44.375 0.300
Third Quarter
(through July __, 1997)
</TABLE>
14
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
Southwest is sending you this Proxy Statement-Prospectus to provide you
with information concerning the Consolidation and to solicit your proxy for use
at the special meeting of shareholders. The special meeting will be held at the
time and place described in the Notice of Special Meeting of Shareholders on
page 1 of this document. At the special meeting, shareholders of Southwest will
be asked to approve the Consolidation and the payment of deferred compensation
of $1,176,000 to Marion O. Francis, Jr., president of Southwest.
Record Date
Southwest has established July 28, 1997 as the record date for the meeting.
Only shareholders of record on that date are entitled to attend and vote at the
special meeting.
Voting Rights; Votes Required for Approval
On the record date, there were 5,500 shares of Southwest Common Stock
outstanding and entitled to vote at the special meeting. The holders of
Southwest Common Stock are entitled to one vote per share. A majority of the
outstanding shares must be present, in person or by proxy, at the special
meeting before a vote can be taken.
Approval of the Consolidation requires the affirmative vote, in person or
by proxy, of the holders of at least two-thirds of the outstanding shares of
Southwest Common Stock. Directors and executive officers of Southwest and their
affiliates beneficially owned on the record date a total of 3,540 shares of
Southwest Common Stock, or approximately 64.4% of the outstanding shares of
Southwest Common Stock. Southwest has been informed that these shareholders
intend to vote in favor of the Consolidation.
Approval of the deferred compensation payment to Mr. Francis requires the
affirmative vote, in person or by proxy, of at least 75% of the outstanding
shares of Southwest Common Stock, excluding shares held directly or indirectly
by Mr. Francis. Mr. Francis beneficially owned on the record date 10 shares, or
less than one percent of the outstanding shares of Southwest Common Stock.
Voting and Revocation of Proxies
All shares of Southwest Common Stock represented at the special meeting by
a properly executed proxy will be voted in accordance with the instructions
indicated on the proxy, unless the proxy is revoked before a vote is taken. If
you sign and return a proxy without voting instructions, and do not revoke the
proxy, the proxy will be voted FOR approval of the Consolidation and FOR
approval of the deferred compensation payment to Mr. Francis.
You may revoke your proxy at any time before it is voted by (a) filing
either a document revoking the proxy or a duly executed proxy bearing a later
date with the corporate secretary of Southwest before or at the special meeting
or (b) voting the shares subject to the proxy in person at the special meeting.
Attendance at the special meeting will not by itself result in your proxy being
revoked.
A proxy may indicate that all or a portion of the shares represented by
the proxy 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 the
name of a nominee 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 that proposal, even though the 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 the proposal. The proposal to approve
the Consolidation must be approved by the holders of at least two-thirds of the
outstanding shares of Southwest Common Stock. The proposal to approve the
deferred compensation payment to Mr. Francis must be approved by the holders of
more than 75% of the outstanding shares of Southwest Common Stock, excluding
shares held directly or indirectly by Mr. Francis. Because each proposal
requires the affirmative
15
<PAGE>
vote of a specified percentage of outstanding shares, not voting on a proposal
has the same effect as voting against the proposal.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
Southwest may solicit proxies from Southwest shareholders, 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. Southwest
will bear its own expenses in connection with any solicitation of proxies for
the special meeting.
Other Matters
If an insufficient number of votes for the Consolidation is received before
the scheduled meeting date, Norwest and Southwest may decide to postpone or
adjourn the special meeting. If that happens, proxies that either have been
voted for the Consolidation or contain no instructions will be voted for
adjournment.
The Southwest Board is not aware of any business to be brought before the
special meeting other than the proposal to approve the Consolidation and the
proposal to approve the deferred compensation payment. If other matters are
properly brought before the special meeting or any adjournments or postponements
of the meeting, the persons appointed as proxies will have authority to vote the
shares represented by properly executed proxies in accordance with their
discretion and judgment as to the best interests of Southwest.
16
<PAGE>
THE CONSOLIDATION
-----------------
Purpose and Effect of the Consolidation
The purpose of the Consolidation is to enable Norwest to acquire Southwest.
This is being done through the consolidation of a newly-formed, wholly-owned
subsidiary bank of Norwest with Southwest, with Southwest being the surviving
bank.
As a result of the Consolidation, Southwest will become a wholly-owned
subsidiary of Norwest and shareholders of Southwest will receive shares of
Norwest Common Stock for their shares of Southwest Common Stock. Norwest will
own all of the outstanding shares of Southwest Common Stock. Shareholders of
Southwest will become stockholders of Norwest, and their rights will be governed
by the Norwest Certificate and Norwest Bylaws rather than the Southwest Articles
and Southwest Bylaws. See "COMPARISON OF RIGHTS OF SOUTHWEST COMMON STOCK AND
NORWEST COMMON STOCK."
Background of and Reasons for the Consolidation
Background of the Consolidation. In the fall of 1996 David Wright of the
Peregrine Group contacted R.W. Turner, Jr., Chairman of the Southwest Board. Mr.
Wright indicated that because of the excellent earnings and growth performance
of Southwest there could be considerable interest in the banking community to
purchase Southwest at a very favorable price to its stockholders.
After conferring with the senior management of Southwest, and although
there were at that time no plans to sell Southwest, Mr. Turner gave Mr. Wright
the authority to test the market. In a short time a small publicly-traded
midwestern bank holding company expressed interest in Southwest and set forth a
preliminary offer subject to due diligence.
At this point a right of first refusal held by Norwest for the purchase of
Southwest that had accrued to them from a previous transaction between Turner,
the Bank of Durango, the Bank of Ignacio, and United Banks of Colorado came into
effect.
When offered the opportunity to purchase Southwest under the terms of that
agreement, Norwest expressed interest and negotiations as to price and terms
proceeded through Mr. Wright.
On January 22, 1997, a confidentiality agreement regarding the ongoing
negotiations was executed between Norwest and Southwest.
At the regularly scheduled board meeting on March 18, 1997, the Southwest
Board unanimously approved accepting an offer from Norwest to purchase Southwest
for $14,700,000 in Norwest Common Stock.
Subsequent to the board meeting an agreement and plan of reorganization
subject to due diligence was entered into dated March 18, 1997.
Reasons for the Consolidation. The Southwest Board believes that the
Consolidation is fair to, and in the best interests of, Southwest and its
shareholders. Accordingly, the Southwest Board has unanimously approved the
Consolidation Agreement and recommends that Southwest shareholders vote FOR the
approval and adoption of the Consolidation.
In reaching its determination that the Consolidation is fair to, and in the
best interests of, Southwest and its shareholders, the Southwest Board
considered a number of factors, including without limitation, the following:
(a) the current condition and growth prospects of Southwest, including
historical and prospective results of operation, financial conditions,
and capital conditions, were Southwest to remain independent in the
competitive banking climate in Southwest Colorado;
17
<PAGE>
(b) the monetary value of the Norwest Common Stock offered to Southwest
shareholders by Norwest (i) in absolute terms, (ii) as compared to the
value of the offer received by Southwest by a qualified and informed
potential acquiror, which offer was less than Norwest's offer, and
(iii) as compared to recent merger and acquisition transactions
involving other banks and financial institutions in Southwest Colorado
and Southwest region;
(c) the price obtainable for Southwest 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 Southwest'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 in the acquisition of
additional banking locations;
(g) the expectation that the Consolidation will be a tax-free
reorganization to Southwest's shareholders for federal income tax
purposes; and
(h) the expectation that Norwest would assimilate Southwest's employees to
the fullest extent possible.
Additional Interests of Southwest Management in the Consolidation
In deciding whether to approve the Consolidation, you should be aware that
certain members of Southwest's management have interests in the Consolidation
that may be different from or in addition to the interests of Southwest
shareholders generally. These interests consist of employment agreements between
Southwest and Norwest and certain members of management and the Deferred
Compensation Agreement between Southwest and Mr. Francis. The terms of the
employment agreements are summarized below. The Deferred Compensation Agreement
is discussed separately in the section entitled "Deferred Compensation Payment."
The Southwest Board was aware of these interests at the time it approved the
Consolidation.
R.W. "Nick" Turner Jr. For a period of one year after completion of the
Consolidation, Nick Turner will be subject to restrictions against engaging in
the business of banking in certain Colorado counties. For observing these
restrictions, Mr. Turner will receive a lump sum payment of $20,000, payable on
completion of the Consolidation. Mr. Turner is currently the chairman of the
Southwest Board.
Marion O. Francis. After completion of the Consolidation, Mr. Francis will
become a full-time employee of Norwest. The term of his employment will be for
two years. He will receive annual base compensation of $95,000 and will be
eligible for an annual bonus of up to 22.5% of his base compensation. For one
year after his employment term ends or the date on which his employment
terminates, whichever is later, Mr. Francis will be subject to restrictions
against engaging in the business of banking in certain Colorado counties. Mr.
Francis will receive a lump sum payment of $95,000 in consideration of these
restrictions. Mr. Francis is currently president of Southwest.
R.W. "Pete" Turner III. Pete Turner will also become a full-time employee
of Norwest after the Consolidation is completed. The term of his employment will
also be for two years. Mr. Turner will receive annual base compensation of
$60,000 and will be eligible for an annual bonus of up to 15% of his base
compensation. In consideration of a lump sum payment of $60,000, Mr. Turner will
be subject to similar restrictions on engaging in the business of banking for
one year after his employment term ends or his employment terminates, whichever
is later. Mr. Turner is currently a senior vice president of Southwest.
18
<PAGE>
Sue Gast. After completion of the Consolidation, Ms. Gast will become a
full-time employee of Norwest in a capacity to be determined by Norwest. The
term of her employment will expire March 21, 2001. Ms. Gast will receive annual
base compensation of $51,000 and will be eligible for an annual bonus. Ms. Gast
will not be subject to any non-compete restrictions following termination of her
employment. Ms. Gast is currently cashier of Southwest.
Appraisal Rights
Under federal law, any shareholder of Southwest who objects to the
Consolidation has the right to receive cash equal to the value of the
shareholder's shares as measured on the date the Consolidation becomes
effective. To exercise this right, a shareholder must carefully follow all of
the following steps: (a) the shareholder must vote against approval of the
Consolidation at the special meeting or give notice in writing at or before the
special meeting to the presiding officer that such shareholder dissents from the
proposed Consolidation; (b) the shareholder must, within 30 days after the
effective date of the Consolidation, make a written request for payment to the
surviving bank; and (c) the written request must be accompanied by surrender of
the shareholder's stock certificate(s). Any shareholder who votes against the
Consolidation at the special meeting, or who gives notice in writing at or
before the Special Meeting to the presiding officer that such shareholder
dissents, will be notified in writing of effective date of the Consolidation. A
shareholder who does not carefully follow these steps will lose these appraisal
rights.
The value of the shares of any dissenting shareholder will be determined by
an appraisal made by a committee of three persons, one to be selected by the
majority vote of the dissenting shareholders, one by the board of directors of
the surviving bank, and the third by the two so chosen. The valuation agreed
upon by any two of the three appraisers will govern. If the value so fixed is
not satisfactory to any dissenting shareholder, that shareholder may, within
five days after being notified of the appraised value of such shareholder's
shares, appeal to the OCC, who will cause a reappraisal to be made which will be
final and binding as to the value of such shares. If a shareholder dissents and,
within 90 days from the effective date of the Consolidation, one or more of the
appraisers is not selected for any reason, or the appraisers fail to determine
the value of such shares, the OCC will, upon written request of any interested
party, cause an appraisal to be made which will be final and binding on all
parties. The expenses of the OCC in making the reappraisal or the appraisal, as
the case may be, will be paid by the surviving bank. The value of the shares
ascertained will be promptly paid to the dissenting shareholder by the surviving
bank.
The foregoing is a summary of Title 12, Section 215 of the United States
Code. It is not a complete statement of the provisions of Section 215 and is
qualified in its entirety by reference to the relevant provisions of Section
215, the text of which is attached to this Proxy Statement-Prospectus as
Appendix C. Any shareholder of Southwest who desires to exercise dissenters'
appraisal rights should carefully review and comply with the relevant provisions
of Section 215. Appraisal rights will be forfeited if the procedural
requirements of Section 215 are not strictly complied with.
Attached to this Proxy Statement-Prospectus as Appendix D is a copy of
Banking Circular 259 regarding the valuation methods used by the OCC to estimate
the value of a bank's shares when the OCC is involved in the appraisal of shares
held by dissenting shareholders. The results of appraisals performed by the OCC
between January 1, 1985 and September 30, 1991 are also summarized in Appendix
D. You should consider carefully the information in Banking Circular 259 before
deciding whether to exercise your appraisal rights.
Exchange of Certificates
After completion of the Consolidation, Norwest Bank Minnesota, National
Association, acting as exchange agent for Norwest, will mail to each holder of
record of shares of Southwest Common Stock a form letter of transmittal,
together with instructions for the exchange of the holder's stock certificates
for a certificate representing Norwest Common Stock.
19
<PAGE>
SOUTHWEST SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
No dividend or other distribution declared on Norwest Common Stock after
completion of the Consolidation will be paid to the holder of any certificates
for shares of Southwest Common Stock until after the certificates have been
surrendered for exchange.
When the exchange agent receives a surrendered certificate or certificates
from a shareholder, together with a properly completed letter of transmittal, it
will issue and mail to the shareholder a certificate representing the number of
shares of Norwest Common Stock to which the shareholder is entitled, plus the
amount in cash of any remaining fractional share and any cash dividends that are
payable with respect to the shares of Norwest Common Stock so issued. No
interest will be paid on the fractional share amount or amounts payable as
dividends or other distributions.
A certificate for Norwest Common Stock may be issued in a name other than
the name in which the surrendered certificate is registered if (a) the
certificate surrendered is properly endorsed and accompanied by all documents
required to transfer the shares to the new holder and (b) the person requesting
the issuance of the Norwest Common Stock certificate either pays to the exchange
agent in advance any transfer and other taxes due or establishes to the
satisfaction of the exchange agent that such taxes have been paid or are not
due.
The exchange agent will issue stock certificates for Norwest Common Stock
in exchange for lost, stolen or destroyed certificates for Southwest Common
Stock upon receipt of a lost certificate affidavit and a bond indemnifying
Norwest for any claim that may be made against Norwest as a result of the lost,
stolen or destroyed certificates.
After completion of the Consolidation, no transfers will be permitted on
the books of Southwest. If, after completion of the Consolidation, certificates
for Southwest Common Stock are presented for transfer to the exchange agent,
they will be canceled and exchanged for certificates representing Norwest Common
Stock.
None of Norwest, Southwest, the exchange agent or any other person will be
liable to any former holder of Southwest Common Stock for any amount delivered
in good faith to a public official pursuant to applicable abandoned property,
escheat or similar laws.
Regulatory Approvals
The Consolidation is subject to the prior approval of the Federal Reserve
Board, the OCC and the Colorado Banking Commissioner. The approval of the
Federal Reserve Board is required because Norwest is a bank holding company
registered under the Bank Holding Company Act. The approval of the OCC is
required because Southwest is a national banking association and the OCC is the
primary regulator of national banks. The approval of the Colorado Banking
Commissioner is required because Southwest is located in Colorado.
Norwest has filed applications with the Federal Reserve Board, the OCC and
the Colorado Banking Commissioner requesting approval of the Merger. Each agency
may place conditions on its approval of the Consolidation.
The approval of an application means only that the regulatory criteria for
approval have been satisfied or waived. It does not mean that the approving
authority has determined that the consideration to be received by Southwest
shareholders is fair. Regulatory approval does not constitute an endorsement or
recommendation of the Consolidation.
Norwest and Southwest are not aware of any governmental approvals or
compliance with banking laws and regulations that are required for the
Consolidation to become effective other than those described above. Norwest and
Southwest intend to seek any other approval and to take any other action that
may be required to effect the
20
<PAGE>
Consolidation. There can be no assurance that any required approval or action
can be obtained or taken prior to the special meeting.
The Consolidation cannot be completed unless all necessary regulatory
approvals are granted. In addition, Norwest may elect not to complete the
Consolidation if any condition under which any regulatory approval is granted is
unreasonably burdensome to Norwest. See "THE REORGANIZATION AGREEMENT AND THE
PLAN OF CONSOLIDATION--Conditions to Completion of the Consolidation" and
"--Termination of the Reorganization Agreement."
Effect on Employee Benefit Plans
The Reorganization Agreement provides that, subject to any eligibility
requirements applicable to such plans, employees of Southwest will be entitled
to participate in those Norwest employee benefit and welfare plans specified in
the Reorganization Agreement. Eligible employees of Southwest will enter each of
such plans no later than the first day of the calendar quarter which begins at
least 32 days after completion of the Consolidation.
Certain U.S. Federal Income Tax Consequences of the Consolidation to Southwest
Shareholders
The following is a summary of the anticipated U.S. federal income tax
consequences of the Consolidation to Southwest shareholders. The summary is
based on the parties' understanding of the U.S. federal income tax laws as
currently in effect and as currently interpreted. It does not cover issues of
state, local or foreign taxation. Nor does it address all aspects of U.S.
federal income taxation that may be important to particular shareholders in
light of their personal circumstances or to shareholders subject to special
rules under U.S. federal income tax laws. Future legislation, regulations,
administrative rulings and court decisions may alter the tax consequences
summarized below.
The anticipated U.S. federal income tax consequences to Southwest
shareholders are as follows:
. A shareholder who receives shares of Norwest Common Stock in exchange
for shares of Southwest Common Stock will not recognize any gain or loss
on the receipt of the shares of Norwest Common Stock, except for cash
received in lieu of a fractional share. The shareholder's gain or loss
on the receipt of cash in lieu of a fractional share will equal the
difference between the cash received and the basis of the fractional
share exchanged.
. A shareholder's tax basis in the shares of Norwest Common Stock received
will be the same as the shareholder's tax basis in the shares of
Southwest Common Stock exchanged in the Consolidation, less any cash
received in lieu of fractional shares.
. The holding period of the shares of Norwest Common Stock received by a
shareholder will include the holding period of the shareholder's shares
of Southwest Common Stock exchanged in the Consolidation, but only if
the shares of Southwest Common Stock were held as a capital asset at the
time the Consolidation is completed.
Southwest is not required to complete the Consolidation unless it receives
an opinion of its counsel that these will be the U.S. federal income tax
consequences of the Consolidation. The opinion may make certain assumptions and
may rely on representations of the parties to the Consolidation as to factual
matters. It will represent counsel's judgment as to the tax status of the
Consolidation under the Code and will not be binding on the IRS. There is no
assurance that the IRS will not take a contrary position regarding the tax
consequences of the Consolidation. Nor is there is any assurance that the IRS
would not prevail in the event the tax consequences of the Consolidation were
litigated.
Shareholders are urged to consult their own tax advisors as to the specific
tax consequences to them from the Consolidation.
21
<PAGE>
Resale of Norwest Common Stock
The Norwest Common Stock issued in the Consolidation will be freely
transferable under the Securities Act, except for shares issued to Southwest
shareholders who are considered to be "affiliates" of Southwest or Norwest under
Rule 145 under the Securities Act or of Norwest under Rule 144 under the
Securities Act. The definition of "affiliate" is complex and depends on the
specific facts, but generally includes directors, executive officers, 10%
stockholders and other persons with the power to direct the management and
policies of the company in question.
Affiliates of Southwest may not sell the shares of Norwest Common Stock
received in the Consolidation except (a) pursuant to an effective registration
statement under the Securities Act, (b) in compliance with an exemption from the
registration requirements of the Securities Act or (c) in compliance with Rule
144 and Rule 145 under the Securities Act. Generally, those rules permit resales
of stock received by affiliates so long as Norwest has complied with certain
reporting requirements and the selling stockholder complies with certain volume
and manner of sale restrictions.
Southwest has agreed to use its best efforts to deliver to Norwest signed
representations by each person who may be deemed to be an affiliate of Southwest
that the person will not sell, transfer or otherwise dispose of the shares of
Norwest Common Stock to be received by the person in the Consolidation except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations promulgated thereunder.
This Proxy Statement-Prospectus does not cover any resales of Norwest
Common Stock received by affiliates of Southwest.
Stock Exchange Listing
The shares of Norwest Common Stock to be issued in the Consolidation will
be listed on the New York Stock Exchange and the Chicago Stock Exchange.
Accounting Treatment
Norwest will account for its acquisition of Southwest using the purchase
method of accounting. Under this method, Norwest will allocate the consideration
to be paid in the Consolidation to the assets acquired and liabilities assumed
based on their estimated fair values at the time the Consolidation is completed.
The results of Southwest's operations will be included in Norwest's results of
operations going forward from the date the Consolidation is completed.
The unaudited pro forma data included in this Proxy Statement-Prospectus
for the Consolidation have been prepared using the purchase method of
accounting. See "SUMMARY--Comparative Per Common Share Data."
22
<PAGE>
DEFERRED COMPENSATION PAYMENT
The following is a summary of the terms of the deferred compensation
payable to Marion O. Francis, Jr., president of Southwest. The deferred
compensation is payable under the terms of the Deferred Compensation Agreement
between Mr. Francis and Southwest. The full agreement is attached to this Proxy
Statement-Prospectus as Appendix B.
Terms of the Deferred Compensation Agreement
The Deferred Compensation Agreement requires Southwest to pay Marion O.
Francis, president of Southwest, deferred compensation in the event of a change
in control of Southwest. The payment is compensation for Mr. Francis' past and
continued efforts as president of Southwest.
Amount of the Deferred Compensation Payment. The amount of the payment is
based on the sales price paid to Southwest shareholders and the book value of
Southwest.
. If the sales price is greater than 100% of book value but less than 125%
of book value, the payment is 3% of the sales price.
. If the sales price is equal to or greater than 125% of book value but
less than 150% of book value, the payment is 5.5% of the sales price.
. If the sales price is equal to or greater than 150% of book value, the
payment is 8% of the sales price.
Because the sales price in the Consolidation ($14,700,000) is more than 150% of
Southwest's book value ($5,152,408 as of December 31, 1996), the amount of the
deferred compensation payable to Mr. Francis is $1,176,000, which represents 8%
of $14,700,000.
Form of the Deferred Compensation Payment. The Deferred Compensation
Agreement provides that the deferred compensation payable to Mr. Francis will be
paid on the same terms as the sales price of Southwest is paid to Southwest
shareholders--that is, if Southwest shareholders will receive stock of another
corporation, Mr. Francis will receive his deferred compensation in stock as
well.
Payment Dependent on Shareholder Approval. Under the Deferred Compensation
Agreement, payment of the deferred compensation to Mr. Francis is conditional
upon Southwest shareholders approving the payment in the manner required under
the Code for the favorable tax treatment described below. In other words, Mr.
Francis will not be entitled to the payment if the holders of more than 75% of
the outstanding shares of Southwest Common Stock do not approve the payment.
Tax Treatment of Deferred Compensation Payment
Excess Parachute Payments Not Deductible. Section 280G of the Code
restricts the ability of taxpayers to deduct for federal income tax purposes
certain payments made in connection with a change in ownership or control of the
taxpayer. Payments made in connection with a change in ownership or control are
often referred to as "golden parachutes."
A payment must meet two tests before it will be subject to the
deductibility limitations of section 280G. The payment must first constitute a
"parachute payment." A parachute payment is any payment that (a) is in the
nature of compensation to the recipient, (b) is contingent on a change in
ownership or control of the taxpayer and (c) will exceed by three times or more
the recipient's base amount. A recipient's base amount is equal to the
recipient's average annual compensation over the five years immediately before
the change in ownership or control.
Even if a payment constitutes a parachute payment, it will be subject to
the section 280G deductibility limitations only to the extent it constitutes an
"excess parachute payment." An excess parachute payment is the
23
<PAGE>
amount by which the present value of the parachute payment exceeds the
recipient's base amount. It is this excess parachute payment amount that the
taxpayer may not deduct.
Two additional rules affect the amount of a change in control payment that
is treated as an excess parachute payment. First, the amount that constitutes a
parachute payment does not include the portion of the change in control payment
that is reasonable compensation to the recipient for services rendered after the
change in ownership or control. Second, the amount treated as an excess
parachute payment is reduced by the portion of the change in control payment
that is reasonable compensation for services rendered by the recipient before
the change in ownership or control. In both cases, the taxpayer has the burden
of establishing by "clear and convincing evidence" that the amount is reasonable
compensation.
The adverse tax consequences of section 280G can be avoided if the holders
of more than 75% of the outstanding voting shares of the taxpayer approve the
parachute payment, excluding shares held directly or indirectly by the
recipient. The taxpayer must disclose to its shareholders all material facts
concerning the parachute payments before the vote is taken. This discussion
constitutes such disclosure. If a change in control payment is approved by the
taxpayer's shareholders in this manner, the taxpayer may deduct the entire
payment. This is true even if some or all of the change in control payment
constitutes an excess parachute payment.
Excise Tax Imposed on Excess Parachute Payments. Section 4999 of the Code
imposes on any person who receives an excess parachute payment an excise tax in
the amount of 20% of the payment. The tax is withheld from the change in control
payment and is nondeductible to the recipient. Shareholder approval of the
payment in the manner described above will enable the recipient to avoid this
tax.
Application of Golden Parachute Rules to the Deferred Compensation Payment.
Southwest is making the deferred compensation payment to Mr. Francis as
compensation and in connection with the change in ownership and control of
Southwest that will occur as a result of the Consolidation. The amount of the
deferred compensation payment will exceed by three times or more Mr. Francis'
base amount, which Southwest approximates at $113,200. As a result, the entire
amount of the deferred compensation payment will be treated as a parachute
payment. In addition, because the deferred compensation payment is for services
rendered by Mr. Francis before the Consolidation, there will be no exclusion
under the reasonable compensation rule for services rendered after the change in
control or ownership.
Because Southwest will pay Mr. Francis the entire amount of the deferred
compensation upon completion of the Consolidation, the present value of the
payment is equal to its full amount. The deferred compensation payment exceeds
Mr. Francis' base amount by approximately $1,062,500. Southwest may deduct from
this amount any portion of the payment that it can establish is reasonable
compensation for services rendered by Mr. Francis before the Consolidation. The
remainder will constitute an excess parachute payment.
Even though the amount of the deferred compensation payment that will
constitute an excess parachute payment may be less the entire amount of the
payment, you are being asked to approve the entire payment. This will ensure
that Southwest will be able to deduct for federal income tax purposes the entire
amount of the payment whether or not it can establish that all of the deferred
compensation payment constitutes reasonable compensation for services rendered
by Mr. Francis before the Consolidation. It will also ensure that Mr. Francis
will avoid paying a 20% excise tax on any portion of the deferred compensation
payment.
24
<PAGE>
THE REORGANIZATION AGREEMENT
The following is a summary of certain provisions of the Reorganization
Agreement, a copy of which is attached to this Proxy Statement-Prospectus as
Appendix A. The Reorganization Agreement is incorporated by reference into this
Proxy Statement-Prospectus. See "WHAT INCORPORATED BY REFERENCE MEANS."
This summary is qualified in its entirety by reference to the full text of
the Reorganization Agreement. Southwest shareholders are encouraged to read this
document carefully and in its entirety. Parenthetical references are to the
relevant paragraph or paragraphs of the Reorganization Agreement.
Basic Plan of Reorganization
Structure. The acquisition of Southwest by Norwest will be accomplished
through the consolidation of Southwest with Norwest Interim Bank Southwest,
National Association, a newly-formed, wholly-owned subsidiary bank of Norwest.
Southwest will be the surviving bank and will become a wholly-owned subsidiary
of Norwest. Southwest shareholders will receive shares of Norwest Common Stock
for their shares of Southwest Common Stock. Norwest stockholders will continue
to own shares of Norwest Common Stock. (paragraph 1(a))
Consideration.
Norwest Common Stock. As part of the Consolidation, each share of
Southwest Common Stock will be converted into the right to receive the number of
shares of Norwest Common Stock determined by dividing the Adjusted Norwest
Shares by the number of shares of Southwest Common Stock outstanding. The
"Adjusted Norwest Shares" will equal $14,700,000 divided by the Norwest
Measurement Price. The "Norwest Measurement Price" means the average of the
closing prices of a share of Norwest Common Stock as reported on the composite
tape of the New York Stock Exchange during the period of 20 trading days ending
on the day immediately before the special meeting. (paragraph 1(a)) Under the
Reorganization Agreement, no more than 5,500 shares of Southwest Common Stock
may be outstanding at the time the Consolidation is completed. (paragraph 2(c))
As a result, for purposes of determining the number of shares of Norwest Common
Stock you will receive, you may assume that there will be 5,500 shares of
Southwest Common Stock outstanding. The price of Norwest Common Stock on the day
the Consolidation is completed may be higher or lower than the Norwest
Measurement Price. No adjustment will be made to the number of shares of Norwest
Common Stock you will receive to reflect fluctuations in the price of Norwest
Common Stock after the special meeting.
Cash in Lieu of Fractional Shares. If the aggregate number of shares of
Norwest Common Stock you will receive in the Consolidation does not equal a
whole number, you will receive cash in lieu of the fractional share. The cash
payment will be equal to the product of the fractional part of the share of
Norwest Common Stock multiplied by the average of the closing prices of a share
of Norwest Common Stock as reported by the composite tape of the New York Stock
Exchange for each of the five trading days immediately before the special
meeting. (paragraph 1(c))
Completion of the Consolidation. Norwest and Southwest expect the
Consolidation to be completed promptly after approval of the Consolidation by
Southwest shareholders and the satisfaction (or waiver) of the conditions to
completion contained in the Reorganization Agreement, including the receipt of
all required regulatory approvals. (paragraph 1(d))
Representations and Warranties
The Reorganization Agreement contains various representations and
warranties by Norwest and Southwest as to, among other things, (a) their
organization and legal authority to engage in their respective businesses, (b)
their capitalization, (c) their corporate authority to enter into the
Reorganization Agreement and complete the Consolidation, (d) the absence of
certain material changes, (e) compliance with laws, (f) material contracts, (g)
absence of certain litigation, and (h) undisclosed liabilities. (paragraphs 2
and 3) Because the representations and warranties do not survive completion of
the Consolidation, they function primarily as a due diligence device and a
25
<PAGE>
closing condition (that is, they have to continue to be true in all material
respects until the Consolidation is completed).
Certain Covenants
The Reorganization Agreement contains various covenants and agreements that
govern the actions of Southwest and Norwest pending completion of the
Consolidation. Some of the more important covenants are summarized below.
Conduct of Business.
Southwest. Southwest has agreed to maintain its corporate existence in
good standing, maintain the general character of its business, conduct its
business in the ordinary and usual manner, and extend credit in accordance with
existing lending policies. Subject to certain exceptions, Southwest is required
to obtain the consent of Norwest before it makes any new loan or modifies,
restructures or renews any existing loan if the amount of the resulting loan,
when combined with all other loans to the customer, would exceed $100,000. The
Reorganization Agreement places restrictions on Southwest's ability to take
certain actions without Norwest's consent, including (a) incurring indebtedness,
(b) granting rights to acquire shares of its capital stock, (c) issuing shares
of its capital stock, (d) declaring dividends or purchasing its capital stock,
(e) selling its assets and (f) raising the compensation of officers and
directors. (paragraphs 4(a) and (b)) Some of these restrictions apply only if
the amount in question exceeds a threshold dollar value.
Norwest. Norwest has agreed to conduct its business 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. (paragraph 5)
Competing Transactions. Southwest has agreed 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 (a) purchase its common
stock, any security convertible into its common stock, or any other equity
security of Southwest (b) make a tender or exchange offer for any shares of its
common stock or other equity security of Southwest, (c) purchase, lease or
otherwise acquire the assets of Southwest except in the ordinary course of
business or (d) merge, consolidate or otherwise combine with Southwest.
Southwest has also agreed to promptly inform Norwest if any third party makes an
offer or inquiry concerning any of the foregoing. (paragraph 4(h))
Other Covenants. The Reorganization Agreement contains various other
covenants, including covenants relating to the preparation and distribution of
this Proxy Statement-Prospectus, access to information, and the listing on the
New York Stock Exchange and Chicago Stock Exchange of the shares of Norwest
Common Stock to be issued in the Consolidation. In addition, Southwest has
agreed to (a) establish such additional accruals and reserves as is necessary to
conform its accounting and credit loss reserve practices and methods to those of
Norwest and Norwest's plans with respect to the conduct of Southwest's business
after the Consolidation and (b) use its best efforts to deliver to Norwest prior
to completion of the Consolidation signed representations substantially in the
form attached as Exhibit B to the Reorganization Agreement from each executive
officer, director or shareholder of Southwest who may reasonably be deemed an
"affiliate" of Southwest within the meaning of each term used in Rule 145 of the
Securities Act. (paragraphs 4(m) and 4(n)) See "Resale of Norwest Common Stock."
Conditions to the Completion of the Consolidation
Under the Reorganization Agreement, various conditions are required to be
met before the parties are obligated to complete the Consolidation. For the most
part, these conditions are customary and include such items as the receipt of
shareholder, regulatory and listing approval and the receipt by Southwest of a
favorable tax opinion. The obligations of each party are also subject to the
continued accuracy of the other party's representations and warranties, the
performance by the other party of its obligations under the Reorganization
Agreement, and the absence of any changes that have had or might be reasonably
expected to have an adverse
26
<PAGE>
effect on Southwest. Each of these last three conditions is subject to a
"materiality" standard. The obligations of Norwest to complete the Consolidation
are further conditioned on Southwest shareholders approving the deferred
compensation payment to Mr. Francis. Any condition to the Consolidation may be
waived by the party seeking to assert the condition. (paragraphs 6 and 7)
Termination of the Reorganization Agreement
Termination by Mutual Consent. Norwest and Southwest can agree to terminate
the Reorganization Agreement and abandon the Consolidation at any time before
completion. (paragraph 9(a)(i))
Termination by Either Norwest or Southwest. Either Norwest or Southwest
can terminate the Reorganization Agreement if (a) the Consolidation has not
become effective by September 30, 1997 (provided this right to terminate will
not be available to a party whose failure to perform in all material respects
any obligation under the Reorganization Agreement resulted in the failure of the
Consolidation to occur on or before that date) or (b) any court or governmental
authority of competent jurisdiction has issued a final order restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
Reorganization Agreement. (paragraph 9(a)(ii) and (iii)).
Effect of Termination
Generally, if either party terminates the Reorganization Agreement, it
becomes void without any liability to either party other than for willful and
material breaches occurring before termination; however, the provisions of the
Reorganization Agreement governing confidential information and expenses
incurred in connection with the Consolidation continue in effect after
termination of the Reorganization Agreement. (paragraph 9(b))
Waiver and Amendment
Either party may waive any 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 Reorganization Agreement. (paragraph
16)
Norwest and Southwest can amend the Reorganization Agreement at any time
before the Consolidation is completed; however, the Reorganization Agreement
prohibits them from amending the Reorganization Agreement after Southwest
shareholders approve the Consolidation if the amendment would change in a manner
adverse to Southwest shareholders the consideration to be received by Southwest
shareholders in the Consolidation. (paragraph 17)
Expenses
Norwest and Southwest will each pay their own expenses in connection with
the Consolidation, including fees and expenses of their respective independent
auditors and counsel.
27
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF SOUTHWEST
COMMON STOCK AND NORWEST COMMON STOCK
Southwest is a national banking association chartered under the laws of the
United States. The rights of Southwest shareholders are governed by the
National Bank Act, the Southwest Articles and the Southwest Bylaws. Norwest is
incorporated under the laws the state of Delaware. The rights of Norwest
stockholders are governed by the DGCL, the Norwest Certificate and the Norwest
Bylaws. Upon completion of the Consolidation, Southwest shareholders will
become stockholders of Norwest. As a result, their rights will be governed by
the DGCL, the Norwest Certificate and the Norwest Bylaws.
The following is a summary of certain differences between the National Bank
Act and the DGCL, as well as differences between the Southwest Articles and
Southwest Bylaws and the Norwest Certificate and Norwest Bylaws. You can find
additional information concerning the rights of Norwest stockholders in the
Norwest Certificate and Norwest Bylaws themselves and Norwest's current report
on Form 8-K filed with the SEC on May 1, 1996. Norwest's current report on Form
8-K contains detailed information about Norwest Common Stock and the preferred
stock purchase rights that accompany shares of Norwest Common Stock. It also
provides information regarding the rights of the holders of Norwest's preferred
stock and preference stock, many of which directly affect the rights of the
holders of Norwest Common Stock. The information set forth below concerning the
outstanding shares of Norwest capital stock supersedes the comparable
information contained in the current report.
The Norwest Certificate and the Norwest Bylaws, as well as the current
report on Form 8-K, are incorporated into this Proxy Statement-Prospectus by
reference. See "WHAT INCORPORATION BY REFERENCE MEANS" AND "WHERE YOU CAN FIND
MORE INFORMATION."
Capital Stock
Norwest. The Norwest Certificate currently authorizes the issuance of
1,000,000,000 shares of Norwest Common Stock, 5,000,000 shares of preferred
stock, without par value, and 4,000,000 shares of preference stock, without par
value. At March 31, 1997, there were 376,046,366 shares of Norwest Common Stock
outstanding, 1,053,912 shares of Norwest preferred stock outstanding, and no
shares of Norwest preference stock outstanding.
Southwest. The Southwest Articles authorize the issuance of 11,000 shares
of Southwest Common Stock, $100.00 par value. As of the record date for the
Special Meeting, there were 5,500 shares of Southwest Common Stock outstanding.
Rights Plan
Norwest. Each share of Norwest Common Stock (including shares that will be
issued in the Consolidation) has attached to it one preferred share purchase
right. Once exercisable, each right allows the holder to purchase a fractional
share of Norwest's Series A Junior Participating Preferred Stock. A right, by
itself, does not confer on its holder any rights of a Norwest stockholder,
including the right to vote or receive dividends, until the right is exercised.
The rights trade automatically with shares of Norwest Common Stock. The rights
are designed to protect the interests of Norwest and its stockholders against
coercive takeover tactics. The rights are intended to encourage potential
acquirors to negotiate on behalf of all stockholders the terms of any proposed
takeover. Although not their purpose, the rights may deter takeover proposals.
Southwest. Holders of Southwest Common Stock do not have any purchase
rights similar to holders of Norwest Corporation Common Stock. No other plan
similar to the Norwest rights plan exists.
Directors
Norwest. The Norwest Bylaws provide for a board of directors consisting of
not less than 10 nor more than 23 persons, each serving a term of one year or
until his or her earlier death, resignation or removal. The number of directors
of Norwest is currently fixed at 15. Directors of Norwest may be removed with
or without cause by
28
<PAGE>
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 majority vote 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.
Southwest. The Southwest Articles and Southwest Bylaws provide for a board
of directors consisting of not less than five nor more than twenty-five
directors. The number of directors is set by the shareholders and is currently
set at seven. Directors of Southwest are elected by a majority of the votes
cast at a meeting of shareholders at which directors are elected and at which a
quorum is present. Vacancies on the board are filled by the remaining members
of the board.
Amendment of Charter Document and Bylaws
Norwest. The Norwest Certificate may be amended only if the proposed
amendment is approved by the Norwest Board and thereafter approved by a majority
of the outstanding stock entitled to vote thereon and by a majority of the
outstanding stock of each class entitled to vote thereon as a class. The
Norwest Bylaws may be amended by a majority of the Norwest Board or by a
majority of the outstanding stock entitled to vote thereon. Shares of Norwest
preferred stock and Norwest preference stock currently authorized in the Norwest
Certificate may be issued by the Norwest Board without amending the Norwest
Certificate or otherwise obtaining the approval of Norwest's Stockholders.
Southwest. Amendments to the Southwest Articles require approval of a
majority of the Southwest Board and the affirmative vote of the holders of a
majority of the outstanding shares of Southwest Common Stock represented at a
shareholders meeting at which a quorum is present. The Southwest Bylaws may be
amended by a majority of the Southwest Board at a meeting at which a quorum is
present.
Approval of Mergers and Asset Sales
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 (a) the agreement of merger for
the merger does not amend in any respect the Norwest Certificate, (b) 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 (c) 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.
Southwest. The National Bank Act requires mergers or consolidations to be
approved by holders of at least two-thirds of the outstanding shares of
Southwest Common Stock. The National Bank Act requires that a sale of all or
substantially all of the assets and dissolution of Southwest be approved by the
affirmative vote of holders of at least two-thirds of the shares of Southwest
Common Stock.
Appraisal Rights
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 (a) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (b) 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
29
<PAGE>
more than 2,000 stockholders. Norwest Common Stock is listed on the New York
Stock Exchange and the Chicago Stock Exchange and currently held by more than
2,000 stockholders. As a result, 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.
Southwest. Under the National Bank Act, any shareholder of Southwest who
objects to a merger or consolidation and follows certain prescribed procedures
is entitled to receive cash equal to the fair value of the shareholder's shares.
For a description of the procedures for asserting such appraisal rights and the
manner in which fair value is determined, please read the discussion under "THE
CONSOLIDATION--Appraisal Rights."
Special Meetings.
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. Holders of
Norwest Common Stock do not have the ability to call a special meeting of
stockholders.
Southwest. A special meeting of shareholders of Southwest may be called by
the board of directors, or by any one or more shareholders owning in the
aggregate not less than twenty-five percent (25%) of the Southwest Common Stock.
Director Duties
Norwest. The DGCL does not specifically enumerate directors' duties. In
addition, the DGCL does not contain any provision specifying what factors a
director must and may consider in determining a corporation's best interests.
However, judicial decisions in Delaware have established that directors, in
performing their duties, are bound to use that amount of care which ordinarily
prudent men would use in similar circumstances.
Southwest. Federal law does not specifically enumerate the so-called
"fiduciary duties" of a director of a national bank. Judicial decisions have
established that directors must carry out their duties as a director with due
care and loyalty. Due care has been described by the United States Supreme
Court as the care that which ordinarily prudent men would exercise under similar
circumstances. Directors of a national bank also have a duty of fairness to
minority shareholders.
Action Without a 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.
Southwest. The Southwest Articles and Southwest Bylaws do not contain any
provision for shareholders to act without a meeting.
Limitation of Director Liability
Norwest. The Norwest Certificate provides that a director (including an
officer who is also a director) of Norwest shall not be liable personally to
Norwest or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability arising out of (a) any breach of the director's
duty of loyalty to Norwest or its stockholders, (b) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) payment of a dividend or approval of a stock repurchase in violation of
Section 174 of the DGCL or (d) any transaction from which the director derived
an improper personal benefit. This provision protects Norwest's directors
against personal liability for monetary damages from breaches of their duty of
care. It
30
<PAGE>
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.
Southwest. The Southwest Articles do not contain any provision limiting
the liability of its directors.
Indemnification of Officers and Directors
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.
Southwest. The Southwest Articles permit any person to be indemnified by
Southwest who incurs expenses in connection with a proceeding to which such
person has been made a party by reason of being an officer, director or employee
of Southwest or serving in any capacity in any entity at the request of
Southwest unless found liable or guilty for gross negligence, willful misconduct
or criminal acts. Any such indemnification must be approved by a court, by the
holders of a majority of the outstanding shares of Southwest Common Stock or by
a majority of directors not involved in the proceeding. Southwest may acquire
insurance to cover the cost of indemnification permitted under the Southwest
Articles.
Dividends
Norwest. Delaware corporations may pay dividends out of surplus or, if
there is no surplus, out of net profits for the fiscal year in which declared
and for the preceding fiscal year. Section 170 of the DGCL also provides that
dividends may not be paid out of net profits if, after the payment of the
dividend, capital is less than the capital represented by the outstanding stock
of all classes having a preference upon the distribution of assets. Norwest is
also subject to Federal Reserve Board policies regarding payment of dividends,
which generally limit dividends to operating earnings. See "CERTAIN REGULATORY
CONSIDERATIONS PERTAINING TO NORWEST."
Southwest. Holders of stock of a national bank are generally entitled to
receive dividends so long as the dividends would not reduce the capital of the
bank below the levels required by applicable regulatory requirements or
constitute an unsafe or unsound practice. See "CERTAIN REGULATORY AND OTHER
CONSIDERATIONS PERTAINING TO NORWEST - Dividend Restrictions" and "Regulatory
Capital Standards and Related Matters" for a discussion of such matters.
31
<PAGE>
Corporate Governance Procedures, Nomination of Directors
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.
Southwest. The Southwest Articles and Southwest Bylaws require that
written notice of any person nominated as a director by someone other than
existing management of Southwest must be sent (a) to the OCC not less than
fourteen days nor more than fifty days prior to the shareholders meeting, or (b)
if less than twenty-one days' notice of the meeting is given to shareholders, to
the president of Southwest and to the OCC not less than the close of business on
the seventh day following the day on which notice of the meeting was mailed to
shareholders. The notice of nomination must include (i) the name and address of
the nominee, (ii) the principal occupation of the nominee, (iii) the total
number of shares of stock of the nominee, and (iv) the stock of Southwest owned
by the notifying shareholder.
32
<PAGE>
INFORMATION ABOUT SOUTHWEST
General
Southwest is a nationally-chartered commercial bank started in January of
1983. The principal office is at 523 San Juan Street, P.O. Box 660, Pagosa
Springs, CO 81147. Its telephone number is (970) 264-4111. The principal
stockholders are R.W. Turner, Jr., R.W. Turner, III, and Turner Investment
Corporation. Among them they hold 58.3% of the outstanding shares of Southwest
Common Stock. In addition, there are 26 other minority stockholders consisting
of Turner family members and various friends and business associates of R.W.
Turner, Jr.
Southwest has a major portion of the market share in the Pagosa Springs
area. In addition to its main office, Southwest has a branch in the Pagosa Lakes
area outside of Pagosa Springs and two branches in Durango, Colorado.
Southwest and its branches conduct a general commercial and consumer
banking business which includes the acceptance of deposits from consumers and
businesses and the originating of commercial, real estate, installment and other
loans. Deposit services include certificates of deposit, interest-bearing
checking accounts, savings accounts, and money market accounts. Loans consist of
commercial loans directed to small businesses, loans to individuals, commercial
real estate loans, residential mortgages and construction loans.
Southwest and its branches are located in high growth areas and have
experienced over 20% growth per year for the last four years. The mainstays of
the economy for the area have been tourism, second homes, retirement, and the
location of individual businesses that lend themselves to operation by
telecommunication. Loan demand in the area is strong and Southwest has operated
at a 70-75% loan to deposit ratio. Residential construction lending and mortgage
lending, both portfolio and fee generating, have played a large part in
Southwest's success.
Competition
Although Southwest has grown and prospered, the competitive environment
that it operates in is intense. There are four other financial institutions in
the Pagosa area and six others in the Durango area. In addition, there are a
number of construction and mortgage brokers in both areas.
Management believes that Southwest is well positioned to compete
successfully in both market areas although there are no guarantees that can be
given in this regard. Management feels that Southwest's local expertise and
ongoing commitment to the community, as well as the commitment to quality and
personalized banking services are factors that contribute to Southwest's
competitiveness.
Regulation and Supervision
Southwest is a national banking association and as such is subject to
regulation, supervision and examination by the OCC. Southwest is also a member
of 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 amount of loans which can be made, restrictions
on the business activities in which a bank may engage, restriction on the
payments of dividends to stockholders and minimum capital requirements.
The OCC is authorized by legislation to take various enforcement actions
against any significantly undercapitalized national bank. Based on its capital
ratios as of December 31, 1996, Southwest is classified as "well capitalized"
under applicable regulations.
As of the date of this Proxy Statement-Prospectus, there are no known
negative regulatory issues regarding Southwest.
33
<PAGE>
Properties
Southwest operates out of four locations: two are in Archuleta County-
downtown Pagosa Springs and Pagosa Lakes, and two are in La Plata County, both
in Durango, one on North Main Avenue and the other on Second Avenue. The main
office of Southwest is located at 523 San Juan St. in Pagosa Springs, is leased
from Turner Investment Corp and is approximately 5,000 square feet. The Pagosa
Lakes office, located at 166 Village Drive, is leased from R. W. Turner, Jr.,
and has approximately 3,500 square feet and also houses Southwest's computer
operations center. The office located at 2577 North Main Avenue in Durango is
owned by Southwest. It was built in 1994 and contains approximately 6,000 square
feet. The office at 848 E. Second Avenue is about 2,500 square feet and is
leased from Bruce Kirkpatrick, a Durango attorney.
Legal Proceedings
The nature of Southwest's business causes it to be involved in routine
legal proceedings from time to time. Management of Southwest believes that there
are no pending or threatened legal proceedings which, upon resolution, would
have a material adverse effect on the financial condition or results of
operations of Southwest.
Market Information and Dividends
There has been no public market for the shares of Southwest Common Stock.
As of the date of this Proxy Statement-Prospectus, there are issued and
outstanding 5,500 shares of Southwest Common Stock held by approximately 29
holders of record.
Dividends
During 1996 and 1995 Southwest declared annual dividends on Southwest
Common Stock totaling $18.00 per share. The amount of dividends that Southwest
is permitted to pay is limited by the supervisory policy of the OCC.
Principal Shareholders and Security Ownership of Southwest
Set forth below are the names and address of, and the number of shares and
the percentage of outstanding shares beneficially owned as of the record date
for the special meeting by, each holder of record who owns of record, or who is
know by Southwest to be the beneficial owner of, more than five percent of the
outstanding shares of Southwest Common Stock. Southwest Common Stock is the only
class of equity security of Southwest outstanding. Each shareholder named below
has sole voting and investment power with respect to the shares shown in the
table, unless otherwise indicated.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class
<S> <C> <C>
R. W. Turner, Jr. 1,178 21.4
P.O. Box 1670
Durango, CO 81302
R. W. Turner, III 969 17.6
P.O. Box 1670
Durango, CO 81302
Turner Investment Corp 1,060 19.3
P. O. Box 1670
Durango, CO 81302
</TABLE>
Set forth below are the number of shares of Southwest Common Stock held by
each director and executive officer, and by all directors and executive officers
as a group, as of the record date for the special meeting. Each shareholder
named below has sole voting and investment power of the shares shown in the
table unless otherwise indicated.
34
<PAGE>
<TABLE>
<CAPTION>
Name Amount and Nature of Beneficial Ownership Percent of Class
<S> <C> <C>
R. W. Turner, Jr. 1,178 21.4
R. W. Turner, III 969 17.6
Marion O. Francis, Jr. 10 *
Vernon A. Greco 10 *
Robert Griffith 84 1.5
Ben L. Lynch 10 *
Robert M. Wickham 10 *
Directors and Executive Officers
as a group 2,271 41.3
_____________
*Less than 1%
</TABLE>
Board of Directors
The following table sets forth information as of the record date concerning
the members of the Southwest Board.
<TABLE>
<CAPTION>
Name Age Position with Southwest and business experience
<S> <C> <C>
R. W. Turner, Jr. 70 Chairman of the Board for more than the last five years
Marion O. Francis, Jr. 53 President, CEO and board member for more than five years
R. W. Turner, III 36 Executive VP and board member for more than the last five
years
Ben L. Lynch 56 Director for more than the last five years; owner of Pagosa
Springs drug store.
Roger Wickham 55 Director for more than the last five years; owner of Rover
Airways, an international freight forwarding company
Vernon Greco 43 Director for 2 1/2 years; general manager of Purgatory Ski
Resort
Robert Griffith 45 Director for 1 1/2 years; owner of McKnight Jewelry in
Durango
</TABLE>
35
<PAGE>
SOUTHWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
General
The following is Southwest's management's discussion and analysis of the
significant factors affecting Southwest's results of operations and financial
condition. This should be read in conjunction with Southwest's audited financial
statements and accompanying footnotes and other selected financial data
presented elsewhere herein.
Southwest, an independent community bank headquartered in Pagosa Springs,
Colorado, derives substantially all of its revenues and income from its
commercial banking operations. See "INFORMATION ABOUT THE BANK OF THE SOUTHWEST
- --General."
Southwest's earnings depend primarily on its net interest income, the
difference between the income earned on its loans and investments and the
interest paid on its deposits. Among the factors affecting net interest income
are the type, volume and quality of its assets, the type and volume of its
deposits, and the relative sensitivity of its interest earning assets and its
interest bearing deposits to changes in interest rates. See "--Certain Selected
Statistical Information Average Balance Sheets and Average Yields Earned and
Rates Paid." In addition, its income is significantly affected by the fees it
receives from other banking services, by its required provisions for loan losses
and by the level of its operating expenses. All aspects of Southwest's
operations are affected generally by market, economic and competitive
conditions, particularly those in Southwestern Colorado.
Financial Condition
Total assets increased by $12,560,692, or 20.6%, during 1996 to $73,572,075
at December 31, 1996 following an increase of $11,748,728, or 23.8%, during 1995
to $61,011,383 at December 31, 1995. The increases were due to increases in
deposits of $11,481,842 (1996) and $10,686,330 in 1996 and 1995, respectively,
and net earnings of $1,109,614 and $853,678 in 1996 and 1995, respectively.
Loans increased 23.5% during 1996 by $9,396,879 to $49,362,842 at December
31, 1996, and increased $7,921,652 (or 24.7%) during 1995 to $39,965,963 at
December 31, 1995. The increases in loans during 1996 and 1995 were primarily
the result of increases in demand for all classes of loans.
Investment securities increased during 1996 by $2,166,500, or 17.2%, to
$14,756,949 at December 31, 1996 and increased $2,390,743, or 23.4%, during 1995
to $12,590,449 at December 31, 1995. The increases occurred in securities of the
U.S. Treasury, U.S. Government Agencies and state and political subdivisions.
The 1996 and 1995 increases were funded by increases in demand and interest-
bearing deposits.
For other information relating to Southwest's financial condition, see
"--Certain Selected Statistical Information."
Results of Operations
Net interest income is the primary source of income for Southwest and
represents the amount by which interest and fees generated by earning assets
exceed the cost of funds, primarily interest paid to Southwest's depositors on
interest bearing accounts. The "interest rate spread" is the difference in the
average annual interest rate received by Southwest on its interest earning
assets and the average annual interest rate paid by Southwest on its interest
bearing liabilities. The "net interest margin" is the quotient obtained by
dividing net interest income by average earning assets, and thus takes into
account any imbalance between the volume of interest earning assets when
compared to the volume of interest bearing liabilities, which is not considered
in the calculation of interest rate spread. Where net interest margin exceeds
interest rate spread, it usually means that the volume of interest earning
assets (such as loans) exceeds the volume of interest bearing liabilities (such
as interest bearing deposits).
36
<PAGE>
Comparison of Years Ended December 31, 1996 and 1995
Earnings Performance
Southwest earned net income of $1,109,614 in 1996 and $853,678 in 1995. The
30% increase in net income of $255,936 in 1996 compared to 1995 is attributable
to increases in net interest income of $681,763 (or 23.6%) and other income of
$308,546 (or 54.0%). These increases were partially offset by an increase in
other operating expenses of $604,373 (or 27.5%) and provision for income taxes
of $106,000 (or 28.6%).
The return on average assets was 1.6% in 1996 and 1995. Return on average
stockholders' equity was 23.8% in 1996 compared to 23.0% in 1995. The increases
in these ratios were primarily attributable to the increase in net income
discussed in the preceding paragraph. On a per share basis, net income for the
years 1996 and 1995 was $201.75 and $155.21, respectively. The ratio of average
equity to average assets was 6.85% in 1996 and 6.79% in 1995.
The following is a condensed summary of the statements of operations:
Condensed Summary of Operations
<TABLE>
<CAPTION>
% Increase
1996 1995 1995 to 1996
---------- ---------- -------------
<S> <C> <C> <C>
Net interest income $3,568,537 $2,886,774 23.6%
Provision for loan losses 60,000 36,000 66.7
Other income 880,401 571,855 54.0
Other operating expenses 2,803,324 2,198,951 27.5
Income taxes 476,000 370,000 28.6
Net Income 1,109,614 853,678 30.0
</TABLE>
Net Interest Income
Southwest's net interest income is affected by changes in yields earned on
interest earning assets and rates paid on interest bearing deposits and other
borrowed funds, referred to as "rate change." It is also affected by changes in
the amount and mix of interest earning assets and interest bearing liabilities,
referred to as "volume change."
37
<PAGE>
The following table is provided to show the percentage of change in
interest income and expense from significant interest-bearing assets and
liabilities:
Net Interest Income
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage
increase/(decrease)
1996 1995 1995 to 1996
------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $4,915 $3,863 27.2%
Investment Securities 803 665 20.8
Deposits with banks 81 59 37.3
Federal funds sold 22 24 (8.3)
------ ------
Total interest income 5,821 4,611 26.2
------ ------
Interest expense:
Deposits 2,216 1,692 31.0
Funds borrowed 25 27 (7.4)
Funds Purchased 11 5 120.0
------ ------
Total interest expense 2,252 1,724 30.6
------ ------
Net interest income: $3,569 $2,887 23.6
====== ======
</TABLE>
Included in interest income from loans are loan fees of $295,080 and $216,355 in
1996 and 1995, respectively.
38
<PAGE>
The following table presents average asset and liability balances and
percentage changes:
Average Asset / Liability Balances
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage
increase/(decrease)
1996 1995 1995 to 1996
--------------------------------------
<S> <C> <C> <C>
Loans $45,506 $35,819 27.0%
Investment Securities 13,756 11,419 20.5
Interest bearing deposits 1,533 1,061 44.5
Federal funds sold 432 406 6.4
------- -------
Total average interest earning
assets $61,227 $48,705 25.7
======= =======
Deposits
Non-interest bearing $10,390 $ 8,749 18.8
Interest with checking 16,407 13,574 20.9
Savings 4,986 4,330 15.2
Money Market 5,849 4,331 35.0
Time 24,892 19,185 29.7
------- -------
Total average interest-bearing
deposits 52,134 41,420 25.9
Federal funds purchased 215 87 147.1
Notes payable 328 344 (4.7)
------- -------
Total average interest bearing
liabilities $52,677 $41,851 25.9
======= =======
</TABLE>
39
<PAGE>
The following table shows the average interest yield on interest-earning
assets and the average interest rate paid on interest-bearing liabilities:
Interest Rate Spread
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Average yield earned:
Loans 10.80% 10.78%
Investment securities 5.84 5.82
Interest bearing deposits 5.28 5.56
Federal funds sold 5.09 5.91
Total interest-earning assets 9.51 9.47
Average rates paid:
Interest-bearing deposits
Interest with checking 3.00 3.06
Savings 3.23 3.16
Money Market 3.49 3.49
Time 5.46 5.16
----- -----
Total 4.25 4.08
Federal funds purchased 5.12 5.75
Notes payable 7.62 7.85
Total interest-bearing liabilities 4.28 4.12
Interest rate spread 5.23 5.35
</TABLE>
The following table shows the net yield on interest-earning assets:
Net Interest Margin
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Average yield earned 9.51% 9.47%
Interest expense to average earning assets 3.68 3.54
Net interest margin 5.83 5.93
</TABLE>
Net interest income increased from $2,886,774 in 1995 to $3,568,537 in
1996, an improvement of 23.6%. During the year ended December 31, 1996,
interest rates in the United States were generally stable.
Total interest income increased to $5,821,058 or 26.2% in 1996 as compared
to $4,611,016 in 1995. Earning asset yields were virtually unchanged from 1996
to 1995 (9.51% compared to 9.47%). See "--Certain Selected Statistical
Information" for information regarding Southwest's average balances during the
two years ended December 31, 1996 and 1995.
40
<PAGE>
Total interest expense in 1996 of $2,252,521 increased 30.6% from
$1,724,242 in 1995. This increase was attributable primarily to an increase in
average interest-bearing liabilities of approximately $10,826,000 in 1996 from
1995.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level deemed appropriate by management based on
management's evaluation of the loan portfolio, economic conditions, prior loss
experience, review of specific problem loans, and other pertinent factors.
Actual losses on loans are charged against the allowance and recoveries on
charged-off loans are credited to the allowance. Southwest's provision for loan
losses was $60,000 and $36,000 in 1996 and 1995, respectively.
See "--Comparison of the Years Ended December 31, 1996 and 1995 Earnings
Performance." Net loans charged off were $12,452 and $9,578 in 1996 and 1995,
respectively.
The allowance for loan losses as a percentage of loans was 0.58% and 0.57%
at December 31, 1996 and at December 31, 1995, respectively.
Non-interest Income
The following table presents a summary of non-interest income and
percentage changes:
Non-interest Income
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage
Year Ended December 31, increase/(decrease)
------------------------- -------------------
1996 1995 1995 to 1996
---- ---- ------------
<S> <C> <C> <C>
Service charges on deposit accounts $ 362 $ 308 17.5%
Credit card income 136 99 37.4
Mortgage origination fees 259 79 227.8
Increase in cash value of life insurance 29 29 --
Other operating income 97 56 73.2
Gain (loss) on sales of securities (2) 1 (300.0)
Loss on disposition of equipment (1) --
----- ----- --
Total $ 880 $ 572 54.0
===== =====
</TABLE>
Southwest's principal source of non-interest income is service charges on
deposit accounts. Other sources are credit card income and mortgage origination
fees, and a variety of other service charges and fees, including safe deposit
box rental and printed check sales.
Non-interest income increased 54.0% to $880,401 in 1996 compared to
$571,855 in 1995. The increase in 1996 was primarily due to an increase in
mortgage origination fees and service charges on deposit accounts.
41
<PAGE>
Non-interest Expense
The following table presents a summary of non-interest expenses and
percentage changes:
Non-interest Expense
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, Percentage
----------------------- increase
1996 1995 1995 to 1996
---- ---- ------------
<S> <C> <C> <C>
Salaries and employee benefits $1,544 $1,160 33.1%
Depreciation and amortization 173 147 17.7
Occupancy expense of bank premises 163 131 24.4
Furniture and equipment expense 84 67 24.9
Operating expenses 839 694 20.9
------ ------
Total $2,803 $2,199 27.5
====== ======
</TABLE>
Total non-interest expenses increased 27.5% to $2,803,324 in 1996, compared
to $2,198,951 in 1995. These increases were largely attributable to increases in
expenses related to the opening of a larger branch in Durango, Colorado. FDIC
insurance assessments decreased to $2,000 in 1996 from $50,811 in 1995 primarily
due to reduced premium rates.
Income Taxes
Southwest is subject to Federal and Colorado income taxes which fluctuate
from period to period with fluctuations in Southwest's earnings performance.
Income taxes, as a percentage of net income before income taxes, remained
virtually unchanged at 30.0% in 1996 and 30.2% in 1995.
Statements of Financial Accounting Standards
In February 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes". Under SFAS 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. During 1995, Southwest
adopted SFAS 109. The change in method of accounting for income taxes had no
significant effect on Southwest.
The Financial Accounting Standards Board has issued Statement 114 ("SFAS
114"), "Accounting by creditors for Impairment of a Loan" and Statement 118
("SFAS 118"), "Accounting by Creditors for Impairment of a Loan Income
Recognition and Disclosures". These statements apply to all creditors and all
loans, including those that are restructured in troubled debt restructurings
with a modification of terms. Excluded are large groups of homogeneous loans
with small balances that are evaluated collectively, loans measured at fair
value or at the lower cost or fair value, leases and debt securities. SFAS 114
and SFAS 118 require loans to which they apply, to be measured at the discounted
amounts of their expected future cash flows using the loan's effective interest
rate or at the observable market price or the fair value of the collateral for
collateral dependent
42
<PAGE>
loans. The Statements are effective for fiscal years beginning after December
15, 1994. The adoption of SFAS 114 and SFAS 118 by the Bank during 1995 had no
significant effect on Southwest.
Effective January 1, 1994, Southwest adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Accordingly, beginning on January 1, 1994, pursuant to
Southwest's investment policy, certain securities are designated to be available
for sale and are reported at estimated fair value (based on quoted market
prices). Net unrealized gains and losses on such securities are not included in
earnings, but are reported, net of income taxes, as a separate component of
stockholders' equity. All of Southwest's securities in 1996 and 1995 were
classified as "Available for Sale". In 1994, Southwest recorded a decrease of
$154,552 in stockholders' equity. The stockholders' equity component for net
unrealized gain on securities available for sale was $37,494 at December 31,
1996 and $34,853 at December 31, 1995. The net increases of $2,641 (1996) and
$189,405 (1995) were largely attributable to changes in market interest rates.
Funding Sources and Liquidity Management
Southwest relies on its banking operations for its source of cash to pay
its operating expenses and to pay dividends. During 1995 and 1996, Southwest
paid annual dividends at the rate of $18.00 per share, which aggregated to
$99,000 per year. At December 31, 1996, Southwest estimates that it has excess
accumulated earnings of approximately $2,319,000 available for distribution,
subject to regulatory approval and other applicable requirements.
The assets of Southwest are primarily funded through the use of borrowings
in the form of deposits. The maintenance of an adequate level of liquidity is
necessary to ensure that sufficient funds are available to meet customers' loan
demand and deposit withdrawals. The primary sources of asset liquidity consists
of federal funds, maturing loans and investment securities.
Southwest's funds management committee is charged with the responsibility
of maintaining an adequate level of liquidity and managing the risks associated
with interest rate changes while sustaining stable growth in net interest
income. Southwest's basic strategy is to minimize interest rate risk through
matching the repricing periods of earning assets and interest-bearing
liabilities.
Capital Management of Southwest
Bank regulatory agencies measure capital adequacy through standard risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance sheet obligations.
Under the rules effective December 31, 1995, all financial institutions are
required to maintain a level of core capital (known as Tier 1 capital) which
must be at least 4.0% of risk-weighted assets, and a minimum level of total
capital of at least 8.0% of risk-weighted assets. Tier 1 capital consists
principally of stockholders' equity less goodwill and other intangible assets.
Total capital is comprised of Tier 1 capital, certain debt instruments and a
portion of the allowance for loan losses.
43
<PAGE>
Southwest's actual risk-based capital requirement and excess risk-based
capital at December 31, 1996 are summarized as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1996
-------------------
Amount Percent (1)
------ -----------
<S> <C> <C>
Tier 1 Capital $5,152 10.28%
Allowable portion of allowance for loan losses 288 .57
Total risk-based capital 5,440 10.85
Risk-based capital requirement 4,011 8.00
Excess risk based capital 1,429 2.85
</TABLE>
_________
(1) Percentage based on risk-weighted assets at December 31, 1996.
As a supplement to the risk-based capital guidelines, the Federal Reserve
Board has also adopted a minimum ratio of Tier 1 capital to total average assets
known as the Tier 1 leverage ratio. The principal objective of this measure is
to place a constraint on the maximum degree to which banking organization can
leverage its equity capital base. This regulation has established a minimum
level of Tier 1 capital to total assets of 4.0%. The actual Tier 1 leverage
ratio of Southwest was 7.01%, at December 31, 1996.
Inflation
Management has considered the effects and potential effects of inflation on
its past and future operations and earnings performance. Inflation has not had
in recent years, nor is it expected to have in the foreseeable future, a
significant effect on Southwest's operations or earnings performance.
Certain Selected Statistical Information
The following tables set forth certain comparative information with respect
to Southwest's operations during the periods or as of the dates indicated.
The following table sets forth the carrying value of securities held by
Southwest.
Securities
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
----------------
Investment Type 1996 1995
------- -------
<S> <C> <C>
U.S. Treasury and agencies $ 795
State & political subdivisions /
U.S. government agency securities 4,219 $ 5,102
Mortgage-backed securities 2,508 2,066
State & municipal securities 7,210 5,397
Other 25 25
------- -------
14,757 12,590
Stock in Federal Reserve Bank and Federal Home Loan Bank 348 310
------- -------
Total $15,105 $12,900
======= =======
</TABLE>
44
<PAGE>
The following table sets forth certain statistical information and should
be read with the financial statements of Southwest:
Average Balance Sheets and Average Yields Earned and Rate Paid
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------
1996 1995
----------------------------------- ---------------------------------
Average Average
Average yield/ Average yield/
balance Interest rate balance Interest rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans $45,506 4,915 10.80% 35,819 3,863 10.78%
Investment securities 13,756 803 5.84 11,419 665 5.82
Interest-bearing amounts 1,533 81 5.28 1,061 59 5.56
Federal funds sold 432 22 5.09 406 24 5.91
------- -------- ------- ------- -------- -------
Total earning assets 61,227 5,821 9.51 48,705 4,611 9.47
Allowance for loan losses (261) (212)
Cash and due from banks 3,548 2,996
Other assets 3,655 3,143
------- -------- ------- ------- -------- -------
Total Assets $68,169 5,821 9.51% 54,632 4,611 9.47%
======= ======== ======= ======= ======== =======
Liabilities and Stockholders' Equity
Non-interest-bearing deposits $10,390 8,749
Interest-bearing deposits 52,134 2,216 4.25% 41,420 1,692 4.08%
Funds borrowed or purchased 543 36 6.63 431 32 7.42
Other liabilities 436 325
Stockholders' Equity 4,666 3,707
------- -------- ------- ------- -------- -------
Total liabilities and Stockholders' Equity $68,169 $2,252 4.28% $54,632 $1,724 4.12%
======= ======== ======== ======= ======== =======
Net interest income $3,569 $2,887
======== ========
Interest rate spread (a) 5.23% 5.35%
======= =======
Net interest margin (b) 5.83% 5.93%
======= =======
</TABLE>
__________
(a) The net interest spread is the difference between the average rate on total
interest-earning assets and interest-bearing liabilities.
(b) The net interest margin is net interest income divided by average interest-
earning assets.
45
<PAGE>
The following table reflects the contractual maturity distribution of each
security category and the approximate weighted-average yield at December 31,
1996:
Maturity Distribution of Investment Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------------------------------
In one After After Weighted
Investment type year or 1-5 5-10 After Average
less years years 10 years Total Yield %
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $----- $ 795 $----- $----- $ 795 6.27%
U.S. governmental agency securities 902 3,317 ----- ----- 4,219 5.70
Mortgage-backed securities ----- 314 118 2,076 2,508 6.77
State and political subdivisions
Tax exempt 434 3,407 3,169 ----- 7,010 5.15(1)
Taxable ----- 200 ----- ----- 200 7.00
Other ----- ----- ----- 25 25 6.11
------ ------ ------ ------ -------
1,336 8,033 3,287 2,101 14,757 6.86
Stock in Federal Reserve Bank
and Federal Home Loan Bank 348 348 6.60
------ ------ ------ ------ -------
$1,336 $8,033 $3,287 $2,449 $15,105 6.85%
====== ====== ====== ====== =======
</TABLE>
(1) Represents a federal tax equivalent yield of 7.69%.
The following table classifies loans by major category as of December 31,
1995 and 1996:
Loans Portfolio Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
- ----------------------------------------------------
<S> <C> <C>
Commercial business $ 5,139 $ 3,217
Consumer 3,929 3,082
Real Estate:
Construction 5,781 4,195
Mortgage 34,096 29,361
Municipalities 140 80
Credit card 278 31
------- -------
Total loans $49,363 $39,966
======= =======
</TABLE>
46
<PAGE>
The following table presents maturities and sensitivities of loans to
changes in interest rates as of December 31, 1996:
Maturity Distribution and Interest Rate Sensitivity of Loan Portfolio
(dollars in thousands)
<TABLE>
<CAPTION>
After
One year 1-5 After
or less years 5 years Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturities
Commercial business $ 4,158 $ 934 $ 47 $ 5,139
Consumer credit card 1,718 2,409 80 4,207
Real Estate 9,353 24,328 6,196 39,877
Municipalities 72 68 ----- 140
------- ------- ------ -------
Total $15,301 $27,739 $6,323 $49,363
======= ======= ====== =======
Sensitivities
Amounts of loans due after five
years which have Predetermined
interest rates $10,067 $1,331 $11,398
Floating rates 17,672 4,992 22,664
------- ------ -------
Total $27,739 $6,323 $34,062
======= ====== =======
</TABLE>
The following table sets forth certain information regarding Southwest's
nonaccrual, restructured and past due loans as of December 31, 1996 and 1995:
Nonaccrual, Restructured and Past Due Loans
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Nonaccrual loans $---- $ 1
Restructured loans ---- ----
Loans past due 90 days or
more and still accruing 3 8
----- -----
$ 3 $ 9
===== =====
</TABLE>
The impact on interest income for the years ended December 31, 1996 and
1995 for nonaccrual and restructured loans was approximately $3 and $6,420,
respectively.
The following table sets forth an allocation of the allowance for loan
losses as of December 31, 1995 and 1996:
Allocation of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
--------------------------- ---------------------------
Allowance Allowance
Loans for loan Loans for loan
outstanding losses outstanding losses
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 5,139 $ 30 $ 3,217 $ 18
Consumer and Credit Card 4,207 233 3,113 192
Real Estate 39,877 25 33,556 19
Municipalities 140 ---- 80 ----
------- ----- ------- -----
$49,363 $ 288 $39,966 $ 229
======= ===== ======= =====
</TABLE>
47
<PAGE>
The following table presents a detailed analysis of Southwest's allowance
for loan losses as of December 31, 1995 and 1996:
Analysis of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
------------------------------------------------------------------------------
<S> <C> <C>
Balance beginning of year $ 229 $ 196
Provision for loan losses 60 36
----- -----
Charge-offs:
Commercial 9 7
Consumer 3 3
Real Estate ---- ----
----- -----
Total loan losses 12 10
Recoveries:
Commercial 10 6
Consumer 1 1
Real Estate ---- ----
Total recoveries 11 7
----- -----
Net charge-offs 1 3
----- -----
Balance end of year $ 288 $ 229
===== =====
Net charge-offs as a percent of average loans .002% .008%
Allowance for loan losses to:
Total loans at period-end .58 .57
Net charge-offs 288.00 76.33
Provision for loan losses to average loans .13 .10
</TABLE>
The following table sets forth the remaining maturities for time deposits
of $100,000 or more as of December 31, 1996:
Maturity of Time Deposits of $100,000 or More
December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Three
months 3-6 6-12 Over 12
or less months months months Total
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Certificates and other time deposits $3,958 $1,956 $1,748 $1,074 $8,736
====== ====== ====== ====== ======
</TABLE>
48
<PAGE>
CERTAIN REGULATORY AND OTHER
CONSIDERATIONS PERTAINING TO NORWEST
Norwest and its banking subsidiaries are subject to extensive regulation by
federal and state agencies. The regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, federal
deposit insurance funds and the banking system as a whole and is not in place to
protect stockholders or other investors.
As discussed in more detail below, this regulatory environment, among other
things, may (a) restrict Norwest's ability to pay dividends on Norwest Common
Stock, (b) require Norwest to provide financial support to one or more of its
banking subsidiaries, (c) require Norwest and its banking subsidiaries to
maintain capital balances in excess of those desired by management, and/or (d)
require Norwest to pay higher deposit insurance premiums as a result of the
deterioration in the financial condition of depository institutions in general.
Bank Regulatory Agencies
Norwest Corporation, as a bank holding company, is subject to regulation by
the Federal Reserve Board under the Bank Holding Company Act.
Norwest's national banking subsidiaries are regulated primarily by the OCC.
Its state-chartered banking subsidiaries are regulated primarily by the FDIC and
applicable state banking agencies. Its savings and loan association subsidiary
is regulated primarily by the OTS. Norwest's federally insured banking
subsidiaries and its savings and loan subsidiary are also subject to regulation
by the FDIC.
Norwest has other financial services subsidiaries that are subject to
regulation by the Federal Reserve Board and other applicable federal and state
agencies. For example, Norwest's brokerage subsidiary is subject to regulation
by the Securities and Exchange Commission, the National Association of
Securities Dealers, Inc. and state securities regulators. Norwest's insurance
subsidiaries are subject to regulation by applicable state insurance regulatory
agencies. Other nonbank subsidiaries of Norwest are subject to the laws and
regulations of both the federal government and the various states in which they
conduct business.
Bank Holding Company Activities; Interstate Banking
A bank holding company is generally prohibited under the Bank Holding
Company Act from engaging in nonbanking (i.e., commercial or industrial)
activities, subject to certain exceptions. Specifically, the activities of a
bank holding company, and those companies that it controls or in which it holds
more than 5% of the voting stock, are limited to banking or managing or
controlling banks, furnishing services to its subsidiaries and such other
activities that the Federal Reserve Board determines to be so closely related to
banking as to be a "proper incident thereto." In determining whether an
activity is sufficiently related to banking, the Federal Reserve Board will
consider whether the performance of such activity by the bank holding company
can reasonably be expected to produce benefits to the public (e.g., greater
convenience, increased competition or gains in efficiency) that outweigh
possible adverse effects (e.g., undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices).
Under the Interstate Banking Act, which became effective on September 29,
1995, a bank holding company may acquire banks in states other than its home
state, subject to any state requirement that the bank has been organized and
operating for a minimum period of time, not to exceed five years, and the
requirement that the bank holding company not control, prior to or following the
proposed acquisition, more than 10% of the total amount of deposits of insured
depository institutions nationwide or, unless it is the bank holding company's
initial entry into the state, more than 30% of such deposits in the state (or
such lesser or greater amount set by the state).
The Interstate Banking Act also authorizes banks to merge across state
lines (thereby creating interstate branches) effective June 1, 1997. States may
opt out of the Interstate Banking Act (thereby prohibiting interstate mergers in
the state) or opt in early (thereby allowing interstate mergers prior to June 1,
1997). Norwest will be
49
<PAGE>
unable to consolidate its banking operations in one state with those of another
state if either state in question has opted out of the Interstate Banking Act.
The state of Texas has opted out of the Interstate Banking Act. The state of
Montana has opted out until at least the year 2001.
Norwest's acquisitions of banking institutions and other companies
generally are subject to the prior approval of the Federal Reserve Board and
other applicable federal or state regulatory authorities. In determining
whether to approve a proposed bank acquisition, federal banking regulators will
consider, among other factors, the effect of the acquisition on competition, the
public benefits expected to be received from the consummation of the
acquisition, the projected capital ratios and levels on a post-acquisition
basis, and the acquiring institution's record of addressing the credit needs of
the communities it serves, including the needs of low and moderate income
neighborhoods, consistent with the safe and sound operation of the bank, under
the Community Reinvestment Act of 1977, as amended.
Dividend Restrictions
Norwest is a legal entity separate and distinct from its banking and other
subsidiaries. Its principal source of funds to pay dividends on its common and
preferred stock and debt service on its debt is dividends from its subsidiaries.
Various federal and state statutes and regulations limit the amount of dividends
that may be paid to Norwest by its banking subsidiaries without regulatory
approval.
Most of Norwest's banking subsidiaries are national banks. A national bank
must obtain the prior approval of the OCC to pay a dividend if the total of all
dividends declared by the bank in any calendar year would exceed the bank's net
income for that year combined with its retained net income for the preceding two
calendar years, less any required transfers to surplus or a fund for the
retirement of any preferred stock.
The OTS imposes substantially similar restrictions on the payment of
dividends to Norwest by its savings and loan association subsidiary. Norwest's
state-chartered banking subsidiaries also are subject to dividend restrictions
under applicable state law.
If, in the opinion of the applicable federal regulatory agency, a
depository institution 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), the regulator
may require, after notice and hearing, that such bank cease and desist from such
practice. The OCC has indicated that the payment of dividends would constitute
an unsafe and unsound practice if the payment would deplete a depository
institution's capital base to an inadequate level. Under the Federal Deposit
Insurance Act, an insured depository institution may not pay any dividend if the
institution is undercapitalized or if the payment of the dividend would cause
the institution to become undercapitalized. In addition, federal bank
regulatory agencies have issued policy statements which provide that depository
institutions and their holding companies should generally pay dividends only out
of current operating earnings.
The ability of Norwest's banking subsidiaries to pay dividends to Norwest
may also be affected by various minimum capital requirements for banking
organizations, as described below. In addition, the right of Norwest to
participate in the assets or earnings of a subsidiary is subject to the prior
claims of creditors of the subsidiary.
Holding Company Structure
Transfer of Funds from Banking Subsidiaries. Norwest's banking
subsidiaries are subject to restrictions under federal law that limit the
transfer of funds or other items of value from such subsidiaries to Norwest and
its nonbanking subsidiaries (including Norwest, "affiliates") in so-called
"covered transactions." In general, covered transactions include loans and
other extensions of credit, investments and asset purchases, as well as other
transactions involving the transfer of value from a banking subsidiary to an
affiliate or for the benefit of an affiliate. Unless an exemption applies,
covered transactions by a banking subsidiary with a single affiliate are limited
to 10% of the banking subsidiary's capital and surplus and, with respect to all
affiliates in the aggregate, to 20% of
50
<PAGE>
the banking subsidiary's capital and surplus. Also, loans and extensions of
credit to affiliates generally are required to be secured in specified amounts.
Source of Strength Doctrine. The Federal Reserve Board has a policy that a
bank holding company is expected to act as a source of financial and managerial
strength to each of its subsidiary banks and, under appropriate circumstances,
to commit resources to support each such subsidiary bank. This support may be
required at times when the bank holding company may not have the resources to
provide it. Capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and certain other
indebtedness of the subsidiary bank. In addition, 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.
Depositor Preference. The FDI Act provides that, in the event of the
"liquidation or other resolution" of an insured depository institution, the
claims of depositors of the institution (including the claims of the FDIC as
subrogee of insured depositors) and certain claims for administrative expenses
of the FDIC as a receiver will have priority over other general unsecured claims
against the institution. If an insured depository institution fails, insured
and uninsured depositors, along with the FDIC, will have priority in payment
ahead of unsecured, nondeposit creditors, including the institution's parent
holding company.
Liability of Commonly Controlled Institutions. Under the FDI Act, an
insured depository institution is generally liable for any loss incurred, or
reasonably expected to be incurred, by the FDIC in connection with (a) the
default of a commonly controlled insured depository institution or (b) any
assistance provided by the FDIC to a commonly controlled 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.
Regulatory Capital Standards and Related Matters
Risk-Based Capital. The Federal Reserve Board, the OCC and the FDIC have
adopted substantially similar risk-based and leverage capital guidelines for
banking organizations. The guidelines are intended to ensure that banking
organizations have adequate capital given the risk levels of their assets and
off-balance sheet commitments.
The risk-based capital ratio is determined by classifying assets and
certain off-balance sheet financial instruments into weighted categories, with
higher levels of capital being required for those categories perceived as
representing greater risk. Under the capital guidelines, a banking
organization's total capital is divided into two tiers. "Tier 1 capital"
consists of common equity, retained earnings, qualifying noncumulative perpetual
preferred stock, a limited amount of qualifying cumulative perpetual preferred
stock and minority interests in the equity accounts of consolidated
subsidiaries, less certain items such as goodwill and certain other intangible
assets. "Tier 2 capital" consists of hybrid capital instruments, perpetual
debt, mandatory convertible debt securities, a limited amount of subordinated
debt, preferred stock that does not qualify as Tier 1 capital, and a limited
amount of the allowance for credit losses.
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 currently 8%. The minimum Tier 1 capital to risk-adjusted assets is 4%. As
of March 31, 1997, Norwest's total capital and Tier 1 capital to risk-adjusted
assets ratios were 10.19% and 8.42%, respectively.
The Federal Reserve Board also requires bank holding companies to comply
with minimum leverage ratio guidelines. The leverage ratio is the ratio of a
bank holding company's Tier 1 capital to its total consolidated quarterly
average assets, less goodwill and certain other intangible assets. The
guidelines require a minimum leverage ratio of 3% for bank holding companies
that meet certain specified criteria, including having the highest supervisory
rating. All other bank holding companies are required to maintain a minimum
leverage ratio of 4% to
51
<PAGE>
5%. The Federal Reserve Board has not advised Norwest of any specific leverage
ratio applicable to it. As of March 31, 1997, Norwest's leverage ratio was
6.07%.
The Federal Reserve Board's capital guidelines 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. Also, the guidelines
indicate that the Federal Reserve Board will 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 (excluding intangibles) to total assets (excluding intangibles).
Norwest's banking subsidiaries are subject to risk-based and leverage
capital guidelines substantially similar to those imposed by the Federal Reserve
Board on bank holding companies.
Other Measures of Capital Adequacy and Safety and Soundness. In assessing
a banking organization's capital adequacy, federal bank regulatory agencies will
also consider the organization's credit concentration risk and risks associated
with nontraditional activities, as well as the organization's ability to manage
those risks. This evaluation will be performed as part of the organization's
regular safety and soundness examination.
Effective January 1, 1998, federal bank regulatory agencies will require
banking organizations that engage in significant trading activity to calculate a
charge for market risk. Organizations may opt to comply effective January 1,
1997. Significant trading activity, for this purpose, means trading activity of
at least 10% of total assets or $1 billion, calculated on a consolidated basis
for bank holding companies. Federal bank regulators may apply the market risk
measure to other banks and bank holding companies if the agency deems necessary
or appropriate for safe and sound banking practices. Each agency may exclude
organizations that it supervises that otherwise meet the criteria under certain
circumstances. The market risk charge will be included in the calculation of an
organization's risk-based capital ratios. Norwest has historically not engaged
in significant trading activity.
As an additional means to identify problems in the financial management of
depository institutions, the FDI Act requires federal bank regulatory agencies
to establish certain non-capital safety and soundness standards for institutions
for which they are the primary federal regulator. The standards relate
generally to operations and management, asset quality, interest rate exposure
and executive compensation. The agencies are authorized to take action against
institutions that fail to meet such standards.
Prompt Corrective Action. The FDI Act requires federal bank regulatory
agencies to take "prompt corrective action" with respect to FDIC-insured
depository institutions that do not meet minimum capital requirements. A
depository institution's treatment for purposes of the prompt corrective action
provisions will depend upon how its capital levels compare to various capital
measures and certain other factors, as established by regulation.
Federal bank regulatory agencies have adopted regulations that classify
insured depository institutions into one of five capital-based categories. The
regulations use the total capital ratio, the Tier 1 capital ratio and the
leverage ratio as the relevant measures of capital. A depository institution is
(a) "well capitalized" if it has a risk-adjusted total capital ratio of at least
10%, a Tier 1 capital ratio of at least 6% and a leverage ratio of at least 5%
and is not subject to any order or written directive to maintain a specific
capital level; (b) "adequately capitalized" if it has a risk-adjusted total
capital ratio of at least 8%, a Tier 1 capital ratio of at least 4% and a
leverage ratio of at least 4% (3% in some cases) and is not well capitalized;
(c) "undercapitalized" if it has a risk-adjusted total capital ratio of less
than 8%, a Tier 1 capital ratio of less than 4% or a leverage ratio of less than
4% (3% in some cases); (d) "significantly undercapitalized" if it has a risk-
adjusted total capital ratio of less than 6%, a Tier 1 capital ratio of less
than 3% or a leverage ratio of less than 3%; and (e) "critically
undercapitalized" if its tangible equity is less than 2% of total assets. As of
March 31, 1997, all of Norwest's insured depository institutions met the
criteria for well capitalized institutions as set forth above.
A depository institution's primary federal bank regulator is authorized to
downgrade the institution's capital category to the next lower category upon a
determination that the institution is engaged in an unsafe or unsound condition
or is engaged in an unsafe or unsound practice. An unsafe or unsound practice
can include receipt by the
52
<PAGE>
institution of a less than satisfactory rating on its most recent examination
with respect to its asset quality, management, earnings or liquidity.
The FDI Act 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 as a result be
undercapitalized. Undercapitalized depository institutions are subject to a
wide range of limitations on operations and activities (including asset growth)
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 the plan. The
aggregate liability of the parent holding company is limited to the lesser of
(a) 5% of the depository institution's total assets at the time it became
undercapitalized or (b) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to the institution as of the time it fails to comply
with the plan. If an undercapitalized 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.
FDIC Insurance
The FDIC insures the deposits of Norwest's depository institution
subsidiaries through the Bank Insurance Fund (BIF) or, in the case of deposits
held by its savings and loan association subsidiary or deposits held by banking
subsidiaries as a result of savings and loan associations acquired by Norwest,
through the Savings Association Insurance Fund (SAIF). The amount of FDIC
assessments paid by each BIF member institution is based on its relative risk of
default as measured by regulatory capital ratios and other factors.
Specifically, the assessment rate is based on the institution's capitalization
risk category and supervisory subgroup category. 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 category 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 BIF assessment rate currently 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 SAIF are currently assessed at the BIF rate of zero to
27 cents per $100 of domestic deposits. The SAIF assessment rate may increase
or decrease as is necessary to maintain the designated SAIF reserve ratio of
1.25% of insured deposits.
53
<PAGE>
Effective January 1, 1997, all FDIC-insured depository institutions must
pay an annual assessment to provide funds for the payment of interest on bonds
issued by the Financing Corporation, a federal corporation chartered under the
authority of the Federal Housing Finance Board. The bonds (commonly referred to
as FICO bonds) were issued to capitalize the Federal Savings and Loan Insurance
Corporation. Until December 31, 1999 or when the last savings and loan
association ceases to exist, whichever occurs first, depository institutions
will pay approximately 6.4 cents per $100 of SAIF-assessable deposits and
approximately 1.3 cents per $100 of BIF-assessable deposits.
Subject to certain conditions, BIF and SAIF will be merged into one
insurance fund effective January 1, 1999.
Fiscal And Monetary Policies
Norwest's business and earnings are affected significantly by the fiscal
and monetary policies of the federal government and its agencies. Norwest is
particularly affected by the policies of the Federal Reserve Board, which
regulates the supply of money and credit in the United States. Among the
instruments of monetary policy available to the Federal Reserve are (a)
conducting open market operations in United States government securities, (b)
changing the discount rates of borrowings of depository institutions, (c)
imposing or changing reserve requirements against depository institutions'
deposits, and (d) imposing or changing reserve requirements against certain
borrowing by banks and their affiliates. These methods are used in varying
degrees and combinations to directly affect the availability of bank loans and
deposits, as well as the interest rates charged on loans and paid on deposits.
For that reason alone, the policies of the Federal Reserve Board have a material
effect on the earnings of Norwest's banking subsidiaries and, thus, those of
Norwest.
Competition
The financial services industry is highly competitive. Norwest's
subsidiaries compete with traditional financial services providers, such as
banks, savings and loan associations, credit unions, finance companies, mortgage
banking companies, insurance companies, and money market and mutual fund
companies. They also face increased competition from non-banking institutions
such as brokerage houses and insurance companies, as well as from financial
services subsidiaries of commercial and manufacturing companies. Many of these
competitors enjoy the benefits of advanced technology, fewer regulatory
constraints and lower cost structures.
The financial services industry is likely to become even more competitive
as further technological advances enable more companies to provide financial
services. These technological advances may diminish the importance of
depository institutions and other financial intermediaries in the transfer of
funds between parties.
EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, 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 The Bank of the Southwest,
National Association and subsidiaries as of December 31, 1996 and for the year
then ended included in this Proxy Statement-Prospectus are included herein in
reliance on the report of Philips & Associates, P.A., independent certified
public accountants, upon the authority of said firm as experts in accounting and
auditing.
54
<PAGE>
LEGAL MATTERS
Stanley S. Stroup, Executive Vice President and General Counsel has
rendered a legal opinion that the shares of Norwest Common Stock offered hereby,
when issued in accordance with the Reorganization Agreement, will be validly
issued, fully paid and nonassessable. This opinion means that (a) Norwest has a
sufficient number of authorized but unissued shares of Norwest Common Stock to
issue the required number of shares in the Consolidation, (b) the Norwest Board
has taken all action necessary under the DGCL to authorize the issuance of the
shares pursuant to the Reorganization Agreement, (c) when exchanged for shares
of Southwest Common Stock, the shares of Norwest Common Stock issued in the
Consolidation will be fully paid for and not subject to any additional charges.
Mr. Stroup beneficially owns shares of Norwest Common Stock and options to
purchase additional shares of Norwest Common Stock. As of the date of this
Proxy Statement-Prospectus, the number of shares Mr. Stroup owns or has the
right to acquire upon exercise of his options, in the aggregate, is less than
0.__% of the outstanding shares of Norwest Common Stock.
The material U.S. Federal income tax consequences of the Consolidation to
Southwest's shareholders will be passed upon for Southwest by Philips &
Associates, P.A., Durango, Colorado.
INFORMATION CONCERNING NORWEST MANAGEMENT
Information concerning executive compensation, the principal holders of
voting securities, 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, 1996. Norwest's
annual report is incorporated by reference into this Proxy Statement-Prospectus.
Southwest shareholders who want a copy of this annual report or any document
incorporated by reference into the report may contact Norwest at the address or
phone number indicated under "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
Norwest files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
or other information filed by Norwest at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. You can request
copies of these documents, upon payment of a duplicating fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Norwest's SEC filings are also available to the public
from commercial document retrieval services and on the SEC Internet site
(http://www.sec.gov).
Norwest filed a registration statement on Form S-4 to register with the SEC
the Norwest Common Stock to be issued to Southwest shareholders in the
Consolidation. This Proxy Statement-Prospectus is part of that registration
statement. As allowed by SEC rules, this Proxy Statement-Prospectus does not
contain all of the information you can find in the registration statement or the
exhibits to the registration statement.
Some of the information you may want to consider in deciding how to vote on
the Consolidation is not physically included in this Proxy Statement-Prospectus.
Instead, the information is "incorporated by reference" to documents filed as
appendixes to this Proxy Statement-Prospectus or to documents that have been
filed by Norwest with the SEC under SEC File No. 1-2979. See "WHAT INCORPORATED
BY REFERENCE MEANS" at the beginning of this document.
The Norwest documents that have been incorporated by reference consist of:
. Norwest's annual report on Form 10-K for the year ended December 31,
1996;
. Norwest's quarterly report on Form 10-Q for the quarter ended March 31,
1997;
55
<PAGE>
. Norwest's current reports on Form 8-K dated January 16, 1997 (filed on
January 23, 1997), April 14, 1997 (filed April 21, 1997), June 3, 1997
(filed June 10, 1997) and July 14, 1997 (filed July 21, 1997)`;
. Norwest's current report on Form 8-K dated April 30, 1997 (filed on May
1, 1996) containing a description of the Norwest Common Stock; and
. 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 attached to shares of Norwest Common
Stock.
All reports and proxy statements filed by Norwest after the date of this
Proxy Statement-Prospectus and before the special meeting are automatically
incorporated by reference into this Proxy Statement-Prospectus.
This Proxy Statement-Prospectus may contain information that updates,
modifies or is contrary to information in one or more of the documents
incorporated by reference. Reports filed by Norwest with the SEC after the date
of this Proxy Statement-Prospectus may also contain information that updates,
modifies or is contrary to information in the documents incorporated by
reference. You should review these reports, as they may disclose a change in
the business prospects, financial condition or other affairs of Norwest since
the date of this Proxy Statement-Prospectus.
As explained above, you may read and copy all reports filed by Norwest with
the SEC at the SEC's public reference rooms. Norwest will provide, without
charge, copies of any report incorporated by reference into this Proxy
Statement-Prospectus, excluding exhibits other than those that are specifically
incorporated by reference to an exhibit in this Proxy Statement-Prospectus. You
may obtain a copy of any document incorporated by reference by writing or
calling Norwest as follows:
Norwest Corporation
Corporate Secretary
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
To ensure delivery of the copies in time for the special meeting, your
request should be received by Norwest by August 22, 1997.
- --------------------------------------------------------------------------------
In deciding how to vote on the Merger, you should rely only on the
information contained or incorporated by reference in this Proxy Statement-
Prospectus. Neither Norwest nor Southwest has authorized any person to provide
you with any information that is different from what is contained in this Proxy
Statement-Prospectus. This Proxy Statement-Prospectus is dated July 29, 1997.
You should not assume that the information contained in this Proxy Statement-
Prospectus is accurate as of any date other than such date, and neither the
mailing to you of this Proxy Statement-Prospectus nor the issuance to you of
shares of Norwest common stock will create any implication to the contrary.
This Proxy Statement-Prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any securities, or the solicitation of a proxy,
in any jurisdiction in which, or to any person to whom, it is unlawful to make
any such offer or solicitation.
- --------------------------------------------------------------------------------
56
<PAGE>
[LETTERHEAD OF PHILIPS AND ASSOCIATES, P.C.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
The Bank of the Southwest, N.A.
Pagosa Springs, Colorado
We have audited the accompanying balance sheets of The Bank of the Southwest,
N.A., as of December 31, 1996 and 1995, and the related statements of income,
changes in stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank'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 financial position of The Bank of the Southwest,
N.A., as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Philips and Associates, P.C.
Philips and Associates, P.C.
January 21, 1997
F-1
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
BALANCE SHEETS
--------------
December 31, 1996 and 1995
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks...................... $ 4,992,910 $ 3,191,031
Interest-bearing deposits in banks........... - 2,000,000
Federal funds sold........................... 800,000 -
Time deposits................................ - 200,000
Securities available for sale (Notes 1 & 2).. 14,756,949 12,590,449
Loans, less allowance for loan losses of
$287,964 and $228,906 (Notes 1, 3, and 4).. 49,074,878 39,737,057
Accrued interest receivable.................. 566,551 445,648
Bank premises and equipment (Notes 1 and 5).. 2,232,047 1,786,081
Other real estate owned (Note 1)............. 179,204 179,204
Stock in Federal Reserve Bank and
Federal Home Loan Bank, at cost............ 348,400 310,100
Other assets (Note 6)........................ 621,136 571,813
----------- -----------
Total assets................................. $73,572,075 $61,011,383
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
Deposits (Note 7)
<S> <C> <C>
Demand deposits............................ $10,994,604 $11,496,805
Interest-bearing deposits (Note 7)......... 56,635,509 44,651,466
----------- -----------
Total deposits........................... 67,630,113 56,148,271
Notes payable (Note 8)....................... 295,006 329,574
Accrued expenses and other
liabilities (Notes 9 & 10).................. 457,054 356,891
----------- -----------
Total liabilities........................ 68,382,173 56,834,736
----------- -----------
Stockholders' equity
Common stock, 11,000 shares authorized,
5,500 shares issued and outstanding at
$100 par value........................... 550,000 1,550,000
Surplus.................................... 550,000 550,000
Undivided profits.......................... 4,052,408 2,041,794
Net unrealized gain on securities
available for sale, net of deferred taxes
of $20,734 and $91,242..................... 37,494 34,853
----------- -----------
Total stockholder's equity................... 5,189,902 4,176,647
----------- -----------
Total liabilities and stockholders' equity... $73,572,075 $61,011,383
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
STATEMENTS OF INCOME
--------------------
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans.................. $4,914,954 $3,862,729
Interest and dividends on investment
securities -
Taxable................................ 499,895 445,609
Exempt from federal taxes.............. 302,723 219,101
Interest on deposits with banks............. 81,144 59,502
Interest on federal funds sold.............. 22,342 24,075
---------- ----------
Total interest income.................. 5,821,058 4,611,016
---------- ----------
Interest expense
Interest on deposits........................ 2,215,966 1,692,470
Interest on funds borrowed.................. 25,432 26,925
Interest on federal funds purchased......... 11,123 4,847
---------- ----------
Total interest expense................. 2,252,521 1,724,242
---------- ----------
Net interest income....................... 3,568,537 2,886,774
Provision for loan losses...................... 60,000 36,000
---------- ----------
Net interest income after provision
for loan losses............................. 3,508,537 2,850,774
---------- ----------
Other income
Service charges on deposit accounts......... 361,616 308,524
Credit card income.......................... 136,339 98,712
Mortgage origination fees................... 259,464 79,578
Other operating income...................... 97,075 55,870
Increase in cash value of life insurance.... 28,608 28,608
Gain (loss) on sales of securities.......... (2,167) 563
Loss on disposition of equipment............ (534) -
---------- ----------
Total other income............................. 880,401 571,855
---------- ----------
Other expenses
Salaries and employee benefits.............. 1,543,758 1,160,195
Occupancy expense of bank premises
including depreciation and amortization
of $26,383 in 1996 and $23,227 in 1995.... 189,172 154,174
Furniture and equipment expense including
depreciation and amortization of $147,341
in 1996 and $124,257 in 1995.............. 231,592 190,921
Other operating expenses.................... 838,802 693,661
---------- ----------
2,803,324 2,198,951
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
STATEMENTS OF INCOME - Continued
--------------------------------
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Income before income taxes............. $1,585,614 $1,223,678
Provision for income taxes (Note 10)... 476,000 370,000
---------- ----------
Net income............................. $1,109,614 $ 853,678
========== ==========
Net income per share of common stock... $ 201.75 $ 155.21
========== ==========
Average shares outstanding............. 5,500 5,500
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
NET GAIN
(LOSS) ON
COMMON UNDIVIDED AVAILABLE-FOR-
STOCK SURPLUS PROFITS SALE SECURITIES
----------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Balance - December 31, 1994 $ 1,550,000 $ 550,000 $1,287,116 $(154,552)
Net income for 1995 853,678
Dividends paid ($18.00 per share) (99,000)
Net change in available for sale
securities, net of tax of $112,676 - - - 189,405
----------- -------------- --------------- ---------
Balance - December 31, 1995 1,550,000 550,000 2,041,794 34,853
Transfer to undivided profits (1,000,000) 1,000,000
Net income for 1996 1,109,614
Dividends paid ($18.00 per share) (99,000)
Net change in available for sale
securities, net of tax of $1,571
2,641
----------- ------------- --------------- ---------
Balance - December 31, 1996 $ 550,000 $550,000 $4,052,408 $ 37,494
=========== ============= =============== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
For the Years Ended December 31, 1996 and 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Interest received..................................................... $ 5,672,522 $ 4,535,733
Interest paid......................................................... (2,231,507) (1,699,577)
Service charges and other operating income 855,374 544,848
Cash paid to suppliers and employees.................................. (2,619,316) (1,986,904)
Income taxes paid..................................................... (468,555) (303,835)
----------- -----------
Net cash provided by operating activities.......................... 1,208,518 1,090,265
----------- -----------
Cash flows from investing activities
Proceeds from time deposits in banks.................................. 200,000 -
Proceeds from sales of available for sale securities.................. 3,507,333 2,677,548
Purchases of available for sale securities............................ (5,672,224) (4,770,503)
Increase in loans..................................................... (9,435,249) (8,139,978)
Purchases of bank improvements, furniture and equipment............... (620,275) (147,301)
Purchase of Federal Home Loan Bank stock.............................. (49,100) -
Sale of Federal Reserve Bank stock.................................... 30,000 (30,000)
Proceeds from sales of other real estate.............................. - 24,160
Proceeds from sales of repossessions.................................. 46,298 6,139
Other................................................................. 552 (5,225)
----------- -----------
Net cash used in investing activities.............................. (11,992,665) (10,385,160)
----------- -----------
Cash flows from financing activities
Net increase in demand deposits, interest
with checking, savings and money market deposit accounts........... 4,893,114 8,823,831
Net increase in certificates of deposit............................... 6,588,728 1,862,499
Funds borrowed from Federal Home Loan Bank............................ - 100,000
Balance paid on construction of building and
building and purchase of equipment................................. (978) (70,961)
Funds paid to Federal Home Loan Bank.................................. (34,568) (27,426)
Dividends paid........................................................ (99,000) (99,000)
Net change in funds due U.S. Treasury.............................. 38,730 (30,570)
----------- -----------
Net cash provided by financing activities.......................... 11,386,026 10,558,373
----------- -----------
Net increase in cash and cash equivalents................................ 601,879 1,263,478
Cash and cash equivalents at beginning of year........................... 5,191,031 3,927,553
----------- -----------
Cash and cash equivalents at end of year................................. $ 5,792,910 $ 5,191,031
=========== ===========
</TABLE>
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
STATEMENTS OF CASH FLOWS - Continued
------------------------------------
For the Years Ended December 31, 1996 and 1995
RECONCILIATIONS OF NET INCOME TO NET CASH
-----------------------------------------
PROVIDED BY OPERATING ACTIVITIES
--------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income.................................. $1,109,614 $ 853,678
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization............ 182,828 157,648
Provision for loan losses................ 60,000 36,000
Loss on sale of equipment................ 534 -
Loss (gain) on sale of securities........ 2,167 (563)
Losses on dispositions of other real
estate owned and repossessions......... - 1,248
Bond premium amortization................ 436 4,856
Stock dividend received.................. (19,200) (3,900)
Loan discount accretion.................. (4,220) (2,005)
Increase (decrease) in income taxes
payable................................ (11,887) 59,165
Increase in interest receivable.......... (121,201) (95,467)
Increase (decrease) in loan fees
collected, not earned.................. (4,351) 21,233
Increase in cash value of life
insurance.............................. (27,728) (26,444)
Increase in interest payable............. 21,014 24,665
(Increase) in prepaid expenses........... (29,882) 2,123
Increase in accrued expenses............. 31,062 51,028
Increase in deferred income
tax liability.......................... 19,332 7,000
---------- ----------
Total adjustments..................... 98,904 236,587
---------- ----------
Net cash provided by operating activities $1,208,518 $1,090,265
========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
------------------------------------------
AND FINANCING ACTIVITIES
------------------------
<TABLE>
<S> <C> <C>
Loans converted to other real estate owned
and repossessions....................... $ 46,298 $196,080
========== ========
Other real estate owned transferred
to loans................................ - $ 3,500
========== ========
Stock dividend in Federal Home Loan Bank $ 19,200 $ 3,900
========== ========
Transfer from common stock to
undivided profits....................... $1,000,000 -
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Bank of the Southwest, N.A.,
("Bank") conform to generally accepted accounting principles and prevailing
practices within the banking industry. The Bank provides a variety of financial
services to individuals through its offices in Pagosa Springs and Durango,
Colorado. Tourism is the major industry.
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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan losses
and foreclosed real estate, management obtains independent appraisals for
significant properties.
Securities. The Bank's investments in securities are classified in three
categories and accounted for as follows:
Trading Securities. Government bonds and mortgage-backed securities
held principally for resale in the near term are classified as trading
securities and recorded at their fair values. Unrealized gains and
losses on trading securities are included in other income.
Securities to be Held to Maturity. Bonds, notes and debentures for
which the Bank has the positive intent and ability to hold to maturity
are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income over
the period to maturity.
Securities Available for Sale. Securities available for sale consist
of bonds, notes, debentures, and certain equity securities not
classified as trading securities nor as securities to be held to
maturity.
F-8
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Unrealized holding gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of shareholders'
equity until realized.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
Loans
- -----
Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses and unearned income on loans purchased at discount. Interest on
loans is accrued and credited to income based on the principal amount
outstanding. Accrual of interest on loans is discontinued when, in the opinion
of management, there is doubt about the ability of the borrower to pay interest
or principal. A non-accruing loan is restored to an accrual status when the
loan is well secured and is in the process of collection.
Loan origination fees and discounts on loans purchased are amortized to income
over the lives of the loans.
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual credits, recent loss
experience, current economic conditions, the risk characteristics of the various
categories of loans and other pertinent factors. Loans deemed uncollectible are
charged to the allowance. Provisions for credit losses and recoveries on loans
previously charged off are added to the allowance.
Bank Premises and Equipment
- ---------------------------
Bank premises and equipment are carried at original cost less accumulated
depreciation and amortization. Depreciation is computed on the straight-line
and accelerated methods over the estimated useful lives of the assets.
Leasehold improvements are generally amortized over the term of the lease,
including renewal options. Costs incurred for maintenance and repairs are
expensed currently.
Other Real Estate Owned
- -----------------------
Real estate acquired by foreclosure is carried at the lower of the recorded
investment in the property or its fair value. Prior to foreclosure, the value
of the underlying loan is written down to the fair market value of the real
estate to be acquired by a charge to the allowance for loan losses, if
necessary. Any subsequent write-downs are charged against operating expenses.
Income from these properties, including gains, is included in other income.
Operating expenses of such properties and losses on their disposition are
included in other expenses.
F-9
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income taxes
- ------------
Provisions for income taxes are based on taxes payable for the current year
(after exclusion of non-taxable income such as interest on state and municipal
securities) and taxes deferred on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Off-Balance Sheet Financial Instruments
- ---------------------------------------
In the ordinary course of business the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
Statements of Cash Flows
- ------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
sold are purchased and sold for one-day periods.
Reclassifications
- -----------------
Certain amounts in 1995 have been reclassified to conform with the 1996
presentation.
F-10
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 2 - INVESTMENT SECURITIES
At December 31, 1996 and 1995 all securities were considered to be available for
sale.
The amortized cost and approximate fair value of the securities reflected in the
balance sheets at December 31 were as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Securities available for sale
U.S. Government securities.......... $ 789,066 $ 5,544 $ - $ 794,610
U.S. Government agency
securities........................ 4,247,049 5,533 33,457 4,219,125
Mortgage Backed securities.......... 2,509,200 27,062 28,115 2,508,147
State and municipal securities...... 7,126,835 100,932 17,700 7,210,067
Other securities.................... 25,000 - - 25,000
----------- -------- ------- -----------
$14,697,150 $139,071 $79,272 $14,756,949
=========== ======== ======= ===========
December 31, 1995:
Securities available for sale
U.S. Government agency
securities........................ $ 5,131,094 $ 31,026 $60,315 $ 5,101,805
Mortgage Backed securities.......... 2,074,036 9,254 16,657 2,066,633
State and municipal securities...... 5,304,732 102,440 10,161 5,397,011
Other securities.................... 25,000 - - 25,000
----------- -------- ------- -----------
$12,534,862 $142,720 $87,133 $12,590,449
=========== ======== ======= ===========
</TABLE>
Gross realized gains and losses on sales of securities were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross Realized gains
U.S. Government agency securities............................ $ - $ 563
Mortgage Backed securities................................... 83 -
State & Municipal securities................................. - -
Other securities............................................. - -
------ -----
$ 83 $ 563
====== =====
Gross Realized losses
U.S. Government agency securities........................... $2,250 $ -
Mortgage Backed securities................................... - -
State & Municipal securities................................. - -
Other securities............................................. - -
------ -----
$2,250 $ -
====== =====
</TABLE>
F-11
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 2 - INVESTMENT SECURITIES - continued
Maturities of investment securities at December 31, 1996 were:
<TABLE>
<CAPTION>
Securities Available For Sale
-----------------------------
Amortized Cost Fair Value
-------------- ----------
<S> <C> <C>
Due in one year or less .................... $1,328,648 $1,335,444
Due from one to five years ................. 8,009,483 8,033,685
Due from five to ten years ................. 3,198,797 3,232,466
Due after ten years ........................ 2,160,222 2,155,354
</TABLE>
There are no other significant concentrations of investments (greater than 10%
of stockholders' equity) in any individual security issuer except as to U.S.
Treasury and agency obligations. Securities pledged to collateralize public
deposits at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Amortized cost of securities pledged to
collateralize public deposit ............ $5,857,130 $6,400,018
========== ==========
Public deposits not covered
by FDIC insurance ....................... $3,668,906 $3,416,446
========== ==========
</TABLE>
NOTE 3 - LOANS
Loans consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commercial loans and overdrafts ............ $ 5,139,403 $ 3,216,598
Consumer loan .............................. 3,927,946 3,081,546
Real estate loans .......................... 39,929,632 33,617,761
Loans to Municipalities .................... 139,847 80,135
Credit card debt ........................... 278,208 30,688
----------- -----------
49,415,036 40,026,728
----------- -----------
Less unearned discount ..................... (18,497) (22,717)
Less unearned loan fees .................... (33,697) (38,048)
Less allowance for loan losses ............. (287,964) (228,906)
----------- -----------
Net loans .............................. $49,074,878 $39,737,057
=========== ===========
</TABLE>
F-12
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
Loan maturities at December 31, 1996 are:
<TABLE>
<CAPTION>
Within One - Over
One Year Five Years Five Years
----------- ----------- ----------
<S> <C> <C> <C>
Fixed rate loans
with a maturity of ......... $12,266,800 $10,067,015 $1,331,338
Variable rate loans
with a repricing of ........ $25,749,883 -- --
</TABLE>
Nonaccrual loans at December 31, 1995 were $581. There were no nonaccrual
loans at December 31, 1996. The reduction in interest income associated with
nonaccrual loans and loans in which interest was reduced during 1996 and 1995
was $3 and $6,420 respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses is shown below:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Balance - beginning of year ........... $228,906 $195,924
Provision charged to operations ....... 60,000 36,000
Recoveries credited ................... 11,510 6,560
Losses charged to reserve ............. (12,452) (9,578)
-------- --------
Balance - end of year.................. $287,964 $228,906
======== ========
</TABLE>
NOTE 5 - BANK PREMISES AND EQUIPMENT
The major classes of Bank premises and equipment at December 31, 1996
and 1995 are:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land ....................................... $ 352,274 $ 352,274
Bank Premises .............................. 576,810 576,810
Leasehold improvements ..................... 684,875 467,862
Furniture and equipment .................... 1,469,878 1,158,457
---------- ----------
3,083,837 2,555,403
Accumulated depreciation and amortization .. 851,790 769,322
---------- ----------
$2,232,047 $1,786,081
========== ==========
</TABLE>
F-13
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 6 - OTHER ASSETS
Accrued interest receivable and other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash surrender value on officer's life insurance .............. $529,747 $502,019
Prepaid expenses .............................................. 76,869 46,987
Branch bank fee, net of amortization .......................... 5,714 14,818
Other ......................................................... 8,806 7,989
-------- --------
$621,136 $571,813
-------- --------
</TABLE>
NOTE 7 - DEPOSITS
Deposits consist of:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Noninterest-bearing demand deposits ........................... $10,994,604 $11,496,805
----------- -----------
Interest-bearing
Interest with checking ................................... 17,180,460 14,786,082
Savings .................................................. 5,797,357 4,702,327
Money market deposits .................................... 7,790,599 5,884,692
Time, $100,000 and over .................................. 8,735,640 6,365,428
Other time ............................................... 17,131,453 12,912,937
----------- -----------
56,635,509 44,651,466
----------- -----------
Total deposits ................................................ $67,630,113 $56,148,271
=========== ===========
</TABLE>
Included in interest bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their remaining maturities
at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Three months or less .......................................... $3,957,499
Three through twelve months ................................... 3,704,010
Over twelve months ............................................ 1,074,131
</TABLE>
F-14
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years Ended December 31, 1996 and 1995
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank had outstanding unsecured advances from the Federal Home Loan Bank
(FHLB) at December 31, 1996 and 1995 of $295,006 and $329,574, respectively, at
interest rates ranging between 5.5% and 8.4%.
Principal payments due for the next five years under these advances are $34,616
annually.
As of December 31, 1996, the Bank's unused line of credit with FHLB was
$4,694,800.
NOTE 9 - ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued interest payable on
deposits........................................................... $110,204 $ 89,190
Due to U.S. Treasury on customer
tax deposits...................................................... 40,550 1,820
Accounts payable and other
accrued expenses................................................... 173,198 141,795
Federal & state income tax payable.................................. 99,451 111,338
Deferred income taxes
payable (Note 10).................................................. 33,651 12,748
-------- --------
$457,054 $356,891
======== ========
</TABLE>
NOTE 10 - INCOME TAXES
The provision for income taxes in the statements of income consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current Expense
Federal............................................................ $423,668 $335,000
State.............................................................. 33,000 28,000
-------- --------
456,668 363,000
Deferred - Federal & State.......................................... 19,332 7,000
-------- --------
Provision........................................................... $476,000 $370,000
======== ========
</TABLE>
F-15
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
-------------------------------
NOTES TO FINANCIAL STATEMENTS - Continued
-----------------------------------------
For the Years ended December 31, 1996 and 1995
NOTE 10 - INCOME TAXES - Continued
The provision for federal income taxes is less than that computed by applying
the federal statutory rate of 34% in 1996 and 1995, as indicated in the
following analysis:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Tax based on statutory rate...... $ 539,109 $416,051
Effect of tax-exempt income...... (102,925) (74,494)
Increase in cash value of life
insurance....................... (9,726) (9,726)
Non deductible provision for
loan losses..................... 20,079 11,213
Non deductible interest expense.. 13,004 9,029
State income taxes, net of
federal effect.................. 21,780 18,480
Other (net)...................... (5,321) (553)
--------- --------
$ 476,000 $370,000
========= ========
</TABLE>
The components of the deferred income tax asset and liability balance included
in other assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax liability............................. $(96,855) $(46,054)
-------- --------
Deferred tax asset................................. 149,409 90,778
Valuation allowance for
provision for loan losses......................... (86,205) (57,472)
-------- --------
63,204 33,306
-------- --------
Net deferred tax liability......................... $(33,651) $(12,748)
======== ========
</TABLE>
The tax effects of each type of significant item that gave rise to
deferred taxes are:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net unrealized gain on
securities available for sale.................... $(22,305) $(20,734)
Depreciation...................................... (64,594) (32,082)
Deferred loan fees................................ 12,569 12,875
Accrued retirement................................ 37,185 22,749
Allowance for loan losses......................... 86,205 57,472
Valuation allowance............................... (86,205) (57,472)
Other (net)....................................... 3,494 4,444
-------- --------
$(33,651) $(12,748)
======== ========
</TABLE>
F-16
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
NOTES TO FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 1996 and 1995
NOTE 11 - EMPLOYEE BENEFITS
The Bank has adopted a salary continuation plan to provide retirement benefits
for certain officers. The plan is funded by life insurance. The Bank annually
accrues its costs for this plan. Plan costs accrued were $32,784 in 1996 and
1995.
NOTE 12 - LEASES
The Bank leases its premises for its main office in Pagosa Springs from Turner
Investment Company, a related party. Rent expense under this lease was $31,384
in 1996 and $30,149 in 1995. This lease expires in 2004, with renewal options
through 2014.
The Bank leases its premises at Pagosa Village from R.W. Turner, Jr., a related
party. Rent expense under this lease for 1996 was $18,097 and $15,227 in 1995.
The lease expires in 1999, with renewal options through 2014.
In addition, the Bank leases other real estate from a non-related party. The
lease expires in 1998 with renewal options through 2008.
Total rent expense for 1996 was $48,590, net of sublease income of $23,348.
For 1995, rent expense was $40,576, net of sublease income of $27,057.
Minimum annual lease payments for the next five years are:
<TABLE>
<S> <C>
1997 $ 75,317
1998 64,189
1999 40,958
2000 32,313
2001 32,313
--------
Total $245,090
========
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS
The Bank is related, through ownership and management control, with Turner
Investment Corporation.
Loans to directors, officers and significant shareholders at December 31, 1996
and 1995 amounted to $94,138 and $22,447, respectively. The directors, officers
and significant shareholders, including Turner Investment Corporation, at
December 31, 1996 and 1995 had on deposit with the Bank $904,202 and $1,114,830,
respectively.
F-17
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
NOTES TO FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 1996 and 1995
NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financial needs of its customers. These
financial instruments include loan commitments and standby letters of credit and
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for loan commitments and standby letters of
credit is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments. The Bank has no significant
concentrations of credit risk with any individual counterparty to originate
loans. The total amounts of financial instruments with off-balance sheet risk
as of December 31, 1996 are as follows:
Financial instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
Contract Amount
---------------
<S> <C>
Loan commitments $6,064,615
Standby letters of credit 346,917
Credit card lines 752,253
</TABLE>
Since many of the loan commitments may expire without being drawn upon, the
total commitment amount does not necessarily represent future cash requirements.
The credit risk involved in issuing letters of credit and funding loan
commitments is essentially the same as that involved in extending loan
facilities to customers.
NOTE 15 - CONCENTRATIONS OF CREDIT
All of the Bank's loans, commitments, and standby letters of credit have been
granted to customers in the Bank's market area. All such customers are
depositors of the Bank. Investment in state and municipal securities also
involve governmental entities within the Bank's market area. The concentrations
of credit by type of loan are set forth in Note 3. The Bank does not extend
credit to any single borrower or group of related borrowers in excess of its
legal lending limit.
The Bank has significant amounts on deposit with its primary correspondent bank.
The total amount on deposit, including federal funds sold through the
correspondent bank, aggregated $3,848,482 and $1,790,164 at December 31, 1996
and 1995, respectively.
F-18
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
NOTES TO FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 1996 and 1995
NOTE 16 - RESTRICTIONS ON UNDIVIDED PROFITS
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the
Comptroller of the Currency, declare dividends in excess of the sum of the
current year's earnings (as defined) plus the retained earnings (as defined)
from the prior two years. The dividends, as of December 31, 1996, the Bank
could declare, without the approval of the Comptroller of the Currency, amounted
to $2,318,829.
NOTE 17 - CAPITAL TRANSACTIONS
In March 1996 the Bank transferred $1,000,000 from common stock to undivided
profits, reversing a transfer made in 1994.
NOTE 18 - OTHER CONTINGENCIES
The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of its business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the financial condition of the
Bank.
NOTE 19 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), to average assets (as defined). Management
believes, as of December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
F-19
<PAGE>
THE BANK OF THE SOUTHWEST, N.A.
NOTES TO FINANCIAL STATEMENTS - Continued
For the Years Ended December 31, 1996 and 1995
NOTE 19 - REGULATORY MATTERS - continued
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as well-
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $5,440,372 10.85% $4,010,805 8.0% $5,013,506 10.0%
Tier I Risk Based Capital
(to Risk Weighted Assets) $5,152,408 10.28% $2,005,402 4.0% $3,008,103 6.0%
Tier I Leverage Capital
(to Adjusted Assets) $5,152,408 7.01% $2,940,491 4.0% $3,675,614 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $4,370,700 11.00% $3,177,532 8.0% $3,971,915 10.0%
Tier I Risk Based Capital
(to Risk Weighted Assets) $4,141,794 10.43% $1,588,766 4.0% $2,383,149 6.0%
Tier I Leverage Capital
(to Adjusted Assets) $4,141,794 6.79% $2,438,232 4.0% $3,047,790 5.0%
</TABLE>
F-20
<PAGE>
APPENDIX A
AMENDMENT TO AGREEMENT
(A-1 - A-2)
AGREEMENT AND PLAN OF REORGANIZATION
(A-3 - A-28)
<PAGE>
AMENDMENT TO AGREEMENT
AMENDMENT TO AGREEMENT, entered into this 11th day of April 1997, by and
between THE BANK OF THE SOUTHWEST, NATIONAL ASSOCIATION ("Southwest"), a
national banking association, and NORWEST CORPORATION ("Norwest"), a Delaware
corporation.
WHEREAS, Southwest and Norwest are parties to that certain agreement and
plan of reorganization dated as of March 18, 1997 (the "Agreement") pursuant to
the terms of which a wholly-owned subsidiary of Norwest will consolidate with
Southwest (the "Consolidation") pursuant to an agreement of consolidation (the
"Consolidation Agreement"),
WHEREAS, Norwest has notified Southwest, in a letter dated April 9, 1997,
that Norwest will not approve the sale of certain OREO property pursuant to
paragraph 7(o) of the Agreement unless certain conditions are met on or before
April 17, 1997,
WHEREAS, the parties acknowledge that additional time will be required to
meet the conditions set forth in such letter or to agree upon alternative
conditions,
WHEREAS, the parties hereto desire to change the termination provisions of
paragraph 9 of the Agreement to permit additional time for the resolution of the
issues raised by such letter.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
1. Paragraph 9 of the Agreement is amended and restated in its entirety to
read as follows:
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Effective Date of the Consolidation:
(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 Consolidation shall not have been consummated by
September 30, 1997 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 Southwest 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 Norwest upon written notice to Southwest by 5:00 p.m. on
April 18, 1997,
(v) by Norwest upon written notice to Southwest by 5:00 p.m. on
April 25, 1997 with respect to the issues raised in connection with
the Solar Mall OREO property in a letter dated April 9, 1997 from
Norwest to Southwest.
A-1
<PAGE>
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any
liability or damage to the other party hereto arising out of the breaching
party's wilful and material breach of the warranties and representations
made by it, or wilful and material failure in performance of any of its
covenants, agreements, duties or obligations arising hereunder, and the
obligations under paragraphs 4(g), 5(h) and 10 shall survive such
termination.
(c) If Norwest terminates this Agreement pursuant to paragraph
9(a)(iv) hereof, Norwest shall immediately, in consideration of such
termination, release its right of first refusal with respect to Southwest
as described in paragraph 4(f) of that certain letter agreement dated April
30, 1980 by and among United Banks of Colorado, Inc. and R. W. Turner, Sr.,
Claudine B. Turner, R. W. Turner, Jr. and Turner Investment Corporation.
First Pagosa Industrial Bank, described in such paragraph 4(f), is a
predecessor in interest to Southwest. United Banks of Colorado, Inc. was
merged with and into Norwest on April 19, 1991.
2. Except as specifically amended herein, the Agreement remains in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to Agreement
as of the day and year first above written.
NORWEST CORPORATION THE BANK OF THE SOUTHWEST,
NATIONAL ASSOCIATION
By: /s/ John E. Ganoe By: /s/ R. W. Turner
------------------------ ------------------
Its: Executive Vice President Its: Chairman
------------------------ -----------------
A-2
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of
the 18th day of March, 1997, by and between THE BANK OF THE SOUTHWEST, NATIONAL
ASSOCIATION ("Southwest"), a national banking association, and NORWEST
CORPORATION ("Norwest"), a Delaware corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest will consolidate with Southwest (the
"Consolidation") pursuant to an agreement and plan of consolidation (the
"Consolidation 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 Southwest of the par value of $100 per share
("Southwest Common Stock") outstanding immediately prior to the time the
Consolidation becomes effective in accordance with the provisions of the
Consolidation 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) Consolidation. Subject to the terms and conditions contained herein,
-------------
a wholly-owned subsidiary of Norwest ("Norwest Bank") will be consolidated with
Southwest pursuant to the Consolidation Agreement, with Southwest as the
surviving corporation, in which consolidation each share of Southwest Common
Stock outstanding immediately prior to the Effective Time of the Consolidation
(as defined below)(other than shares as to which statutory dissenters' appraisal
rights have been exercised) will be converted into and exchanged for the number
of shares of Norwest Common Stock determined by dividing the Adjusted Norwest
Shares by the number of shares of Southwest Common Stock then outstanding. The
"Adjusted Norwest Shares" shall be a number equal to $14,700,000 divided by the
Norwest Measurement Price. The "Norwest Measurement Price" is defined as the
average of the closing prices of a share of Norwest Common Stock as reported on
the consolidated tape of the New York Stock Exchange during the period of 20
trading days ending on the day immediately preceding the meeting of shareholders
required by paragraph 4(c) of this Agreement.
(b) Norwest Common Stock Adjustments. If, between the date hereof and the
--------------------------------
Effective Time of the Consolidation, shares of Norwest Common Stock shall be
changed into a different number of shares or a different class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or if a stock dividend thereon shall be
declared with a record date within such period (a "Common Stock Adjustment"),
then the number of shares of Norwest Common Stock into which a share of
Southwest Common 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 Southwest Common Stock
shall be converted will equal the number of shares of Norwest Common Stock which
holders of shares of Southwest Common Stock would have received pursuant to such
Common Stock Adjustment had the record date therefor been immediately following
the Effective Time of the Consolidation.
A-3
<PAGE>
(c) Fractional Shares. No fractional shares of Norwest Common Stock and
-----------------
no certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest to
which such holder is entitled by the average of the closing prices of a share of
Norwest Common Stock as reported by the consolidated tape of the New York Stock
Exchange for each of the five (5) trading days ending on the day immediately
preceding the meeting of shareholders required by paragraph 4(c) of this
Agreement.
(d) Mechanics of Closing Consolidation. Subject to the terms and
----------------------------------
conditions set forth herein, the closing of the Consolidation will occur on a
mutually agreeable date, which date shall be not later than ten (10) business
days following the satisfaction or waiver of all conditions precedent set forth
in Sections 6 and 7 of this Agreement or on such other date as may be agreed to
by the parties (the "Closing Date"). Each of the parties agrees to use its best
efforts to cause the Consolidation to be completed as soon as practicable after
the receipt of final regulatory approval of the Consolidation and the expiration
of all required waiting periods. The Consolidation shall be effective at 12:01
a.m., Minneapolis, Minnesota time (the "Effective Time of the Consolidation") on
the date specified in the certificate of approval to be issued by the
Comptroller of the Currency of the United States, under the seal of his office,
approving the Consolidation (the "Effective Date of the Consolidation").
The closing of the transactions contemplated by this Agreement and the
Consolidation 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 SOUTHWEST. Southwest represents and
warrants to Norwest as follows:
(a) Organization and Authority. Southwest is a national banking
--------------------------
association duly organized, validly existing and in good standing under the laws
of the United States, 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 Southwest and the Southwest 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. Southwest has
furnished Norwest true and correct copies of its articles of association and by-
laws, as amended.
(b) Southwest's Subsidiaries. Schedule 2(b) sets forth a complete and
------------------------
correct list of all of Southwest's subsidiaries as of the date hereof
(individually a "Southwest Subsidiary" and collectively the "Southwest
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
Southwest. No equity security of any Southwest 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 Southwest 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. (S) 55,
all of such shares so owned by Southwest 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 Southwest 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), Southwest does not own beneficially,
directly or indirectly, more than 5% of any class of equity securities or
similar interests of any corporation, bank, business trust, association
A-4
<PAGE>
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 Southwest consists of
--------------
11,000 shares of common stock, $100 par value, of which as of the close of
business on December 31, 1996, 5,500 shares were outstanding and no shares were
held in the treasury. The maximum number of shares of Southwest Common Stock
(assuming for this purpose that phantom shares and other share-equivalents
constitute Southwest Common Stock) that would be outstanding as of the Effective
Date of the Consolidation if all options, warrants, conversion rights and other
rights with respect thereto were exercised is 5,500. All of the outstanding
shares of capital stock of Southwest have been duly and validly authorized and
issued and, subject to 12 U.S.C. (S) 55, 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 Southwest or any Southwest Subsidiary to issue, sell or
otherwise dispose of, or to purchase, redeem or otherwise acquire, any shares of
capital stock of Southwest or any Southwest Subsidiary. Except as set forth in
Schedule 2(c), since December 31, 1996 no shares of Southwest capital stock have
been purchased, redeemed or otherwise acquired, directly or indirectly, by
Southwest or any Southwest Subsidiary and no dividends or other distributions
have been declared, set aside, made or paid to the shareholders of Southwest.
(d) Authorization. Southwest has the corporate power and authority to
-------------
enter into this Agreement and the Consolidation Agreement and, subject to any
required approvals of its shareholders and regulatory authorities, to carry out
its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the Consolidation Agreement by Southwest and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of Southwest. Subject to such
approvals of shareholders and of government agencies and other governing boards
having regulatory authority over Southwest as may be required by statute or
regulation, this Agreement and the Consolidation Agreement are valid and binding
obligations of Southwest enforceable against Southwest in accordance with their
respective terms, except as enforceability may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium, and other similar laws and
court decisions of general application relating to, limiting or affecting the
enforcement of creditors' rights generally, and by general principles of equity.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by Southwest of this Agreement or the Consolidation Agreement, nor
the consummation of the transactions contemplated hereby and thereby, nor
compliance by Southwest 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 Southwest or any Southwest Subsidiary
under any of the terms, conditions or provisions of (x) its articles of
association or by-laws or (y) any material note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
Southwest or any Southwest Subsidiary is a party or by which it may be bound, or
to which Southwest or any Southwest Subsidiary or any of the properties or
assets of Southwest or any Southwest Subsidiary may be subject, or (ii) subject
to compliance with the statutes and regulations referred to in the next
paragraph, to the knowledge of Southwest, violate any judgment, ruling, order,
writ, injunction, decree, statute, rule or regulation applicable to Southwest or
any Southwest 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
A-5
<PAGE>
1934 and the rules and regulations thereunder (the "Exchange Act"), the
securities or blue sky laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the Bank Holding Company
Act of 1956, as amended (the "BHC Act") or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and filings required to effect the
Consolidation under the National Bank Act, no notice to, filing with, exemption
or review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Southwest of the transactions
contemplated by this Agreement and the Consolidation Agreement.
(e) Southwest Financial Statements. The consolidated balance sheets of
------------------------------
Southwest and Southwest's Subsidiaries as of December 31, 1996 and related
consolidated statements of income, shareholders' equity and cash flows for the
three years ended December 31, 1996, together with the notes thereto, certified
by Philips and Associates, P.C. (collectively, the "Southwest 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 Southwest and Southwest's
Subsidiaries at the dates and the consolidated results of operations and cash
flows of Southwest and Southwest's Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1991, Southwest and each Southwest
-------
Subsidiary has filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with (i) the
Securities and Exchange Commission (the "SEC"), including, but not limited to,
Forms 10-K, Forms 10-Q and proxy statements, (ii) the Federal Reserve Board,
(iii) the Federal Deposit Insurance Corporation (the "FDIC"), (iv) the United
States Comptroller of the Currency (the "Comptroller") and (v) any applicable
state securities or banking authorities. All such reports and statements filed
with any such regulatory body or authority are collectively referred to herein
as the "Southwest Reports". As of their respective dates, the Southwest 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 were accurate
in all material respects. Copies of all the Southwest Reports have been made
available to Norwest by Southwest.
(g) Properties and Leases. Except as set forth in Schedule 2(g), except
---------------------
as may be reflected in the Southwest Financial Statements and except for any
lien for current taxes not yet delinquent, Southwest and each Southwest
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 Southwest's consolidated balance sheet as of
December 31, 1996 for the period then ended, and to 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 Southwest or any Southwest Subsidiary pursuant
to which Southwest or such Southwest Subsidiary, as lessee, leases real or
personal property, which leases are described on Schedule 2(g), are valid and
effective in accordance with their respective terms, and there is not, under any
such lease, any material existing default by Southwest or such Southwest
Subsidiary or any event which, with notice or lapse of time or both, would
constitute such a material default. Substantially all Southwest's and each
Southwest 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 Southwest and the Southwest 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
A-6
<PAGE>
delinquent. The federal income tax returns of Southwest and the Southwest
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 Southwest nor any Southwest Subsidiary is a party to
any pending action or proceeding, nor to the knowledge of Southwest 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 Southwest or any Southwest Subsidiary which
has not been settled, resolved and fully satisfied. Each of Southwest and the
Southwest Subsidiaries has paid all taxes owed or which it is required to
withhold from amounts owing to employees, creditors or other third parties. The
consolidated balance sheet as of December 31, 1996, 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 Southwest and the Southwest Subsidiaries with respect to all
periods through the date thereof.
(i) Absence of Certain Changes. Since December 31, 1996 there has been no
--------------------------
change in the business, financial condition or results of operations of
Southwest or any Southwest 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 Southwest and the Southwest Subsidiaries taken as a
whole.
(j) Commitments and Contracts. Except as set forth on Schedule 2(j),
-------------------------
neither Southwest nor any Southwest 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 Southwest or such Southwest 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
Southwest or any Southwest 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, Southwest or any Southwest Subsidiary may
carry on its business (other than as may be required by law or applicable
regulatory authorities);
(v) any other contract or agreement which is a "material
contract" within the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease with annual rental payments aggregating $10,000 or
more.
(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
A-7
<PAGE>
(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. Southwest will furnish Norwest
--------------------------------
copies of (i) all attorney responses to the request of the independent auditors
for Southwest with respect to loss contingencies as of December 31, 1996 in
connection with the Southwest Financial Statements as soon as such responses
become available, and (ii) a written list of legal and regulatory proceedings
filed against Southwest or any Southwest Subsidiary since said date. Neither
Southwest nor any Southwest Subsidiary is a party to any pending or, to the
knowledge of Southwest, 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 Southwest and the Southwest Subsidiaries taken as a whole.
(l) Insurance. Southwest and each Southwest Subsidiary is presently
---------
insured, and during each of the past five calendar years (or during such lesser
period of time as Southwest has owned such Southwest 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. Southwest and each Southwest 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 Southwest or such Southwest
Subsidiary; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the knowledge of Southwest, no
suspension or cancellation of any of them is threatened; and all such filings,
applications and registrations are current. The conduct by Southwest and each
Southwest 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 Southwest nor any Southwest 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 Southwest or any Southwest
Subsidiary which reasonably could be expected to have a material adverse effect
on the business or properties of Southwest and the Southwest Subsidiaries taken
as a whole.
(n) Labor. No work stoppage involving Southwest or any Southwest
-----
Subsidiary is pending or, to the knowledge of Southwest, threatened. Neither
Southwest nor any Southwest Subsidiary is involved in, or to the knowledge of
Southwest, threatened with or affected by, any labor dispute, arbitration,
lawsuit or administrative proceeding which could materially and adversely affect
the business of Southwest or such Southwest Subsidiary. Employees of Southwest
and the Southwest Subsidiaries are not represented by any labor union nor are
any collective bargaining agreements otherwise in effect with respect to such
employees.
(o) Material Interests of Certain Persons. Except as set forth on
-------------------------------------
Schedule 2(o), to the knowledge of Southwest no officer or director of Southwest
or any Southwest Subsidiary, or any "associate" (as such term is defined in Rule
l4a-1 under the Exchange Act) of any such officer or
A-8
<PAGE>
director, has any interest in any material contract or property (real or
personal), tangible or intangible, used in or pertaining to the business of
Southwest or any Southwest Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from
Southwest or any Southwest Subsidiary to any present officer, director, employee
or any associate or related interest of any such person which was required under
Regulation O of the Federal Reserve Board to be approved by or reported to
Southwest's or such Southwest Subsidiary's Board of Directors.
(p) Southwest 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 Southwest or any Southwest Subsidiary acts as
the plan sponsor as defined in ERISA Section 3(16)(B), and with respect to
which any liability under ERISA or otherwise exists or may be incurred by
Southwest or any Southwest 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), Southwest or the Southwest
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. Southwest 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 knowledge
of Southwest, no Plan or any trust created thereunder, nor any trustee,
fiduciary or administrator thereof, has engaged in a "prohibited
transaction", as such term is defined in Section 4975 of the Code or
Section 406 of ERISA or violated any of the fiduciary standards under Part
4 of Title I of ERISA which could subject, to the best knowledge of
Southwest, such Plan or trust, or any trustee, fiduciary or administrator
thereof, or any party dealing with any such Plan or trust, to the tax or
penalty on prohibited transactions imposed by said Section 4975 or would
result in material liability to Southwest and the Southwest 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 Consolidation Agreement.
A-9
<PAGE>
(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), during the past five plan years which
would result in a material liability.
(vii) Except as disclosed in Schedule 2(p), neither the execution
and delivery of this Agreement and the Consolidation 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 Southwest or any Southwest
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 Southwest and
--------------------
the Southwest Subsidiaries supplied or to be supplied by Southwest 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 Southwest Common Stock pursuant to the provisions of the
Consolidation Agreement (the "Registration Statement"), (ii) the proxy statement
to be mailed to Southwest's shareholders in connection with the meeting to be
called to consider the Consolidation (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 Consolidation 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 Southwest and the Southwest Subsidiaries are responsible for
filing with the SEC and any other regulatory authority in connection with the
Consolidation 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 Southwest nor any Southwest 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 as set forth in Schedule 2(s) with
-------------------
respect to commissions due to Peregrine Financial Group and Marion O. Francis,
Jr. upon the sale of Southwest, neither Southwest nor any Southwest 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 Southwest or any Southwest Subsidiary in connection
with this Agreement and the Consolidation Agreement or the transactions
contemplated hereby and thereby.
(t) Fiduciary Activities. Neither Southwest nor any Southwest subsidiary
--------------------
has ever had any accounts for which it has acted as a fiduciary including but
not limited to accounts for which it has served as trustee, agent, custodian,
personal representative, guardian, conservator or investment advisor.
(u) No Defaults. Neither Southwest nor any Southwest 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
A-10
<PAGE>
subject, the result of which has had or could reasonably be expected to have a
material adverse effect upon Southwest and the Southwest Subsidiaries, taken as
a whole. To the knowledge of Southwest, all parties with whom Southwest or any
Southwest Subsidiary has material leases, agreements or contracts or who owe to
Southwest or any Southwest Subsidiary material obligations other than with
respect to those arising in the ordinary course of the banking business of the
Southwest Subsidiaries are in compliance therewith in all material respects.
(v) Environmental Liability. There is no legal, administrative, or other
-----------------------
proceeding, claim, or action of any nature seeking to impose, or that could
result in the imposition of, on Southwest or any Southwest 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 knowledge
of Southwest, threatened against Southwest or any Southwest Subsidiary the
result of which has had or could reasonably be expected to have a material
adverse effect upon Southwest and Southwest's Subsidiaries taken as a whole; to
the knowledge of Southwest there is no reasonable basis for any such proceeding,
claim or action; and to the knowledge of Southwest neither Southwest nor any
Southwest 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. Southwest has provided Norwest with copies of all
environmental assessments, reports, studies and other related information in its
possession with respect to each bank facility and each non-residential OREO
property.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Southwest as follows:
(a) Organization and Authority. Norwest is a corporation duly organized,
--------------------------
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Norwest and its subsidiaries taken as a whole and has
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted. Norwest is registered as a bank
holding company with the Federal Reserve Board under the BHC Act. Norwest has
furnished Southwest with true and correct copies of its certificate of
incorporation and bylaws, as amended.
(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
--------------------
list as of December 31, 1996, of Norwest's Significant Subsidiaries (as defined
in Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary"
and collectively the "Norwest Subsidiaries"), all shares of the outstanding
capital stock of each of which, except as set forth in Schedule 3(b), are owned
directly or indirectly by Norwest. No equity security of any Norwest Subsidiary
is or may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (S) 55 (1982), all of such shares so owned by Norwest are
fully paid and nonassessable and are owned by it free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto. Each
Norwest Subsidiary is a corporation or national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted.
A-11
<PAGE>
(c) Norwest Capitalization. The authorized capital stock of Norwest
----------------------
consists of (i) 5,000,000 shares of Preferred Stock, without par value, of which
as of the close of business on December 31, 1996, 980,000 shares of Cumulative
Tracking Preferred Stock, at $200 stated value, and 11,594 shares of ESOP
Cumulative Convertible Preferred Stock, at $1,000 stated value, 22,716 shares of
1995 ESOP Cumulative Convertible Preferred Stock, at $1,000 stated value, and
24,469 shares of 1996 ESOP Cumulative Convertible Preferred Stock, at $1,000
stated value were outstanding; (ii) 4,000,000 shares of Preference Stock,
without par value, of which as of the close of business on December 31, 1996, 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 December 31, 1996,
368,702,706 shares were outstanding and 6,830,919 shares were held in the
treasury. All of the outstanding shares of capital stock of Norwest have been
duly and validly authorized and issued and are fully paid and nonassessable.
(d) Authorization. Norwest has the corporate power and authority to enter
-------------
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Norwest and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Norwest. No approval or consent by the stockholders of Norwest is
necessary for the execution and delivery of this Agreement and the Consolidation
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 Consolidation 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
Consolidation under the National Bank Act, no notice to, filing with, exemption
or review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Norwest of the transactions
contemplated by this Agreement and the Consolidation Agreement.
(e) Norwest Financial Statements. The consolidated balance sheets of
----------------------------
Norwest and Norwest's subsidiaries as of December 31, 1996 and 1995 and related
consolidated statements of income, stockholders' equity and cash flows for the
three years ended December 31, 1996, 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, 1996 (the "Norwest 10-K") as filed with
the SEC (collectively, the "Norwest Financial Statements"), have been prepared
in
A-12
<PAGE>
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, 1991, 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 December 31, 1996 included in Norwest's Annual
Report on Form 10-K for the period then ended, and all real and personal
property acquired since such date, except such real and personal property has
been disposed of in the ordinary course of business. All leases of real
property and all other leases material to Norwest or any Norwest Subsidiary
pursuant to which Norwest or such Norwest Subsidiary, as lessee, leases real or
personal property, are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Norwest or such Norwest Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Norwest's and each Norwest Subsidiary's buildings and equipment in regular use
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries has filed all
-----
material federal, state, county, local and foreign tax returns, including
information returns, required to be filed by it, and paid or made adequate
provision for the payment of all taxes owed by it, including those with respect
to income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Norwest and the Norwest Subsidiaries for the
fiscal year ended December 31, 1979, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Except only as set forth on Schedule 3(h), (i)
neither Norwest nor any Norwest Subsidiary is a party to any pending action or
proceeding, nor to Norwest's knowledge is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies which could reasonably
be expected to have any material adverse effect on Norwest and its subsidiaries
taken as a whole, and (ii) no issue has been raised by any federal, state, local
or foreign taxing authority in connection with an audit or examination of the
tax returns, business or properties of Norwest or any Norwest Subsidiary which
has not been settled, resolved and fully satisfied, or adequately reserved for.
Each of Norwest and the Norwest Subsidiaries has paid all taxes owed or which it
is required to withhold from amounts owing to employees, creditors or other
third parties.
A-13
<PAGE>
(i) Absence of Certain Changes. Since December 31, 1996, there has been
--------------------------
no change in the business, financial condition or results of operations of
Norwest or any Norwest Subsidiary which has had, or may reasonably be expected
to have, a material adverse effect on the business, financial condition or
results of operations of Norwest and its subsidiaries taken as a whole.
(j) Commitments and Contracts. Except as set forth on Schedule 3(j), as
-------------------------
of December 31, 1996 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 for reasonable amounts with financially sound and reputable insurance
companies or self-insured, 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.
A-14
<PAGE>
(n) Labor. No work stoppage involving Norwest or any Norwest Subsidiary
-----
is pending or, to the best knowledge of Norwest, threatened. Neither Norwest
nor any Norwest Subsidiary is involved in, or threatened with or affected by,
any labor dispute, arbitration, lawsuit or administrative proceeding which could
materially and adversely affect the business of Norwest or such Norwest
Subsidiary. Except as set forth on Schedule 3(j), employees of Norwest and the
Norwest Subsidiaries are not represented by any labor union nor are any
collective bargaining agreements otherwise in effect with respect to such
employees.
(o) Norwest Benefit Plans.
---------------------
(i) As of May 1, 1996, the only "employee benefit plans" within the
meaning of Section 3(3) of ERISA for which Norwest or any Norwest
Subsidiary acts as plan sponsor as defined in ERISA Section 3(16)(B) with
respect to which any liability under ERISA or otherwise exists or may be
incurred by Norwest or any Norwest Subsidiary are those set forth on
Schedule 3(o) (the "Norwest Plans"). No Norwest Plan is a "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable
law. Except as set forth on Schedule 3(o), Norwest or the Norwest
Subsidiaries have received favorable determination letters from the
Internal Revenue Service under the provisions of TEFRA, DEFRA and REA for
each of the Norwest Plans to which the qualification requirements of
Section 401(a) of the Code apply. Norwest knows of no reason that any
Norwest Plan which is subject to the qualification provisions of Section
401(a) of the Code is not "qualified" within the meaning of Section 401(a)
of the Code and that each related trust is not exempt from taxation under
Section 501(a) of the Code.
(iii) The present value of all benefits vested and all benefits
accrued under each Norwest Plan which is subject to Title IV of ERISA did
not, in each case, as determined for purposes of reporting on Schedule B to
the Annual Report on Form 5500 of each such Norwest Plan as of the end of
the most recent Plan year, exceed the value of the assets of the Norwest
Plans allocable to such vested or accrued benefits.
(iv) Except as set forth on Schedule 3(o), and to the best knowledge
of Norwest, no Norwest Plan or any trust created thereunder, nor any
trustee, fiduciary or administrator thereof, has engaged in a "prohibited
transaction", as such term is defined in Section 4975 of the Code or
Section 406 of ERISA or violated fiduciary standards under Part 4 of Title
I of ERISA, which could subject, to the best knowledge of Norwest, such
Norwest Plan or trust, or any trustee, fiduciary or administrator thereof,
or any party dealing with any such Norwest Plan or trust, to the tax or
penalty on prohibited transactions imposed by said Section 4975 or would
result in material liability to Norwest and its subsidiaries taken as a
whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other
than those events which may result from the transactions contemplated by
this Agreement and the Consolidation 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.
A-15
<PAGE>
(vii) Neither the execution and delivery of this Agreement and the
Consolidation Agreement nor the consummation of the transactions
contemplated hereby and thereby will (i) result in any material payment
(including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or employee or
former employee of Norwest under any Norwest Plan or otherwise, (ii)
materially increase any benefits otherwise payable under any Norwest Plan
or (iii) result in the acceleration of the time of payment or vesting of
any such benefits to any material extent.
(p) Registration Statement, etc. None of the information regarding
---------------------------
Norwest and its subsidiaries supplied or to be supplied by Norwest for inclusion
in (i) the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Consolidation 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
Consolidation 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 Consolidation 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
A-16
<PAGE>
agreement, order, judgment, or decree by or with any court, governmental
authority or third party imposing any such environmental liability.
4. COVENANTS OF SOUTHWEST. Southwest covenants and agrees with Norwest as
follows:
(a) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Consolidation, Southwest, and each
Southwest 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 requirement shall be deemed to be waived as to any loan approval
request to which Norwest has made no response by the end of the second business
day following the day of receipt of the request by a representative designated
by Norwest in writing), make any new loan or modify, restructure or renew any
existing loan (except pursuant to commitments made prior to the date of this
Agreement) to any borrower if the amount of the resulting loan, when aggregated
with all other loans or extensions of credit to such person, would be in excess
of $100,000; maintain proper business and accounting records in accordance with
generally accepted principles; maintain its properties in good repair and
condition, ordinary wear and tear excepted; maintain in all material respects
presently existing insurance coverage; use its best efforts to preserve its
business organization intact, to keep the services of its present principal
employees and to preserve its goodwill and the goodwill of its suppliers,
customers and others having business relationships with it; use its best efforts
to obtain any approvals or consents required to maintain existing leases and
other contracts in effect following the Consolidation; comply in all material
respects with all laws, regulations, ordinances, codes, orders, licenses and
permits applicable to the properties and operations of Southwest and each
Southwest Subsidiary the non-compliance with which reasonably could be expected
to have a material adverse effect on Southwest and the Southwest Subsidiaries
taken as a whole; and permit Norwest and its representatives (including KPMG
Peat Marwick LLP) to examine its and its subsidiaries books, records and
properties and to interview officers, employees and agents at all reasonable
times when it is open for business. No such examination by Norwest or its
representatives either before or after the date of this Agreement shall in any
way affect, diminish or terminate any of the representations, warranties or
covenants of Southwest herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from
the date hereof until the Effective Time of the Consolidation, Southwest and
each Southwest subsidiary will not (without the prior written consent of
Norwest): amend or otherwise change its articles of incorporation or
association or by-laws; issue or sell or authorize for issuance or sale, or
grant any options or make other agreements with respect to the issuance or sale
or conversion of, any shares of its capital stock, phantom shares or other
share-equivalents, or any other of its securities; authorize or incur any long-
term debt (other than deposit liabilities); mortgage, pledge or subject to lien
or other encumbrance any of its properties, except in the ordinary course of
business; enter into any material agreement, contract or commitment in excess of
$10,000 except banking transactions in the ordinary course of business and in
accordance with policies and procedures in effect on the date hereof; make any
investments except investments made by bank subsidiaries in the ordinary course
of business for terms of up to one (1) year and in amounts of $100,000 or less;
amend or terminate any Plan except as required by law; make any contributions to
any Plan except as required by the terms of such Plan in effect as of the date
hereof; declare, set aside, make or pay any dividend or other distribution with
respect to its capital stock except that the Board of Directors of Southwest may
declare and pay dividends on Southwest Common Stock not to exceed an aggregate
of $25,000 per quarter in accordance with applicable law and regulation
provided, however, that the shareholders of Southwest shall be entitled to a
dividend on Southwest Common Stock or Norwest Common Stock, but not both, in the
calendar quarter in which the Closing shall occur; redeem, purchase or otherwise
acquire, directly or indirectly, any of the capital stock of Southwest; increase
the compensation of any officers, directors or executive
A-17
<PAGE>
employees, except pursuant to existing compensation plans and practices; sell or
otherwise dispose of any shares of the capital stock of any Southwest
Subsidiary; or sell or otherwise dispose of any of its assets or properties
other than in the ordinary course of business.
(c) The Board of Directors of Southwest 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
Consolidation Agreement be submitted to a vote at such meeting. In addition, the
Board of Directors shall submit to a vote at such shareholder meeting a
resolution approving certain payments to Marion O. Francis, Jr., President of
Southwest, following consummation of the Consolidation, pursuant to the board
resolution dated March 11, 1991 under which First National Bank of Pagosa
Springs (the predecessor in interest to Southwest) agreed to pay Marion O.
Francis, Jr. a commission equal to eight percent (8%) of the total consideration
received upon the sale of the bank if the sale consideration exceeded 1.5 times
book value. The Board of Directors of Southwest will (i) cause proper notice of
such meeting to be given to its shareholders in compliance with all applicable
law and regulation, (ii) recommend by the affirmative vote of the Board of
Directors a vote in favor of approval of (A) this Agreement and the
Consolidation Agreement, and (B) the payment of such commission for Marion O.
Francis, Jr., and (iii) use its best efforts to solicit from its shareholders
proxies in favor thereof.
(d) Southwest will furnish or cause to be furnished to Norwest all the
information concerning Southwest and its subsidiaries required for inclusion in
the Registration Statement referred to in paragraph 5(c) hereof (including but
not limited to audited consolidated financial statements for Southwest, which
Southwest agrees to have prepared at its sole expense after the date hereof,
which comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the published rules and regulations
thereunder, and which otherwise are required or necessary to be filed or
included in the Registration Statement), or any statement or application made by
Norwest to any governmental body in connection with the transactions
contemplated by this Agreement. The financial statements for the 1996 fiscal
year provided under this paragraph must include the audit opinion and the
consent of Philips and Associates, P.C. to use such opinion in such
Registration Statement.
(e) Southwest 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 Southwest 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) Southwest 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) Southwest will hold in confidence all confidential or proprietary
documents and information concerning Norwest and its subsidiaries furnished to
Southwest 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 Southwest'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
Southwest, in the public domain, or later acquired by Southwest from other
legitimate sources) and, upon request, all such documents, any copies thereof
and extracts therefrom shall immediately thereafter be returned to Norwest.
(h) Neither Southwest, nor any Southwest Subsidiary, nor any director,
officer, representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of or
A-18
<PAGE>
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 Southwest or any Southwest
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 Southwest or any Southwest Subsidiary except in the
ordinary course of business, or (iv) to merge, consolidate or otherwise combine
with Southwest or any Southwest Subsidiary. If any corporation, partnership,
person or other entity or group makes an offer or inquiry to Southwest or any
Southwest Subsidiary concerning any of the foregoing, Southwest or such
Southwest Subsidiary will promptly disclose such offer or inquiry, including the
terms thereof, to Norwest.
(i) Southwest 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) Southwest and each Southwest Subsidiary will take all action necessary
or required (i) to terminate or amend, if requested by Norwest, all qualified
pension and welfare benefit plans and all non-qualified benefit plans and
compensation arrangements as of the Effective Date of the Consolidation to
facilitate the merger of such plans with Norwest plans without gaps in coverage
for participants in the plans and without duplication of costs caused by the
continuation of such plans after coverage is available under Norwest plans, (ii)
to amend the Plans to comply with the provisions of the the Tax Reform Act of
1986 and regulations thereunder and other applicable law, and (iii) to submit
application to the Internal Revenue Service for a favorable determination letter
for each of the Plans which is subject to the qualification requirements of
Section 401(a) of the Code prior to the Effective Date of the Consolidation.
(k) Neither Southwest nor any Southwest Subsidiary shall take any action
which with respect to Southwest would disqualify the Consolidation as a "pooling
of interests" for accounting purposes.
(l) Southwest shall use its best efforts to obtain and deliver at least 32
days prior to the Effective Date of the Consolidation signed representations
substantially in the form attached hereto as Exhibit B to Norwest by each
executive officer, director or shareholder of Southwest who may reasonably be
deemed an "affiliate" of Southwest within the meaning of such term as used in
Rule 145 under the Securities Act.
(m) Southwest shall establish such additional accruals and reserves as may
be necessary to conform Southwest's accounting and credit loss reserve practices
and methods to those of Norwest and Norwest's plans with respect to the conduct
of Southwest's business following the Consolidation.
(n) Southwest shall obtain, at its sole expense, Phase I environmental
assessments for each bank-owned facility. Oral reports of such environmental
assessments shall be delivered to Norwest no later than eight (8) weeks and
written reports shall be delivered to Norwest no later than sixteen (16) weeks
from the date of this Agreement. Southwest shall obtain, at its sole expense,
Phase II environmental assessments for properties identified by Norwest on the
basis of the results of such Phase I environmental assessments. Southwest shall
obtain a survey and assessment of all potential asbestos containing material in
owned properties (other than OREO property) and a written report of the results
shall be delivered to Norwest within eight weeks of execution of the definitive
agreement.
A-19
<PAGE>
(o) Southwest shall obtain, at its sole expense, commitments for title
insurance and boundary surveys for each bank facility which shall be delivered
to Norwest no later than four (4) weeks from the date of this Agreement.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Southwest as
follows:
(a) From the date hereof until the Effective Time of the Consolidation,
Norwest will maintain its corporate existence in good standing; conduct, and
cause the Norwest Subsidiaries to conduct, their respective businesses in
compliance with all material obligations and duties imposed on them by all laws,
governmental regulations, rules and ordinances, and judicial orders, judgments
and decrees applicable to Norwest or the Norwest Subsidiaries, their businesses
or their properties; maintain all books and records of it and the Norwest
Subsidiaries, including all financial statements, in accordance with the
accounting principles and practices consistent with those used for the Norwest
Financial Statements, except for changes in such principles and practices
required under generally accepted accounting principles.
(b) Norwest will furnish to Southwest all the information concerning
Norwest required for inclusion in a proxy statement or statements to be sent to
the shareholders of Southwest, or in any statement or application made by
Southwest to any governmental body in connection with the transactions
contemplated by this Agreement.
(c) As promptly as practicable after the execution of this Agreement and
the receipt by Norwest of the audited financial statements required by paragraph
4(d) hereof, Norwest will prepare and 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 Southwest pursuant to the Consolidation
Agreement, and will use its best efforts to cause the Registration Statement to
become effective following receipt of approval of the transaction from the
Federal Reserve Board or on such earlier date as may be agreed to by the
parties. 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
Southwest shareholders, at the time of the Southwest shareholders' meeting
referred to in paragraph 4(c) hereof and at the Effective Time of the
Consolidation 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 Southwest or any Southwest subsidiary
for use in the Registration Statement or the Prospectus.
(d) Norwest will file all documents required to be filed to list the
Norwest Common Stock to be issued pursuant to the Consolidation Agreement on the
New York Stock Exchange and the Chicago Stock Exchange and use its best efforts
to effect said listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Southwest pursuant to this Agreement and the Consolidation
Agreement will, upon such issuance and delivery to said shareholders pursuant to
the Consolidation Agreement, be duly authorized, validly issued, fully paid and
nonassessable. The shares of Norwest Common Stock to be delivered to the
shareholders of Southwest pursuant to the Consolidation Agreement are and will
be free of any preemptive rights of the stockholders of Norwest.
A-20
<PAGE>
(f) Norwest will file all documents required to obtain, prior to the
Effective Time of the Consolidation, all necessary Blue Sky permits and
approvals, if any, required to carry out the transactions contemplated by this
Agreement, will pay all expenses incident thereto and will use its best efforts
to obtain such permits and approvals.
(g) Norwest will take all necessary corporate and other action and file
all documents required to obtain and will use its best efforts to obtain all
approvals of regulatory authorities, consents and approvals required of it to
carry out the transactions contemplated by this Agreement and the Consolidation
Agreement and will cooperate with Southwest to obtain all such approvals and
consents required by Southwest.
(h) Norwest will hold in confidence all documents and information
concerning Southwest and Southwest'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 Southwest (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 Southwest.
(i) Norwest will file any documents or agreements required to be filed in
connection with the Consolidation under the National Bank Act.
(j) Norwest will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(k) Norwest shall consult with Southwest as to the form and substance of
any proposed press release or other proposed public disclosure of matters
related to this Agreement or any of the transactions contemplated hereby.
(l) Norwest shall give Southwest written notice of receipt of the
regulatory approvals referred to in paragraph 7(e).
(m) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit Southwest 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
Southwest or its representatives shall in any way affect, diminish or terminate
any of the representations, warranties or covenants of Norwest herein expressed.
6. CONDITIONS PRECEDENT TO OBLIGATION OF SOUTHWEST. The obligation of
Southwest to effect the Consolidation shall be subject to the satisfaction at or
before the Effective Date of the Consolidation of the following further
conditions, which may be waived in writing by Southwest:
(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
Effective Date of the Consolidation.
A-21
<PAGE>
(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 at or before the Effective Date of the
Consolidation.
(c) Southwest shall have received a favorable certificate, dated as of the
Effective Date of the Consolidation, 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 Consolidation Agreement shall have been
approved by the affirmative vote of the holders of the percentage of the
outstanding shares of Southwest required for approval of a plan of consolidation
in accordance with the provisions of Southwest's Articles of Association and the
National Bank 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 Consolidation Agreement and
all waiting and appeal periods prescribed by applicable law or regulation shall
have expired.
(f) No court or governmental authority of competent jurisdiction shall
have issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(g) The shares of Norwest Common Stock to be delivered to the stockholders
of Southwest pursuant to this Agreement and the Consolidation Agreement shall
have been authorized for listing on the New York Stock Exchange and the Chicago
Stock Exchange.
(h) Southwest shall have received an opinion, dated the Closing Date, of
counsel to Southwest, substantially to the effect that, for federal income tax
purposes: (i) the Consolidation 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 Southwest Common Stock upon receipt of
Norwest Common Stock except for cash received in lieu of fractional shares;
(iii) the basis of the Norwest Common Stock received by the shareholders of
Southwest will be the same as the basis of Southwest Common Stock exchanged
therefor; and (iv) the holding period of the shares of Norwest Common Stock
received by the shareholders of Southwest will include the holding period of the
Southwest Common Stock, provided such shares of Southwest Common Stock were held
as a capital asset as of the Effective Time of the Consolidation.
(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) Norwest shall have reserved for issuance, immediately following the
Closing, sufficient shares of Norwest Common Stock to satisfy the obligation to
Marion O. Francis, Jr. described in Schedule 2(s).
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of
Norwest to effect the Consolidation shall be subject to the satisfaction at or
before the Effective Date of the Consolidation of the following conditions,
which may be waived in writing by Norwest:
A-22
<PAGE>
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
or events occurring after the date of this Agreement made in the ordinary course
of business and not expressly prohibited by this Agreement, the representations
and warranties contained in paragraph 2 hereof shall be true and correct in all
respects material to Southwest and the Southwest Subsidiaries taken as a whole
as if made at the Effective Date of the Consolidation.
(b) Southwest 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 Effective Date of the
Consolidation.
(c) This Agreement and the Consolidation Agreement shall have been
approved by the affirmative vote of the holders of the percentage of the
outstanding shares of Southwest required for approval of a plan of consolidation
in accordance with the provisions of Southwest's Articles of Association and the
National Bank Act and the payments to Marion O. Francis, Jr. pursuant to the
March 11, 1991 resolution of the Board of Directors shall have been approved by
the affirmative vote of the holders of the percentage of the outstanding shares
of Southwest required under Section 280G of the Code for such payments to be tax
deductible expenses to Southwest and Norwest for federal income tax purposes and
to avoid a 20% nondeductible excise tax on such payments.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Consolidation signed by the Chairman or President and by
the Secretary or Assistant Secretary of Southwest, 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 Consolidation 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 Southwest or any Southwest Subsidiary that, in the good
faith judgment of Norwest, is unreasonably burdensome to Norwest.
(f) Southwest and each Southwest Subsidiary shall have obtained any and
all material consents or waivers from other parties to loan agreements, leases
or other contracts material to Southwest's or such subsidiary's business
required for the consummation of the Consolidation, and Southwest and each
Southwest Subsidiary shall have obtained any and all material permits,
authorizations, consents, waivers and approvals required for the lawful
consummation by it of the Consolidation.
(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 Consolidation shall qualify as a "pooling of interests" for
accounting purposes and Norwest shall have received from Philips and Associates,
P.C. an opinion to that effect.
(i) At any time since the date hereof the total number of shares of
Southwest Common Stock outstanding and subject to issuance upon exercise
(assuming for this purpose that phantom shares and other share-equivalents
constitute Southwest Common Stock) of all warrants, options, conversion rights,
phantom shares or other share-equivalents, other than any option held by
Norwest, shall not have exceeded 5,500.
A-23
<PAGE>
(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 Southwest 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 Southwest 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 Southwest;
(ii) the amounts reported in the interim quarterly financial
statements of Southwest agree with the general ledger of Southwest;
(iii) from the date of the most recent unaudited consolidated
financial statements of Southwest and the Southwest 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 Southwest and the Southwest
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
Southwest and the Southwest 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;
(iv) they have reviewed certain amounts, percentages, numbers of
shares and financial information which are derived from the general
accounting records of Southwest and the Southwest 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 Southwest and the Southwest Subsidiaries and have found them to be in
agreement with financial records and analyses prepared by Southwest
included in the annual and quarterly financial statements, except as
disclosed in such letters.
(l) Southwest and the Southwest Subsidiaries considered as a whole shall
not have sustained since December 31, 1996 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
Southwest or any Southwest 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,
A-24
<PAGE>
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 Southwest and its subsidiaries taken as a whole.
(n) Since December 31, 1996, 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 Southwest and the Southwest 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) Southwest shall have entered into agreements, on terms and conditions
satisfactory to Norwest, for the sale of all of the OREO property owned by
Southwest on the date of this Agreement.
(p) Southwest shall have paid or fully accrued for the payment of the
obligations to Peregrine Financial Group described in Schedule 2(s).
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Southwest or
any Southwest Subsidiary as of the Effective Date of the Consolidation
("Southwest 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 Southwest Employee shall be
-------------------------------
eligible for participation in the employee welfare benefit plans of Norwest
listed below subject to any eligibility requirements applicable to such plans
and shall enter each plan not later than the first day of the calendar quarter
which begins at least 32 days after the Effective Date of the Consolidation
(provided, however, that it is Norwest's intent that the transition from the
Southwest plans to the Norwest plans be facilitated without gaps in coverage to
the participants and without duplication in costs to Norwest):
Medical Plan
Dental Plan
Vision Plan
Short Term Disability Plan
Long Term Disability Plan
Long Term Care Plan
Flexible Benefits Plan
Basic Group Life Insurance Plan
Group Universal Life Insurance Plan
Dependent Group Life Insurance Plan
Business Travel Accident Insurance Plan
Accidental Death and Dismemberment Plan
Severance Pay Plan
Vacation Program
For the purpose of determining each Southwest Employee's benefit for the year in
which the Consolidation occurs under the Norwest vacation program, vacation
taken by a Southwest Employee in the year in which the Consolidation occurs will
be deducted from the total Norwest benefit.
(b) Employee Retirement Benefit Plans.
----------------------------------
A-25
<PAGE>
Each Southwest 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 Southwest
and the Southwest Subsidiaries for the purpose of satisfying any eligibility and
vesting periods applicable to the SIP, to the extent credited under the
respective employee retirement benefit plans of Southwest and the Southwest
Subsidiaries), 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
Consolidation.
Each Southwest 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 Effective
Date of the Consolidation:
(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 Consolidation shall not have been consummated by September 30,
1997 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 Southwest 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 Norwest upon written notice to Southwest by 5:00 p.m. on
April 18, 1997.
(b) Termination of this Agreement under this paragraph 9 shall not
release, or be construed as so releasing, either party hereto from any liability
or damage to the other party hereto arising out of the breaching party's wilful
and material breach of the warranties and representations made by it, or wilful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
(c) If Norwest terminates this Agreement pursuant to paragraph 9(a)(iv)
hereof, Norwest shall immediately, in consideration of such termination, release
its right of first refusal with respect to Southwest as described in paragraph
4(f) of that certain letter agreement dated April 30, 1980 by and among United
Banks of Colorado, Inc. and R. W. Turner, Sr., Claudine B. Turner, R. W. Turner,
Jr. and Turner Investment Corporation. First Pagosa Industrial Bank, described
in such paragraph 4(f), is a predecessor in interest to Southwest. United Banks
of Colorado, Inc. was merged with and into Norwest on April 19, 1991.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by Southwest and Southwest Subsidiaries shall be borne
by Southwest, 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.
A-26
<PAGE>
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 Southwest:
The Bank of the Southwest, National Association
523 San Juan Street
Pagosa Springs, CO 81147
Attention: Marion O. Francis, Jr., President
With a copy to:
Hellerstein, Hellerstein & Shore, P. C.
1139 Delaware Street
P.O, Box 5637
Denver, CO 80217
Attention: Stephen A. Hellerstein
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Consolidation Agreement
contain the complete agreement between the parties hereto with respect to the
Consolidation 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 Effective Date of the
Consolidation, 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 Southwest 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 Consolidation Agreement.
A-27
<PAGE>
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 Consolidation Agreement shall survive
the Consolidation or except as set forth in paragraph 9(b), the termination of
this Agreement. Paragraph 10 shall survive the Consolidation.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION THE BANK OF THE SOUTHWEST,
NATIONAL ASSOCIATION
By: /s/ John E. Ganoe By: /s/ R. W. Turner
------------------------ ------------------
Its: Executive Vice President Its: Chairman
------------------------ -----------------
A-28
<PAGE>
APPENDIX B
DEFERRED COMPENSATION AGREEMENT
<PAGE>
AGREEMENT
This Agreement is made as of July 18, 1997 ("Agreement") between MARION O.
FRANCIS, JR. ("Francis") and THE BANK OF THE SOUTHWEST, NATIONAL ASSOCIATION, a
national banking association formerly known as First National Bank of Pagosa
Springs (the "Bank").
WHEREAS, Francis is the President of the Bank; and
WHEREAS, pursuant to a resolution of the board of directors of the Bank
dated March 12, 1991 (the "Resolution"), Francis is entitled to compensation in
the form of a payment equal to a percentage of the sale price in the event the
Bank is sold; and
WHEREAS, although it was the intent of the Bank to compensate Francis for
his past and continued dedication, services and efforts on behalf of the Bank in
the event of a change in control of the Bank, the Resolution does not clearly
specify the purpose of the payment to Francis; and
WHEREAS, Francis and the Bank wish to rescind the Resolution in order
to replace it with this Agreement to memorialize the purpose of the payment
called for by the Resolution and to direct the submission of this Agreement to
the shareholders of the Bank for approval within the meaning of Section
280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "IRC").
NOW, THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. New Resolution. The Bank agrees to submit for adoption by its board of
--------------
directors, a new resolution to (i) rescind the Resolution, (ii) approve this
Agreement, and (iii) direct that this Agreement be submitted to the shareholders
of the Bank for approval within the meaning of Section 280G(b)(5)(B) of the IRC.
2. Deferred Compensation. The Bank hereby agrees that in order to
---------------------
compensate Francis for his past and continued dedication and efforts as
President of the Bank in the event of a Change in Control of the Bank, Francis
shall be entitled to deferred compensation equal to the Sales Price of the Bank
multiplied by the Book Value Multiple Percentage ("Deferred Compensation").
Capitalized terms in this paragraph have the following meanings:
(a) "Change in Control" means a transaction in which a third party
acquires the Bank through a merger, consolidation or other business
combination or acquires in any manner a substantial equity interest in, or
all or substantially all of the assets of, the Bank;
(b) "Sales Price" means the total consideration paid to
shareholders of the Bank pursuant to a Change in Control;
(c) "Book Value" means the sum of the amounts included in the
following general ledger accounts of the Bank: capital stock, surplus,
undivided profits and corrections for prior year;
B-1
<PAGE>
(d) "Book Value Multiple Percentage" is calculated as follows:
(i) if the Sales Price is greater than 100% of Book Value
but less than 125% of Book Value, the Book Value Multiple Percentage
shall be 3.0%.
(ii) if the Sales Price is equal to or greater than 125% of
Book Value but less than 150% of Book Value, the Book Value Multiple
Percentage shall be 5.5%.
(iii) if the Sales Price is equal to or greater than 150%
of Book Value, the Book Value Multiple Percentage shall be 8.0%.
3. Form of Deferred Compensation; Withholding. The Deferred Compensation
------------------------------------------
payable to Francis under this Agreement shall be paid to Francis on the same
terms and conditions as the Sales Price is paid to shareholders of the Bank
pursuant to the Change in Control (i.e., if the consideration paid to
shareholders of the Bank pursuant to the Change in Control is stock of another
corporation, the Deferred Compensation payable to Francis shall be paid in such
stock); provided, however, that the Deferred Compensation payable to Francis
under this Agreement shall be subject to the deduction of the amount of any
federal, state, or local income taxes, Social Security tax, Medicare tax, or
other taxes required to be withheld from compensation by applicable law and
regulation.
4. Effective Date and Termination of Agreement. Upon approval of the
-------------------------------------------
New Resolution described in paragraph 1 and approval by the shareholders as
specified therein, this Agreement shall be effective as of March 12, 1991. This
Agreement shall terminate on the earliest of the following events:
(a) payment of the Deferred Compensation to Francis following a
Change in Control as provided in paragraphs 1 through 3 hereof;
(b) the termination of employment of Francis as an officer or
employee of the Bank for any reason before Francis reaches age 65;
(c) the second anniversary of the retirement of Francis, if
Francis retires after he reaches age 65.
5. Amendments and Waiver. No amendment, waiver or consent with respect to
-----------------------------------
any provision of this Agreement shall in any event be effective, unless the same
shall be in writing and signed by the parties hereto, and then such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
6. Notices. Any notice or other communication provided for herein or
-------
given hereunder to a party hereto shall be in writing and shall be delivered in
person or by courier service, telecopied (with receipt confirmed) or mailed by
first class registered or certified mail, postage prepaid, addressed as follows:
If to Francis:
Marion O. Francis, Jr.
P.O. Box 660
Pagosa Springs, CO 81147
B-2
<PAGE>
If to The Bank:
The Bank of the Southwest, National Association
523 San Juan Street
Pagosa Springs, CO 81147
or to such other address with respect to a party as such party shall notify the
other in writing as above provided. All notices provided (i) by telecopy, shall
be deemed received on the date given, (ii) by courier, shall be deemed received
on the date delivered to the address provided above and (iii) by mail, shall be
deemed received on the fourth business day after mailing.
7. Governing Law. This Agreement shall be construed, enforced and
-------------
interpreted in accordance with the substantive laws of the State of Colorado
applicable to contracts made and to be performed wholly within said State.
8. Assignment. This Agreement, and the rights and obligations of either
----------
party hereunder, shall not be assignable without the prior written consent of
the other party.
9. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the parties with respect to the matters contemplated
hereby and supersedes all other agreements, understandings and undertakings
among the parties on the subject matter hereof.
10. Counterparts. This Agreement may be executed simultaneously in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
/s/ Marion O. Francis, Jr. THE BANK OF THE SOUTHWEST,
- --------------------------
Marion O. Francis, Jr. NATIONAL ASSOCIATION
By: /s/ Richard W. Turner, III
---------------------------
Title Executive Vice President
--------------------------
B-3
<PAGE>
APPENDIX C
UNITED STATES CODE TITLE 12, SECTION 215
<PAGE>
(B) LIABILITY OF CONSOLIDATIED ASSOCIATION; CAPITAL STOCK; DISSENTING
SHAREHOLDERS
The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located:
Provided, That if such consolidation shall be voted for at such meetings by the
- --------
necessary majorities of the shareholders of each association and State bank
proposing to consolidate, and thereafter the consolidation shall be approved by
the Comptroller, any shareholder of any of the associations or State banks so
consolidated who has voted against such consolidation at the meeting of the
association or bank of which he is a stockholder or who has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of consolidation, shall be entitled to receive the value of the
shares so held by him when such consolidation is approved by the Comptroller
upon written request made to the consolidated association at any time before
thirty days after the date of consummation of the consolidation, accompanied by
the surrender of his stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the consolidation, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the consolidated banking
association; and (3) one selected by the two so selected. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed
shall not be satisfactory to any dissenting shareholder who has requested
payment, that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall cause a
reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(D) APPRAISAL BY THE COMPTROLLER; EXPENSES OF CONSOLIDATED ASSOCIATION; SALE
AND RESALE OF SHARES; STATE APPRAISAL AND CONSOLIDATION LAW
If, within ninety days from the date of consummation of the consolidation,
for any reason one or more of the appraisers is not selected as herein provided,
or the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the consolidated banking association. The value of the shares
ascertained shall be promptly paid to the dissenting shareholders by the
consolidated banking association. Within thirty days after payment has been
made to all dissenting shareholders as provided for in this section the shares
of stock of the consolidated banking association which would have been delivered
to such dissenting shareholders had they not requested payment shall be sold by
the consolidated banking association at an advertised public auction, unless
some other method of sale is approved by the Comptroller, and the consolidated
C-1
<PAGE>
banking association shall have the rights to purchase any of such shares at such
public auction, if it is the highest bidder therefor, for the purpose of
reselling such shares within thirty days thereafter to such person or persons
and at such price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a price greater than the
amount paid to the dissenting shareholder the excess in such sale price shall be
paid to such shareholders. The appraisal of such shares of stock in any State
bank shall be determined in the manner prescribed by the law of the State in
such cases, rather than as provided in this section, if such provision is made
in the State law; and no such consolidation shall be in contravention of the law
of the State under which such bank is incorporated.
C-2
<PAGE>
APPENDIX D
BANKING CIRCULAR 259
<PAGE>
BC-259
BANKING ISSUANCE
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Type: Banking Circular Subject: Stock Appraisals
- --------------------------------------------------------------------------------
TO: Chief Executive Officers of National Banks, Deputy
Comptrollers (District), Department and Division Heads, and
Examining Personnel
PURPOSE
- -------
This banking circular informs all national banks of the valuation methods used
by the Office of the Comptroller of the Currency (OCC) to estimate the value of
a bank's shares when requested to do so by a shareholder dissenting to the
conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985 and September 30, 1991 are also
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
- ----------
Under 12 U.S.C. Sections 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the Office of the
Comptroller of the Currency (OCC). 12 U.S.C. Section 215 provides these
appraisal rights to any shareholder dissenting to a consolidation. Any
dissenting shareholder of a target bank in a merger is also entitled to these
appraisal rights pursuant to 12 U.S.C. Section 215a.
- --------------------------------------------------------------------------------
Date: March 5, 1992
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
D-1
<PAGE>
METHODS OF VALUATION USED
- -------------------------
Through its appraisal process, the OCC attempts to arrive at a fair estimate of
the value of a bank's shares. After reviewing the particular facts in each case
and the available information on a bank's shares, the OCC selects an appropriate
valuation method, or combination of methods, to determine a reasonable estimate
of the shares' value.
MARKET VALUE
- ------------
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
---- ------ -------
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value is not well established, other
methods of estimating market value can be used, such as the investment value and
adjusted book value methods.
INVESTMENT VALUE
- ----------------
Investment value requires an assessment of the value to investors of a share in
the future earnings of the target bank. Investment value is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns. If
the state in which the subject bank is located provides a sufficient number of
comparable banks using location, size and earnings patterns as the criteria for
selection, the price/earnings ratios assigned to the banks are applied to the
earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
ADJUSTED BOOK VALUE
- -------------------
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since the value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
D-2
<PAGE>
OVERALL VALUATION
- -----------------
The OCC may use more than one of the above-described methods in deriving the
value of shares of stock. If more than one method is used, varying weights may
be applied in reaching an overall valuation. The weight given to the value by a
particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
PURCHASE PREMIUMS
- -----------------
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payment are not regular
or predictable elements of market value. Consequently, the OCC's valuation
methods do not include consideration of purchase premiums in arriving at the
value of shares.
STATISTICAL DATA
- ----------------
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590 (Item
2), banks may provide shareholders a copy of this banking circular or disclose
the information contained herein, including the past results of OCC appraisals.
If the bank discloses the past results of the OCC appraisals, it should advise
shareholders that: (1) the OCC did not rely on all the information set forth in
the chart in performing each appraisal; and (2) the OCC's past appraisals are
not necessarily determinative of its future appraisals of a particular bank's
shares.
D-3
<PAGE>
APPRAISAL RESULTS
- -----------------
<TABLE>
<CAPTION>
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE* VALUE OFFERED VALUE OF PEER GROUP
<S> <C> <C> <C> <C>
1/1/85 107.25 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
8/22/86 103.53 NA 136.23 NC
12/26/86 16.66 95.58 43.57 4.0
12/31/86 53.39 NA 69.66 7.1
5/1/87 186.42 70.00 360.05 5.1
6/11/87 50.46 55.00 92.35 4.5
6/11/87 38.53 NA 77.75 4.5
7/31/87 13.10 57.52 20.04 6.7
8/26/87 55.92 23.75 70.88 NC
8/31/87 19.55 NA 30.64 5.0
8/31/87 10.98 60.00 17.01 4.2
10/6/87 56.48 NA 73.11 5.6
3/15/88 297.63 NA 414.95 6.1
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 677.00 215.36 6.0
8/30/88 768.62 NA 1,090.55 10.7
3/31/89 773.62 180.00 557.30 7.9
5/26/89 136.47 NA 250.42 4.5
5/29/90 9.87 11.04 9.9
</TABLE>
- --------------------------------------------------------------------------------
* The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA - Not Available
NC - Not Computed
- --------------------------------------------------------------------------------
D-4
<PAGE>
For more information regarding the OCC's stock appraisal process, contact the
Office of the Comptroller of the Currency, 490 L'Enfant Plaza East, S.W.,
Washington, D.C. 20219, Director for Corporate Activity, Bank Organization and
Structure.
/s/ Frank McGuire
- -----------------------------------------
Frank McGuire
Acting Corporate Policy and Economic Analysis
D-5
<PAGE>
PART 11
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes indemnification
of directors and officers of a Delaware corporation under certain circumstances
against expenses, judgments and the like in connection with an action, suit or
proceeding. Article Fourteenth of Norwest's Restated Certificate of
Incorporation provides for broad indemnification of directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits: Parenthetical references to exhibits in the description of
- --------
Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.2, 4.1 and 4.2
below are incorporated by reference from such exhibits to the
indicated reports of Norwest filed with the Securities and
Exchange Commission under File No. 1-2979.
2.1 -- Agreement and Plan of Reorganization dated March 18, 1997 between
The Bank of The Southwest, National Association. and Norwest
Corporation, (included in Proxy Statement-Prospectus as Appendix
A).
2.2 -- Amendment to Agreement dated April 11, 1997 between The Bank of
The Southwest, National Association. and Norwest Corporation
(included in Proxy Statement-Prospectus as Appendix A).
3.1 -- Restated Certificate of Incorporation (incorporated by reference
to Exhibit 3(b) to Norwest's Current Report on Form 8-K dated
June 28, 1993, Exhibit 3 to Norwest's Current Report on Form 8-K
dated July 3, 1995 and Exhibit 3 to Norwest's Current Report on
Form 8-K dated June 3, 1997 (filed June 10, 1997)).
3.1.1 -- Certificate of Designations of Powers, Preferences, and Rights of
Norwest ESOP Cumulative Convertible Preferred Stock (incorporated
by reference to Exhibit 4 to Norwest's Quarterly Report on Form
10-Q for the quarter ended March 31, 1994).
3.1.2 -- Certificate of Designations of Powers, Preferences, and Rights of
Norwest Cumulative Tracking Preferred Stock (incorporated by
reference to Exhibit 3 to Norwest's Current Report on Form 8-K
dated January 9, 1995).
3.1.3 -- Certificate of Designations of Powers, Preferences, and Rights of
Norwest 1995 ESOP Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4 to Norwest's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
II-1
<PAGE>
3.1.4 -- Certificate of Designations with respect to the 1996 ESOP
Cumulative Convertible Preferred Stock (incorporated by reference
to Exhibit 3 to Norwest's Current Report on Form 8-K dated
February 26, 1996).
3.1.5 Certificate of Designations with respect to the 1997 ESOP
Cumulative Convertible Preferred Stock (incorporated by reference
to Exhibit 3 to Norwest's Current Report on Form 8-K dated April
14, 1997).
3.2 -- By-Laws (incorporated by reference to Exhibit 3(i) to Norwest's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1997).
4 -- Rights Agreement, dated as of November 22, 1988, between Norwest
Corporation and Citibank, N.A. (incorporated by reference to
Exhibit 1 to Norwest's Form 8-A dated December 6, 1988).
4.1 -- Certificate of Adjustment, dated July 21, 1989, to Rights
Agreement (incorporated by reference to Exhibit 3 to Norwest's
Form 8 dated July 21, 1989).
4.2 -- Certificate of Adjustment, dated June 28, 1993, to Rights
Agreement (incorporated by reference to Exhibit 4 to Norwest's
Form 8-A/A dated June 29, 1993).
5 -- Opinion of Stanley S. Stroup, counsel to Norwest.
8 -- Opinion of Philips and Associates, P.C.*
23.1 -- Consent of Stanley S. Stroup (included as part of Exhibit 5 filed
herewith).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Philips and Associates, P.C.
24 -- Powers of Attorney.
99 -- Form of proxy for Special Meeting of Shareholders of The Bank of
The Southwest, National Association
____________________________
*To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
posteffective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933.
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent posteffective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) ((S)230.424(b) of
this chapter) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum offering
price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a posteffective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on July 22, 1997.
NORWEST CORPORATION
By: /s/ Richard M. Kovacevich
-------------------------
Richard M. Kovacevich
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed on July 22, 1997 by the following persons in the
capacities indicated:
/s/ Richard M. Kovacevich Chairman and Chief Executive Officer
- ---------------------------------
Richard M. Kovacevich (Principal Executive Officer)
/s/ John T. Thornton Executive Vice President and Chief
- ---------------------------------
John T. Thornton Financial Officer
(Principal Financial Officer)
/s/ Michael A. Graf Senior Vice President and Controller
- ---------------------------------
Michael A. Graf (Principal Accounting Officer)
J.A. BLANCHARD III )
LES S. BILLER )
DAVID A. CHRISTENSEN )
PIERSON M. GRIEVE )
CHARLES M. HARPER )
WILLIAM A. HODDER )
LLOYD P. JOHNSON )
REATHA CLARK KING ) A majority of the
RICHARD M. KOVACEVICH ) Board of Directors*
RICHARD D. McCORMICK )
CYNTHIA H. MILLIGAN )
BENJAMIN F. MONTOYA )
IAN M. ROLLAND )
MICHAEL W. WRIGHT )
______________
*Richard M. Kovacevich, by signing his name hereto, does hereby sign this
document on behalf of each of the directors named above pursuant to powers of
attorney duly executed by such persons.
/s/ Richard M. Kovacevich
-------------------------
Richard M. Kovacevich
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit Form of
Number Description* Filing
- ------ ------------ ------
2.1 Agreement and Plan of Reorganization dated March 18,
1997 between The Bank of the Southwest, National
Association and Norwest Corporation (included in Proxy
Statement-Prospectus as Appendix A).
2.2 Amendment to Agreement dated April 11, 1997 between The
Bank of The Southwest, National Association and Norwest
Corporation (inlcuded in Proxy Statement-Prospectus as
Appendix A).
3.1 Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3(b) to Norwest's Current Report on
Form 8-K dated June 28, 1993, Exhibit 3 to Norwest's
Current Report on Form 8-K dated July 3, 1995 and
Exhibit 3 to Norwest's Current Report on Form 8-K dated
June 3, 1997 (filed June 10, 1997)).
3.1.1 Certificate of Designations of Powers, Preferences, and
Rights of Norwest ESOP Cumulative Convertible Preferred
Stock (incorporated by reference to Exhibit 4 to
Norwest's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994).
3.1.2 Certificate of Designations of Powers, Preferences, and
Rights of Norwest Cumulative Tracking Preferred Stock
(incorporated by reference to Exhibit 3 to Norwest's
Current Report on Form 8-K dated January 9, 1995).
3.1.3 Certificate of Designations of Powers, Preferences, and
Rights of Norwest 1995 ESOP Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 4
to Norwest's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
3.1.4 Certificate of Designations with respect to the 1996
ESOP Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 3 to Norwest's
Current Report on Form 8-K dated February 26, 1996).
3.1.5 Certificate of Designations with respect to the 1997
ESOP Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 3 to Norwest's
Current Report on Form 8-K dated April 14, 1997).
3.2 By-Laws (incorporated by reference to Exhibit 3(i) to
Norwest's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997).
<PAGE>
Exhibit Form of
Number Description* Filing
- ------ ------------ -------
4 Rights Agreement, dated as of November 22, 1988,
between Norwest Corporation and Citibank, N.A.
(incorporated by reference to Exhibit 1 to Norwest's
Form 8-A dated December 6, 1988).
4.1 Certificate of Adjustment, dated July 21, 1989, to
Rights Agreement (incorporated by reference to Exhibit
3 to Norwest's Form 8 dated July 21, 1989).
4.2 Certificate of Adjustment, dated June 28, 1993, to
RightsAgreement (incorporated by reference to Exhibit 4
to Norwest's Form 8-A/A dated June 29, 1993).
5 Opinion of Stanley S. Stroup, counsel to Norwest. Electronic
Transmission
8 Opinion of Philips and Associates, P.C.**
23.1 Consent of Stanley S. Stroup (included as part of
Exhibit 5 filed herewith).
23.2 Consent of KPMG Peat Marwick LLP. Electronic
Transmission
23.3 Consent of Philips and Associates, P.C. Electronic
Transmission
24 Powers of Attorney Electronic
Transmission
99 Form of proxy for Special Meeting of Shareholders of Electronic
The Bank of The Southwest, National Association Transmission
_________________________
* Parenthetical references to exhibits in the description of Exhibits 3.1,
3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5, 3.2, 4.1 and 4.2 are incorporated by
reference from such exhibits to the indicated reports of Norwest filed with
the SEC under File No. 1-2979.
** To be filed by amendment.
<PAGE>
EXHIBIT 5
[LETTERHEAD OF STANLEY S. STROUP]
July 22, 1997
Board of Directors
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, of up to 350,000 shares of common stock, par value $1-2/3 per
share (the "Shares"), of Norwest Corporation, a Delaware corporation (the
"Corporation"), which are proposed to be issued by the Corporation in connection
with the consolidation (the "Consolidation") of a wholly-owned subsidiary of the
Corporation with The Bank of The Southwest, National Association., a national
banking association, I have examined such corporate records and other documents,
including the Registration Statement on Form S-4 relating to the Shares, and
have reviewed such matters of law as I have deemed necessary for this opinion,
and I advise you that in my opinion:
1. The Corporation is a corporation duly organized and existing under the
laws of the State of Delaware.
2. All necessary corporate action on the part of the Corporation has been
taken to authorize the issuance of the Shares in connection with the
Consolidation, and, when issued as described in the Registration Statement, the
Shares will be legally and validly issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Stanley S. Stroup
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Norwest Corporation:
We consent to the use of our report dated January 16, 1997 incorporated herein
by reference and to the reference to our firm under the heading "EXPERTS" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
July 22, 1997
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF PHILIPS & ASSOCIATES,P.C.]
Certified Public Accountants
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
--------------------------------------------
We have issued our reports dated January 21, 1997 and January 12, 1996,
accompanying the financial statements of The Bank of The Southwest, N.A.
contained in the Registration Statement and Prospectus. We consent to the use of
the aforementioned reports in the Registration Statement and Prospectus, and to
the use of our name as it appears under the caption "Experts".
/s/ Philips & Associates, P.C.
Philips and Associates, P.C.
Durango, Colorado
July 22, 1997
<PAGE>
EXHIBIT 24
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ Les S. Biller
------------------------------
Les S. Biller
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ J.A. Blanchard
------------------------------
J.A. Blanchard
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ David A. Christensen
------------------------------
David A. Christensen
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this day of April, 1997.
/s/ Pierson M. Grieve
------------------------------
Pierson M. Grieve
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ Charles M. Harper
------------------------------
Charles M. Harper
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ William A. Hodder
------------------------------
William A. Hodder
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ Lloyd P. Johnson
------------------------------
Lloyd P. Johnson
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ Reatha Clark King
------------------------------
Reatha Clark King
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22th day of April, 1997.
/s/ Richard M. Kovacevich
------------------------------
Richard M. Kovacevich
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association and its subsidiaries, and to file the same, with
all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this poer of attorney this
22nd day of April, 1997.
/s/ Richard D. McCormick
------------------------------
Richard D. McCormick
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association. and its subsidiaries, and to file the same,
with all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22th day of April, 1997.
/s/ Cynthia H. Milligan
------------------------------
Cynthia H. Milligan
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association. and its subsidiaries, and to file the same,
with all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22nd day of April, 1997.
/s/ Benjamin F. Montoya
------------------------------
Benjamin F. Montoya
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association. and its subsidiaries, and to file the same,
with all exhibits thereto and other supporting documents with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22th day of April, 1997.
/s/ Ian M. Rolland
------------------------------
Ian M. Rolland
<PAGE>
NORWEST CORPORATION
POWER OF ATTORNEY
OF DIRECTOR AND/OR OFFICER
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of NORWEST CORPORATION, a Delaware corporation, does hereby make,
constitute and appoint LLOYD P. JOHNSON, RICHARD M. KOVACEVICH, STANLEY S.
STROUP, JOHN T. THORNTON AND LAUREL A. HOLSCHUH, and each or any one of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Corporation
to a Registration Statement on Form S-4 or other applicable form, and all
amendments, including post-effective amendments, thereto, to be filed by said
Corporation with the Securities and Exchange Commission, Washington, D.C., in
connection with the registration under the Securities Act of 1933, as amended,
of up to 350,000 shares of Common Stock of the Corporation which may be issued
in connection with the acquisition by the Corporation of The Bank of The
Southwest, National Association. and its subsidiaries, and to file the same,
with all exhibits thereto and other supporting documents, with said Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform any and all acts necessary or incidental to the performance
and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney
this 22th day of April, 1997.
/s/ Michael W. Wright
------------------------------
Michael W. Wright
<PAGE>
EXHIBIT 99
THE BANK OF THE SOUTHWEST, NATIONAL ASSOCIATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints_____________________,____________________,
and ___________________, or any of them, as proxies to vote all shares of Common
Stock the undersigned is entitled to vote at the Special Meeting of Shareholders
of The Bank of the Southwest, National Association ("Southwest") to be held at
the Strater Hotel, 699 Main Avenue, Durango, Colorado on August 28, 1997, or at
any adjournment or postponement thereof, as follows, hereby revoking any proxy
previously given:
1. To approve the Agreement and Plan of Reorganization dated March 18,
1997 (the "Reorganization Agreement") between Southwest and Norwest Corporation
("Norwest") pursuant to which a wholly-owned subsidiary of Norwest will
consolidate with Southwest and Southwest will become a wholly-owned subsidiary
of Norwest (the "Consolidation"), all upon the terms and subject to the
conditions set forth in the Reorganization Agreement, a copy of which is
included as Appendix A in the accompanying Proxy Statement-Prospectus; and to
authorize such further action by the board of directors and officers as may be
necessary or appropriate to carry out the intent and purposes of the
Consolidation .
FOR [_] AGAINST [_] ABSTAIN [_]
2. To approve the payment of deferred compensation of $1,176,000 to
Marion O Francis, Jr., president of Southwest, in connection with the change in
ownership of Southwest that will occur as a result of the Consolidation. The
deferred compensation is payable in shares of Norwest Common Stock. Shareholder
approval of this payment will allow Norwest to deduct the entire payment as an
expense for federal income tax purposes and will enable Mr. Francis not to have
to pay a 20% nondeductible excise tax on any portion of the payment.
FOR [_] AGAINST [_] ABSTAIN [_]
3. In the discretion of the persons appointed proxies hereby on such
other matters as may properly come before the Special Meeting.
Shares represented by this proxy will be voted as directed by the
stockholder. The Board of Directors recommends a vote "FOR" proposal 1 and
"FOR" proposal 2. If no direction is supplied, the proxy will be voted "FOR"
proposal 1 and "FOR" proposal 2
Dated: ____________________________, 199_.
______________________________________________
(Please sign exactly as name appears at left.)
______________________________________________
(If stock is owned by more than one person,
all owners should sign. Persons signing as
executors, administrators, trustees, or in similar
capacities should so indicate.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE BANK OF THE SOUTHWEST, NATIONAL ASSOCIATION
