<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-37689
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NORWEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6711 41-0449260
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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:
MARY E. SCHAFFNER CHARLES E. GREEF
ROBERT L. LEE JENKENS & GILCHRIST, P.C.
NORWEST CORPORATION 1445 ROSS AVENUE
NORWEST CENTER SUITE 3200
SIXTH AND MARQUETTE DALLAS, TEXAS 75202-2799
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. [_]
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[First Valley Bank Group, Inc. Logo]
October 24, 1997
Dear Shareholder:
Your board of directors has approved the acquisition of First Valley Bank
Group, Inc. ("Valley") by Norwest Corporation ("Norwest"). If the proposed
transaction is completed, Norwest will acquire Valley through the merger of
Valley with a newly-formed, wholly-owned subsidiary company of Norwest (the
"Merger"), and Valley will be the surviving company in the Merger. If the
Merger is completed, Valley will become a wholly-owned subsidiary of Norwest
and you will receive shares of Norwest's common stock (the "Norwest Common
Stock") for your shares of Valley's common stock (the "Valley Common Stock").
In the proposed Merger, Norwest will exchange 2,806,732 shares of Norwest
Common Stock for all of the outstanding shares of Valley Common Stock. Based
on 785,322 shares of Valley Common Stock outstanding (including shares of
Valley Common Stock to be issued upon the conversion of Valley's Series C and
Series D Preferred Stock, as described further below), this works out to
approximately 3.57 shares of Norwest Common Stock for each share of Valley
Common Stock. For each share of Valley Common Stock you own, you will receive
that number of shares of Norwest Common Stock equal to 2,806,732 divided by
the number of outstanding shares of Valley Common Stock at the time the Merger
is effective. Valley's board of directors has unanimously recommended approval
of the Merger.
In addition, (i) holders of Valley's Series C Preferred Stock will be asked
to approve an amendment to their Series C Preferred Stock providing for the
conversion of all of the Series C Preferred Stock into Valley Common Stock
immediately prior to the Merger (the "Series C Amendment"), and (ii) holders
of Valley's Series D Preferred Stock will be asked to approve an amendment to
their Series D Preferred Stock providing for the conversion of all of the
Series D Preferred Stock into Valley Common Stock immediately prior to the
Merger (the "Series D Amendment"). Valley's board of directors, has
unanimously recommended approval of these amendments to Valley's Series C
Preferred Stock and Series D Preferred Stock.
Your board of directors has called a special shareholders' meeting to vote
on this matter. The meeting will be held on November 26, 1997, at 9:00 a.m. at
Rancho Viejo Country Club, located at 1 Rancho Viejo Drive, Rancho Viejo,
Texas. If the shareholders do not approve the acquisition, Valley will
continue to operate as an independent company.
You will also be asked at the meeting to approve certain payments to be made
to Cleve T. Breedlove, John A. Calkins, Gary L. Kimberling, James Manatt, and
C. Michael Scott under Valley's Incentive Compensation Plan (the "ICP
Payments"). In order for these payments to be tax deductible expenses to
Valley and Norwest for federal income tax purposes and to avoid a 20%
nondeductible excise tax on the payments, the Internal Revenue Code requires
that each of the ICP Payments be individually approved by a 75% vote of
disinterested shareholders of Valley. A special committee of Valley's board of
directors, consisting of all non-officer directors of Valley, has unanimously
recommended approval of the ICP Payments.
Enclosed with this letter are a notice of special meeting, which sets forth
the time and location of the meeting, and a Proxy Statement-Prospectus, which
describes in more detail the terms and conditions and discusses the background
of and reasons for the Merger and the other matters to be considered at the
meeting. Please carefully review and consider the information in the Proxy
Statement-Prospectus. The operative agreements and the proposed amendments to
Valley's Series C and Series D Preferred Stock are included in the Proxy
Statement-Prospectus as Appendices A, B, C, and D, respectively. Additional
information concerning Norwest, including its most recent annual report on
Form 10-K and its quarterly reports on Form 10-Q for the current year, may be
obtained from Norwest as indicated in the Proxy Statement-Prospectus under the
section entitled "Incorporation of Certain Documents by Reference."
<PAGE>
Also enclosed are one or more proxy cards to be used to vote your shares of
Valley stock at the Meeting. The proxy cards set forth the specific proposals
on which, respectively, holders of Valley Common Stock, Series C Preferred
Stock, and Series D Preferred Stock are entitled to vote at the Meeting. If
you own shares of more than one class of outstanding Valley stock, you have
received a separate proxy card for each class you own that has been color-
coded and labeled to indicate clearly to which class of outstanding Valley
stock it relates. A WHITE proxy card should be used to vote any shares of
Common Stock, a BLUE proxy card should be used to vote any shares of Series C
Preferred Stock, and a GREEN proxy card should be used to vote any shares of
Series D Preferred Stock, that you hold.
The proposed Merger is subject to certain conditions, including the approval
of the Merger by shareholders owning two-thirds of Valley Common Stock and by
shareholders owning two-thirds of Valley Preferred Stock, voting as a class.
In addition, the proposed Merger is subject to the approval by shareholders
owning two-thirds of Valley's Series C Preferred Stock of the proposed Series
C Amendment, the approval by shareholders owning two-thirds of Valley's Series
D Preferred Stock of the proposed Series D Amendment, and the approval of
disinterested shareholders owning 75% of the voting power immediately prior to
the Merger of the ICP Payments. Norwest cannot acquire Valley without the
approval of Valley's shareholders of the Merger.
Please read the enclosed materials for information concerning the Merger and
the 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.
Cleve T. Breedlove
Chairman and Chief Executive Officer
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.
2
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TABLE OF CONTENTS
<TABLE>
<S> <C>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS................................... 1
DEFINED TERMS............................................................... 2
WHAT "INCORPORATED BY REFERENCE" MEANS...................................... 5
EXPLANATORY NOTE REGARDING NORWEST COMMON STOCK SPLIT....................... 5
PROXY STATEMENT-PROSPECTUS.................................................. 5
SUMMARY..................................................................... 7
Parties to the Merger...................................................... 7
Reasons for the Merger..................................................... 7
Recommendation of the Valley Board......................................... 8
Opinion of Financial Advisor............................................... 8
Approval of the Merger..................................................... 8
The Merger................................................................. 8
What Valley's Shareholders Will Receive in the Merger...................... 8
Appraisal Rights........................................................... 9
Regulatory Approvals....................................................... 9
U.S. Federal Income Tax Consequences....................................... 9
Market Information......................................................... 9
Board of Directors and Management of Valley After the Merger............... 9
Other Interests of Valley's Management..................................... 9
Conditions to the Merger................................................... 10
Termination of the Reorganization Agreement................................ 10
Termination Fee............................................................ 11
Accounting Treatment....................................................... 11
Series C Amendment......................................................... 11
Approval of the Series C Amendment......................................... 11
Series D Amendment......................................................... 12
Approval of the Series D Amendment......................................... 12
Approval of the ICP Payments............................................... 12
Comparative Per Common Share Data.......................................... 13
Selected Historical Financial Information.................................. 14
Selected Financial Information............................................. 15
Share Prices and Dividends for Norwest Common Stock........................ 17
SPECIAL MEETING OF SHAREHOLDERS............................................. 18
Record Date................................................................ 18
Voting Rights; Votes Required for Approval................................. 18
Voting and Revocation of Proxies........................................... 19
Solicitation of Proxies.................................................... 20
Other Matters.............................................................. 20
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<TABLE>
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THE MERGER................................................................ 21
Purpose and Effect of the Merger......................................... 21
Background of and Reasons for the Merger................................. 21
Opinion of Financial Advisor............................................. 23
Additional Interests of Valley Management in the Merger.................. 26
Appraisal Rights......................................................... 28
Exchange of Certificates................................................. 30
Regulatory Approvals..................................................... 30
Effect on Employee Benefit Plans......................................... 31
Certain U.S. Federal Income Tax Consequences to Valley's Shareholders.... 32
Resale of Norwest Common Stock........................................... 34
Stock Exchange Listing................................................... 34
Accounting Treatment..................................................... 34
THE REORGANIZATION AGREEMENT.............................................. 35
Basic Plan of Reorganization............................................. 35
Representations and Warranties........................................... 35
Certain Covenants........................................................ 36
Conditions to the Completion of the Merger............................... 37
Termination of the Reorganization Agreement.............................. 37
Termination Fee.......................................................... 38
Effect of Termination.................................................... 39
Waiver and Amendment..................................................... 39
Expenses................................................................. 39
SERIES C AMENDMENT........................................................ 39
SERIES D AMENDMENT........................................................ 40
ICP PAYMENTS.............................................................. 42
COMPARISON OF RIGHTS OF HOLDERS OF VALLEY CAPITAL STOCK AND NORWEST COMMON
STOCK.................................................................... 46
Capital Stock............................................................ 46
Description of Series C Preferred........................................ 46
Description of Series D Preferred........................................ 48
Rights Plan.............................................................. 49
Directors................................................................ 49
Amendment of Charter Documents and Bylaws................................ 50
Approval of Mergers and Asset Sales...................................... 50
Appraisal Rights......................................................... 50
Special Meetings......................................................... 51
Director Duties.......................................................... 51
Action Without a Meeting................................................. 51
Limitation of Director Liability......................................... 52
Indemnification of Officers and Directors................................ 52
Dividends................................................................ 53
</TABLE>
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<TABLE>
<S> <C>
Corporate Governance Procedures; Nomination of Directors................. 53
INFORMATION ABOUT VALLEY.................................................. 54
General.................................................................. 54
The Bank................................................................. 54
Competition.............................................................. 55
Regulation and Supervision............................................... 55
Employees................................................................ 57
Properties............................................................... 57
The ESOP................................................................. 58
Indebtedness of Valley and the ESOP...................................... 59
Legal Proceedings........................................................ 61
Description of Securities................................................ 61
Dividends and Dividend Policy............................................ 61
Holders and Market Information........................................... 62
Security Ownership of Certain Beneficial Owners and Management of
Valley.................................................................. 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VALLEY..................................................... 66
Results of Operations.................................................... 66
Financial Condition...................................................... 75
Impact of Inflation, Changing Prices and Monetary Policies............... 83
CERTAIN REGULATORY AND OTHER CONSIDERATIONS PERTAINING TO NORWEST......... 85
Bank Regulatory Agencies................................................. 85
Bank Holding Company Activities; Interstate Banking...................... 85
Dividend Restrictions.................................................... 86
Holding Company Structure................................................ 86
Regulatory Capital Standards and Related Matters......................... 87
FDIC Insurance........................................................... 89
Fiscal and Monetary Policies............................................. 90
Competition.............................................................. 90
EXPERTS................................................................... 90
LEGAL MATTERS............................................................. 91
INFORMATION CONCERNING NORWEST MANAGEMENT................................. 91
WHERE YOU CAN FIND MORE INFORMATION....................................... 91
INDEX TO VALLEY FINANCIAL STATEMENTS...................................... F-1
APPENDIX A--AGREEMENT AND OF REORGANIZATION............................... (A-1--A-34)
APPENDIX B--AGREEMENT AND PLAN OF MERGER.................................. (B-1--B-4)
APPENDIX C--AMENDMENT TO SERIES C STATEMENT OF DESIGNATION................ (C-1--C-2)
APPENDIX D--AMENDMENT TO SERIES D STATEMENT OF DESIGNATION................ (D-1--D-2)
APPENDIX E--TEXAS BUSINESS CORPORATION ACT, ARTICLES 5.11, 5.12 AND 513... (E-1--E-4)
APPENDIX F--FAIRNESS OPINION OF THE BANK ADVISORY GROUP................... (F-1--F-3)
</TABLE>
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
A special meeting (the "Meeting") of shareholders of First Valley Bank
Group, Inc. ("Valley") will be held on November 26, 1997 at 9:00 a.m. at
Rancho Viejo Country Club, 1 Rancho Viejo Drive, Rancho Viejo, Texas. The
purposes of the Meeting are to vote on the following proposals:
PROPOSAL 1
To approve the agreement and plan of reorganization between Valley and
Norwest Corporation ("Norwest") and the related agreement and plan of merger
("Agreements"). The Agreements provide for the merger of a newly-formed,
wholly-owned subsidiary company of Norwest with Valley, and for Valley to be
the surviving company (the "Merger"). If the Merger is completed, Valley will
become a wholly-owned subsidiary of Norwest and Valley's shareholders will
receive shares of Norwest's common stock for their shares of Valley's common
stock. Valley's board of directors has unanimously recommended approval of the
Merger.
PROPOSAL 2
(TO BE VOTED ON ONLY BY THE HOLDERS OF VALLEY SERIES C PREFERRED STOCK )
To amend the Statement of Resolution Establishing the Series of Preferred
Stock governing the Series C Preferred Stock to convert the shares of the
Series C Preferred Stock into shares of Valley's common stock immediately
prior to the Merger. This is to be effective only if the Merger is to be
completed. Valley's board of directors has unanimously recommended approval of
this amendment.
PROPOSAL 3
(TO BE VOTED ON ONLY BY THE HOLDERS OF VALLEY'S SERIES D PREFERRED STOCK)
To amend the Statement of Resolution Establishing the Series of Preferred
Stock governing the Series D Preferred Stock to convert the shares of the
Series D Preferred Stock into shares of Valley's common stock immediately
prior to the Merger. This amendment is to be effective only if the Merger is
to be completed. Valley's board of directors has unanimously recommended
approval of this amendment.
PROPOSALS 4 THROUGH 8
To approve certain payments to be made to each of Cleve T. Breedlove, John
A. Calkins, Gary L. Kimberling, James Manatt, and C. Michael Scott under
Valley's Incentive Compensation Plan. In order for these payments to be tax
deductible expenses to Valley and Norwest for federal income tax purposes and
to avoid a 20% nondeductible excise tax on the payments, the Internal Revenue
Code requires that each payment be approved individually by disinterested
holders of 75% of the voting power of all outstanding Valley shares of Valley.
A special committee of Valley's board of directors, consisting of all non-
officer directors of Valley, has unanimously recommended approval of each of
these payments.
The record date for the Meeting is October 15, 1997. Only shareholders of
record at the close of business on that date can vote at the Meeting.
FIRST VALLEY BANK GROUP, INC.
By /s/ Gary L. Kimberling
----------------------------------
Corporate Secretary
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY AND PROMPTLY MAIL IT IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU
MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE PROXY STATEMENT-
PROSPECTUS AT ANY TIME BEFORE IT IS EXERCISED.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME.
<PAGE>
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.
These definitions apply equally, where applicable and with appropriate
modifications, to both the singular and plural forms of the terms defined.
Other capitalized terms are defined where used in the text of this Proxy
Statement-Prospectus and have the meanings assigned herein.
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ADVISORY................ The Bank Advisory Group, Inc.
BANK.................... First Valley Bank, a wholly-owned indirect subsidiary of
Valley.
BANK HOLDING COMPANY
ACT.................... Bank Holding Company Act of 1956, as amended.
CODE.................... The Internal Revenue Code of 1986, as amended.
COMPANY MARKET
CAPITALIZATION......... The price of one share of the common stock of a given
company in the Index Group at the close of the trading day
immediately preceding May 1, 1997 (the date of the
Reorganization Agreement) multiplied by the number of shares
of common stock of such company outstanding as of June 30,
1996 (adjusted for any stock dividend, reclassification,
recapitalization, exchange of shares or similar transaction
between June 30, 1996 and May 1, 1997 (the close of the
trading date immediately preceding the date of the
Reorganization Agreement)).
DGCL.................... Delaware General Corporation Law.
EFFECTIVE TIME OF THE 12:01 a.m., Los Fresnos, Texas time, on the date that the
MERGER................. Merger Agreement is signed and it, or Articles of Merger or
a Certificate of Merger, is filed with and accepted by the
Secretary of State of the State of Texas, or on such other
date specified in the Articles of Merger or Certificate of
Merger.
ESOP.................... First Valley Bank Group, Inc. Employee Stock Ownership Plan.
ESOP PARTICIPANTS....... Employees of Valley and its subsidiaries who participate in
the ESOP.
EXCHANGE ACT............ Securities Exchange Act of 1934, as amended.
FDI ACT................. Federal Deposit Insurance Act.
FDIC.................... Federal Deposit Insurance Corporation.
FEDERAL RESERVE BOARD... Board of Governors of the Federal Reserve System.
FINAL INDEX PRICE....... The sum of the following, calculated for each of the
companies in the Index Group: (a) the Final Price for such
company multiplied by (b) the Weighting Factor for each such
company.
FINAL PRICE............. The average of the daily closing prices of a share of common
stock of any company in the Index Group, as reported on the
consolidated transaction reporting system for the market or
exchange on which such common stock is principally traded,
during the Index Measurement Period.
ICP PARTICIPANTS........ Cleve T. Breedlove, John A. Calkins, Gary L. Kimberling,
James Manatt, and C. Michael Scott.
ICP PAYMENTS............ Payments to be made to the ICP Participants under the Valley
ICP.
</TABLE>
2
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<TABLE>
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INDEX GROUP............. All of the following companies, the common stock of which is
publicly traded and as to which there is, during the Index
Measurement Period, no pending publicly announced proposal
for such company to be acquired, nor has there been any
proposal by such company publicly announced subsequent to
May 1, 1997 (the day before the date of the Reorganization
Agreement) to acquire another company in exchange for stock
where, if the company to be acquired were to become a
subsidiary of the acquiring company, the company to be
acquired would be a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X promulgated by the SEC nor has
there been any program publicly announced subsequent to May
1, 1997 to repurchase 5% or more of the outstanding shares
of such company's common stock: BancOne Corporation, Bank of
Boston Corporation, The Bank of New York Company, Inc.,
BankAmerica Corporation, Barnett Banks, Inc., Comerica,
Inc., CoreStates Financial Corporation, First Chicago NBD
Corporation, First Union Corporation, Fleet Financial,
KeyCorp, Mellon Bank Corporation, National City Corporation,
PNC Financial Corporation, Signet Banking Corporation,
Suntrust Banks, Inc., U.S. Bancorp, Wachovia Corporation,
and Wells Fargo Company.
INDEX MEASUREMENT PERI- The period of 20 trading days ending on the date immediately
OD..................... preceding the Meeting.
INITIAL INDEX PRICE..... The sum of the following, calculated for each of the
companies in the Index Group: (a) the closing price per
share of common stock of each such company on May 1, 1997
(the trading day immediately preceding the date of the
Reorganization Agreement) multiplied by (b) the Weighting
Factor for each such company.
INTERSTATE BANKING ACT.. Reigle-Neal Interstate Banking and Branching Act.
IRS..................... Internal Revenue Service.
MEETING................. The special meeting of shareholders of Valley to be held at
the date and time, and for the purposes, specified in the
notice of special meeting of shareholders accompanying this
Proxy Statement-Prospectus.
MERGER.................. The merger of Valley with Norwest VBG Merger Co., as a
result of which Valley will become a wholly-owned subsidiary
of Norwest.
NORWEST................. Norwest Corporation and its consolidated subsidiaries.
NORWEST AVERAGE PRICE... The average of the closing prices of a share of Norwest
Common Stock as reported on the NYSE consolidated tape
during the period of 15 trading days ending on the day
immediately prceeding the Meeting.
NORWEST BOARD........... Norwest's board of directors.
NORWEST BYLAWS.......... Norwest's By-laws.
NORWEST CERTIFICATE..... Norwest's restated certificate of incorporation.
NORWEST COMMON STOCK.... Norwest's common stock, par value $1 2/3 per share.
NORWEST MEASUREMENT The average of the closing prices of a share of Norwest
PRICE.................. Common Stock as reported on the composite tape of the NYSE
during the Index Measurement Period.
NORWEST SHARE AMOUNT.... The number equal to 2,806,732 divided by the Valley
Outstanding Shares.
NORWEST VBG MERGER CO... A wholly-owned subsidiary of Norwest incorporated for the
limited purpose of merging with Valley.
NYSE.................... New York Stock Exchange, Inc.
OCC..................... Office of the Comptroller of the Currency.
OTS..................... Office of Thrift Supervision.
</TABLE>
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<S> <C>
PLAN OF MERGER.......... The form of agreement and plan of merger between Valley and
Norwest VBG Merger Co.
RECORD DATE............. October 15, 1997
REORGANIZATION AGREE- The amended and restated agreement and plan of
MENT................... reorganization dated as of May 2, 1997 between Valley and
Norwest.
REORGANIZATION EVENT.... Reclassification, reorganization or other readjustment of
the capital stock of Valley (other than by way of stock
split, stock dividend or combination of the Valley Common
Stock), or the consolidation or merger of Valley with any
other association or corporation, or the conveyance of
substantially all of Valley's assets to another association
or corporation.
SEC..................... Securities and Exchange Commission.
SECURITIES ACT.......... Securities Act of 1933, as amended.
SERIES C AMENDMENT...... The amendment to the Series C Statement of Designation
establishing the conversion rate of the Series C Preferred
into Valley Common Stock.
SERIES C PREFERRED...... Valley's Series C Preferred Stock, par value $100.00 per
share.
SERIES C STATEMENT OF
DESIGNATION............ The Statement of Resolution Establishing Series of Preferred
Stock, which established the Series C Preferred.
SERIES D AMENDMENT...... The amendment to the Series D Statement of Designation
establishing the conversion rate of the Series C Preferred
into Valley Common Stock.
SERIES D PREFERRED...... Valley's Series D Preferred Stock, par value $100.00 per
share.
SERIES D STATEMENT OF
DESIGNATION............ The Statement of Resolution Establishing Series of Preferred
Stock, which established the Series D Preferred.
TBCA.................... Texas Business Corporation Act.
TOTAL MARKET CAPITALIZA- The sum of the Company Market Capitalization for each of the
TION................... companies in the Index Group.
TRUSTEES................ The trustees of the ESOP, who currently are Arnulfo
Gonzalez, Michael Scaief, and Donna Siddall.
VALLEY.................. First Valley Bank Group, Inc. and its consolidated
subsidiaries, Valley Delaware and the Bank.
VALLEY ARTICLES......... Valley's restated articles of incorporation.
VALLEY BOARD............ Valley's board of directors.
VALLEY BYLAWS........... Valley's bylaws.
VALLEY COMMON STOCK..... Valley's common stock, no par value per share.
VALLEY DELAWARE......... First Valley Delaware Financial Corporation, a wholly-owned
subsidiary of Valley.
VALLEY ICP.............. Valley's Incentive Compensation Plan, as amended.
VALLEY OUTSTANDING The number of shares of Valley Common Stock outstanding
SHARES................. immediately prior to the Merger.
VALLEY PREFERRED STOCK.. Valley's preferred stock, par value $100.00 per share.
WEIGHTING FACTOR........ For any given company in the Index Group, the Company Market
Capitalization for such company divided by the Total Market
Capitalization.
</TABLE>
4
<PAGE>
WHAT "INCORPORATED BY REFERENCE" MEANS
Incorporation by reference is a concept that allows Norwest to not
physically include in this Proxy Statement-Prospectus some of the information
about Norwest that may be important to your decision whether to approve the
Merger. 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 Merger. The section entitled "Where You Can Find More Information"
explains how to get copies of these documents.
EXPLANATORY NOTE REGARDING
NORWEST COMMON STOCK SPLIT
On September 23, 1997, the Norwest Board declared a two-for-one stock split
in the form of a 100% stock dividend. The stock dividend was paid on October
10, 1997, to stockholders of record on October 2, 1997. As a result of the
stock split, stockholders received one additional share of Norwest Common
Stock for each share they owned on October 2, 1997. On October 14, 1997,
Norwest Common Stock began trading at half its pre-split price.
As required by the Reorganization Agreement, the number of shares of Norwest
Common Stock to be exchanged in the Merger has been adjusted to reflect the
stock split. THE SECTIONS OF THIS PROXY STATEMENT-PROSPECTUS THAT DISCUSS THE
NUMBER OF SHARES OF NORWEST COMMON STOCK ISSUABLE IN THE MERGER REFLECT THIS
ADJUSTMENT. This Proxy Statement-Prospectus will indicate where other
information has been adjusted or restated to reflect the stock split.
PROXY STATEMENT-PROSPECTUS
This document serves as both a proxy statement of Valley and a prospectus of
Norwest. As a proxy statement, it is being provided to you because the Valley
Board is soliciting your proxy for use at the Meeting. As a prospectus, it is
being provided to you because Norwest will issue shares of Norwest Common
Stock to you in the Merger in exchange for the shares of Valley Common Stock
you own at the Effective Time of the Merger, including shares of Valley Common
Stock that you may receive in exchange for the Series C Preferred and Series D
Preferred as a result of the Series C Amendment and the Series D Amendment,
respectively.
At the Meeting, Valley's shareholders will vote on a proposal to approve the
Reorganization Agreement and the Plan of Merger. The Reorganization Agreement
and the Plan of Merger provide for the merger of Valley with a newly-formed,
wholly-owned subsidiary of Norwest. Valley will be the surviving company in
the Merger. If the Merger is completed, Valley will become a wholly-owned
subsidiary of Norwest, and Valley's shareholders will receive shares of
Norwest Common Stock in exchange for the shares of Valley Common Stock they
own at the Effective Time of the Merger, including shares of Valley Common
Stock that they may receive in exchange for the Series C Preferred and Series
D Preferred as a result of the Series C Amendment and the
5
<PAGE>
Series D Amendment, respectively. In addition, holders of Series C Preferred
will be asked to approve the Series C Amendment, and holders of the Series D
Preferred will be asked to approve the Series D Amendment. Valley's
shareholders will also be asked to approve, by a separate vote, each of the
ICP Payments.
This Proxy Statement-Prospectus provides detailed information concerning the
Merger and the Meeting. The Reorganization Agreement is attached to this Proxy
Statement-Prospectus as Appendix A. The Plan of Merger is attached as Appendix
B. Both of these documents are considered part of this Proxy Statement-
Prospectus. Valley and Norwest encourage you to read this entire Proxy
Statement-Prospectus (including the appendices) carefully.
----------------
. IN DECIDING WHETHER TO VOTE FOR THE MERGER AND RECEIVE SHARES OF NORWEST
COMMON STOCK IN EXCHANGE FOR YOUR SHARES OF VALLEY COMMON STOCK, YOU
SHOULD BE AWARE THAT: 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
FDIC 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 October 24, 1997.
It is first being mailed to Valley's shareholders on or about October 27,
1997.
6
<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
Merger fully, and for a more complete description of the legal terms of the
Merger, you should carefully read this document and the other information
available to you. See "Where You Can Find More Information."
PARTIES TO THE MERGER
NORWEST CORPORATION....... Norwest is a diversified financial services company
Sixth and Marquette organized under the laws of Delaware and registered
Minneapolis, Minnesota under the Bank Holding Company Act. Through its
55479 subsidiaries and affiliates, Norwest provides
(612) 667-1234 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 June 30, 1997, Norwest had consolidated total
assets of $83.9 billion, total deposits of $52.0
billion and total stockholders' equity of $6.5
billion. Based on total assets at June 30, 1997,
Norwest was the 11th largest bank holding company
in the United States.
FIRST VALLEY BANK GROUP, Valley is a bank holding company headquartered in
INC. ..................... Los Fresnos, Texas. Valley derives substantially
203 North Arroyo Boulevard all of its revenues and income from the operation
Los Fresnos, Texas 78566 of the Bank, which is domiciled in Harlingen,
(210) 233-4440 Texas. The Bank provides a full range of commercial
and consumer banking services to individuals and
small and middle market businesses in the areas of
Cameron, Hildago, and Willacy Counties. It has
branches in Brownsville, Donna, Los Fresnos,
McAllen, Mission, Pharr, Port Isabel, Rancho Viejo,
Raymondville, Rio Hondo, South Padre Island, and
Weslaco, Texas.
As of June 30, 1997, the Bank had total deposits of
$402.3 million. As of June 30, 1997, Valley had
total consolidated assets of $445.9 million and
total shareholders equity of $31.3 million.
REASONS FOR THE MERGER.... In reaching its decision to recommend approval of
the Merger, the Valley Board considered a number of
factors, including the prospects for remaining
independent, the financial terms of the Merger,
certain financial and other information concerning
Norwest, and the liquidity of a proposed investment
in Norwest. The Valley Board believes that Valley's
businesses can be substantially enhanced by the
financial resources and diversified operations of
Norwest, that the Merger will produce a financial
institution better able to meet the competitive and
technological challenges in the banking and
financial services industries and that combining
Valley with Norwest will result in economies of
scale and increase the market served by Valley in
the State of Texas.
7
<PAGE>
RECOMMENDATION OF THE
VALLEY BOARD............. The Valley Board believes that the terms of the
Merger are fair to and in the best interest of
Valley's shareholders. The Valley Board has
unanimously approved the Reorganization Agreement
and the transactions contemplated thereby and
recommends that Valley's shareholders approve and
adopt the Reorganization Agreement.
OPINION OF FINANCIAL
ADVISOR................... The Valley Board retained Advisory to act as
financial advisor in connection with the Merger.
Advisory has delivered its opinion to the Valley
Board dated as of the date of this Proxy Statement-
Prospectus to the effect that the terms of the
Merger are fair, from a financial point of view, to
Valley's shareholders as of the date of the
opinion. Advisory's opinion is attached to Appendix
F to the Proxy Statement-Prospectus. Shareholders
are urged to read Advisory's opinion in its
entirety, together with the additional information
provided regarding Advisory, the procedures
followed, the matters considered and limitations on
the review undertaken by Advisory under the heading
"THE MERGER--Opinion of Financial Advisor."
APPROVAL OF THE MERGER.... The affirmative vote of the holders of at least
two-thirds of the shares of the Valley Common Stock
and the Valley Preferred Stock voting as a class
outstanding is required to approve the Merger.
Valley's directors and its officers collectively
beneficially own 32.04% of the outstanding shares
of the Valley Common Stock and 15.12% of the
outstanding shares of the Valley Preferred Stock.
These individuals have informed Valley that they
intend to vote for the Merger.
The Merger does not require the approval of
Norwest's stockholders.
THE MERGER................ In the Merger, a newly-formed, wholly-owned
subsidiary company of Norwest will merge with
Valley. Valley will be the surviving company in the
Merger. If the Merger is completed, Valley will
become a wholly-owned subsidiary of Norwest and
Valley's shareholders will receive shares of
Norwest Common Stock for their shares of Valley
Common Stock (including shares of Valley Common
Stock to be issued upon conversion of the Series C
Preferred and the Series D Preferred).
The terms of the Merger are governed by the
Reorganization Agreement and the Plan of Merger.
You are encouraged to read both of these documents
carefully.
WHAT VALLEY'S
SHAREHOLDERS WILL
RECEIVE IN THE MERGER
(SEE PAGE 35)....... As provided in the Reorganization Agreement, and
because the Merger will in all likelihood become
effective after the anticipated record date for
payment of the regular quarterly dividend on
Norwest Common Stock for the fourth quarter of
1997, Norwest will exchange, in the Merger, a total
of 2,806,732 shares of Norwest Common Stock for all
of the outstanding shares of Valley Common Stock
(including shares of Valley Common Stock to be
issued upon the conversion of the
8
<PAGE>
Series C Preferred and the Series D Preferred).
Based on 785,322 shares of Valley Common Stock
outstanding (including shares of Valley Common
Stock to be issued upon the conversion of the
Series C Preferred and the Series D Preferred),
this works out to approximately 3.57 shares of
Norwest Common Stock for each share of Valley
Common Stock.
For each share of Valley Common Stock you own, you
will receive that number of shares of Norwest
Common Stock equal to 2,806,732 divided by the
Valley Outstanding Shares.
APPRAISAL RIGHTS (SEE
PAGE 28 AND APPENDIX
E).................. Valley's shareholders who dissent from the Merger
are entitled to receive a cash payment equal to the
fair value of their shares of Valley Common Stock.
To receive this cash payment, dissenting
shareholders must follow the procedures outlined in
Appendix F. Failure to comply strictly with these
procedures will result in the forfeiture of
appraisal rights.
REGULATORY APPROVALS (SEE
PAGE 30)............ Another condition to completion of the Merger is
approval of the Merger by the Federal Reserve
Board. Norwest received approval of the Merger from
the Federal Reserve Board on September 5, 1997.
U.S. FEDERAL INCOME TAX
CONSEQUENCES (SEE PAGE
32)................. The Merger has been structured so that Valley's
shareholders will not recognize any gain or loss
for U.S. federal income tax purposes as a result of
the Merger (except for cash received in lieu of
fractional shares). The Merger is conditioned on
the receipt by Valley of a legal opinion to this
effect.
MARKET INFORMATION (SEE Norwest Common Stock is listed on the New York
PAGE 17)............. Stock Exchange and the Chicago Stock Exchange under
the symbol NOB. On May 1, 1997, the last full
trading day before public announcement of the
Merger, Norwest Common Stock closed at $50.125 per
share. On September 23, 1997, the Norwest Board
declared a two-for-one Norwest Common Stock split
in the form of a 100% stock dividend paid on
October 10, 1997 to stockholders of record on
October 2, 1997. See "Explanatory Note Regarding
Norwest Common Stock Split." On October 23, 1997,
Norwest Common Stock closed at $32.75 per share.
There is no public trading market for the Valley
Common Stock or the Valley Preferred Stock.
BOARD OF DIRECTORS AND
MANAGEMENT OF VALLEY
AFTER THE MERGER.... When the Merger is complete, Norwest will own all
of the outstanding shares of Valley Common Stock.
As a result, Norwest will be able to elect or
appoint all of the directors and officers of
Valley.
OTHER INTERESTS OF
VALLEY'S MANAGEMENT (SEE
PAGE 26)............ In the Merger, the directors and the executive
officers of Valley will receive the same
consideration for their shares of Valley Common
9
<PAGE>
Stock as the other shareholders of Valley will
receive for their shares of Valley Common Stock.
The directors and officers have interests in the
Merger that are in addition to and separate from
the interests of Valley's shareholders generally.
Those interests include, among others, provisions
in the Reorganization Agreement relating to the
continuation of director and officer
indemnification rights, rights to the ICP Payments
as ICP Participants and certain employment
agreements between officers of Valley, Norwest and
the Bank. See "THE MERGER--Additional Interests of
Valley's Management in the Merger."
CONDITIONS TO THE MERGER
(SEE PAGE 37)....... A number of conditions must be satisfied before the
Merger can be completed. Each party's
representations and warranties must be true, and
each party must perform its obligations under the
Reorganization Agreement. In addition, the Series C
Preferred shareholders must have approved the
Series C Amendment, the Series D Preferred
shareholders must have approved the Series D
Amendment, and Valley's shareholders must have
approved the ICP Payments. Also, there cannot be
any change since the date of the Reorganization
Agreement that has had, or would reasonably be
expected to have, an adverse effect on Valley or
Norwest. Some of the conditions to the Merger are
subject to exceptions and to a "materiality"
standard. Certain conditions may also be waived by
the party entitled to assert the condition.
TERMINATION OF THE
REORGANIZATION AGREEMENT Norwest and Valley can agree to terminate the
(SEE PAGE 37)....... Reorganization Agreement without completing the
Merger. Also, either party can terminate the
Reorganization Agreement before completion of the
Merger under various circumstances, including:
. if a court or other governmental authority
prohibits the Merger;
. if the Merger is not completed by December 31,
1997, unless the failure of the Merger to occur
on or before that date is the fault of the party
seeking to terminate;
. if the Valley Board, after obtaining the advice
of its counsel, determines that a competing
offer to acquire Valley is more favorable to
Valley and its shareholders than Norwest's
offer;
Norwest can terminate the Reorganization Agreement
under various circumstances, including:
. if the Valley Board withdraws its approval of
the Merger;
. if, after Valley transfers, agrees to transfer,
or receives an offer to transfer 25% or more of
its assets or voting stock to a party other than
Norwest, Valley's shareholders do not approve
the Merger;
. if the Meeting is not held before December 31,
1997 and the Valley Board has failed to perform
its obligations regarding the Meeting; or
. The Merger does not qualify for pooling of
interests accounting treatment.
10
<PAGE>
Valley can terminate the Reorganization Agreement
under various circumstances, including:
. the Norwest Measurement Price is less than
$41.00; and
. the Norwest Measurement Price divided by 50.125
is less than the Final Index Price divided by
the Initial Index Price less 0.15; or.
. the Norwest Average Price is less than $39.00.
As the result of the two-for-one split of Norwest
Common Stock in the form of a 100% stock dividend
paid on October 10, 1997, Norwest Common Stock
began trading at half its pre-split price on
October 14, 1997. Because the Norwest Common Stock
two-for-one split is considered a "Common Stock
Adjustment" under the terms of the Reorganization
Agreement, the closing price of Norwest Common
Stock for purposes of determining the Norwest
Measurement Price and the Norwest Average Price
must be adjusted proportionately (that is, doubled)
so as to be comparable to what the price per share
of Norwest Common Stock would have been if the
record date for the two-for-one split had occurred
immediately following the Effective Date of the
Merger. See "THE REORGANIZATION AGREEMENT--
Termination of the Reorganization Agreement--
Termination by Valley.
TERMINATION FEE (SEE PAGE
38).................. Valley is required to pay Norwest a fee of
$1,750,000 if it terminates the Reorganization
Agreement because it has received a more favorable
offer. Valley is also required to pay the
termination fee if Norwest terminates the
Reorganization Agreement and, before the
termination or within 12 months afterwards, (a)
Valley transfers or agrees to transfer 25% or more
of its assets or voting stock to a party other than
Norwest, or (b) the Valley Board approves, or
recommends that shareholders approve, a transfer of
25% or more of Valley's assets or voting stock to a
party other than Norwest.
ACCOUNTING TREATMENT (SEE
PAGE 34)............ Norwest expects to account for the Merger using the
pooling of interests accounting method. This means
that the assets and liabilities of Valley will be
carried forward to Norwest at their historical
recorded values. Because the Merger is immaterial
to the consolidated financial statements of
Norwest, Norwest will not restate its balance sheet
amounts and results of operations for prior periods
to reflect the combination of Valley with Norwest.
SERIES C AMENDMENT (SEE
PAGE 39)............ The Series C Amendment provides for the conversion
of each outstanding share of Series C Preferred
into 1.5235 shares of Valley Common Stock
immediately prior to the Merger. The Series C
Amendment will be effective only if the Merger is
to be completed.
APPROVAL OF THE SERIES C
AMENDMENT................ The affirmative vote of the holders of at least
two-thirds of the Series C Preferred outstanding is
required to approve the Series C Amendment.
11
<PAGE>
SERIES D AMENDMENT (SEE
PAGE 40)............ The Series D Amendment provides for the conversion
of each outstanding share of Series D Preferred
into 1.5235 shares of Valley Common Stock
immediately prior to the Merger. The Series D
Amendment will be effective only if the Merger is
to be completed.
APPROVAL OF THE SERIES D
AMENDMENT................ The affirmative vote of the holders of at least
two-thirds of the Series D Preferred outstanding is
required to approve the Series D Amendment.
APPROVAL OF THE ICP
PAYMENTS.................. The affirmative vote of the holders owning at least
75% of the voting power of all outstanding shares
of Valley immediately prior to the Merger held by
disinterested shareholders, voting separately on
each ICP Payment, is required to approve the ICP
Payments. The ICP Participants and certain family
members of the ICP Participants are disqualified
from voting on the ICP Payments, and shares of
Valley Common Stock and Valley Preferred Stock
beneficially owned by such persons will not be
treated as outstanding for purposes of computing
the necessary vote to approve the ICP Payments.
12
<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, as adjusted
to reflect the two-for-one Norwest Common Stock split in the form of a 100%
stock dividend paid on October 10, 1997 to stockholders of record on October 2,
1997 and for Valley Common Stock on a historical and pro forma equivalent
basis. The pro forma data in the table shows the effect of the Merger using the
pooling of interests method of accounting. See "Explanatory Note Regarding
Norwest Common Stock Split" and "The Merger--Accounting Treatment." The
historical information should be read in conjunction with (a) the selected
consolidated financial data for Norwest and Valley (and related notes)
appearing elsewhere in this Proxy Statement--Prospectus, (b) the complete
consolidated financial statements of Valley 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 2,806,732 shares of Norwest Common
Stock will be issued to Valley's shareholders in the Merger. Based on 785,322
shares of Valley Common Stock outstanding (assuming the conversion of each
share of the Series C Preferred and the Series D Preferred into 1.5235 shares
of Valley Common Stock immediately prior to the Merger), this would result in
approximately 3.57 shares of Norwest Common Stock being issued for each share
of Valley Common Stock. The ratio of 3.57 shares of Norwest Common Stock for
each share of Valley Common Stock is referred to in the footnotes to the table
as the "exchange ratio."
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 Merger become effective prior to the periods
indicated.
<TABLE>
<CAPTION>
NORWEST COMMON STOCK VALLEY COMMON STOCK
-------------------- ---------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED HISTORICAL EQUIVALENT
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
BOOK VALUE (1):
June 30, 1997.................... $ 8.44 8.45 38.74 30.17
December 31, 1996................ 7.97 7.97 37.92 28.45
DIVIDENDS DECLARED (2):
Six Months Ended June 30, 1997... $0.3000 0.3000 -- 1.0710
Year Ended December 31, 1996..... 0.5250 0.5250 -- 1.8743
Year Ended December 31, 1995..... 0.4500 0.4500 -- 1.6065
Year Ended December 31, 1994..... 0.3825 0.3825 -- 1.3655
NET INCOME (on a fully diluted ba-
sis) (3):
Six Months Ended June 30, 1997... $ 0.85 0.85 3.17 3.03
Year Ended December 31, 1996..... 1.54 1.54 4.91 5.50
Year Ended December 31, 1995..... 1.37 1.37 4.48 4.89
Year Ended December 31, 1994..... 1.21 1.22 5.09 4.36
</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 Valley divided by total pro forma common shares of the combined
entities and assumes the conversion of each share of the Series C Preferred
and Series D Preferred into 1.5235 shares of Valley Common Stock. The pro
forma equivalent book value per share of Valley Common Stock represents the
pro forma combined book value per share of Norwest Common Stock multiplied
by the exchange ratio of 3.57.
(2) Assumes no changes in cash dividends per share by Norwest. The pro forma
equivalent dividends per share of Valley Common Stock (including shares of
Valley Common Stock to be issued upon the conversion of Series C Preferred
and Series D Preferred) represent cash dividends declared per share of
Norwest Common Stock multiplied by the exchange ratio of 3.57.
(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 Valley divided by the average pro forma common and common
equivalent shares of the combined entities. The pro forma equivalent net
income per share of Valley Common Stock represents the pro forma combined
net income per share multiplied by the exchange ratio of 3.57.
13
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected financial information is to aid you in your analysis
of the financial aspects of the Merger. The information for Norwest is derived
from its historical consolidated 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 Proxy Statement--
Prospectus. See "What Incorporation by Reference Means" and "Where You Can Find
More Information." The information for Norwest under the heading "Per Common
Share Data" has been adjusted to reflect the two-for-one Norwest Common Stock
split in the form of a 100% stock dividend paid on October 10, 1997 to
stockholders of record on October 2, 1997. See "Explanatory Note Regarding
Norwest Common Stock Split." The information for Valley is derived from its
historical consolidated financial statements (and related notes) contained
elsewhere in this Proxy Statement--Prospectus. The historical consolidated
financial statements for Norwest for each of the full years shown in the table
have been audited; those for interim periods have not been audited. The
historical consolidated financial statements for Valley for each of the full
years shown in the table have been audited; those for interim periods have not
been audited. The unaudited financial information reflects, in the respective
opinion of Norwest's and Valley'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.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
NORWEST CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ --------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992(2)
--------- -------- -------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income........ $ 3,268.9 3,099.0 6,318.3 5,717.3 4,393.7 3,946.3 3,806.4
Interest expense....... 1,310.8 1,291.7 2,617.0 2,448.0 1,590.1 1,442.9 1,610.6
--------- -------- -------- -------- -------- -------- --------
Net interest income.... 1,958.1 1,807.3 3,701.3 3,269.3 2,803.6 2,503.4 2,195.8
Provision for credit
losses................ 231.8 175.2 394.7 312.4 164.9 158.2 270.8
Non-interest income.... 1,441.0 1,194.7 2,564.6 1,848.2 1,638.3 1,585.0 1,273.7
Non-interest expenses.. 2,161.2 1,954.3 4,089.7 3,382.3 3,096.4 3,050.4 2,553.1
--------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 1,006.1 872.5 1,781.5 1,422.8 1,180.6 879.8 645.6
Income tax expense..... 352.8 315.7 627.6 466.8 380.2 266.7 175.6
--------- -------- -------- -------- -------- -------- --------
Income before
cumulative effect of
a change in
accounting method..... 653.3 556.8 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.......... $ 653.3 556.8 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............... $ 0.85 0.75 1.54 1.38 1.23 0.95 0.72
Cumulative effect on
years prior to 1992
of change in
accounting method.... -- -- -- -- -- -- (0.12)
--------- -------- -------- -------- -------- -------- --------
Net income.......... $ 0.85 0.75 1.54 1.38 1.23 0.95 0.60
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Before cumulative
effect of a change
in accounting
method............... $ 0.85 0.75 1.54 1.37 1.21 0.93 0.71
Cumulative effect on
years prior to 1992
of change in
accounting method.... -- -- -- -- -- -- (0.11)
--------- -------- -------- -------- -------- -------- --------
Net income.......... $ 0.85 0.75 1.54 1.37 1.21 0.93 0.60
--------- -------- -------- -------- -------- -------- --------
Dividends declared per
common share.......... $ 0 .300 0.255 0.525 0.450 0.383 0.320 0.270
========= ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA
At period end:
Total assets........... $83,856.3 77,849.3 80,175.4 72,134.4 59,315.9 54,665.0 50,037.0
Long-term debt......... 12,043.7 13,787.6 13,082.2 13,676.8 9,186.3 6,850.9 4,553.2
Total stockholders'
equity................ 6,507.1 5,634.9 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.
15
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AND SHARES OUTSTANDING AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income........ $ 17,120 15,315 32,146 27,290 21,998 19,010 19,251
Interest expense....... 6,244 5,817 12,169 9,961 6,990 6,218 7,444
--------- -------- -------- -------- -------- -------- --------
Net interest income.... 10,876 9,498 19,977 17,329 15,008 12,792 11,807
--------- -------- -------- -------- -------- -------- --------
Provision for loan
losses................ 1,189 667 1,393 892 106 486 368
Non-interest income.... 3,239 2,600 5,786 4,875 4,352 4,259 3,765
Non-interest expenses.. 9,474 8,858 18,684 16,155 13,567 12,246 11,290
--------- -------- -------- -------- -------- -------- --------
Income before income
taxes................. 3,452 2,573 5,686 5,157 5,687 4,319 3,914
Income taxes........... 1,130 938 2,015 1,816 1,910 1,362 933
--------- -------- -------- -------- -------- -------- --------
Income before
cumulative effect of a
change in accounting
principle and
extraordinary credit.. 2,322 1,635 3,671 3,341 3,777 2,957 2,981
Extraordinary credit... -- -- -- -- -- -- 102
Income before
cumulative effect of a
change in accounting
method................ 2,322 1,635 3,671 3,341 3,777 2,957 3,083
Cumulative effect of a
change in accounting
method................ -- -- -- -- -- (254) --
--------- -------- -------- -------- -------- -------- --------
Net Income........... $ 2,322 1,635 3,671 3,341 3,777 2,703 3,083
========= ======== ======== ======== ======== ======== ========
PER COMMON SHARE DATA
Net income per share:
Primary:
Income before
cumulative effect of
a change in
accounting principle
and extraordinary
credit................ $ 3.22 2.28 4.97 4.62 5.39 4.33 4.54
Extraordinary credit... -- -- -- -- -- -- 0.16
--------- -------- -------- -------- -------- -------- --------
Income before
cumulative effect of
a change in
accounting method..... 3.22 2.28 4.97 4.62 5.39 4.33 4.70
Cumulative effect of a
change in accounting
method................ -- -- -- -- -- (0.39) --
--------- -------- -------- -------- -------- -------- --------
Net Income........... $ 3.22 2.28 4.97 4.62 5.39 3.93 4.70
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Income before
cumulative effect of
a change in
accounting principle
and extraordinary
credit................ $ 3.17 2.28 4.91 4.48 5.09 4.17 4.43
Extraordinary credit... -- -- -- -- -- -- 0.15
--------- -------- -------- -------- -------- -------- --------
Income before
cumulative effect of
a change in
accounting method..... 3.17 2.28 4.91 4.48 5.09 4.17 4.58
Cumulative effect of a
change in accounting
method................ -- -- -- -- -- (0.36) --
--------- -------- -------- -------- -------- -------- --------
Net Income........... $ 3.17 2.28 4.91 4.48 5.09 3.81 4.58
========= ======== ======== ======== ======== ======== ========
Dividends declared per
common share.......... $ -- $ -- $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA
At end of period:
Total assets........... $445,881 428,103 446,423 361,097 334,135 383,692 269,323
Long-term debt......... 7,875 9,199 8,330 6,065 6,422 5,483 7,020
Total shareholders'
equity................ 31,261 25,953 28,802 24,624 18,877 17,153 12,912
</TABLE>
16
<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, as adjusted to reflect the two-for-one Norwest
Common Stock split in the form of a 100% stock dividend paid on October 10,
1997 to stockholders of record on October 2, 1997. The prices for Norwest
Common Stock are as reported on the composite tape of the NYSE. There is no
public market for Valley Common Stock, the Series C Preferred or the Series D
Preferred.
NORWEST COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
-------- -------- ---------
<S> <C> <C> <C>
1995
First Quarter..................................... $13.1250 $11.3125 $0.105
Second Quarter.................................... 14.6875 12.5625 0.105
Third Quarter..................................... 16.3750 13.4375 0.120
Fourth Quarter.................................... 17.3750 14.6250 0.120
1996
First Quarter..................................... $18.5625 $15.2500 $0.120
Second Quarter.................................... 18.7500 16.5000 0.135
Third Quarter..................................... 20.5000 16.0000 0.135
Fourth Quarter.................................... 23.4375 20.3750 0.135
1997
First Quarter..................................... $26.6250 $21.3750 $0.150
Second Quarter.................................... 29.6250 22.1875 0.150
Third Quarter..................................... 31.8750 28.1250 0.150
Fourth Quarter (through October 23, 1997)......... 34.0625 30.6250 --
</TABLE>
17
<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
Valley is sending you this Proxy Statement-Prospectus to provide you with
information concerning the Merger, the ICP Payments, the Series C Amendment,
and the Series D Amendment, and to solicit your proxy for use at the Meeting.
The 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 Meeting,
shareholders of Valley will be asked to approve the Merger, the Series C
Amendment, the Series D Amendment and each of the ICP Payments.
RECORD DATE
Valley has established October 15, 1997 as the Record Date for the Meeting.
Only shareholders of record on that date are entitled to notice of, and to
attend and vote at, the Meeting.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
On the Record Date, there were 745,010 shares of Valley Common Stock, 5,650
shares of Series C Preferred, and 20,811 shares of Series D Preferred
outstanding and entitled to vote at the Meeting. The presence, in person or by
proxy, at the Meeting of the holders of a majority of the outstanding shares
of each of the Valley Common Stock, the Series C Preferred and the Series D
Preferred is necessary for a quorum. The holders of Valley Common Stock,
Series C Preferred, and Series D Preferred are entitled to one vote per share
with respect to the proposal to approve the Merger. Only holders of Series C
Preferred are entitled to vote on the proposal to approve the Series C
Amendment, with each share of Series C Preferred entitled to one vote upon
such matter. Only holders of Series D Preferred are entitled to vote on the
proposal to approve the Series D Amendment, with each share of Series D
Preferred entitled to one vote upon such matter. With respect to the proposals
to approve the ICP Payments, the Code requires that the vote on each ICP
Payment be determined by the voting power of all outstanding shares of Valley
immediately prior to the Merger held by disinterested shareholders. The
disinterested holders of Valley Common Stock are entitled to one vote per
share of Valley Common Stock. However, because the Valley Preferred Stock is
to be converted into Valley Common Stock immediately prior to the Merger at a
conversion ratio of 1.5235 shares of Valley Common Stock for each share of
Valley Preferred Stock, disinterested holders of Valley Preferred Stock are
entitled to 1.5235 votes per share of Valley Preferred Stock, even though such
holders otherwise would have no right under Texas law or the terms of the
Valley Preferred Stock to vote on the ICP Payments.
Approval of the Merger requires the affirmative vote, in person or by proxy,
of the holders of at least two-thirds of the outstanding shares of Valley
Common Stock and the holders of at least two-thirds of the outstanding shares
of the Valley Preferred Stock voting as a class. The only outstanding shares
of Valley Preferred Stock are the Series C Preferred and the Series D
Preferred. The directors and officers of Valley beneficially owned on the
Record Date a total of 238,697 shares, or 32.04% of the outstanding shares of
Valley Common Stock, and 4,000 shares, or 15.12% of the outstanding shares of
Valley Preferred Stock. Valley has been informed that these shareholders
intend to vote in favor of the Merger.
Valley is the sponsor of the ESOP. Of the 745,010 shares of Valley Common
Stock outstanding, 177,783 shares, or 23.86%, were held by the ESOP as of the
Record Date. Applicable law provides generally that the Trustees have the
authority to vote the shares of Valley Common Stock held by the ESOP. With
respect to any corporate matter, however, that involves the voting of the
Valley Common Stock as to the approval or disapproval of any corporate merger
or consolidation, recapitalization, reclassification, liquidation, dissolution
or similar transaction, such as the Merger, each ESOP Participant is entitled
to direct the Trustees as to the exercise of the voting rights attributable to
the shares then allocated to such ESOP Participant. Any allocated Valley
Common Stock with respect to which voting instructions are not received from
ESOP Participants may not be voted by the Trustees, and all shares of Valley
Common Stock that are unallocated are to be voted in the manner determined by
the Trustees. Of the 177,783 shares of Valley Common Stock held by the ESOP as
of the Record Date, 120,615 shares were allocated to the accounts of ESOP
Participants (as of December 31, 1996, the date of
18
<PAGE>
the most recent such allocation) and 57,168 shares were unallocated.
Simultaneously with the mailing of this Proxy Statement-Prospectus to Valley's
shareholders of record on the Record Date, the Trustees will mail to each of
the ESOP Participants a copy of this Proxy Statement-Prospectus, together with
a form for the ESOP Participants to give instructions to the Trustees as to the
voting of such shares. The Trustees will vote the allocated shares for which
instructions are given as instructed by the ESOP Participants.
Approval of the Series C Amendment requires the affirmative vote, in person
or by proxy, of the holders of at least two-thirds of the outstanding Series C
Preferred. The directors and officers of Valley beneficially owned on the
Record Date a total of 2,000 shares, or approximately 35.40%, of the
outstanding shares of Series C Preferred Stock. Valley has been informed that
these shareholders intend to vote in favor of the Series C Amendment.
Approval of the Series D Amendment requires the affirmative vote, in person
or by proxy, of the holders of at least two-thirds of the outstanding Series D
Preferred. The directors and officers of Valley beneficially owned on the
Record Date a total of 2,000 shares, or approximately 9.61%, of the outstanding
shares of Series D Preferred Stock. Valley has been informed that these
shareholders intend to vote in favor of the Series D Amendment.
Approval of each ICP Payment requires the separate affirmative vote, in
person or by proxy, of the holders of at least 75% of the voting power of all
outstanding shares of Valley immediately prior to the Merger held by
disinterested shareholders. The ICP Participants and the spouses, parents,
children and grandchildren of the ICP Participants, are disqualified from
voting on the ICP Payments, and shares of Valley Common Stock and Valley
Preferred Stock beneficially owned by such persons will not be treated as
outstanding for purposes of computing the vote necessary to approve the ICP
Payments. Under the applicable provisions of the Internal Revenue Code, because
the Valley Preferred Stock is to be converted into Valley Common Stock
immediately prior to the Merger at a conversion ratio of 1.5235 shares of
Valley Common Stock for each share of Valley Preferred Stock, disinterested
holders of Valley Preferred Stock are entitled to 1.5235 votes per share held,
even though the holders thereof would otherwise have no voting rights under
Texas law and the terms of the Valley Preferred Stock with respect to the ICP
Payments. In addition, disinterested holders of Valley Common Stock are
entitled to one vote per share held as of the Record Date. The directors and
officers of Valley, other than the ICP Participants, beneficially owned on the
Record Date a total of 116,915 shares, or 18.03%, of the voting power of all
outstanding shares of Valley held by disinterested shareholders. Valley has
been informed that these shareholders intend to vote in favor of the ICP
Payments.
VOTING AND REVOCATION OF PROXIES
All shares of Valley Common Stock and Valley Preferred Stock represented at
the 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" THE PROPOSALS TO APPROVE
THE MERGER, THE SERIES C AMENDMENT, THE SERIES D AMENDMENT AND THE ICP
PAYMENTS.
You may revoke your proxy at any time before it is voted by (a) filing either
an instrument revoking the proxy or a duly executed proxy bearing a later date
with the corporate secretary of Valley before or at the Meeting, or (b) voting
the shares subject to the proxy in person at the Meeting. Attendance at the
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
19
<PAGE>
proposal. Because each proposal requires the affirmative vote of a specified
percentage of outstanding shares, not voting on a given proposal will have the
same effect as voting against the proposal.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Valley may solicit proxies from Valley's 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. Valley will
bear its own expenses in connection with any solicitation of proxies for the
Meeting.
OTHER MATTERS
If an insufficient number of votes for any proposal to be considered at the
Meeting is received before the scheduled Meeting date, Valley may decide to
postpone or adjourn the Meeting. If this happens, proxies that have been
received that either have been voted for any of the proposals or contain no
instructions will be voted for adjournment.
The Valley Board is not aware of any business that may be properly brought
before the Meeting other than the proposals to approve the Merger, the Series
C Amendment, the Series D Amendment, the ICP Payments, and procedural matters
relating to the Meeting. No other matters may be properly brought before the
Meeting or any adjournments or postponements of the Meeting.
20
<PAGE>
THE MERGER
PURPOSE AND EFFECT OF THE MERGER
Norwest is using the Merger to acquire Valley. The effect of the Merger will
be that Valley will become a wholly-owned subsidiary of Norwest and
shareholders of Valley will receive shares of Norwest Common Stock for their
shares of Valley Common Stock (including shares issued in exchange for the
Series C Preferred and the Series D Preferred). Norwest will own all of the
outstanding shares of Valley Common Stock after completion of the Merger. If
the Merger is completed, shareholders of Valley will become stockholders of
Norwest, and their rights will be governed by the Norwest Certificate and
Norwest Bylaws rather than the Valley Articles and Valley Bylaws. See
"COMPARISON OF RIGHTS OF VALLEY COMMON STOCK AND NORWEST COMMON STOCK."
BACKGROUND OF AND REASONS FOR THE MERGER
In May 1996, informal discussions were initiated by Norwest regarding its
interest in Valley. Recognizing the benefits of an exchange of Valley's shares
for Norwest's shares, the Valley Board and management of Valley determined
there was sufficient reason for further consideration of Norwest's interest.
In light of such discussions, management was instructed to explore the various
strategic alternatives available to Valley, to include (i) a strategy of
independence, focusing on efficiencies and internal growth, (ii) growth by
acquisition of smaller banks, (iii) a merger of equals, and (iv) a sale of
Valley. Since Valley had been active in the acquisition and merger market, the
Valley Board was aware of recent developments with respect to the various
strategic alternatives. Historically, Valley had chosen to maintain a strategy
of acquiring smaller banks and a merger of equals within its geographic market
and developing business opportunities from its existing customer base.
During the summer of 1996, Valley provided financial and non-financial
information to Norwest for the purpose of determining a more definitive value
of Valley. After the delivery of such information, the management of Valley
received positive preliminary expressions of interest from Norwest.
In September 1996, preliminary offers were received from both Norwest and
another bank holding company. After reviewing both offers, the Valley Board
determined that the offer received from Norwest was superior to the other
offer received, and the Valley Board authorized management to continue
negotiations with Norwest. In addition, Valley engaged Advisory to review the
offer and to advise the Valley Board regarding the proposal received from
Norwest. After further review of the Norwest offer, on November 21, 1996, the
Valley Board declined Norwest's offer, and negotiations ceased.
In January 1997, representatives of Norwest once again contacted
representatives of Valley with the intent to renew further discussion. After
further negotiations, an offer was submitted by Norwest by letter dated
February 14, 1997, which was accepted in principle subject to the preparation
and execution of a definitive agreement acceptable to both parties and the
completion of due diligence. Due diligence was completed by Norwest in March
1997. The resulting Reorganization Agreement was executed as of May 2, 1997.
The terms of the Reorganization Agreement, including the consideration to be
received by Valley's shareholders pursuant to the Merger, are the result of
arm's length negotiations between Valley and Norwest and their respective
representatives. The Valley Board believes that the Merger is fair to and in
the best interests of Valley's shareholders. In reaching its decision to
recommend approval of the Merger, the Valley Board considered a number of
factors. The Valley Board did not assign any relative or specific weights to
the individual factors considered. Among other matters, the Valley Board
considered:
The Prospects for Remaining Independent. In this regard, the Valley Board
considered the competitive and technological challenges arising before Valley
and the banking and financial services industries and the fundamental need for
increasing financial resources to meet such challenges. The Valley Board
considered the current trends in the banking industry, including the
likelihood of continuing consolidation and increasing competition in the
banking and financial services industries, the growing importance of financial
resources,
21
<PAGE>
market positions and economies of scale to a banking institution's ability to
compete successfully in this changing environment and the increasing cost of
technology. After thorough analysis, the Valley Board concluded that there
would be substantial risk involved in attempting to attain the necessary
growth through internal means to meet such challenges and that there was a
limited number of attractive acquisition targets for Valley within its market.
The Valley Board concluded that the range of values on a sale basis generally
exceeded the present value of Valley's shares assuming the reasonable
implementation of business strategies by Valley. The Valley Board felt that a
business combination with Norwest would result in both greater short-term and
long-term value to Valley's shareholders than other alternatives available,
including remaining independent.
Financial Terms of the Merger. The Valley Board considered the consideration
to be received by Valley's shareholders pursuant to the Merger in relation to
the book value, assets and earnings projections of Valley, information
concerning the financial condition, results of operations and prospects of
Valley, including the projected return on assets and return on equity, the
financial terms of other recent business combinations in the banking industry,
and the opinion of Advisory as to the fairness of the consideration to be
received by Valley's shareholders pursuant to the Merger. The Valley Board
believes that the shareholders of Valley would initially benefit from the
Merger through the ability to obtain, in a tax-free exchange, ownership of
shares in a larger enterprise with greater financial resources and broader and
more diversified classes of products, while allowing those shareholders who
wish to dispose of their interest for cash the opportunity to do so in the
public market (although certain shareholders would be subject to transfer
restrictions on the shares of Norwest Common Stock received in the Merger).
After considering a number of potential acquirors, the Valley Board determined
Norwest to be the most attractive potential merger partner. The terms of the
Reorganization Agreement provide protection to Valley's shareholders by
allowing Valley the opportunity to terminate the Reorganization Agreement in
the event that another potential acquiror makes a competitive bid for Valley
(subject to the payment of a $1,750,000 termination fee to Norwest under
certain conditions). See "THE REORGANIZATION AGREEMENT--Termination of the
Reorganization Agreement." The Valley Board also reviewed and considered a
compilation of financial terms and trends of other recent business
combinations in the banking industry and determined that the financial terms
of the Merger were comparable to such other transactions.
Financial and Other Information Concerning Norwest. The Valley Board
considered the financial and other information concerning Norwest. Such
information included, but was not limited to, the financial condition, asset
quality, historical and projected earnings and operations of Norwest and the
market price and book value of the Norwest Common Stock. In addition, the
Valley Board considered the future growth prospects of Norwest following the
Merger and the potential synergies and economies of scale expected to be
realized from the Merger.
Investment Liquidity. The Valley Board considered that the shares of Norwest
Common Stock to be received in the Merger by holders of Valley Common Stock
will be listed for trading on the NYSE and should provide Valley's
shareholders with increased investment liquidity due to the increased market
capitalization of Norwest.
The Valley Board believes that Valley's businesses can be substantially
enhanced by the financial resources and diversified operations of Norwest,
that the Merger will produce a financial institution better able to meet the
competitive and technological challenges in the banking and financial services
industries and that combining Valley with Norwest will result in economies of
scale and increase the market served by Valley in the State of Texas.
THE VALLEY BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND IN
THE BEST INTEREST OF VALLEY'S SHAREHOLDERS. THE VALLEY BOARD HAS UNANIMOUSLY
APPROVED THE REORGANIZATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND RECOMMENDS THAT VALLEY'S SHAREHOLDERS APPROVE AND ADOPT THE
REORGANIZATION AGREEMENT.
22
<PAGE>
OPINION OF FINANCIAL ADVISOR
Advisory is a recognized investment banking firm regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions, and in valuations for estate, corporate and other
purposes. In July 1997, Valley engaged Advisory to act as an independent
financial advisor to the Valley Board and shareholders of Valley in connection
with the Merger. Specifically, based on Advisory's reputation and
qualifications in evaluating financial institutions, the Valley Board
requested that Advisory render advice and analysis in connection with the
Merger, and to provide an opinion with regard to fairness--from the
perspective of the shareholders of Valley--of the financial terms of the
Merger.
Advisory has rendered a written opinion ("the Opinion") to the Valley Board
to the effect that the terms of the Merger are fair from a financial point of
view to the shareholders of Valley as of the date of the Opinion. A copy of
the Opinion is attached as Appendix F to this Proxy Statement-Prospectus and
should be read in its entirety by Valley's shareholders. The Opinion does not
constitute an endorsement of the Merger or a recommendation to any Valley
shareholder as to how such shareholder should vote regarding the Merger.
Regarding Valley, Advisory based its Opinion upon, among other things, a
review of: 1) audited consolidated financial statements for the years ended
December 31, 1996, 1995 and 1994; 2) consolidated financial statements, on
form FR-Y9C, for the years ended December 31, 1996, 1995, and 1994, and for
the six-month period ended June 30, 1997, as filed with the Federal Reserve
System; 3) parent company only financial statements, on form FR Y-9SP, for the
years ended December 31, 1996, 1995, and 1994, and for the six-month period
ended June 30, 1997, as filed with the Federal Reserve System; 4) reports of
condition and income for the Bank for the years ended December 31, 1996, 1995,
and 1994, and for the six-month period ended June 30, 1997, as filed with
Federal bank regulatory agencies; 5) the condition of the commercial banking
industry, as indicated in financial reports filed with various Federal bank
regulatory authorities by all federally-insured commercial banks; 6) certain
internal financial analyses and forecasts for Valley prepared by the
management of Valley, including projections of future performance; 7) certain
other summary materials and analyses with respect to Valley's loan portfolio,
securities portfolio deposit base, fixed assets, and operations including, but
not limited to: (i) schedules of loans and other assets identified by
management as deserving special attention or monitoring given the
characteristics of the loan/asset and the local economy, (ii) analyses
concerning the adequacy of the loan loss reserve, (iii) schedules of "other
real estate owned," including current carrying values and recent appraisals,
and (iv) schedules of securities, detailing book values market values, and
lengths to maturity, and; 8) such other information--including financial
studies, analyses, investigations, and economic and market criteria--that
Advisory deemed relevant to its assignment.
Regarding Norwest, Advisory based its Opinion upon, among other things, a
review of: 1) audited consolidated financial statements, contained in Annual
Reports and Form 10-Ks, for the years ended December 31, 1996, 1995, and 1994;
2) quarterly financial statements for, on Form 10-Q, for the three month
period ended March 31, 1997, and for the six-month period ended June 30, 1997;
3) consolidated financial statements, on form FR Y-9C, for the years ended
1996, 1995, and 1994, as filed with the Federal Reserve System; 4) equity
research reports regarding Norwest prepared by various stock analysts who
cover the financial institutions sector; 5) the condition of the commercial
banking industry, as indicated in the financial reports filed by all
federally-insured commercial banks with various federal bank regulatory
authorities; 6) such other information--including financial studies, analyses,
investigations, and economic and market criteria--that Advisory deemed
relevant to its assignment.
Additionally, Advisory based its Opinion upon, among other things, a review
of: 1) the Reorganization Agreement and the Plan of Merger, and any amendments
thereto, that set forth, among other items, the terms, conditions to closing,
pending litigation against both Valley and Norwest, and representations and
warranties of Valley and Norwest with respect to the proposed Merger; 2) the
Proxy Statement-Prospectus, in draft form; 3) the financial terms and price
levels for commercial banks with assets between $300 million and $600 million
that were recently acquired in the United States together with the financial
performance and condition of such banks; 4) the price-to-equity and price-to-
earnings multiples of the stocks of banking organizations based in the
23
<PAGE>
United States that have publicly-traded common stocks, together with the
financial performance and conditions of such banking organizations, and; 5)
such other information--including financial studies, analyses, investigations,
and economic and market criteria--that Advisory deemed relevant to its
assignment.
Advisory maintains a sizable database of information pertaining to the
prices paid for U.S. banks. The database includes transactions involving
banking organizations in Texas and the Southwest region of the United States,
and provides comparable pricing and financial performance data for banking
organizations acquired in the United States since 1989. Advisory has the
capability of sorting the records to yield transactions involving similar
banks. Similarities might include banks within a specific asset size range,
banks that generate a return on average assets ("ROA") within a specified
range, banks that have an equity-to-assets ratio within a certain range, or
banks that sold for a specific form of consideration (cash or stock). The
ability to produce specific groups of comparable banks facilitates making a
valid comparative purchase price analysis.
Advisory considered the transaction values for profitable banking
organizations with total assets between $300 million and $600 million acquired
in the United States during 1996 and thus far in 1997, irrespective of the
form of consideration (the "US Peer Group"). Advisory compared those
transaction values, and the corresponding financial characteristics for the US
Peer Group, in relation to the transaction value computed for the Merger. The
comparative analysis revealed that the merger of Valley with Norwest yields a
transaction value that results in a price-equity index (purchase price as a
percent of total assets) of 19.20 and a price-earnings index (purchase price
as a percent of average assets) of 19.57, versus averages of 18.24 and 19.17,
respectively, for the US Peer Group.
The equity ratio for Valley (as measured by the equity-to-assets ratio) as
of June 30, 1997 equals 7.01%, a ratio below the average equity ratio of 8.76%
for the US Peer Group. Furthermore, the 12-month trailing ROA for Valley
equals 1.00%, a ratio below the average ROA of 1.21% for the US Peer Group.
Accordingly, the analysis suggests that the transaction value for Valley, as
measured by the price indices described above, compares favorably with the
average price indices paid during 1996 and thus far in 1997 for banks with
assets between $300 million and $600 million in the United States,
irrespective of the form of consideration. The table set forth below
summarizes this comparative analysis, and highlights the Valley transaction.
<TABLE>
<CAPTION>
PRICE MULTIPLES PRICE INDICES
--------------- ---------------
EQUITY- TOTAL
# OF ASSETS TO- PRICE
BANKS $(000) ASSETS ROA ROE $(000) EQUITY EARNINGS EQUITY EARNINGS
----- -------- ------- ---- ----- ------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. (All).............. 30 $437,561 8.76% 1.21% 14.04% $79,815 2.08x 15.81x 18.24 19.17
Valley*................. 1 $445,881 7.01% 1.00% 14.95% $85,605 2.74x 19.64x 19.20 19.57
</TABLE>
- --------
* Total price for Valley based on the issuance of 2,806,732 shares of Norwest
Common Stock, and a $31.50 market price per share, as of September 24, 1997
(as adjusted for the two-for-one split of Norwest Common Stock in the form
of a 100% stock dividend paid on October 10, 1997). Financial data for
Valley is as of June 30, 1997, with earnings based on 12-month trailing
earnings.
In the context of the Merger, Advisory considered the transaction values for
profitable banking organizations with total assets between $300 million and
$600 million acquired in the United States during 1996 and thus far in 1997,
with common stock representing the sole form of consideration (the "US Stock
Peer Group"). Advisory compared those transaction values, and the
corresponding financial characteristics for the US Stock Peer Group, in
relation to the transaction value computed for the Merger. The comparative
analysis revealed that the Merger of Valley with Norwest yields a transaction
value that results in a price-equity index (purchase price as a percent of
total assets) of 19.20 and a price-earnings index (purchase price as a percent
of average assets) of 19.57, versus averages of 19.78 and 21.09, respectively,
for the US Stock Peer Group.
The equity ratio for Valley (as measured by the equity-to-assets ratio) as
of June 30, 1997 equals 7.01%, a ratio below the average equity ratio of 8.88%
for the US Stock Peer Group. Furthermore, the 12-month trailing ROA for Valley
equals 1.00%, a ratio below the average ROA of 1.17% for the US Stock Peer
Group. Accordingly, the analysis suggests that the transaction value for
Valley, as measured by the price indices
24
<PAGE>
described above, compares favorably with the average price indices paid during
1996 and thus far in 1997 for banks with assets between $300 million and $600
million in the United States, with common stock representing the sole form of
consideration. The table set forth below summarizes this comparative analysis,
and highlights the Valley transaction.
<TABLE>
<CAPTION>
PRICE MULTIPLES PRICE INDICES
--------------- ---------------
EQUITY- TOTAL
# OF ASSETS TO- PRICE
BANKS $(000) ASSETS ROA ROE $(000) EQUITY EARNINGS EQUITY EARNINGS
----- -------- ------- ---- ----- ------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. (Stock)............ 17 $419,635 8.88% 1.17% 13.18% $82,985 2.23x 18.07x 19.78 21.09
Valley*................. 1 $445,881 7.01% 1.00% 14.95% $85,605 2.74x 19.64x 19.20 19.57
</TABLE>
- --------
* Total price for Valley based on the issuance of 2,806,732 shares of Norwest
Common Stock, and a $31.50 market price per share, as of September 24, 1997
(as adjusted to reflect a two-for-one split of Norwest Common Stock in the
form of a 100% stock dividend paid on October 10, 1997). Financial data for
Valley is as of June, 30, 1997, with earnings based on 12-month trailing
earnings.
Since the form of consideration in the Merger with Norwest involves the
exchange of Norwest Common Stock for shares of Valley Common Stock, Advisory
evaluated the financial condition and performance of Norwest, as noted above.
Advisory conducted its own independent financial analysis of Norwest based on
the above-mentioned information provided to or obtained by Advisory. Advisory
also reviewed and considered financial analyses and earnings forecasts
produced by financial analysts affiliated with various brokerage firms that
cover the financial institutions industry, and Norwest in particular. The
intent of this financial analysis is to ascertain the current financial
condition and future earnings prospects of Norwest, given that the current
shareholders of Valley will have an ownership stake in Norwest on a post-
transaction basis. Advisory is satisfied with the finding obtained from its
financial analyses regarding the financial condition and earnings prospects of
Norwest, and believes that sufficient foundation exists in this regard to
support Advisory's conclusion regarding the financial fairness of the proposed
transaction.
Advisory is of the belief that its review of, among other things, the
aforementioned items, provides a reasonable basis for the issuance of its
Opinion, recognizing that Advisory is issuing an informed professional
opinion--not a certification of value. No limitations were imposed on the
scope of Advisory's investigation by either Valley or Norwest.
Advisory, as part of its line of professional services, specializes in
rendering valuation opinions of banks and bank holding companies in connection
with mergers and acquisitions nationwide. Prior to its retention for this
assignment, Advisory had provided financial advisory services to Valley and
the Bank; however, the professional fees billed for the prior services are
insignificant as compared to Advisory's annual billings. Advisory has not
provided any services to Norwest.
Advisory has relied upon the information provided by the management of
Valley and Norwest, or otherwise reviewed by Advisory, as being complete and
accurate in all material respects. Advisory has not verified through
independent inspection or examination the specific assets or liabilities of
Valley, Norwest or their subsidiary banks. Advisory has assumed that there has
been no material changes in the assets, financial condition, results of
operations, or business prospects of Valley and Norwest since the date of the
last financial statements made available to Advisory. Advisory met with the
management of Valley and conversed with the management of Norwest for the
purpose of discussing the relevant information that has been provided to
Advisory.
Based on all factors that Advisory deemed relevant and assuming the accuracy
and completeness of the information and data provided, Advisory concluded
that: (1) the terms--specifically the conversion ratio--for the conversion of
the Series C Preferred and the Series D Preferred into shares of Valley Common
Stock, as outlined herein, are fair, from a financial standpoint, to both the
preferred and common shareholders of Valley, and; (2) the terms of the
proposed Merger with Norwest, as outlined herein, are fair, from a financial
standpoint, to all shareholders of Valley.
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<PAGE>
For Advisory's services as an independent financial analyst and advisor to
Valley in connection with the Merger, Valley has agreed to pay Advisory a
professional fee totaling $85,500. Additionally, Valley also has agreed to
reimburse Advisory for reasonable out-of-pocket expenses.
ADDITIONAL INTERESTS OF VALLEY MANAGEMENT IN THE MERGER
In the Merger, the directors and officers of Valley will receive the same
consideration for their shares of Valley Common Stock and Valley Preferred
Stock as the other shareholders of Valley will receive for their shares of
Valley Common Stock and Valley Preferred Stock. Shareholders should be aware
that directors and management of Valley have interests in the Merger in
addition to and separate from the interests of shareholders of Valley
generally. The Valley Board is aware of these interests and considered them
among other matters in approving the Reorganization Agreement and the
transactions contemplated thereby, including the Merger. Adoption and approval
of the Reorganization Agreement by the shareholders of Valley will also
constitute approval of the following benefits to be received by the directors,
officers and employees of Valley.
Indemnification and Limitations on Liability. In the Reorganization
Agreement, Norwest has agreed to indemnify, defend and hold harmless the
officers, directors and employees of Valley and the Bank against losses,
expenses, claims, damages and liabilities arising out of the Merger to the
fullest extent permitted or required by the Valley Articles and the Valley
Bylaws and the comparable governing documents of the Bank. Norwest has also
agreed to ensure that all rights to indemnification and limitations of
liability existing in favor of those officers, directors and employees with
respect to claims arising from facts or events occurring before completion of
the Merger will continue in full force and effect after the Merger. In
addition, for a period of three years after the Effective Time of the Merger,
Norwest is to use its best efforts to cause the directors and officers of
Valley and its subsidiaries to continue to be covered by Valley's directors'
and officers' liability insurance policy (or substantially equivalent
coverage) at an annual cost not to exceed 125% of Valley's premium payment for
Valley's current coverage.
Cleve T. Breedlove Employment and Non-Competition Agreement. Cleve T.
Breedlove, who serves as Chairman of the Board and Chief Executive Officer of
Valley, has entered into an Employment and Non-Competition Agreement, dated as
of May 2, 1997, with Valley, the Bank, and Norwest. Pursuant to the terms of
such agreement, commencing upon completion of the Merger, Norwest will employ
Mr. Breedlove as Chairman of the Board and Chief Executive Officer of the
Bank. The term of Mr. Breedlove's employment will be for two years, unless the
term is renewed or extended by Norwest and Mr. Breedlove. Mr. Breedlove will
receive annual compensation of $300,000, and he will be eligible to
participate in Norwest's Incentive Compensation Plan. Following the
termination of his employment with Norwest, Mr. Breedlove will be subject to
restrictions against engaging in the business of banking in certain Texas
counties for a period of one year. Mr. Breedlove will receive a total of
$300,000 for abiding by these restrictions, payable in two equal installments.
The first installment is payable when the restrictions take effect--that is,
after termination of his employment with Norwest. The second installment is
payable one year later.
John A. Calkins Employment and Non-Competition Agreement. John A. Calkins,
who serves as President and a director of Valley, has entered into an
Employment and Non-Competition Agreement, dated as of May 2, 1997, with
Valley, the Bank, and Norwest. Pursuant to the terms of such agreement,
commencing upon completion of the Merger, Norwest will employ John A. Calkins
as Vice Chairman of the Bank. The term of Mr. Calkins' employment will be for
one year, unless the term is renewed or extended by Norwest and Mr. Calkins.
Mr. Calkins will receive annual compensation of $200,000 during the first year
of the term, and he will be eligible to participate in Norwest's Incentive
Compensation Plan. After the first year, Norwest may increase Mr. Calkins'
compensation based on his performance. Following the termination of his
employment with Norwest, Mr. Calkins will be subject to restrictions against
engaging in the business of banking in certain Texas counties for a period of
one year. Mr. Calkins will receive a total of $200,000 for abiding by these
restrictions, payable in two equal installments. The first installment is
payable when the restrictions take effect--that is, after termination of his
employment with Norwest. The second installment is payable one year later.
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<PAGE>
Gary L. Kimberling Employment and Non-Competition Agreement. Gary L.
Kimberling, who serves as Vice President and Secretary of Valley, has entered
into an Employment and Non-Competition Agreement, dated as of May 2, 1997,
with Valley, the Bank, and Norwest. Pursuant to the terms of such agreement,
commencing upon the completion of the Merger, Norwest will employ Gary L.
Kimberling as Executive Vice President and Chief Financial Officer of the
Bank. The term of Mr. Kimberling's employment will be for one year, unless the
term is renewed or extended by Norwest and Mr. Kimberling. Mr. Kimberling will
receive annual compensation of $150,000 during the first year of the term, and
he will be eligible to participate in Norwest's Incentive Compensation Plan.
After the first year, Norwest may increase Mr. Kimberling's compensation based
on his performance. Following the termination of his employment with Norwest,
Mr. Kimberling will be subject to restrictions against engaging in the
business of banking in certain Texas counties for a period of one year. Mr.
Kimberling will receive a total of $150,000 for abiding by these restrictions,
payable in two equal installments. The first installment is payable when the
restrictions take effect--that is, after termination of his employment with
Norwest. The second installment is payable one year later.
James Manatt Employment and Non-Competition Agreement. James Manatt, who
serves as Vice President of Valley, has entered into an Employment and Non-
Competition Agreement, dated as of May 2, 1997, with Valley, the Bank, and
Norwest. Pursuant to the terms of such agreement, commencing upon the
completion of the Merger, Norwest will employ James Manatt as Executive Vice
President and Chief Credit Officer of the Bank. The term of Mr. Manatt's
employment will be for one year, unless the term is renewed or extended by
Norwest and Mr. Manatt. Mr. Manatt will receive annual compensation of
$150,000 during the first year of the term, and he will be eligible to
participate in Norwest's Incentive Compensation Plan. After the first year,
Norwest may increase Mr. Manatt's compensation based on his performance.
Following the termination of his employment with Norwest, Mr. Manatt will be
subject to restrictions against engaging in the business of banking in certain
Texas counties for a period of one year. Mr. Manatt will receive a total of
$150,000 for abiding by these restrictions, payable in two equal installments.
The first installment is payable when the restrictions take effect--that is,
after termination of his employment with Norwest. The second installment is
payable one year later.
C. Michael Scott Employment and Non-Competition Agreement. C. Michael Scott,
who serves as Vice President of Valley, has entered into an Employment and
Non-Competition Agreement, dated as of May 2, 1997, with Valley, the Bank, and
Norwest. Pursuant to the terms of such agreement, commencing upon the
completion of the Merger, Norwest will employ C. Michael Scott as Executive
Vice President and Chief Administrative Officer of the Bank. The term of Mr.
Scott's employment will be for one year, unless the term is renewed or
extended by Norwest and Mr. Scott. Mr. Scott will receive annual compensation
of $150,000 during the first year of the term, and he will be eligible to
participate in Norwest's Incentive Compensation Plan. After the first year,
Norwest may increase Mr. Scott's compensation based on his performance.
Following the termination of his employment with Norwest, Mr. Scott will be
subject to restrictions against engaging in the business of banking in certain
Texas counties for a period of one year. Mr. Scott will receive a total of
$150,000 for abiding by these restrictions, payable in two equal installments.
The first installment is payable when the restrictions take effect--that is,
after termination of his employment with Norwest. The second installment is
payable one year later.
ICP Payments. Pursuant to the terms of the ICP, the ICP Participants will be
entitled to receive ICP Payments in the form of shares of Norwest Common Stock
based on a formula set forth in the ICP. These shares will be issued as of the
Effective Time of the Merger in the following amounts for the following ICP
Participants:
<TABLE>
<CAPTION>
NAME ALLOCATION
---- --------------
<S> <C>
Cleve T. Breedlove................. 187,220 shares
John A. Calkins.................... 110,162 shares
Gary L. Kimberling................. 62,422 shares
James Manatt....................... 62,422 shares
C. Michael Scott................... 62,422 shares
</TABLE>
27
<PAGE>
Retention Bonus Payments. Pursuant to the terms of certain business
completion payment program agreements by and between the Bank and certain
officers of the Bank, the Bank has agreed to pay a cash bonus to such officers
for and in consideration of their continued employment and performance of
their duties to the Bank through the Effective Time of the Merger.
Approximately 46 employees of the Bank have executed such agreements. The
amount of such bonuses vary based upon the employee's seniority and
compensation, and range from $3,500 to $72,000, for an aggregate of $675,340.
Of such amount, Cleve T. Breedlove, Chairman of the Board and Chief Executive
Officer of Valley, John A. Calkins, President and a director of Valley, Gary
L. Kimberling, Vice President and Secretary of Valley, James Manatt, Vice
President of Valley, and C. Michael Scott, Vice President of Valley, are to
receive cash bonuses of $72,000, $50,400, $35,400, $35,400 and $35,400,
respectively.
APPRAISAL RIGHTS
The following is a summary of the appraisal rights of dissenting
shareholders under Texas law. It is based on the provisions of Articles 5.11,
5.12 and 5.13 of the TBCA, copies of which are attached to this Proxy
Statement-Prospectus as Appendix F. To understand your appraisal rights fully,
you should read these provisions carefully.
What "Dissenters' Rights of Appraisal" Are. Dissenters' rights of appraisal
(or simply "rights of appraisal") refer to the right of shareholders who
disagree with a particular corporate action to receive the cash value of their
shares in lieu of whatever payment is called for by that corporate action.
Under the TBCA, you have this right in connection with the Merger. As a
result, in lieu of receiving shares of Norwest Common Stock, you may elect to
receive the cash value of your shares of Valley Common Stock (including shares
of Valley Common Stock received upon conversion of the Series C Preferred and
the Series D Preferred). The value of your shares will be measured as of the
day immediately before the Merger, excluding any increase or decrease in value
in anticipation of the Merger--that is, the value will not reflect the
expected effects of the Merger on the value of Valley.
YOU MUST TAKE A NUMBER OF SPECIFIC STEPS TO EXERCISE YOUR APPRAISAL RIGHTS.
FAILURE TO TAKE THESE STEPS STRICTLY IN THE MANNER REQUIRED WILL RESULT IN YOU
LOSING YOUR APPRAISAL RIGHTS. IF YOU LOSE YOUR APPRAISAL RIGHTS, YOU WILL BE
BOUND BY THE MERGER AND YOU WILL RECEIVE SHARES OF NORWEST COMMON STOCK FOR
YOUR SHARES OF VALLEY COMMON STOCK (INCLUDING SHARES OF VALLEY COMMON STOCK
RECEIVED UPON CONVERSION OF THE SERIES C PREFERRED AND THE SERIES D
PREFERRED).
Steps You Need to Take to Exercise Your Rights of Appraisal.
Before the Meeting--Notify Valley of your intent to dissent from the Merger
and refrain from voting for the Merger. Before the Meeting, you must deliver
or mail written notice to Valley of your intent to exercise your right to
dissent if the Merger is completed. Your notice must give an address where
Valley can notify you if the Merger is completed. Also, you must not vote any
of your shares in favor of the Merger. SIMPLY VOTING AGAINST THE MERGER IS NOT
SUFFICIENT TO EXERCISE YOUR APPRAISAL RIGHTS. YOU MUST NOTIFY VALLEY AS
MENTIONED ABOVE AND TAKE THE OTHER STEPS DESCRIBED BELOW.
After the Meeting--Demand payment for your shares and submit your share
certificates. If Valley's shareholders approve the Merger and you have taken
the required steps before the Meeting, Valley will deliver or mail written
notice to you of completion of the Merger within 10 days after the Effective
Time of the Merger. You will have 10 days after delivery or mailing of this
notice to you to make a written demand on Valley, as the surviving company in
the Merger, for payment of the fair value of your shares. You must state in
your demand the number of shares of Valley Common Stock (including shares of
Valley Common Stock received upon conversion of the Series C Preferred and the
Series D Preferred) you own and your estimate of the fair value of your
shares. Within 20 days after demanding payment for your shares, you must
submit all of your share certificates to Valley so that Valley can note your
demand on the share certificates.
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<PAGE>
YOU WILL LOSE YOUR APPRAISAL RIGHTS IF YOU FAIL TO DEMAND PAYMENT FOR YOUR
SHARES WITHIN THE REQUIRED 10-DAY PERIOD. ALSO, IF YOU FAIL TO SUBMIT YOUR
SHARE CERTIFICATES WITHIN THE REQUIRED 20-DAY PERIOD, VALLEY HAS THE OPTION TO
TERMINATE YOUR APPRAISAL RIGHTS, UNLESS A COURT OF COMPETENT JURISDICTION FOR
GOOD AND SUFFICIENT CAUSE OTHERWISE DIRECTS.
How the Fair Value of Your Shares Will be Determined.
You and Valley Agree on an Estimated Fair Value. Within 20 days after Valley
receives your demand for payment, it will deliver or mail notice to you
indicating whether it accepts your estimate of the fair value of your shares.
If Valley accepts your estimate, it will pay this amount within 90 days after
the date the Merger is completed, upon surrender of your duly endorsed share
certificates. If Valley does not accept your estimate, it will state in the
notice its estimated fair value of your shares. You will have 60 days after
completion of the Merger to accept Valley's estimated value. If you do, Valley
will pay this amount to you within 90 days after completion of the Merger,
upon surrender of your duly endorsed share certificates. Upon payment to you
of the agreed value, whether based on your estimate or Valley's estimate, you
will cease to have any interest in your shares or in Valley.
No Agreement is Reached on the Fair Value of Your Shares--Court Ordered
Appraisal. If you do not agree with Valley's estimate of the fair value of
your shares, then either you or Valley may file a petition in any court of
competent jurisdiction in Cameron County, Texas, asking the court to determine
the fair value of your shares. The petition must be filed within 120 days
after completion of the Merger. The court will notify by registered mail all
shareholders who have demanded payment for their shares and who have been
unable to reach an agreement with Valley as to the fair value of their shares.
The court's notice will state the time and place of the hearing at which the
court will consider the petition.
The court will appoint one or more appraisers to determine the value of the
Valley Common Stock. The appraisers may examine the books and records of
Valley and conduct such other investigation as they deem proper. The
appraisers must afford a reasonable opportunity to the interested parties to
submit pertinent evidence as to the value of the shares. The appraisers will
then determine the fair value of the shares and report this value to the
office of the clerk of the court. The clerk of the court will notify all
parties of this value. After hearing any legal or factual exceptions to the
report, the court will then determine the fair value of the shares and direct
Valley to pay that value, together with interest for the period beginning 91
days after the Effective Time of the Merger and ending on the date of the
court's decision, to the shareholders entitled to payment, upon surrender of
their duly endorsed share certificates. The court's determination of the value
of the Valley Common Stock will be binding on Valley and all shareholders who
have been so notified. Upon payment of this amount, dissenting shareholders
will cease to have any interest in their shares or in Valley. The court allows
the appraisers a reasonable fee as court costs, and all court costs are
allotted between the parties in a manner that the court determines is fair and
equitable.
Withdrawing Your Demand for Payment. You may withdraw your demand for
payment at any time before payment for your shares and before any petition is
filed seeking a determination of the fair value of the shares. With Valley's
consent, you may withdraw your demand after the petition is filed.
When You Will be Presumed to Have Approved the Merger. You will be presumed
to have approved the Merger if (a) you withdraw your demand for payment within
the time allowed, (b) Valley has terminated your appraisal rights because you
did not, within the time allowed, submit your share certificates to Valley for
notation of your demand for payment, (c) no petition for a court hearing was
filed within the time allowed or (d) a petition is filed but the court
determines that you are not entitled to exercise dissenters' appraisal rights.
If you are presumed to have approved the Merger, you will be bound by the
Merger and will cease to have any rights in the shares or in Valley. Upon
surrender of your duly endorsed certificates for your shares of Valley Common
Stock (including shares of Valley Common Stock received upon conversion of the
Series C Preferred and the Series D Preferred), you will receive shares of
Norwest Common Stock and will be entitled to receive any dividends and other
distributions made to stockholders of Norwest since completion of the Merger.
29
<PAGE>
Right of Appraisal is Your Only Remedy if You Object to the Merger. In the
absence of fraud, the remedy provided by Article 5.12 of the TBCA is the
exclusive remedy for the recovery of the value of your shares if you object to
the Merger. If Valley complies with the requirements of Article 5.12 but you
do not, you will not be entitled to bring suit for the recovery of the value
of your shares or money damages with respect to the Merger.
EXCHANGE OF CERTIFICATES
After completion of the Merger, Norwest Bank Minnesota, National
Association, acting as exchange agent for Norwest, will mail to each holder of
record of shares of Valley Common Stock (including shares of Valley Common
Stock received upon conversion of the Series C Preferred and the Series D
Preferred) a form of letter of transmittal, together with instructions for the
exchange of the holder's stock certificates for certificates representing
Norwest Common Stock.
VALLEY'S 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 Merger will be paid to the holder of any certificates for
shares of Valley Common Stock (including shares of Valley Common Stock
received upon conversion of the Series C Preferred and the Series D Preferred)
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 Valley 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 Merger, no transfers will be permitted on the books
of Valley. If, after completion of the Merger, certificates for Valley 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, Valley, the exchange agent or any other person will be
liable to any former holder of Valley 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 Merger is subject to the prior approval of the Federal Reserve Board.
The Merger is also subject to certain filing and other requirements of the
Texas Department of Banking. The approval of the Federal Reserve Board is
required because Norwest is a bank holding company registered under the Bank
Holding Company Act.
30
<PAGE>
Norwest filed an application with the Federal Reserve Board requesting
approval of the Merger, and received such approval on September 5, 1997.
The approval of an application means only that the regulatory criteria for
approval have been satisfied or waived. It does not mean that the Federal
Reserve Board has determined that the consideration to be received by Valley's
shareholders is fair. Regulatory approval does not constitute an endorsement
or recommendation of the Merger.
Norwest and Valley are not aware of any governmental approvals or compliance
with banking laws and regulations that are required for the Merger to become
effective other than those described above. Norwest and Valley intend to seek
any other approval and to take any other action that may be required to effect
the Merger. There can be no assurance that any required approval or action can
be obtained or taken prior to the Meeting. See "THE REORGANIZATION AGREEMENT--
Conditions to Completion of the Merger" and "--Termination of the
Reorganization Agreement."
EFFECT ON EMPLOYEE BENEFIT PLANS
The Reorganization Agreement provides, in general, that each person who is
an employee of Valley at the Effective Time of the Merger will be eligible to
participate in Norwest's employee welfare and retirement plans. Norwest
sponsors and maintains the following employee welfare benefit plans: Norwest
Medical Plan, Norwest Dental Plan, Norwest Vision Plan, Norwest Short Term
Disability Plan, Norwest Long Term Disability Plan, Norwest Long Term Care
Plan, Norwest Flexible Benefits Plan, Norwest Basic Group Life Insurance Plan,
Norwest Group Universal Life Insurance Plan, Norwest Dependent Group Life
Insurance Plan, Norwest Business Travel Accident Insurance Plan, Norwest
Accidental Death and Dismemberment Plan, Norwest Severance Pay Plan, and
Norwest Vacation Program (collectively "Welfare Benefit Plans").
The Reorganization Agreement provides that each Valley employee will be
eligible to participate in the Welfare Benefit Plans, subject to any
eligibility requirements that may exist with respect to each respective plan.
However, no Valley employee will be subject to any preexisting conditions
found in any of the Welfare Benefit Plans (except for such conditions found in
the Norwest Long Term Care Plan). Notwithstanding the above, each eligible
Valley employee will be eligible to participate in each of the Welfare Benefit
Plans no later than the first day of the calendar quarter which begins at
least 32 days after the Effective Time of the Merger. In any event, Norwest
intends to transition all Valley employees to the Welfare Benefit Plans
without causing any gaps in coverage to Valley's employees and without
duplication in costs to Norwest.
Each employee of Valley will also be eligible to participate in the Norwest
Savings-Investment Plan ("SIP"), subject to any eligibility requirements
applicable to the SIP. The Valley employees will become eligible to
participate in the SIP no later than the first day of the calendar quarter
which begins at least 32 days after the Effective Time of the Merger. Valley
employees will receive full credit for years of past service with Valley for
purposes of satisfying any eligibility and vesting periods found in the SIP,
but only to the extent credited under the ESOP.
The ESOP, including all of the ESOP's assets, is expected to be merged with
the SIP (the "Plan Merger") as of January 1, 1998. Shares of the Valley Common
Stock that are not allocated to ESOP Participants as of the Effective Time of
the Merger will be exchanged for equivalent shares of Norwest Common Stock as
of the Effective Time of the Merger. Until the date of the Plan Merger, ESOP
Participants will be allowed to make "Elective Contributions" (as defined in
the ESOP) in accordance with the terms of the ESOP. All Elective Contributions
made before the date of the Plan Merger will be allocated to the accounts of
ESOP Participants.
In April 1996, the ESOP incurred $3,000,000 in long-term indebtedness (the
"ESOP Loan"), the proceeds of which were used by the ESOP to purchase 71,429
shares of Valley Common Stock at a price of $42.00 per share. As of June 30,
1997, the total principal indebtedness owed by the ESOP on the ESOP Loan was
31
<PAGE>
$1,964,000. The terms of the ESOP Loan require payment of quarterly
installments of principal in the amount of $107,000, plus accrued interest,
until the ESOP Loan is repaid in full.
At the time the ESOP Loan was made, the ESOP Loan was secured by a pledge of
the entire 71,429 shares of Valley Common Stock purchased by the ESOP from the
proceeds of such loan. Under the terms of the loan agreement and the security
agreement applicable to the ESOP Loan, the lender is obligated, generally, to
release a portion of the Valley Common Stock held as security based upon the
principal and interest paid over the amount of principal and interest
remaining to be paid under the terms of the ESOP Loan. Pursuant to the terms
of the ESOP, the shares of Valley Common Stock released from the pledge (i.e.,
released from the "Unallocated Company Stock Suspense Account" (as defined in
the ESOP)) are allocated to the "Company Stock Account" (as defined in the
ESOP) of each of the ESOP Participants who are eligible to receive such
allocation. As of December 31, 1996, there were 51,871 shares of Valley Common
Stock pledged to secure the ESOP's obligations under the ESOP Loan, and 19,558
shares had been allocated to the accounts of ESOP Participants who were
eligible to receive such allocation. Since that date, the ESOP has made two
additional payments on the ESOP Loan, and the ESOP will make additional
payments on September 30, 1997 and December 31, 1997. As a result of the
payments made during 1997 ("1997 Contributions"), approximately 10,200 pledged
shares of Valley Common Stock (or their equivalent in shares of Norwest Common
Stock after giving effect to the Merger) will be released from the pledge, and
allocated in accordance with the terms of the ESOP to the account of each
eligible ESOP Participant as of December 31, 1997.
The ESOP Loan indebtedness will remain outstanding as of the date of the
Plan Merger. Valley has not or does not intend to make any additional
contributions to the ESOP during 1997 (other than Elective Contributions and
the 1997 Contributions) prior to the date of the Plan Merger. After the date
of the Plan Merger, contributions made under the SIP with respect to the ESOP
Loan will, generally, be allocated to all of the SIP's participants in
accordance with the terms of the SIP.
Each Valley employee will be eligible to participate in the Norwest Pension
Plan under the same terms and conditions as any other newly hired Norwest
employee.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES TO VALLEY'S SHAREHOLDERS
The following discussion describes certain federal income tax consequences
of the Merger to Valley's shareholders. Also included is a discussion of the
federal income tax consequences of the conversion of the Series C Preferred
and the Series D Preferred to Valley Common Stock, immediately prior to the
Merger. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations thereunder, Internal
Revenue Service ("IRS") rulings and pronouncements, reports of congressional
committees, judicial decisions and current administrative rulings and
practice, all as in effect on the date hereof. Any of these authorities could
be repealed, overruled or modified at any time after the date hereof. Any such
change could be retroactive and, accordingly, could modify the tax
consequences discussed herein. No ruling from the IRS with respect to the
matters discussed herein has been requested and there is no assurance that the
IRS will agree with the conclusions set forth in this discussion.
The discussion below does not address all of the federal income tax
consequences that may be relevant to particular shareholders in light of their
personal circumstances or to certain types of shareholders (such as dealers in
securities, insurance companies, foreign individuals and entities, financial
institutions and tax-exempt entities) who may be subject to special treatment
under the federal income tax laws. This discussion also does not address the
federal income tax consequences to holders who acquired their shares of Valley
Common Stock through the exercise of employee stock options or otherwise as
compensation. Furthermore, this discussion does not address any tax
consequences under state, local or foreign laws. This summary assumes that the
shares of Valley Common Stock are held as a "capital asset" within the meaning
of section 1221 of the Code.
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a. Conversion of Series C Preferred and Series D Preferred into Valley
Common Stock. As a condition to the Merger, the holders of the Series C
Preferred and the holders of the Series D Preferred must agree to convert such
preferred stock into Valley Common Stock. Upon such conversion, a holder of
the Series C Preferred or the Series D Preferred will be treated as if they
had received a distribution from Valley in an amount equal to the amount of
dividends accrued and unpaid on the Series C Preferred or the Series D
Preferred from the date of the last payment date on the Series C Preferred or
the Series D Preferred to the Effective Time of the Merger. This deemed
distribution will be taxed pursuant to section 301 of the Code. Under section
301 of the Code, this deemed distribution will be treated as a dividend and
will be taxed as ordinary income to the holders of Series C Preferred or
Series D Preferred to the extent that Valley has accumulated earnings and
profits at the date of the conversion. The management of Valley has
represented that Valley should have accumulated earnings and profits on the
date of the conversion in excess of the amount of the deemed distribution.
The basis of the Valley Common Stock received by the shareholders of Valley
in exchange for their Series C Preferred or Series D Preferred will be equal
to the amount of their basis in their Series C Preferred or Series D
Preferred, increased by the amount of the deemed dividend distribution. The
holding period of the shares of Valley Common Stock received by a holder of
the Series C Preferred or the Series D Preferred will include the holding
period of the Series C Preferred or the Series D Preferred exchanged therefor,
provided such shares were held as a capital asset as of the time of the
conversion.
b. Merger. Subsequent to the conversion of the Series C Preferred and Series
D Preferred into Valley Common Stock discussed immediately above, Norwest VBG
Merger Co. will merge with and into Valley pursuant to the Reorganization
Agreement. The anticipated U.S. federal income tax consequences to Valley's
shareholders as a result of the Merger are as follows:
. The Merger will constitute a reorganization within the meaning of
section 368 of the Code.
. No gain or loss will be recognized by a holder of Valley Common Stock
upon receipt of Norwest Common Stock solely in exchange for such Valley
Common Stock pursuant to the Merger (except to the extent of cash
received in lieu of fractional shares or as a result of exercising
dissenter's or appraisal rights). A 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.
. The basis of the Norwest Common Stock received by the shareholders of
Valley will be the same as the basis of the Valley Common Stock
exchanged therefor, decreased by the tax basis allocated to any
fractional share exchanged for cash.
. The holding period of the shares of Norwest Common Stock received by the
shareholders of Valley will include the holding period of the Valley
Common Stock exchanged therefor, provided such shares were held as a
capital asset as of the time the Merger is completed.
Valley is not required to complete the Merger unless it receives an opinion
of its counsel that these will be the U.S. federal income tax consequences of
the Merger. The opinion may make certain assumptions and may rely on the
representations of the parties to the Merger as to factual matters. The
opinion is not binding on the IRS. There is no assurance that the IRS will not
take a contrary position regarding the tax consequences of the Merger and that
the IRS would not prevail in the event that tax consequences of the Merger
were litigated.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF PARTICIPATING IN THE MERGER OR THE CONVERSION OF
THEIR SERIES C PREFERRED OR SERIES D PREFERRED INTO VALLEY COMMON STOCK,
INCLUDING THE APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES
IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
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RESALE OF NORWEST COMMON STOCK
The Norwest Common Stock to be issued in the Merger will be freely
transferable under the Securities Act, except for shares issued to Valley's
shareholders who are considered to be "affiliates" of Valley or Norwest under
the SEC's Rule 145 or of Norwest under the SEC's Rule 144. The definition of
"affiliate" is complex and depends on the specific facts, but generally
includes directors, executive officers, 10% shareholders and other persons
with the power to direct the management and policies of the company in
question.
Affiliates of Valley may not sell the shares of Norwest Common Stock
received in the Merger 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
the SEC's Rule 144 and Rule 145. 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.
Valley 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 Valley
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 Merger except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations promulgated thereunder.
This Proxy Statement-Prospectus does not cover any resales of Norwest Common
Stock received by affiliates of Valley.
STOCK EXCHANGE LISTING
The shares of Norwest Common Stock to be issued in the Merger will be listed
on the New York Stock Exchange and the Chicago Stock Exchange.
ACCOUNTING TREATMENT
Norwest will account for its acquisition of Valley using the pooling of
interests method of accounting. Under this method, the assets and liabilities
of Valley will be carried forward to Norwest at their historical recorded
values. Because the Merger is not material to the consolidated financial
statements of Norwest, Norwest will not restate its balance sheet amounts and
results of operations for prior periods to reflect the combination of Valley
with Norwest.
The unaudited pro forma data included in this Proxy Statement-Prospectus for
the Merger have been prepared using the pooling of interests method of
accounting. See "SUMMARY--Comparative Per Common Share Data."
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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. Valley's 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 Valley by Norwest is to be accomplished
through the merger of Norwest VBG Merger Co., a newly formed, wholly-owned
subsidiary company of Norwest, with Valley. Valley is to be the surviving
company and is to become a wholly-owned subsidiary of Norwest. Pursuant to the
Merger, Valley's shareholders will receive shares of Norwest Common Stock for
their shares of Valley Common Stock (including shares of Valley Common Stock
received upon conversion of the Series C Preferred and the Series D
Preferred). Norwest stockholders will continue to own shares of Norwest Common
Stock after consummation of the Merger. (paragraph 1(a))
Consideration.
Norwest Common Stock. Except with respect to fractional shares as
described below and shares as to which dissenters' rights have been
exercised, if the Reorganization Agreement is approved and the Merger
becomes effective, and because the Merger will in all likelihood become
effective after the anticipated record date for payment of the regular
quarterly dividend on Norwest Common Stock for the fourth quarter of 1997,
Norwest will exchange a total of 2,806,732 shares of Norwest Common Stock
for all outstanding shares of Valley Common Stock (including shares of
Valley Common Stock received upon conversion of the Series C Preferred and
the Series D Preferred). Pursuant to the Reorganization Agreement, and
subject to approval by the holders of the Series C Preferred of the Series
C Amendment and approval by the holders of the Series D Preferred of the
Series D Amendment, each share of the Series C Preferred and Series D
Preferred will be converted into 1.5235 shares of Valley Common Stock
immediately prior to the Merger. Based on 785,322 shares of Valley Common
Stock outstanding after conversion of the Series C Preferred and Series D
Preferred, each share of Valley Common Stock outstanding immediately prior
to the Effective Time of the Merger will be automatically converted into
and exchanged for approximately 3.57 shares of Norwest Common Stock.
(Sections 1(a) and 2(c))
THE PRICE OF NORWEST COMMON STOCK, AND THUS THE VALUE OF THE
CONSIDERATION TO BE RECEIVED IN THE MERGER BY VALLEY'S SHAREHOLDERS, WILL
FLUCTUATE BETWEEN THE DATE OF THIS PROXY STATEMENT-PROSPECTUS AND THE
EFFECTIVE TIME OF THE MERGER. THERE CAN BE NO ASSURANCE THAT THE PRICE OF
NORWEST COMMON STOCK AS OF THE EFFECTIVE TIME OF THE MERGER WILL BE THE
SAME AS THE PRICE OF NORWEST COMMON STOCK AS OF THE DATE OF THIS PROXY
STATEMENT-PROSPECTUS OR AS OF THE DATE OF THE MEETING.
Cash in Lieu of Fractional Shares. If the aggregate number of shares of
Norwest Common Stock you are to receive in the Merger does not equal a
whole number, you are to receive cash in lieu of the fractional share. The
cash payment is to 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 NYSE for each of the five trading days ending on the day immediately
preceding the Meeting. (paragraph 1(c))
Completion. Norwest and Valley expect the Merger to be completed promptly
after approval of the Merger by Valley's shareholders and the satisfaction
(or waiver) of the conditions to completion contained in the Reorganization
Agreement, including the receipt of all required regulatory approvals.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains various representations and warranties
by Norwest and Valley as to, among other things, (a) their organization and
legal authority to engage in their respective businesses, (b)
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their capitalization, (c) their corporate authority to enter into the
Reorganization Agreement and complete the Merger, (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 Merger, they function primarily as a due diligence device and a closing
condition (that is, they have to continue to be true in all material respects
until the Merger is completed).
CERTAIN COVENANTS
The Reorganization Agreement contains various covenants and agreements that
govern the actions of Valley, the Bank and Norwest pending completion of the
Merger. Some of the more important covenants are summarized below.
Conduct of Business.
Valley. Valley has agreed that Valley, Valley Delaware and the Bank will
each maintain their corporate existence in good standing, maintain the
general character of their business, and conduct their business in the
ordinary and usual manner. Subject to certain exceptions, Valley, Valley
Delaware and the Bank are each required to obtain the consent of Norwest
before making any new loans or modifying, restructuring or renewing any
existing loan if, when aggregated with all other loans or extensions of
credit to such person, such loan would be more than $300,000. The
Reorganization Agreement places restrictions on the ability of Valley,
Valley Delaware and the Bank to take certain actions without Norwest's
consent, including (a) incurring indebtedness (other than deposit
liabilities), (b) granting rights to acquire shares of their capital stock,
(c) issuing shares of their capital stock, (d) declaring dividends or
purchasing their capital stock (except dividends declared by Valley
Delaware or the Bank in accordance with applicable law and regulation or
dividends to be paid on the Series C Preferred and the Series D Preferred
in accordance with the terms thereof), (e) selling their assets other than
in the ordinary course of business, and (f) raising the compensation of
their officers and directors except pursuant to existing compensation
plans. (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, among other matters, to maintain its
corporate existence in good standing and 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. Valley has agreed that neither it, Valley
Delaware nor the Bank will directly or indirectly solicit, authorize the
solicitation of, or, except as noted below, enter into any discussions
with, any third party concerning any offer or possible offer to (a)
purchase the common stock of Valley, Valley Delaware or the Bank, any
security convertible into the common stock of Valley or the Bank, or any
other equity security of Valley, Valley Delaware or the Bank, (b) make a
tender or exchange offer for any shares of the common stock or other equity
security of Valley, Valley Delaware or the Bank, (c) purchase, lease or
otherwise acquire the assets of Valley, Valley Delaware or the Bank except
in the ordinary course of business, or (d) merge, consolidate or otherwise
combine with Valley, Valley Delaware or the Bank. Valley, Valley Delaware
or the Bank may enter into negotiations concerning the foregoing if the
Valley Board concludes, in good faith, after taking into account the advice
of its counsel, that to fail to do so would violate its fiduciary
obligations under applicable law. Valley 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 Merger. In addition, Valley 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 Valley's business after
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the Merger, and (b) use its best efforts to deliver to Norwest prior to
completion of the Merger signed representations substantially in the form
attached as Exhibit B to the Reorganization Agreement from each executive
officer, director or shareholder of Valley who may reasonably be deemed an
"affiliate" of Valley within the meaning of each term used in the SEC's
Rule 145. (paragraphs 4(l) and 4(m)) See "THE MERGER--Resale of Norwest
Common Stock."
Conditions to the Completion of the Merger. Under the Reorganization
Agreement, various conditions are required to be met before the parties are
obligated to complete the Merger. For the most part, these conditions are
customary and include such items as the receipt of shareholder and regulatory
approval of the Merger and, approval of the listing of the shares of Norwest
Common Stock on the NYSE and the Chicago Stock Exchange and the receipt by
Valley 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 effect on Valley. Each of
these last three conditions is subject to a "materiality" standard. The Merger
is subject to the condition that it qualifies for pooling of interests
accounting treatment. The Merger is also subject to (i) approval by the
holders of the Series C Preferred of the Series C Amendment; (ii) approval by
the holders of the Series D Preferred of the Series D Amendment; and (iii)
approval by Valley's shareholders of the ICP Payments. Any condition to the
Merger may be waived by the party seeking to assert the condition. (paragraphs
6 and 7)
Covenants Regarding Employee Benefit Plans. The Reorganization Agreement
contains certain agreements with respect to the participation of Valley's
employees in Norwest's employee welfare and retirement plans (paragraph 8).
See the information provided above under the heading "THE MERGER--Effect on
Employee Benefit Plans."
TERMINATION OF THE REORGANIZATION AGREEMENT
Termination by Mutual Consent. Norwest and Valley can agree to terminate the
Reorganization Agreement at any time before completion of the Merger.
(paragraph 9(a)(i))
Termination by Either Norwest or Valley. Either Norwest or Valley can
terminate the Reorganization Agreement if any of the following occurs:
. The Merger has not become effective by December 31, 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 Merger to occur on or before
that date). (paragraph 9(a)(ii))
. A 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)(iii))
. The Valley Board determines in good faith that a "Takeover Proposal" (as
defined below) constitutes a "Superior Proposal" (as defined below),
except that Valley can only terminate the Reorganization Agreement if it
has not breached its obligations under paragraph 4(h) of the
Reorganization Agreement and pays Norwest a termination fee of
$1,750,000 at the time of termination. (paragraph 9(a)(v))
"Takeover Proposal" means a bona fide proposal or offer by a person to
make a tender or exchange offer, or to engage in a merger, consolidation or
other business combination involving Valley or to acquire in any manner a
substantial equity interest in, or all or substantially all of the assets
of, Valley.
"Superior Proposal" means a Takeover Proposal that the Valley Board
determines in good faith, after taking into account the advice of counsel,
is more favorable to Valley and its shareholders than the Merger.
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Termination by Norwest. Norwest can terminate the Reorganization Agreement
if:
. The Valley Board withdraws or modifies in a manner materially adverse to
Norwest its approval of the Merger. (paragraph 9(a)(vi))
. Valley's shareholders do not approve the Merger at the Meeting after (1)
an "Acquisition Event" (as defined below) occurs, (2) Valley agrees to
engage in an Acquisition Event, or (3) a third party makes a proposal to
Valley or its shareholders to engage in an Acquisition Event. (paragraph
9(a)(vi))
"Acquisition Event" means any of the following: (a) a merger,
consolidation or similar transaction involving Valley, Valley Delaware, the
Bank or any successor to Valley, Valley Delaware or the Bank, (b) a
purchase, lease or other acquisition in one or a series of related
transactions of assets of Valley, Valley Delaware or the Bank representing
25% or more of the consolidated assets of Valley, Valley Delaware and the
Bank, or (c) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or any similar transaction) in one or a
series of related transactions of beneficial ownership of securities
representing 25% or more of the voting power of Valley, Valley Delaware or
the Bank in each case with or by a person or entity other than Norwest or
an affiliate of Norwest.
. The Meeting is not held before December 31, 1997 and Valley has not
performed its obligations under paragraph 4(c) of the Reorganization
Agreement. (paragraph 9(a)(vi))
Termination by Valley. Subject to the satisfaction of certain notice
requirements, Valley may terminate the Merger Agreement within five business
days after the end of the Index Measurement Period if (A) both (i) the Norwest
Measurement Price is less than $41.00 and (ii) the number obtained by dividing
the Norwest Measurement Price by $50.125 (the closing price of Norwest Common
Stock on the trading day immediately preceding the date of the Merger
Agreement) is less than the number obtained by dividing the Final Index Price
by the Initial Index Price and subtracting 0.15 from such quotient; or (B) the
Norwest Average Price is less than $39.00. (paragraph 9(a)(iv)).
As a result of the two-for-one stock split of Norwest Common Stock paid on
October 10, 1997, Norwest Common Stock began trading at half its pre-split
price on October 14, 1997. Under the terms of the Reorganization Agreement,
the Norwest Common Stock two-for-one split is considered a "Common Stock
Adjustment." As a result, for purposes of determining the Norwest Measurement
Price and the Norwest Average Price, both of which are based on an average of
the closing prices of a share of Norwest Common Stock as reported on the
consolidated tape of the NYSE during a specified number of trading days ending
on the date of the Meeting, the closing price of Norwest Common Stock must be
adjusted proportionately so as to be comparable to what the price of a share
of Norwest Common Stock would have been if the record date for the two-for-one
split had occurred immediately following the Effective Date of the Merger.
(paragraph 9(c)).
For example, the Norwest Measurement Price is the average of the closing
prices of a share of Norwest Common Stock as reported on consolidated tape of
the NYSE during the Index Measurement Period--that is, a period of 20 trading
days ending immediately prior to the date of the Meeting. Since any applicable
Index Measurement Period will begin after October 14 (the date Norwest Common
Stock began trading at half its pre-split price), a Valley shareholder who
wishes to compute the Norwest Measurement Price must first double each closing
price of a share of Norwest Common Stock for each trading day during the Index
Measurement Period before computing the average in order to eliminate the
effect of the two-for-one split. Consequently, assuming the closing price of a
share of Norwest Common Stock reported on the NYSE for a given day during the
Index Measurement Period is $33.00, the closing price should be doubled to
$66.00 per share before the average closing price is computed.
TERMINATION FEE
If Norwest terminates the Reorganization Agreement because the Valley Board
determines that a Takeover Proposal constitutes a Superior Proposal, Valley is
required to pay Norwest a termination fee of $1,750,000
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within five business days after termination. Valley is also required to pay
Norwest a termination fee of $1,750,000 if Norwest terminates the
Reorganization Agreement under one of the circumstances described in
"Termination by Norwest" above and before such termination or within 12 months
after such termination (a) Valley, Valley Delaware, the Bank or any successor
to Valley, Valley Delaware or the Bank agrees to engage in an Acquisition
Event or an Acquisition Event occurs, or (b) the Valley Board approves an
Acquisition Event or recommends to Valley's shareholders the approval of an
Acquisition Event.
EFFECT OF TERMINATION
Generally, if the Reorganization Agreement is terminated by either party,
the Reorganization Agreement 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 Merger
survive termination. (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 Valley can amend the Reorganization Agreement at any time before
the Merger is completed; however, the Reorganization Agreement prohibits them
from amending the Reorganization Agreement after the approval of the Merger by
Valley's shareholders if the amendment would change in a manner adverse to
Valley's shareholders the consideration to be received by Valley's
shareholders in the Merger. (paragraph 17)
EXPENSES
Norwest and Valley will each pay their own expenses in connection with the
Merger, including fees and expenses of their respective independent auditors
and counsel, except that if the Reorganization Agreement is terminated in
accordance with its terms, Norwest is to pay Valley an amount equal to
Valley's actual expenses in connection with obtaining environmental
assessments, asbestos surveys, title commitments and boundary surveys required
to be obtained by Valley pursuant to the terms of the Reorganization
Agreement. (paragraphs 9(e) and 10).
SERIES C AMENDMENT
Pursuant to the terms of the Reorganization Agreement, it is a condition
precedent to Norwest's obligation to consummate the Merger that the Series C
Statement of Designation be amended to provide for the conversion of the
Series C Preferred into Valley Common Stock.
The Series C Statement of Designation provides that in case of any
Reorganization Event, the holders of the Series C Preferred may be entitled to
receive the number of shares or other securities or property of Valley, or of
the association or corporation whose securities are offered to the
shareholders of Valley as a result of such Reorganization Event, or the
association or corporation to whom the assets were conveyed as a result of
such Reorganization Event, to which a holder of the number of shares of Series
C Preferred held by such shareholder would have been entitled upon such
Reorganization Event had the shares of Series C Preferred been converted into
Valley Common Stock, and the shares of Valley Common Stock receivable therefor
had been issued and outstanding and such holder been the holder of record of
such shares of Valley Common Stock at the record or effective date thereof,
and lawful provision therefor is to be made as a part of any such
Reorganization Event.
The Series C Statement of Designation further provides that for purposes of
the foregoing, the "Conversion Ratio" (as defined in the Series C Statement of
Designation) applicable during 1997 is be deemed to be applicable in respect
to any such Reorganization Event occurring prior to such year. The Conversion
Ratio refers
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to a "book value per share" calculation based upon a date that occurs after
the proposed Effective Time of the Merger, and accordingly, such Series C
Statement of Designation must be amended in order to permit the calculation of
such Conversion Ratio.
As a result, in order to establish an appropriate exchange ratio for the
Valley Common Stock into shares of Norwest Common Stock, it is necessary to
fix the "book value per share" of Valley. In May 1997, Valley projected the
book value per share as of September 30, 1997, to be $43.76, and the Valley
Board estimated such date to be the closest month end occurring prior to the
Effective Time of the Merger. Accordingly, on May 1, 1997, the Valley Board
adopted a resolution providing that the book value per share of Valley as of
September 30, 1997, for purposes of the Conversion Ratio, is to be $43.76.
Pursuant to the terms of the Series C Statement of Designation, shares of
the Series C Preferred are convertible into Valley Common Stock after December
31, 1997, but prior to December 31, 1998, at a Conversion Ratio of 150% of the
book value per share. In other words, the number of shares of Valley Common
Stock into which the Series C Preferred would be converted is to be determined
by dividing $100.00 (the par value of such Series C Preferred) by 150% of the
book value per share. Assuming a book value per share of $43.76, 150% of such
book value would be $65.64, and the Conversion Ratio would be 1.5235 shares of
Valley Common Stock for each share of Series C Preferred.
In order to fulfill the requirement of the Series C Statement of Designation
that lawful provisions be made for the conversion of the shares of the Series
C Preferred to shares, securities, or other property of a corporation offered
to shareholders of Valley as a result of a Reorganization Event, the Valley
Board adopted resolutions authorizing the Series C Amendment. The text of the
Series C Amendment is included as Appendix C to this Proxy Statement-
Prospectus.
Pursuant to the terms of the Series C Amendment, the Series C Statement of
Designation is to be amended to provide that effective immediately upon the
filing of the Series C Amendment in the office of the Secretary of State of
the State of Texas, each share of the Series C Preferred issued and
outstanding immediately prior to the filing of the Series C Amendment, and all
rights in respect thereof shall thereupon, by virtue of the filing of the
Series C Amendment and without any further action on the part of the holder
thereof, automatically become and be converted into 1.5235 shares of Valley
Common Stock; and all shares of the Series C Preferred and all rights in
respect thereof, by virtue of the filing of the Series C Amendment and without
any further action on the part of the holder thereof, will be permanently
canceled.
No fractions of shares of Valley Common Stock will be issued upon conversion
of the Series C Preferred, but in lieu thereof Valley will pay therefor in
cash the value of any fractional share of Valley Common Stock as computed on
the basis of $100.00 per whole share of Series C Preferred Stock.
Pursuant to resolutions adopted by the Valley Board, the proposal to approve
the Series C Amendment is to be submitted to the holders of the Series C
Preferred simultaneously with the submission to Valley's shareholders of
approval of the Merger.
THE VALLEY BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE SERIES C AMENDMENT.
SERIES D AMENDMENT
Pursuant to the terms of the Reorganization Agreement, it is a condition
precedent to Norwest's obligation to consummate the Merger that the Series D
Statement of Designation be amended to provide for the conversion of the
Series D Preferred into Valley Common Stock.
The Series D Statement of Designation provides that in case of any
Reorganization Event, the holders of the Series D Preferred may be entitled to
receive the number of shares or other securities or property of Valley, or of
the association or corporation whose securities are offered to the
shareholders of Valley as a result of such
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Reorganization Event, or the association or corporation to whom the assets
were conveyed as a result of such Reorganization Event, to which a holder of
the number of shares of Series D Preferred held by such shareholder would have
been entitled upon such Reorganization Event had the shares of Series D
Preferred been converted into Valley Common Stock, and the shares of Valley
Common Stock receivable therefor had been issued and outstanding and such
holder been the holder of record of such shares of Valley Common Stock at the
record or effective date thereof, and lawful provision therefor is to be made
as a part of any such Reorganization Event.
The Series D Statement of Designation further provides that for purposes of
the foregoing, the "Conversion Ratio" (as defined in the Series D Statement of
Designation) applicable on January 1, 2000, is deemed to be applicable in
respect to any such Reorganization Event occurring prior to such date. The
Conversion Ratio refers to a "book value per share" calculation based upon a
date that occurs after the proposed Effective Time of the Merger, and
accordingly, such Series C Statement of Designation must be amended in order
to permit the calculation of such Conversion Ratio.
As a result, in order to establish an appropriate exchange ratio for the
Valley Common Stock into shares of Norwest Common Stock, it is necessary to
fix the "book value per share" of Valley. In May 1997, Valley projected the
book value per share as of September 30, 1997, to be $43.76, and the Valley
Board estimated such date to be the closest month end occurring prior to the
Effective Time of the Merger. Accordingly, on May 1, 1997, the Valley Board
adopted a resolution providing that the book value per share of Valley as of
September 30, 1997, for purposes of the Conversion Ratio, is to be $43.76.
Pursuant to the terms of the Series D Statement of Designation, shares of
the Series D Preferred are convertible into Valley Common Stock after December
31, 1999, but prior to December 31, 2000, at a Conversion Ratio of 150% of the
book value per share. In other words, the number of shares of Valley Common
Stock into which the Series D Preferred would be converted is to be determined
by dividing $100.00 (the par value of such Series D Preferred) by 150% of the
book value per share. Assuming a book value per share of $43.76, 150% of such
book value would be $65.64, and the Conversion Ratio would be 1.5235 shares of
Valley Common Stock for each share of Series D Preferred.
In order to fulfill the requirement of the Series D Statement of Designation
that lawful provisions be made for the conversion of the shares of the Series
D Preferred to shares, securities, or other property of a corporation offered
to shareholders of Valley as a result of a Reorganization Event, the Valley
Board adopted resolutions authorizing the Series D Amendment. The text of the
Series D Amendment is included as Appendix C to this Proxy Statement-
Prospectus.
Pursuant to the terms of the Series D Amendment, the Series D Statement of
Designation is to be amended to provide that effective immediately upon the
filing of the Series D Amendment in the office of the Secretary of State of
the State of Texas, each share of the Series D Preferred issued and
outstanding immediately prior to the filing of the Series D Amendment, and all
rights in respect thereof shall thereupon, by virtue of the filing of the
Series D Amendment and without any further action on the part of the holder
thereof, automatically become and be converted into 1.5235 shares of Valley
Common Stock; and all shares of the Series D Preferred and all rights in
respect thereof, by virtue of the filing of the Series D Amendment and without
any further action on the part of the holder thereof, will be permanently
canceled.
No fractions of shares of Valley Common Stock will be issued upon conversion
of the Series D Preferred, but in lieu thereof Valley will pay therefor in
cash the value of any fractional share of Valley Common Stock as computed on
the basis of $100.00 per whole share of Series D Preferred Stock.
Pursuant to resolutions adopted by the Valley Board, the proposal to approve
the Series D Amendment is to be submitted to the holders of the Series D
Preferred simultaneously with the submission to Valley's shareholders of
approval of the Merger.
THE VALLEY BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE SERIES D AMENDMENT.
41
<PAGE>
ICP PAYMENTS
Valley's shareholders are being asked to vote on five separate proposals to
approve ICP Payments to be made to certain members of Valley's management. Set
forth below is a description of the provisions of the ICP Plan pursuant to
which the ICP Payments become payable, the amount of the ICP Payments, the
manner in which such payments were computed, and the recipients thereof.
General. Valley has adopted the Valley ICP to provide additional incentive
for senior management officers and employees of Valley and its subsidiaries to
increase the earnings of Valley on a long-term basis, to attract and retain
persons of outstanding competence in the employ of Valley and its subsidiaries
and to further the identity of interests of the senior management with those
of Valley's shareholders.
In accordance with the terms of the Valley ICP, the Valley Board has
previously established an Incentive Compensation Committee, consisting of all
directors of Valley that are not employees of Valley or the Bank (the "ICP
Committee"). The ICP Committee is authorized to interpret the Valley ICP, and
decisions of the ICP Committee are to be final, conclusive and binding upon
Valley, its shareholders and the ICP Participants. Pursuant to the terms of
the Valley ICP, the ICP Committee has the authority to select the employees of
Valley who are eligible to participate in the Valley ICP, determine the
allocation of any award made pursuant to the Valley ICP, and determine the
timing of participation by any employee and the timing and conditions upon
which amounts become payable under the Valley ICP.
Participation in the Valley ICP is limited to officers and employees of
Valley and its subsidiaries who, in the opinion of the ICP Committee, comprise
senior management. Pursuant to resolutions of the ICP Committee, the ICP
Committee has designated Cleve T. Breedlove, who serves as Chairman of the
Board and Chief Executive Officer of Valley, John A. Calkins, who serves as
President and a director of Valley, Gary L. Kimberling, who serves as Vice
President and Secretary of Valley, James Manatt, who serves as Vice President
of Valley, and C. Michael Scott, who serves as Vice President of Valley, as
the ICP Participants. Each ICP Participant is awarded an allocation percentage
of the total awards to be granted under the Valley ICP (see the table set
forth below).
The Valley ICP is to be in effect until December 31, 1999. The Valley ICP
sets forth certain "target values" for the Valley Common Stock for each year
in which the Valley ICP is in effect. The value of each ICP Participant's
account established pursuant to the Valley ICP is to be determined by
multiplying each ICP Participant's allocation percentage by 0.3123, multiplied
by the difference between the target value less the "Fair Market Value" (as
defined in the Valley ICP) of a share of Valley Common Stock. A portion of the
ICP Participant's account is to be vested each year that the ICP Participant
remains an employee of Valley or one of its subsidiaries.
The Valley ICP further provides that in the event of a "change in
ownership", Valley is to pay each ICP Participant his interest in his account
by determining the Fair Market Value of the ICP Participant's account as of
the date of such change in ownership. Pursuant to the terms of the Valley ICP,
a "change in ownership" means and is deemed to have occurred as of, among
other events, the effective date of a merger or consolidation of Valley with
one or more other corporations as a result of which the holders of the
outstanding voting stock of Valley immediately prior to the merger hold less
than 50% of the combined voting power of the surviving or resulting
corporation. Accordingly, the Merger will constitute a change in ownership
under the terms of the Valley ICP, which change in ownership will be effective
at the Effective Time of the Merger. In the event of a change in ownership,
then the Fair Market Value is to be the weighted average sales price of the
Valley Common Stock sold during the twelve months preceding the change in
ownership, including the number of shares and sales price for the transaction
in which the change in ownership occurs.
In order to determine the amounts payable under the Valley ICP using the
mathematical formulas contained in the Valley ICP, certain information is
required to be known as of the date of the change in ownership. Although it
would be possible to calculate all amounts after the Effective Time of the
Merger, such approach
42
<PAGE>
would require a very complicated description to all shareholders in the proxy
materials of the specific calculations made under the terms of the Valley ICP
and the use of numerous examples (explaining several assumptions) in computing
such amounts. The ICP Committee believed that this would make the proxy
materials more lengthy and much more complicated, and would make it far more
difficult for Valley's shareholders to understand exactly how many shares of
Norwest Common Stock that they would receive upon consummation of the Merger.
In contrast, by making certain assumptions, it is possible to compute the
amounts to be paid under the Valley ICP, then provide to the shareholders a
simple and specific conversion ratio of the shares of Valley Common Stock for
Norwest Common Stock. The disadvantage to this approach is that if the price
for the Norwest Common Stock falls below the assumed value before the
Effective Time of the Merger, then the ICP Participants would receive slightly
more Norwest Common Stock than they would if the computations were made at the
Effective Time of the Merger. In contrast, if the price for the Norwest Common
Stock were to rise above the assumed value before the Effective Time of the
Merger, then the ICP Participants would receive slightly less Norwest Common
Stock than they would if the computations were made at the Effective Time of
the Merger. The ICP Committee believes that the need for simplification in
disclosures to Valley's shareholders outweighed the need for precision in
calculating the exact amounts that would be payable under the existing terms
of the Valley ICP.
Accordingly, in light of the proposed Merger, for purposes of computing the
number of shares of Norwest Common Stock to be distributed to the ICP
Participants upon consummation of the Merger, the ICP Committee adopted
resolutions providing that the Fair Market Value is to be computed assuming
that (i) the price of the Norwest Common Stock is $51.25 per share, which
represents the closing price of such stock as of the close of business on the
day of execution of the letter of intent with Norwest regarding the Merger,
(ii) the Effective Time of the Merger will occur on October 2, 1997, and (iii)
the shares of Valley Common Stock held by the ESOP that are not allocated to
the accounts of ESOP Participants as of the Effective Time of the Merger are
not deemed to be outstanding for purposes of such calculation.
Based on such assumptions, the aggregate number of shares of Norwest Common
Stock to be issued to the ICP Participants as of the Effective Time of the
Merger is 484,648 shares (the "ICP Shares"), which shares are to be divided
among the ICP Participants as follows:
<TABLE>
<CAPTION>
NAME ALLOCATION PERCENTAGE ALLOCATION
---- --------------------- --------------
<S> <C> <C>
Cleve T. Breedlove................... 38.63% 187,220 shares
John A. Calkins...................... 22.73% 110,162 shares
Gary L. Kimberling................... 12.88% 62,422 shares
James Manatt......................... 12.88% 62,422 shares
C. Michael Scott..................... 12.88% 62,422 shares
</TABLE>
Pursuant to the resolutions adopted by the ICP Committee, at the Effective
Time of the Merger, the Valley ICP shall terminate and the ICP Participants
shall have no right to receive cash, shares of stock or other consideration
pursuant to the Valley ICP, other than the ICP Shares, in satisfaction of
their rights under the Valley ICP. In addition, pursuant to certain consents
executed by each of the ICP Participants, each of the ICP Participants have
agreed that in the event the Merger is consummated, he consents to the
distribution of the ICP Shares in full and complete satisfaction of all rights
and benefits that such ICP Participant may have under the Valley ICP.
Approval of ICP Payments. Section 280G of the Code will disallow the
deduction for any portion of the ICP Payments characterized as an "excess
parachute payment." Also, Section 4999 of the Code will impose a 20%
nondeductible excise tax on the ICP Participants for any portion of the ICP
Payments characterized as an "excess parachute payment." To be "parachute
payments," the ICP Payments must (i) be in the nature of compensation to the
recipients, (ii) be contingent on a change in ownership of Valley, and (iii)
have an aggregate present value that equals or exceeds three times the average
annual compensation paid to the recipients by Valley over the preceding five
years.
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<PAGE>
The ICP Payments will be treated as "excess parachute payments" in an amount
equal to the excess of any parachute payment over the portion of the "base
amount" allocated to such payment. An individual's base amount generally is
the average annual compensation received by such individual and included in
gross income during the last five years.
The ICP Payments appear to be in the nature of compensation to the ICP
Participants. A change in ownership of Valley will occur as a result of the
Merger, and the aggregate value of each of the ICP Payments will exceed three
times the average annual compensation paid to each of the ICP Participants
over the preceding five year period. Accordingly, unless exempted in the
manner described below, the ICP Payments may be parachute payments, a portion
of which may be treated as excess parachute payments.
The adverse federal income tax consequences to Valley and to the recipients
may be avoided if such payments are approved by the vote of disinterested
shareholders owning in excess of 75% of the voting power of all outstanding
shares of Valley immediately preceding the Effective Time of the Merger after
adequate disclosure to all such shareholders of all material facts concerning
the payments. The disclosure set forth in this Proxy Statement-Prospectus is
intended as adequate disclosure to all shareholders of all material facts
concerning the ICP Payments.
Approval of the ICP Payments will require the affirmative vote, of the
holders of at least 75% of the voting power of all outstanding shares of
Valley immediately prior to the Merger held by disinterested shareholders.
Under the applicable provisions of the Code, because the Valley Preferred
Stock is to be converted into Valley Common Stock immediately prior to the
Merger at a conversion ratio of 1.5235 shares of Valley Common Stock for each
share of Valley Preferred Stock, the disinterested holders of Valley Preferred
Stock are entitled to 1.5235 votes per share of Valley Preferred Stock, even
though such holders do not otherwise have the right under Texas law or the
terms of the Valley Preferred Stock to vote on the ICP Payments. In addition,
the disinterested holders of Valley Common Stock are entitled to one vote per
share. The ICP Participants and the spouses, parents, children and
grandchildren of the ICP Participants, are disqualified from voting on the ICP
Payments, and shares of Valley Common Stock and Valley Preferred Stock
beneficially owned by such persons will not be treated as outstanding for
purposes of computing the necessary vote to approve the ICP Payments. As such
persons collectively own 107,996 shares, the affirmative vote of at least 75%
of the remaining 677,327 shares, or at least 507,996 shares, is required for
approval of the ICP Payments.
For purposes of the shareholder vote discussed above, any shareholder of
Valley who is not an individual may exercise its vote through any person
authorized by the entity to vote such shares. However, if a substantial
portion of the assets of the entity consists of stock of Valley, approval of
the ICP Payments must be made by the persons who hold, immediately before
consummation of the Merger, in excess of 75% of the voting power of the
entity. Accordingly, if a shareholder is not an individual, then such entity
will be required to represent to Valley, by execution of the proxy card,
either that (i) the entity owns (directly or indirectly) one percent or less
of the outstanding stock of Valley (by value), or (ii) the total value of the
stock of Valley owned (directly or indirectly) by the entity is less than one-
third (by value) of the assets of the entity, or (iii) the entity's stock of
Valley is one-third or more of its assets, but (a) the ICP Payments have been
approved by a separate vote of the persons who hold, as of the Record Date,
more than 75% of the voting power of the entity, and (b) the entity's stock
and the stock of any member of an affiliated group of which the entity is a
member is not readily tradable on an established securities market or
otherwise.
Because the ESOP owned 177,783 shares of Valley Common Stock as the Record
Date, representing, 26.25% of the voting power of all shares of Valley
anticipated to be outstanding immediately prior to the Merger and not held by
disinterested shareholders, the affirmative vote of the ESOP is required for
the approval of the ICP Payments. With respect to the ESOP, the ESOP is not an
individual and a substantial portion of its assets consist of the Valley
Common Stock. Accordingly, consistent with the requirements set forth above,
the approval of the ICP Payments by the ESOP will require the approval of a
vote of at least 75% of the disinterested Trustees. As the ESOP currently has
three Trustees, all of whom are disinterested, the approval of the ICP
Payments by the ESOP will require the unanimous approval of all of the
Trustees.
44
<PAGE>
Finally, even without the shareholder vote referenced above, any portion of
a parachute payment will be reduced to the extent, if any, that Valley can
show by clear and convincing evidence that some or all of such payment is
"reasonable compensation" for services to be rendered to Valley after the
Merger. Any portion of an excess parachute payment will be reduced to the
extent, if any, that Valley can show by clear and convincing evidence that
some or all of such payment is "reasonable compensation" for services rendered
to Valley prior to the Merger.
The approval of the ICP Payments is a condition precedent to consummation of
the Merger and the payment of the ICP Payments. If the shareholders of Valley
do not approve this proposal, either Norwest or Valley may elect not to
consummate the Merger.
THE ICP COMMITTEE UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO PAY
THE ICP PAYMENTS TO THE ICP PARTICIPANTS.
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<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF VALLEYCAPITAL STOCK AND NORWEST COMMON
STOCK
Valley is a bank holding company incorporated under the laws of the state of
Texas. The rights of Valley's shareholders are governed by the TBCA, the
Valley Articles and the Valley Bylaws. Norwest is incorporated under the laws
of the state of Delaware. The rights of Norwest's stockholders are governed by
the DGCL, the Norwest Certificate and the Norwest Bylaws. Upon completion of
the Merger, Valley's 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 TBCA and the
DGCL, as well as differences between the Valley Articles and Valley Bylaws and
the Norwest Certificate and Norwest Bylaws. You can find additional
information concerning the rights of Norwest's stockholders in the Norwest
Certificate and Norwest Bylaws themselves and Norwest's current report on Form
8-K filed with the SEC on October , 1997 (the "Current Report"). Norwest's
Current Report 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, are incorporated into this Proxy Statement-Prospectus by reference.
See "WHAT INCORPORATED 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 June 30, 1997, there were 748,537,568 shares of Norwest Common
Stock outstanding, 1,046,234 shares of Norwest preferred stock outstanding,
and no shares of Norwest preference stock outstanding. The number of shares of
Norwest Common Stock outstanding at June 30, 1997 has been adjusted to reflect
a two-for-one Norwest Common Stock split in the form of a 100% stock dividend
paid on October 10, 1997 to stockholders of record on October 2, 1997.
Valley. The Articles of Incorporation of Valley, as amended, authorize the
issuance of 2,000,000 shares of Valley Common Stock, of which 745,010 shares
are issued and outstanding as of the date of this Proxy Statement-Prospectus.
Valley is also authorized to issue up to 200,000 shares of Valley Preferred
Stock, of which 10,000 shares have been designated Series A Preferred, 20,126
shares have been designated as Series B Preferred, 10,000 shares have been
designated as Series C Preferred, and 50,000 shares have been designated
Series D Preferred. As of the date of this Proxy Statement-Prospectus, no
shares of the Series A Preferred are outstanding, no shares of the Series B
Preferred are outstanding, 5,650 shares of the Series C Preferred have been
issued and are outstanding, and 20,811 shares of the Series D Preferred have
been issued and are outstanding.
The Series C Certificate of Designation and the Series D Certificate of
Designation set forth the voting powers, preference, conversion rights,
qualifications, limitations, and restrictions applicable to each such series,
respectively. The following is a description of certain rights of the holders
of the Series C Preferred and the Series D Preferred, which will not apply to
the Norwest Common Stock issued in the Merger.
DESCRIPTION OF SERIES C PREFERRED
Dividend Rights. The holders of the Series C Preferred are entitled to
cumulative dividends in the amount of $8.50 per share, per year, payable in
quarterly installments, if and when declared by the Valley Board out of
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<PAGE>
funds legally available for the declaration of dividends. Any deficiency in
dividends accrued by unpaid with respect to the Series C Preferred must first
be fully paid or set apart for payment, without interest, before any
distribution, whether by way of dividends or otherwise, may be declared, or
paid upon, or set apart for the Valley Common Stock or any class of stock
ranking junior to the Series C Preferred. Dividends not declared and paid for
any period accumulate and become payable in subsequent periods or at the time
of a future redemption of the Series C Preferred.
Conversion Rights. The Series C Preferred is convertible at the option of
the holder at any time after December 31, 1997, at the following conversion
ratios:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES
AFTER DECEMBER 31 CONVERSION BASIS PER SHARE OF PREFERRED
----------------- ---------------- -----------------------
<S> <C> <C>
1997 150% of Book Value as of $100.00 divided by 150% of
December 31, 1997 Book Value
1998 140% of Book Value as of $100.00 divided by 140% of
December 31, 1998 Book Value
1999 130% of Book Value as of $100.00 divided by 130% of
December 31 of the Book Value
preceding year
</TABLE>
Where "Book Value" is defined as the sum of the stated value of the common
stock account on the books of Valley plus retained earnings of Valley (or
minus accumulated deficit) plus any other common stock surplus accounts on the
books of Valley divided by the number of shares of Valley Common Stock
outstanding at the appropriate year end. Book Value figures are to be derived
from the audited balance sheet of Valley as of December 31 of the appropriate
year. The conversion ratios are subject to adjustment for any subdivision,
combination, stock distribution or stock dividend that may occur.
Liquidation Rights. The Series C Preferred is senior to the Valley Common
Stock and thus the rights of the Valley Common Stock shareholders to dividends
and assets on liquidation would be subject to the rights of the holders of the
Series C Preferred. The Series C Preferred, and the Series D Preferred rank
equally in the event of liquidation of Valley. Upon liquidation of Valley, the
holders of the Series C Preferred are entitled to receive, after payment of
the full liquidation preference on shares of any class or series of preferred
stock ranking superior to the Series C Preferred (if any such shares are then
outstanding), the amount of $100.00 per share, plus any accrued and unpaid
dividends.
Redemption. Valley, at the option of the Valley Board and subject to any
necessary prior approval of the Federal Reserve, may at any time redeem the
outstanding shares of the Series C Preferred, by paying in cash the sum of
$100.00 per share, plus all accrued and unpaid dividends thereon. Valley is
required to give at least 30 but not more than 90 days prior notice to the
holders of the Series C Preferred of any such redemption. Should only a part
of the outstanding shares of Series C Preferred be redeemed, such redemption
shall be effected by lot, or pro rata, as prescribed by the Valley Board.
Shares of Series C Preferred redeemed by Valley will be restored to the status
of authorized but unissued shares. In the event the Merger is not consummated,
it is anticipated that the Series C Preferred will be redeemed by Valley prior
to December 31, 1997.
Voting Rights. The holders of Valley Series C Preferred are not entitled to
vote for the election of directors or for any matters put to a vote of
Valley's shareholders, except as required by law under the TBCA. Pursuant to
the terms of the TBCA, the holders of the Series C Preferred are entitled to
vote upon a proposed amendment to the Valley Articles, if, among other
matters, the amendment changes the shares into a different number of shares of
another class, such as the Series C Amendment. In addition, the holders of the
Series C Preferred are entitled to vote on the Merger.
Change in Control. In case of any Reorganization Event, the holders of the
Series C Preferred may be entitled to receive the number of shares or other
securities or property of Valley, or of the association or
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<PAGE>
corporation whose securities are offered to the shareholders of Valley as a
result of such Reorganization Event, or the association or corporation to whom
the assets were conveyed as a result of such Reorganization Event, to which a
holder of the number of shares of Series C Preferred held by such shareholder
would have been entitled upon such Reorganization Event had the shares of
Series C Preferred been converted into Valley Common Stock, and the shares of
Valley Common Stock receivable therefor had been issued and outstanding and
such holder been the holder of record of such shares of Valley Common Stock at
the record or effective date thereof, and lawful provision therefor is to be
made as a part of any such Reorganization Event. In order to fulfill the
requirement that lawful provision be made for the conversion of the Series C
Preferred, the holders of the Series C Preferred are being asked to approve
the Series C Amendment at the Meeting. See "SERIES C AMENDMENT."
DESCRIPTION OF SERIES D PREFERRED
Dividend Rights. The holders of the Series D Preferred are entitled to
cumulative dividends in the amount of $8.00 per share, per year, payable in
quarterly installments, if and when declared by the Valley Board out of funds
legally available for the declaration of dividends. Any deficiency in
dividends accrued by unpaid with respect to the Series D Preferred must first
be fully paid or set apart for payment, without interest, before any
distribution, whether by way of dividends or otherwise, may be declared, or
paid upon, or set apart for the Valley Common Stock or any class of stock
ranking junior to the Series D Preferred. Dividends not declared and paid for
any period accumulate and become payable in subsequent periods or at the time
of a future redemption of the Series D Preferred.
Conversion Rights. The Series D Preferred is convertible at the option of
the holder at any time after December 31, 1999, at the following conversion
ratios:
<TABLE>
<CAPTION>
NUMBER OF COMMON SHARES
AFTER DECEMBER 31 CONVERSION BASIS PER SHARE OF PREFERRED
----------------- ---------------- -----------------------
<S> <C> <C>
1999 150% of Book Value as of $100.00 divided by 150% of
December 31, 1999 Book Value
2000 140% of Book Value as of $100.00 divided by 140% of
December 31, 2000 Book Value
2001 130% of Book Value as of $100.00 divided by 130% of
December 31 of the Book Value
preceding year
</TABLE>
Where "Book Value" is defined as the sum of the stated value of the common
stock account on the books of Valley plus retained earnings of Valley (or
minus accumulated deficit) plus any other common stock surplus accounts on the
books of Valley divided by the number of shares of Valley Common Stock
outstanding at the appropriate year end. Book Value figures are to be derived
from the audited balance sheet of Valley as of December 31 of the appropriate
year. The conversion ratios are subject to adjustment for any subdivision,
combination, stock distribution or stock dividend that may occur.
Liquidation Rights. The Series D Preferred is senior to the Valley Common
Stock and thus the rights of the Valley Common Stock shareholders to dividends
and assets on liquidation would be subject to the rights of the holders of the
Series D Preferred. The Series D Preferred, and the Series C Preferred rank
equally in the event of liquidation of Valley. Upon liquidation of Valley, the
holders of the Series D Preferred are entitled to receive, after payment of
the full liquidation preference on shares of any class or series of preferred
stock ranking superior to the Series D Preferred (if any such shares are then
outstanding), the amount of $100.00 per share, plus any accrued and unpaid
dividends.
Redemption. Valley, at the option of the Valley Board and subject to any
necessary prior approval of the Federal Reserve, may at any time redeem the
outstanding shares of the Series D Preferred, by paying in cash the sum of
$100.00 per share, plus all accrued and unpaid dividends thereon. Valley is
required to give at least 30
48
<PAGE>
but not more than 90 days prior notice to the holders of the Series D
Preferred of any such redemption. Should only a part of the outstanding shares
of Series D Preferred be redeemed, such redemption shall be effected by lot,
or pro rata, as prescribed by the Valley Board. Shares of Series C Preferred
redeemed by Valley will be restored to the status of authorized but unissued
shares.
Voting Rights. The holders of Valley Series D Preferred are not entitled to
vote for the election of directors or for any matters put to a vote of
Valley's shareholders, except as required by law under the TBCA. Pursuant to
the terms of the TBCA, the holders of the Series D Preferred are entitled to
vote upon a proposed amendment to the Valley Articles, if, among other
matters, the amendment changes the shares into a different number of shares of
another class, such as the Series D Amendment. In addition, the holders of the
Series D Preferred are entitled to vote on the Merger.
Change in Control. In case of any Reorganization Event, the holders of the
Series D Preferred may be entitled to receive the number of shares or other
securities or property of Valley, or of the association or corporation whose
securities are offered to the shareholders of Valley as a result of such
Reorganization Event, or the association or corporation to whom the assets
were conveyed as a result of such Reorganization Event, to which a holder of
the number of shares of Series D Preferred held by such shareholder would have
been entitled upon such Reorganization Event had the shares of Series D
Preferred been converted into Valley Common Stock, and the shares of Valley
Common Stock receivable therefor had been issued and outstanding and such
holder been the holder of record of such shares of Valley Common Stock at the
record or effective date thereof, and lawful provision therefor is to be made
as a part of any such Reorganization Event. In order to fulfill the
requirement that lawful provision be made for the conversion of the Series D
Preferred, the holders of the Series D Preferred are being asked to approve
the Series D Amendment at the Meeting. See "SERIES D AMENDMENT."
RIGHTS PLAN
Norwest. Each share of Norwest Common Stock (including shares that will be
issued in the Merger) 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.
Valley. Holders of Valley Common Stock or Valley Preferred Stock do not have
any purchase rights similar to holders of Norwest Common Stock.
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 the affirmative vote of the holders of a
majority of the shares of Norwest capital stock entitled to vote thereon.
Vacancies on the Norwest Board may be filled by a majority 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.
Valley. The Valley Bylaws provide for eight directors. The directors serve
for a one year term or until his or her earlier death, resignation or removal.
The directors are elected by holders of a majority of the shares
49
<PAGE>
present at a meeting at which a quorum is present. The directors can be
removed, without cause, by the same vote of Valley's shareholders. The Valley
Articles do not currently permit cumulative voting in the election of
directors.
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.
Valley. Under the TCBA, certain amendments to the Valley Articles require
the affirmative vote of the holders of at least two-thirds of the outstanding
shares entitled to vote thereon, unless any class or series of shares is
entitled to vote thereon as a class, in which event the proposed amendment
shall be adopted upon receiving the affirmative vote of the holders of at
least two-thirds of the shares within each class or series entitled to vote
thereon as a class and of at least two-thirds of the total outstanding shares
entitled to vote thereon. The Valley Bylaws may be amended by a majority of
the Valley Board and also by the holders of a majority of Valley Common Stock
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.
Valley. The TBCA requires certain mergers to be approved by holders of at
least two-thirds of the outstanding shares entitled to vote thereon (if there
is a class of stock that is entitled to vote as a class, then the merger must
be approved by the holders of two-thirds of the outstanding shares of each
class of stock entitled to vote thereon). The TBCA similarly requires that a
sale of all or substantially all of the assets of Valley not made in the
ordinary course of business be approved by the affirmative vote of holders of
at least two-thirds of the outstanding shares entitled to vote thereon. With
respect to the approval of a merger or asset sale, however, the articles of
incorporation may require a vote of a different number, not less than a
majority, of the shares outstanding. The Valley Articles do not provide for a
different number of shares for approval of a merger or asset sale.
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
50
<PAGE>
more than 2,000 stockholders. Norwest Common Stock is listed on the New York
Stock Exchange and the Chicago Stock Exchange and is 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.
Valley. Shareholders of Texas corporations are entitled to exercise certain
dissenters' appraisal rights in the event of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property and assets of the
corporation not made in the ordinary course of business, and with the
exception discussed below, a merger or consolidation. Under Article 5.11B of
the TBCA, however, shareholders do not have dissenters' rights if, in
connection with a merger, the stock of the corporation held by the
shareholders is either listed on a national securities exchange or is held of
record by not less than 2,000 shareholders and, pursuant to the plan of
merger, such shareholder is not required to accept for his or her shares any
consideration other than (a) shares of stock of a corporation which,
immediately after the effective date of the merger, (i) are listed on a
national securities exchange, or (ii) are held of record by not less than
2,000 shareholders, and (b) cash in lieu of fractional shares otherwise
entitled to be received. Shareholders of Valley will receive merger
consideration that satisfies the provisions of TBCA Article 5.11B described in
subparagraphs (a) and (b) above; however, because the Valley Common Stock and
the Valley Preferred Stock are not listed on a national securities exchange
and are held of record by fewer than 2,000 holders, dissenters' appraisal
rights will be available to Valley's shareholders. See "THE MERGER--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.
Valley. Under the TBCA, a special meeting of shareholders of a Texas
corporation may be called by either (a) the president, the board of directors,
or such other person or persons as authorized by the articles of incorporation
or the bylaws, or (b) the holders of shares entitled to cast not less than 10%
of all shares entitled to vote at the meeting, unless a different percentage,
not to exceed 50%, is provided for in the articles of incorporation. The
Valley Bylaws provide that a special meeting may be called only by the
Chairman of the Board and must be called by the Chairman or the Secretary at
the written request of a majority of the Valley Board or at the written
request of shareholders owning not less than 10% of all the shares entitled to
vote at meetings. The Valley Articles do not contain provisions with respect
to special meetings called by shareholders.
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.
Valley. The TBCA does not specifically enumerate the so-called "fiduciary
duties" of a director. Judicial decisions have established that directors must
carry out their duties as a director with due care and loyalty. Due care is
described in certain cases as ordinary care and others as a lack of gross
negligence and intentional misconduct. Directors 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
51
<PAGE>
of the holders of the number of shares that would have been required to effect
the action at an actual meeting of the stockholders.
Valley. Under the TBCA, shareholders may act without a meeting if a consent
in writing to such action is signed by all shareholders. However, the TBCA
also allows the articles of incorporation to provide that any action required
or permitted to be taken at a shareholder's 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
shareholders. The Valley Articles do not provide for shareholder action
without a meeting by less than unanimous consent of its shareholders.
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 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.
Valley. The Texas Miscellaneous Corporations Laws Act permits a
corporation's articles of incorporation to set limits on the extent of a
director's liability except liability for monetary damages cannot be
eliminated for (a) a breach of duty of loyalty to the corporation or its
shareholders, (b) a failure to act in good faith that constitutes a breach of
duty to the corporation or where a director engages in intentional misconduct
or knowingly violates the law, (c) a transaction from which the director
obtains an improper benefit, and (d) an act or omission for which liability is
expressly provided for by statute. The Valley Articles contain provisions
limiting a director's liability consistent with this act.
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 or she 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.
52
<PAGE>
Valley. The TBCA provides that a corporation may indemnify an individual if
the individual (a) acted in good faith, (b) in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the
corporation's best interests and, in all other cases, that his conduct was at
least not opposed to the corporation's interests, and (c) in the case of any
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. The Valley Articles generally provide that directors and officers
shall be indemnified against any costs, expenses and liabilities actually and
necessarily incurred by the director or officer in connection with the defense
of any action, suit or proceeding in which the officer or director is named as
a defendant by reason of having been an officer or director of Valley or the
Bank except that the right of indemnification does not apply if the director
or officer was finally adjudged to be liable for negligence or misconduct.
DIVIDENDS
Norwest and Valley are each subject to Federal Reserve Board policies
regarding payment of dividends, which generally limited dividends to operating
earnings and to limitations on dividends under the provisions of the DGCL and
the TCBA, respectively, as discussed below.
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."
Under the TCBA, a Texas corporation may make distributions if the
distribution does not exceed the corporation's surplus and the corporation
would not become insolvent after giving effect to the distribution. Holders of
Valley Common Stock are entitled to receive dividends ratably when, as and if
declared by the Valley Board from assets legally available therefor, after
payment of all dividends on the Valley Preferred Stock.
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.
Valley. The Valley Bylaws do not contain any specific provisions regarding
nomination of directors or shareholder proposals for items of business at a
shareholders' meeting. The Valley Bylaws provide that special meetings of
shareholders may be called by the president, the board of directors or holders
of 10% of the outstanding Valley Common Stock.
53
<PAGE>
INFORMATION ABOUT VALLEY
GENERAL
Valley is a Texas corporation and registered bank holding company that owns
all of the stock of Valley Delaware, a Delaware corporation and registered
bank holding company. Valley Delaware owns all of the stock of the Bank, a
Texas banking association that operates out of its main banking office in
Harlingen, Texas, and 16 branches located throughout the Rio Grande Valley.
Valley was incorporated as a Texas corporation in 1981, under the name
"Fresnos Bancshares, Inc.," for the purpose of acquiring all of the
outstanding shares of Los Fresnos State Bank, Los Fresnos, Texas. The
acquisition of Los Fresnos State Bank was approved by the Board of Governors
of the Federal Reserve System (the "Federal Reserve") in May 1982, and Valley
became a registered bank holding company in December 1982.
Valley subsequently acquired Sunrise Bank, Brownsville, Texas in 1984.
Valley chartered FirstBank of Port Isabel, N.A., Port Isabel, Texas as a de
novo bank, which began its operations in 1985. In June 1987, Valley changed
its name to "FirstBank Group, Inc." and renamed all of its subsidiary banks as
"FirstBank." In November 1987, Valley acquired Valley National Bank,
Harlingen, Texas, and such bank was merged with and into FirstBank, Los
Fresnos. In 1988, Valley merged all of its subsidiary banks into FirstBank,
Los Fresnos, Texas. Valley subsequently acquired Merchants Marine Bank, Port
Isabel, Texas, and Island Bank, South Padre Island, Texas in 1989. As a result
of such acquisitions and mergers, FirstBank operated out of its main office in
Los Fresnos and maintained branch bank locations in Brownsville, Harlingen,
Olmito, Port Isabel, Rio Hondo and South Padre Island.
In June 1995, Valley merged with Raymondville State Bancshares, Inc.
("Raymondville") and FirstBank merged with and into Raymondville's subsidiary
bank, First Valley Bank, Raymondville, Texas (the "Raymondville Merger"),
thereby adding branches in Donna, McAllen, Pharr, and Raymondville, Texas. In
connection with the Raymondville Merger, Valley changed its name to "First
Valley Bank Group, Inc."
In April 1996, Valley completed its acquisition of all of the stock of Pharr
Financial Corporation ("Pharr Financial"), and its subsidiary bank, Security
State Bank, Pharr, Texas, and in May 1996, Security State Bank was merged with
and into the Bank. In March 1996, the Bank completed the acquisition of
certain assets (primarily real estate, but no loans) and assumed liabilities
(primarily deposits) of the Weslaco, Texas branch of Mercedes National Bank,
Mercedes, Texas.
As of June 30, 1997, Valley had, on a consolidated basis, total assets of
$446 million, total deposits of $402 million and total shareholders' equity of
$31 million. Valley does not, as an entity, engage in separate business
activities of a material nature apart from the activities it performs for
Valley Delaware and the Bank, it owns no significant assets other than the
stock of Delaware and indirectly, the stock of the Bank, and it derives all of
its revenues from the Bank. Because Valley does not engage in any business
other than conducting operations as a bank holding company, Valley's ability
to pay its operating expenses, to satisfy its debt obligations and to pay
dividends to its shareholders is and will be directly and wholly attributable
to and dependent upon the profitability of the Bank and the receipt by Valley
of dividends therefrom.
Valley maintains its principal offices at 203 North Arroyo Boulevard, Los
Fresnos, Texas 78566, and its telephone number is (210) 233-4440.
THE BANK
The Bank is a Texas banking association with its main office in Harlingen,
Texas. The Bank was chartered by the Texas Department of Banking in 1907 as
"Raymondville State Bank", and is the oldest banking institution in the Rio
Grande Valley. In 1990, the Bank acquired certain assets and assumed certain
liabilities associated with Metropolitan National Bank, McAllen, Texas. In
1991, the Bank changed its name to "First Valley Bank". The Bank subsequently
established de novo branches in McAllen and Pharr, Texas. In June 1995,
54
<PAGE>
the Bank merged with FirstBank pursuant to the Raymondville Merger and thereby
became a wholly-owned indirect subsidiary of Valley. The Bank is the sole
banking subsidiary of Valley. The Bank currently operates through its main
office and 16 branches throughout the Rio Grande Valley.
The Bank conducts a general commercial and consumer banking business, which
includes the acceptance of deposits from consumers and the origination of
commercial real estate, installment and other loans. Deposit services include
certificates of deposit, individual retirement accounts and other time
deposits, checking and other demand deposit accounts, interest-bearing
accounts, savings accounts and money market accounts. Loans consist of
commercial loans directed to small and middle market businesses, loans to
individuals, loans to ranchers and farmers and commercial real estate loans,
residential mortgages and construction loans.
The Bank's operating policy is to maintain a full complement of services to
the commercial and agricultural customer as well as consumers. The Bank's
management strives for operating efficiency and profitability and views
banking services and the quality with which they are provided to be a key in
competing effectively in the financial services industry.
COMPETITION
The Bank encounters strong competition both in making loans and attracting
deposits. The state of Texas permits statewide branch banking and statewide
savings and loan branching. Moreover, the Bank competes with other commercial
and savings banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and certain other nonfinancial institutions. The continued
liberalization of the banking and securities industries may also increase
competitive pressures on the Bank.
Management believes the Bank is well positioned to compete successfully in
their primary market area, although no assurances can be given in this regard.
Competition among financial institutions is based upon interest rates offered
on deposit accounts, interest rates charged on loans, other credit and service
charges, the quality and scope of the services rendered, the convenience of
banking facilities, and, in the case of loans to commercial borrowers,
relative lending limits. Management believes, however, that the Bank's long-
term presence, local expertise and ongoing commitment to the community, as
well as its commitment to quality and personalized banking services, are
factors that contribute to the Bank's competitiveness.
REGULATION AND SUPERVISION
Banking is a complex, highly regulated industry. The primary goals of the
bank regulatory scheme are to maintain a safe and sound banking system and to
facilitate the conduct of monetary policy.
Regulation of Valley. As bank holding companies under the Bank Holding
Company Act, Valley and Valley Delaware are registered with and subject to
regulation by the Federal Reserve Board. Valley and Valley Delaware are
required to file annual and other reports with, and furnish information to,
the Federal Reserve, which may make inspections of Valley and Valley Delaware.
The Bank Holding Company Act provides that a bank holding company must
obtain the prior approval of the Federal Reserve Board for the acquisition of
more than 5% of the voting stock or substantially all the assets of any bank
or bank holding company. In addition, the Bank Holding Company Act restricts
the extension of credit to any bank holding company by its subsidiary bank.
The Bank Holding Company Act also provides that, with certain exceptions, a
bank holding company may not (i) engage in any activities other than those of
banking or managing or controlling banks and other authorized subsidiaries or
(ii) own or control more than 5% of the voting shares of any company that is
not a bank. The Federal Reserve Board has deemed certain limited activities to
be closely related to banking and therefore permissible for a bank holding
company to engage. Neither Valley or Valley Delaware have any intention of
engaging in any such activities at this time.
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<PAGE>
The Federal Reserve Board has cease-and-desist powers over parent holding
companies and nonbanking subsidiaries where their actions would constitute a
serious threat to the safety, soundness or stability of a subsidiary bank.
Federal regulatory agencies also have authority to regulate debt obligations
(other than commercial paper) issued by bank holding companies. This authority
includes the power to impose interest ceilings and reserve requirements on
such debt obligations. A bank holding company and its subsidiaries are also
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Under the Federal Reserve Board's risk-based capital guidelines for bank
holding companies, Valley is required to maintain minimum Tier 1 and total
capital to risk-adjusted assets ratios of 4% and 8%, respectively, and a
minimum "leverage ratio" of 3%. At December 31, 1996 and 1995, Valley's Tier 1
and total capital to risk-weighted assets ratios and its leverage ratio were
as follows.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
<S> <C> <C>
Tier 1 to risk-weighted assets..... 9.3% 10.8%
Total capital to risk-weighted
assets............................ 10.5% 12.4%
Leverage Ratio..................... 5.7% 6.5%
</TABLE>
For a general discussion of the Federal Reserve Board's risk-based capital
guidelines and the criteria applied to calculate the ratios, see "CERTAIN
REGULATORY CONSIDERATIONS PERTAINING TO NORWEST--Regulatory Capital Standards
and Related Matters."
Regulation of the Bank. The Bank is subject to various requirements and
restrictions under the laws of the United States and the State of Texas, and
to regulation, supervision and regular examination by the FDIC and the Texas
Department of Banking. The Bank is subject to the power of the FDIC to enforce
compliance with applicable banking statutes and regulations. Such requirements
and restrictions include requirements to maintain adequate capital and
reserves against deposits, restrictions on the nature and amount of loans may
be made and the interest that may be charged thereon and restrictions relating
to investments and other activities of the Bank.
The capital classification of a bank affects the frequency of examinations
of the bank and impacts the ability of the bank to engage in certain
activities and affects the deposit insurance premiums paid by such bank. The
Bank's deposits are insured by the Bank Insurance Fund of the FDIC. Under
applicable law, the FDIC is authorized to assess insurance premiums on a
bank's deposits at a variable rate depending on the probability that the
deposit insurance fund will incur a loss with respect to the bank. (Under
prior law, the deposit insurance assessment was a flat rate, regardless of the
likelihood of loss.) In this regard, the FDIC determines the deposit insurance
assessment rates on the basis of the bank's capital classification and
supervisory evaluations. Each of these categories have three subcategories,
resulting in nine assessment risk classifications. The three subcategories
with respect to capital are "well capitalized," "adequately capitalized" and
"less than adequately capitalized." The three subcategories with respect to
supervisory concerns are "healthy," "supervisory concern" and "substantial
supervisory concern." A bank is deemed "healthy" if it is financially sound
with only a few minor weaknesses. A bank is deemed subject to "supervisory
concern" if it has weaknesses that, if not corrected, could result in
significant deterioration of the bank and increased risk to the Bank Insurance
Fund. A bank is deemed subject to "substantial supervisory concern" if it
poses a substantial probability of loss to the Bank Insurance Fund.
On November 14, 1995 the FDIC approved assessment rates applicable to BIF-
insured institutions to a range of zero to 27 basis points from the previous
range of 4 to 31 points. Deposit insurance premiums for Subgroup A
institutions were reduced to zero beginning with the January 1, 1996
assessment period. Banks within the Subgroup A category will be required to
pay $1,000 per semiannual period as mandated by statute. The Bank was within
the Subgroup A category as of December 31, 1996. For a general discussion
concerning the criteria applied by the FDIC to determine an institution's
insurance premium assessment rate, see "CERTAIN REGULATORY CONSIDERATIONS
PERTAINING TO NORWEST--FDIC Insurance."
56
<PAGE>
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE SOME OF THE RELEVANT LAWS, RULES
AND REGULATIONS GOVERNING BANKS AND BANK HOLDING COMPANIES, BUT DOES NOT
PURPORT TO BE A COMPLETE SUMMARY OF ALL APPLICABLE LAWS, RULES AND REGULATIONS
GOVERNING BANKS AND BANK HOLDING COMPANIES.
EMPLOYEES
Valley is a bank holding company and primarily conducts its operations
through its indirect subsidiary, the Bank. Valley does not have any full-time
employees, and all operations personnel are employed by the Bank. The Bank had
approximately 280 full time equivalent employees as of June 30, 1997. None of
the employees are represented by any collective bargaining agreement, and
management believes its employee relations are good. Valley and its
subsidiaries are equal opportunity employers and provide equal employment
opportunities to individuals without regard to race, sex, age, national
origin, religion, veteran status, handicap or familial status.
PROPERTIES
The operations of Valley are conducted primarily at the offices of the Bank
located at 203 North Arroyo Boulevard, Los Fresnos, Texas. The Bank currently
conducts business operations at 17 locations, including three locations in
Brownsville, two locations in each of Harlingen, Pharr and Port Isabel, and
locations in Donna, Los Fresnos, McAllen, Olmito, Raymondville, Rio Hondo,
South Padre Island and Weslaco. A description of these properties is presented
below. All facilities are owned by the Bank.
<TABLE>
<CAPTION>
PROPERTY LOCATION DESCRIPTION
-------- -------- -----------
<S> <C> <C>
Home Office 1901 South 77 Sunshine Strip 4,500 square foot building with a
Harlingen, Texas separate drive-in bank building of
approximately 900 square feet and
drive-in canopy of approximately
2,325 square feet and an automated
teller machine.
Brownsville/Sunrise 1175 FM 802 10,000 square foot building with
Branch Brownsville, Texas attached 125 square foot drive-in
facilities and automated teller
machine.
Brownsville/Boca 3310 Boca Chica Boulevard 3,500 square foot building with
Chica Branch Brownsville, Texas attached 500 square foot drive-in
facilities and one automated teller
machine.
Dixieland Branch 1206 South Dixieland Road 2,700 square foot building with
Harlingen, Texas attached 500 square foot drive-in
facilities and one automated teller
machine.
Donna Branch 132 South Main Street 11,250 square foot building with 450
Donna, Texas square foot attached drive-in
facilities and automated teller
machine.
Los Fresnos Branch 203 North Arroyo Boulevard 8,750 square foot building with 110
Los Fresnos, Texas square foot attached drive-in
facilities. An automated teller
machine is located approximately one
block from the branch.
McAllen Branch 120 West Nolan 8,000 square foot building with
McAllen, Texas attached 4,200 square foot drive-in
facilities and drive-up automated
teller machine.
Pharr Branch 800 North Jackson 2,500 square foot building with
Pharr, Texas attached 1,800 square foot drive-in
facilities.
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PROPERTY LOCATION DESCRIPTION
-------- -------- -----------
<S> <C> <C>
Pharr / Security 118 South Cage 56,000 square foot building with
State Branch Pharr, Texas attached 2,000 square foot drive-in
facilities.
Port Isabel Branch 1800 W. Highway 100 6,000 square foot building with 150
Port Isabel, Texas square foot attached drive-in
facilities and automated teller
machine.
Port Isabel / 218 East Queen Isabella Boulevard 1,250 square foot building with
Downtown Branch Port Isabel, Texas 1,650 square foot attached drive-in
facilities.
Raymondville 400 West Hidalgo 16,000 square foot building with
Branch Raymondville, Texas separate 2,000 square foot drive-in
facilities and automated teller
machine.
Rancho Viejo FM 511 & U.S. 77/83 2,000 square foot building with
Branch Olmito, Texas attached 240 square foot drive-in
facilities.
Rio Hondo Branch 117 East Colorado 1,460 square foot building with 100
Rio Hondo, Texas square foot attached drive-in
facilities and an automated teller
machine.
South Padre Island 550 Padre Boulevard Single story 2,000 square foot
Branch South Padre Island, Texas modular building with attached
drive-in facilities and an automated
teller machine.
Weslaco Branch 621 International 1,056 square foot building with
Weslaco, Texas attached 240 square foot drive-in
facilities.
</TABLE>
THE ESOP
Valley has historically sponsored the ESOP for the benefit of the employees
of the Bank. The primary purpose of the ESOP is to enable the ESOP
Participants to share in the growth and prosperity of Valley through employer
contributions to the ESOP and to provide the participating employees of Valley
or the Bank with an opportunity to accumulate capital for their future
economic security.
Substantially all of the employees of the Bank are eligible to be ESOP
Participants. Under the ESOP, employee contributions are matched by Valley to
a maximum of 3% of the individual's compensation, as defined in the ESOP.
Additional contributions to the ESOP are determined annually at the discretion
of the Valley Board.
The ESOP is administered by a board of Trustees, composed of individuals
appointed by the Valley Board. Michael Scaief, Senior Vice President of the
Bank, Donna Siddall, Assistant Cashier of the Bank, and Arnulfo Gonzalez,
Executive Vice President of the Bank, currently serve as the Trustees for the
ESOP. The Trustees have authority and responsibility for the management and
investment of the ESOP assets. Under applicable law, the ESOP is required to
invest principally in securities of Valley or any parent or subsidiary of
Valley. As of the Record Date, the ESOP owned 177,783 shares, or 23.86%, of
the Valley Common Stock issued and outstanding.
Applicable law generally provides that the Trustees have the authority to
vote the shares held by the ESOP, whether such shares are allocated to ESOP
Participants or unallocated. With respect to such corporate matters as a
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business or similar transactions, including the Merger, however, each ESOP
Participant is entitled to direct the Trustee as to the exercise of any voting
rights attributable to the ESOP Participant. Any allocated shares of Valley
Common Stock with respect to which voting instructions are not received from
participants may not be voted by the Trustees, and all shares of Valley Common
Stock that are unallocated are to be voted in the manner determined by the
Trustees.
As a shareholder of Valley, the ESOP will participate in the Merger and will
receive the same consideration as the other shareholders of Valley.
58
<PAGE>
INDEBTEDNESS OF VALLEY AND THE ESOP
Notes Payable.
Valley. Valley has incurred indebtedness in connection with acquisitions of
the Bank and other financial institutions now part of the Bank and for other
corporate purposes (the "Valley Loan"). The Valley Loan is represented by a
note payable to Texas Independent Bank. Irving, Texas (the "Lender"), which
has an aggregate principal balance of $2,702,000 as of July 30, 1997. The
Valley Loan is collateralized by a pledge of all of the stock of the Bank and
Valley Delaware. The Valley Loan bears an interest rate equal to the prime
rate quoted daily in the Wall Street Journal, as it may change from time to
time. The principal balance of the Valley Loan is payable on demand, but if no
demand is made, a payment of $741,000 in principal, plus accrued interest, is
due on July 20, 1998, and a final payment of all remaining principal and
accrued interest is due on July 20, 1999.
Valley expects that no demand will be made for the full repayment of the
Valley Loan prior to its maturity, and that the Valley Loan would be renewed
after the end of the loan term and until the Valley Loan has been amortized
over a seven-year period. It is unlikely, however, that Valley will have
sufficient liquid assets available to repay such loan if demand for repayment
is made or if it is not renewed at the end of its term, and therefore Valley
would need to obtain financing in order to repay such loan. There is no
assurance that the Valley Loan will be renewed or that such alternative
financing could be obtained. In the event of a default in the repayment of the
Valley Loan, the Lender could accelerate the loan and make all principal and
accrued interest immediately due and payable or the Lender could acquire all
or part of the stock of the Bank or Valley Delaware that Valley has pledged to
secure the loan. Depending on the amount sold by the Lender, Valley could lose
control of the Bank.
The ESOP. On April 1, 1996, the ESOP incurred the ESOP Loan, the proceeds of
which were used by the ESOP to purchase 71,429 shares of Valley Common Stock
at a purchase price of $42.00 per share. The ESOP Loan is represented by a
note payable to the Lender, which is collateralized by a pledge of 71,429
shares of the Common Stock. Under the terms of such loan, the Lender will be
obligated to release a portion of such shares upon each payment of the ESOP
Loan. In addition, each of Valley and Valley Delaware has executed a guaranty
of the ESOP Loan and have pledged all of the stock of the Bank and Valley
Delaware to secure such indebtedness.
The ESOP Loan bears interest equal to the prime rate quoted daily in the
Wall Street Journal, as it may change from time to time. The principal balance
of the ESOP Loan is due in 27 consecutive quarterly installments of principal
in the amount of $107,000 each, plus accrued interest, beginning on June 30,
1996, and on the last day of September, December, March and June thereafter,
through and including December 31, 2002, with a final payment of all remaining
principal and accrued interest due on March 31, 2003.
In the event of a default in the repayment of the ESOP Loan, the Lender
could accelerate the loan and make all principal and accrued interest
immediately due and payable, or the Lender could acquire all or part of the
stock of Valley Delaware or the Bank that Valley has pledged to secure the
loan.
It is anticipated that the Bank will make contributions to the ESOP in order
for the ESOP to service such indebtedness. Although such indebtedness will be
serviced on a pre-tax basis, the amount of contributions to be made by the
Bank to the ESOP may affect the Bank's ability to pay dividends to Valley in
order for Valley to service the Valley Loan.
Debentures.
Variable Rate Debentures. In 1992 and 1993, Valley offered variable rate
cumulative, subordinated debentures (the "Variable Rate Debentures"). The
Variable Rate Debentures provide for payments of principal in eight equal
annual installments commencing on March 31, 1993, and continuing on the same
date in each year thereafter until the debentures finally mature on March 31,
2000. As of June 30, 1997, the Variable Rate Debentures had an unpaid
principal balance of $484,000. The Variable Rate Debentures accrue interest
payable
59
<PAGE>
quarterly on March 31, June 30, September 30 and December 31 of each year at a
rate equal to 0.5% above the floating prime rate of Chase Manhattan Bank N.A.
("Chase Manhattan Bank").
Upon any acceleration of the principal of the Variable Rate Debentures or
upon any dissolution or winding up of Valley, the payment of such debentures
will be subordinated to the prior payment of any "Senior Indebtedness" of
Valley. Senior Indebtedness is defined as the principal of, premium, if any,
and interest on debt of Valley to banking or other financial institutions,
whether now existing or hereafter created, and any deferrals, renewals,
modifications or extension of any such indebtedness, unless under the express
provisions of the instrument creating or evidencing any such indebtedness, or
pursuant to which the same is outstanding, such indebtedness is not superior
in right of payment to the Variable Rate Debentures. Accordingly, the Variable
Rate Debentures are subordinate to the Valley Loan. At the option of the
holders of the Variable Rate Debentures, the unpaid balance of such debentures
will become immediately due and payable without notice or demand if any
payment required by such debentures is not made when due. The principal and
accrued interest to the date of prepayment of the Variable Rate Debentures may
be prepaid by Valley at any time without penalty.
Serial Debentures. In 1992 and 1993, Valley offered variable and fixed rate
cumulative subordinated debentures in five series (the "Serial Debentures").
The Serial Debentures are cumulative, subordinated debentures and are
unsecured obligations of Valley. The Serial Debentures consist of two classes
of debentures, which classes are designated as the "Serial Variable Rate
Debentures" and the "Serial Fixed Rate Debentures". Each class of the Serial
Debentures was issued in five series having the following terms:
<TABLE>
<CAPTION>
MATURITY ON
SERIES MARCH 31, FIXED INTEREST RATE VARIABLE INTEREST RATE
------ ----------- ------------------- ----------------------
<S> <C> <C> <C>
A 1996 6.75% Prime + .5%
B 1997 7.25% Prime + .5%
C 1998 7.75% Prime + .5%
D 1999 8.25% Prime + .5%
E 2000 8.75% Prime + .5%
</TABLE>
Debentures within each series of both classes of the Serial Debentures are
payable as to principal in a single payment at the respective maturity dates
stated above. The Serial Debentures accrue interest payable quarterly on March
31, June 30, September 30 and December 31 of each year. The Serial Fixed Rate
Debentures bear interest at the respective fixed rates stated above. The
Serial Variable Rate Debentures bear interest at 0.05% above the floating
prime rate of Chase Manhattan Bank, at the close of business on the first date
of the calendar quarter encompassing such regularly scheduled payment date.
Valley has not established a sinking fund for the retirement of the Serial
Debentures.
As of June 30, 1997, Valley had $650,000 in Serial Debentures outstanding.
The Serial Debentures designated as Series A were paid on March 31, 1996 and
the Serial Debentures designated as Series B were paid on March 31, 1997. The
following table sets forth the amount of each class and series of Serial
Debenture outstanding as of June 30, 1997:
<TABLE>
<CAPTION>
SERIES FIXED VARIABLE TOTAL
------ ----- -------- -----
<S> <C> <C> <C>
C $210 $ 10 $220
D 30 50 80
E 260 90 350
---- ---- ----
$500 $150 $650
</TABLE>
The payment of the principal and interest on the Serial Debentures is
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of Valley. No payment may be made by Valley on account of
principal of and interest on the Serial Debentures (i) if there has occurred a
default in the payment of principal of, and premium, if any, or interest on or
with respect to any Senior Indebtedness, (ii) if there has occurred any
default in respect of the Senior Indebtedness in any other agreement, term or
condition contained in any
60
<PAGE>
agreement under which any Senior Indebtedness is issued if the effect of such
default is to cause, or permit the holder or holders of such Senior
Indebtedness (or a trustee on behalf of such holder or holders) to cause, such
Senior Indebtedness to become due prior to its stated maturity and under and
until such default shall have been cured or waived or shall have ceased to
exist, or (iii) upon the maturity of any Senior Indebtedness (whether by
acceleration or otherwise) until such matured Senior Indebtedness shall have
been paid in full or such payment shall have been duly provided for. In
addition, upon any payment or distribution of assets of Valley of any kind or
character, upon any dissolution, winding up, total or partial liquidation or
reorganization or readjustment of Valley, the principal of, and premium, if
any, and interest on all Senior Indebtedness must first be paid in full before
any payment is made on account of the principal of or interest on the Serial
Debentures.
Raymondville Debentures. In 1982, prior to its merger with Valley,
Raymondville issued $1,010,000 in fixed rate subordinated debentures (the
"Raymondville Debentures"). The Raymondville Debentures were originally issued
bearing a fixed rate of interest of 12%. During 1993, Raymondville offered the
holders of such debentures the opportunity to reduce the interest rate payable
on such debentures to 7% or receive payment in full. Debentures totaling
$736,000 were retired, leaving a remaining principal balance of $274,000. The
balance of such debentures became obligations of Valley as a result of the
Raymondville Merger. The Raymondville Debentures are subordinate to all Senior
Indebtedness of Valley and mature on December 27, 1998.
LEGAL PROCEEDINGS
The Bank periodically is involved in legal proceedings arising in the normal
course of business, such as claims to enforce liens, claims involving the
making and servicing of real property loans, and other issues incident to the
Bank's business. Management of Valley does not believe there is any
proceeding, threatened or pending against Valley or the Bank which, if
determined adversely, would have a materially adverse effect on the financial
position or results of operations of Valley.
DESCRIPTION OF SECURITIES
The Valley Articles authorize the issuance of 2,000,000 shares of Valley
Common Stock, no par value per share, of which 745,010 shares are issued and
outstanding as of the date of this Proxy Statement-Prospectus. Valley is also
authorized to issue up to 200,000 shares of Valley Preferred Stock, par value
$100.00 per share, of which 10,000 shares have been designated Series A
Preferred, 20,126 shares have been designated as Series B Preferred, 10,000
shares have been designated as Series C Preferred, and 50,000 shares which
have been designated as Series D Preferred. As of the date of this Proxy
Statement-Prospectus, no shares of the Series A Preferred are outstanding, no
shares of the Series B Preferred are outstanding, 5,650 shares of the Series C
Preferred have been issued and are outstanding, and 20,811 shares of the
Series D Preferred have been issued and are outstanding. See "SERIES C
AMENDMENT;" "SERIES D AMENDMENT;" and "COMPARISON OF RIGHTS OF HOLDERS OF
VALLEY CAPITAL STOCK AND NORWEST COMMON STOCK--Description of Series C
Preferred and--Description of Series D Preferred."
Holders of shares of Valley Common Stock are entitled to one vote for each
share owned of record on all matters to be voted upon by the shareholders.
Holders of Valley Common Stock are entitled to share ratably in dividends and,
in the event of a liquidation, dissolution or winding up of Valley, to share
pro rata, after payment of all debts and other liabilities, all of the
remaining assets of Valley available for distribution to its shareholders. The
holders of shares of Valley Common Stock have no preemptive or other
subscription rights and there are no conversion rights or redemption or
sinking fund provisions applicable to such shares.
DIVIDENDS AND DIVIDEND POLICY
Holders of Valley Common Stock are entitled to receive dividends when, as
and if declared by the Valley Board out of funds legally available therefor.
Valley has not paid any cash dividends to holders of the Valley Common Stock
since its inception and does not anticipate paying cash dividends on the
Valley Common Stock
61
<PAGE>
in the foreseeable future. The Reorganization Agreement prohibits Valley from
paying dividends on the Valley Common Stock without the consent of Norwest.
As a bank holding company that does not, as an entity, engage in separate
business activities, Valley's ability to pay cash dividends depends upon the
income it receives indirectly from the Bank. Valley's only sources of income
are (i) dividends paid to it indirectly by the Bank, and (ii) tax savings, if
any, that result from the filing of consolidated tax returns for Valley,
Valley Delaware and the Bank. Valley must pay all of its operating expenses
from the funds received by Valley from the Bank. Therefore, shareholders may
receive dividends from Valley only to the extent that funds are available
after payment of Valley's operating expenses. The payment of dividends by the
Bank to Valley is subject to certain restrictions imposed by federal banking
laws, regulations and authorities. The loan agreement for the Valley Loan also
prohibits the payment of dividends on the Valley Common Stock without the
prior consent of the Lender. The payment of dividends on shares of the Valley
Common Stock is also subject to the prior rights of holders of shares of the
Series C Preferred and the Series D Preferred to dividends.
The holders of the Series C Preferred are entitled to cumulative dividends
in the amount of $8.50 per share, per year, payable in quarterly installments,
if and when declared by the Valley Board out of funds legally available for
the declaration of dividends. Any deficiency in dividends accrued but unpaid
with respect to the Series C Preferred must first be fully paid or set apart
for payment, without interest, before any distribution, whether by way of
dividends or otherwise, may be declared, or paid upon, or set apart for the
Valley Common Stock or any class of stock ranking junior to the Series C
Preferred. Dividends not declared and paid for any period accumulate and
become payable in subsequent periods or at the time of redemption of the
Series C Preferred.
The holders of the Series D Preferred are entitled to cumulative dividends
in the amount of $8.00 per share, per year, payable in quarterly installments,
if and when declared by the Valley Board out of funds legally available for
the declaration of dividends. Any deficiency in dividends accrued but unpaid
with respect to the Series D Preferred must first be fully paid or set apart
for payment, without interest, before any distribution, whether by way of
dividends or otherwise, may be declared, or paid upon, or set apart for the
Valley Common Stock or any class of stock ranking junior to the Series D
Preferred. Dividends not declared and paid for any period accumulate and
become payable in subsequent periods or at the time of redemption of the
Series D Preferred.
The ability of the Bank, as a Texas banking association, to pay dividends is
restricted under applicable law and regulations. A Texas banking association
may not pay dividends from its stated capital. Additionally, if losses have
been sustained at any time by a bank equal to or exceeding its undivided
profits then on hand, no dividend can be paid by the bank, and all dividends
must be paid out of net profits then on hand, after deducting expenses,
including losses and provisions for loan losses. The Bank's payment of
dividends is also restricted by federal law. Dividends may be declared only
when and to the extent justified by sound banking practices. Pursuant to 12
U.S.C. (S) 1818(b), the FDIC has the power to prohibit the payment of
dividends if such payment would constitute an unsafe or unsound banking
practice within the meaning of such section. The Bank is also subject to
certain restrictions on the payment of dividends as a result of the
requirement that it maintain adequate levels of capital in accordance with
guidelines promulgated from time to time by the FDIC. The FDIC has issued
risk-based capital regulations, which require banks to maintain minimum
capital levels based upon the relative safety of their assets.
HOLDERS AND MARKET INFORMATION
At August 15, 1997, 745,010 outstanding shares of Valley Common Stock were
owned of record by 162 shareholders, 5,650 shares of Series C Preferred were
owned by 8 shareholders, and 20,811 shares of Series D Preferred were owned by
36 shareholders. There is no established public market for the Valley Common
Stock or the Valley Preferred Stock, nor any published quotations for such
shares. Valley acts as its own transfer agent and registrar with respect to
the Valley Common Stock and the Valley Preferred Stock.
62
<PAGE>
Occasionally, Valley becomes aware of trades in the Valley Common Stock or
Valley Preferred Stock and the prices at which such trades were effected. In
connection with the Raymondville Merger, on June 1, 1995, Valley issued
239,677 shares of its common stock to the shareholders of Raymondville in
exchange for 72,629 shares of the common stock of Raymondville. Management is
aware of one trade of 500 shares of Valley Common Stock that occurred in the
fourth quarter of 1995, but pricing information for such trade is not
available. In connection with the acquisition of Pharr Financial on April 1,
1996, Valley sold 71,429 shares of the Valley Common Stock to the ESOP at a
price of $42.00 per share. In addition, during the second quarter of 1996,
management is aware of one trade of the Valley Common Stock for 4,447 shares
at a price of $35.00 per share. During the third quarter of 1996, management
is aware of three trades of the Valley Common Stock totaling 2,800 shares,
some or all of which were transferred at $38.00 per share. Management is aware
of one trade of 1,750 shares of Valley Common Stock that occurred in the
fourth quarter of 1996, but pricing information for such trade is not
available. During the first quarter of 1997, management is aware of one trade
of the Valley Common Stock for 447 shares at a price of $42.00 per share. To
the knowledge of Valley's management, there have been no other trades of
Valley Common Stock since January 1, 1995. Such prices represent actual trades
but may not include all trades that occurred during such period, and such
prices are the result of limited trading and may not be representative of the
actual fair market value of the Valley Common Stock.
Because of the absence of an established public trading market for the
Common Stock, the amount of consideration to be paid for the Valley Common
Stock in connection with the Merger was determined by arms-length negotiations
with Norwest and the price was based on a number of factors, including, among
other things, the growth rate and earnings of Valley and book value of the
Valley Common Stock, the industry, the capital structure of Valley, the market
in which Valley operates, the capital needs of Valley and judgments as to
Valley's future prospects.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF VALLEY
The following table sets forth, as of the Record Date, (i) the names and
addresses of each beneficial owner of more than 5% of the Valley Common Stock
or the Valley Preferred Stock (known to the Valley Board), showing the amount
and nature of such beneficial ownership and the pro forma ownership of the
Valley Common Stock after conversion of the Valley Preferred Stock into Valley
Common Stock, (ii) the names of each director and executive officer of Valley,
the number of shares of Valley Common Stock and Valley Preferred Stock owned
beneficially by each director and executive officer and the pro forma
ownership of the Valley Common Stock after conversion of the Valley Preferred
Stock into Valley Common Stock, and (iii) the number of shares of Valley
Common Stock and Valley Preferred Stock and the pro forma ownership of the
Valley Common Stock after conversion of the Valley Preferred Stock into Valley
Common Stock owned beneficially by all directors and executive officers as a
group. None of the shareholders listed herein would own, on a pro forma basis
giving effect to the Merger, more than 1% of the issued and outstanding shares
of Norwest Common Stock.
<TABLE>
<CAPTION>
PRO FORMA
VALLEY COMMON STOCK VALLEY PREFERRED STOCK VALLEY COMMON STOCK
--------------------- --------------------------- ---------------------
AMOUNT AMOUNT AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED(1) OF CLASS OWNED(2) OF CLASS OWNED(3) OF CLASS
------------------- ------------ -------- ------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Gustavo Barrera(4)...... 6,818 * 0 0.00% 6,818 *
Cleve T. Breedlove(5)... 41,699 5.60% 0 0.00% 41,699 5.31%
P.O. Box 577
Los Fresnos, Texas
78566
Irene Buchen............ 12,875 1.73% 1,428 5.40% 15,050 1.92%
Route 3, Box 72
Los Fresnos, Texas
78566
John A. Calkins(6)...... 49,858 6.69% 0 0.00% 49,858 6.35%
1045 S. 12th Street
Raymondville, Texas
78520
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
VALLEY COMMON STOCK VALLEY PREFERRED STOCK VALLEY COMMON STOCK
--------------------- -------------------------- ---------------------
AMOUNT AMOUNT AMOUNT
NAME AND ADDRESS OF BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED(1) OF CLASS OWNED(2) OF CLASS OWNED(3) OF CLASS
------------------- ------------ -------- ------------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Douglas C. and Elizabeth
Earley(7).............. 17,402 2.34% 2,500 9.45% 21,210 2.70%
4609 Pinehurst Dr.
South Austin,
Texas 78747
First Valley Bank Group,
Inc. Employee Stock
Ownership Plan
and Trust(8)........... 177,783 23.86% 0 0.00% 177,783 22.64%
117 North Arroyo Blvd.
Los Fresnos, Texas
78566
Tommy R. Funk(9)........ 46,919 6.30% 0 0.00% 46,919 5.97%
310 East Austin
Harlingen, Texas 78550
Howard Girault(10)...... 18,482 2.48% 0 0.00% 18,482 2.35%
Gary L. Kimberling(11).. 13,513 1.81% 0 0.00% 13,513 1.72%
James Manatt(12)........ 11,702 1.57% 0 0.00% 11,702 1.49%
Elmer E. Meek(13)....... 21,910 2.94% 3,000 11.34% 26,480 3.37%
2101 Treasure Hills
Blvd.
Harlingen, Texas 78550
William and Bessie
Pitt................... 0 0.00% 1,750 6.61% 2,666 *
P.O. Box 4560
Brownsville, Texas
78520
Charles B. Scott(14).... 11,629 1.56% 0 0.00% 11,629 1.48%
C. Michael Scott(15).... 2,485 * 0 0.00% 2,485 *
Kenneth or Sula
Shuckman............... 2,100 * 1,500 5.67% 4,385 *
P.O. Box 547
Los Fresnos, Texas
78566
Cleve H. Tandy
Foundation............. 0 0.00% 1,500 5.67% 2,285 *
4609 Pinehurst Dr.
South
Austin, Texas 78747
Jack Wiech(16).......... 16,692 2.24% 1,000 3.78% 18,215 2.32%
All directors and
executive officers as a
group (10
persons)(5)(6)(9)(11)
(12)(15)(16)........... 241,707 32.44% 4,000 15.12% 247,801 31.55%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, each individual is the record owner of, and
has sole voting and investment power with respect to, all shares of Valley
Common Stock of which he or she is the beneficial owner. All percentages
are based upon 745,010 shares of Valley Common Stock issued and
outstanding.
(2) Unless otherwise indicated, each individual is the record owner of, and
has sole voting and investment power with respect to, all shares of Valley
Preferred Stock of which he or she is the beneficial owner. All
percentages are based upon 26,461 shares of Valley Preferred Stock issued
and outstanding.
(3) Assumes conversion of the shares of Valley Preferred Stock at 1.5235
shares of Valley Common Stock for each share of Valley Preferred Stock,
and all percentages are based upon 785,322 shares of Valley Common Stock
issued and outstanding on a pro forma basis.
64
<PAGE>
(4) Mr. Barrera serves as a director of Valley.
(5) Mr. Breedlove serves as Chairman of the Board and Chief Executive Officer
of Valley. Includes 11,828 shares of Valley Common Stock held by the ESOP
that are allocated to the account of Mr. Breedlove. See footnote 8 below
with respect to the voting of such allocated shares held by the ESOP.
(6) Mr. Calkins serves as President and a director of Valley. Includes 36,590
shares registered in the name of San Martin Corporation, over which Mr.
Calkins shares voting and dispositive power with Mary C. Calkins, Mr.
Calkins' spouse. Also includes 864 shares of Valley Common Stock held by
the ESOP that are allocated to the account of Mr. Calkins and 490 shares
of Valley Common Stock held in the name of Mary C. Calkins. See footnote 8
below with respect to the voting of such allocated shares held by the
ESOP.
(7) Shares of Valley Common Stock include 3,300 shares held in the name of
Douglas C. Early, 6,750 shares held in the name of Elizabeth Ann Early,
1,350 shares held in the name of Douglas C. Early and Elizabeth Ann Early,
Trustee for the Annalyn Earley Management Trust under agreement dated
February 7, 1983, 3,001 shares held by Swank & Co. for the benefit of
Jennifer Earley, and 3,001 shares held by Swank & Co. for the benefit of
Tandy Marie Earley. Shares of Valley Preferred Stock include 200 shares
held by Douglas C. Earley, 800 shares held by Elizabeth Ann Earley and
1,500 shares held by the Cleve H. Tandy Foundation.
(8) Shares include 126,223 shares of Valley Common Stock that are allocated to
the accounts of ESOP Participants and 51,872 shares that are unallocated.
Such allocated shares include 11,828 shares of Valley Common Stock that
are allocated to the account of Cleve T. Breedlove, 864 shares that are
allocated to the account of John A. Calkins, 8,156 shares that are
allocated to the account of Gary L. Kimberling, 7,837 shares that are
allocated to the account of James Manatt and 829 shares that are allocated
to the account of C. Michael Scott. With respect to all allocated shares,
each ESOP Participant is entitled to direct the Trustees as to the
exercise of the voting rights attributable to such shares then allocated
to such ESOP Participant with respect to approval of the Merger. Any
allocated Valley Common Stock with respect to which such voting
instructions are not received from ESOP Participants may not be voted by
the Trustees, and all Valley Common Stock that is unallocated is to be
voted with respect to approval of the Merger in the manner determined by
the Trustees. Under the terms of the ESOP, ESOP Participants are not
entitled to direct the Trustee with respect to voting on the ICP Payments,
and accordingly, shares allocated to the accounts of Messrs. Breedlove,
Calkins, Kimberling, Manatt and Scott will be considered outstanding
shares for purposes of the proposal to approve the ICP Payments.
(9) Mr. Funk serves as a director of Valley. Includes 12,348 shares registered
in the name of T.R. Funk, Inc., 14,793 shares registered in the name of
Sebastian Cotton & Grain Corp. Profit Sharing Plan, Tommy Funk's Rollover
Account, 1,456 shares registered in the name of the Tommy Funk Family
Trust for Patricia Page Funk and 1,456 shares registered in the name of
the Tommy Funk Family Trust for Tommy Funk, Jr.
(10) Mr. Girault serves as a director of Valley.
(11) Mr. Kimberling serves as Vice President and Secretary of Valley. Includes
3,611 shares of Valley Common Stock held in the name of Gary or Kaye
Kimberling, 1,746 shares held in the name of A.G. Edwards and Sons for
Gary Kimberling, and 8,156 shares of Valley Common Stock held by the ESOP
that are allocated to the account of Mr. Kimberling. See footnote 8 above
with respect to the voting of such allocated shares held by the ESOP.
(12) Mr. Manatt serves as Vice President of Valley. Includes 3,865 shares of
Valley Common Stock held in the name of Jim or Pam Manatt and 7,837
shares of Valley Common Stock held by the ESOP that are allocated to the
account of Mr. Manatt. See footnote 8 above with respect to the voting of
such allocated shares held by the ESOP.
(13) Mr. Meek serves as a director of Valley.
(14) Mr. Scott serves as a director of Valley.
(15) Mr. Scott serves as Vice President of Valley. Includes 829 shares of
Valley Common Stock held by the ESOP that are allocated to the account of
Mr. Scott. See footnote 8 above with respect to the voting of such
allocated shares held by the ESOP.
(16) Mr. Wiech serves as a director of Valley. Includes 5,000 shares of Valley
Common Stock held by Elizabeth Wiech and 7,345 shares held by the
Elizabeth Wiech Trust.
65
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VALLEY
This section presents an analysis of the consolidated financial condition of
Valley at June 30, 1997 and 1996, and December 31, 1996, 1995 and 1994, and
the consolidated results of operations for the six months ended June 30, 1997
and 1996, and for the years ended December 31, 1996, 1995 and 1994. This
analysis should be read in conjunction with the consolidated financial
statements and notes thereto and financial data presented elsewhere in this
Proxy Statement-Prospectus.
RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1997 and 1996
Generally. Net income for the six months ended June 30, 1997 was $2,322,000
($3.22 per share) compared to $1,635,000 ($2.28) for the six months ended June
30, 1996. The increase in net income resulted primarily from the operations of
Pharr Financial being included for the full six months during 1997 compared
with only three months in 1996, and nonrecurring expenses related to the
acquisition of Pharr Financial in 1996. Compensation of $610,000 related to
the incentive compensation plan is included in 1997 compared with $240,000 in
1996.
The primary market area for Valley was negatively effected by a devaluation
of the Mexican Peso in December 1994. As a result, beginning in 1995 and
continuing into 1996 and 1997, Valley's charge-offs of installment and
consumer loans increased significantly. Charge-offs for the six months ended
June 30, 1997 and 1996 totaled $1,062,000 and $585,000, respectively, of which
82% and 83%, respectively, were installment and consumer loans. Provisions for
loan losses included in the statement of earnings for the six months ended
June 30, 1997 and 1996 totaled $1,189,000 and $667,000, respectively.
A discussion of changes in the major components of net income for the six
months ended June 30, 1997 and 1996 are as follows:
Net Interest Income. Net interest income is the principal source of Valley's
net income and represents the difference between interest income and interest
expense. Net interest income increased approximately $1,378,000 in 1997
compared to 1996 as a result of an increase in interest-earning assets of
$37,112,000 offset by an increase in interest-bearing liabilities of
$32,079,000. Interest rate spread was 4.82% and 4.57%, and net interest margin
was 5.59% and 5.39% for 1997 and 1996, respectively.
The following schedules provide a summary of net interest income, average
earning asset balances and the related interest rates/yields for the six month
periods indicated. Nonaccruing loans are included in the interest-earning
assets; interest income on such loans is recorded when received.
66
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------------------
AVERAGE PERCENT OF INTEREST AVERAGE
BALANCE TOTAL ASSETS INCOME/EXPENSE YIELD/RATE(1)
-------- ------------ -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $275,210 62.11% $13,696 9.95%
Taxable securities....... 101,993 23.02% 3,113 6.10%
Nontaxable securities.... 5,615 1.27% 139 4.95%
FHLB Stock............... 1,262 0.28% 33 5.23%
Interest-bearing deposits
with other banks........ 35 0.01% 1 5.71%
Federal funds sold....... 5,126 1.15% 138 5.38%
-------- ------- -------
Total interest-earning
assets................ 389,241 87.84% $17,120 8.80%
Non interest-bearing
assets:
Cash and due from banks.. 22,433 5.06%
Premises and equipment... 22,318 5.04%
Other assets............. 7,713 1.74%
Goodwill................. 4,074 0.92%
Reserve for loan losses.. (2,673) (0.60%)
-------- -------
Total assets........... $443,106 100.00%
======== =======
Interest-bearing
liabilities:
NOW accounts............. $ 51,203 11.56% $ 475 1.86%
Savings accounts......... 39,768 8.98% 508 2.55%
Money market accounts.... 40,728 9.19% 636 3.12%
Time deposits and
individual retirement
accounts................ 172,243 38.87% 4,347 5.05%
Short-term borrowings.... 1,786 0.40% 23 2.58%
Notes payable............ 6,579 1.49% 192 5.84%
Debentures payable....... 1,524 0.34% 63 8.27%
-------- ------- -------
Total interest-bearing
liabilities........... $313,831 70.83% $ 6,244 3.98%
Non interest-bearing
liabilities:
Demand deposits.......... $ 96,152 21.70%
Other liabilities........ 3,636 0.82%
-------- -------
Total liabilities...... $413,619 93.35%
Stockholders' equity....... $ 29,487 6.65%
-------- -------
Total liabilities and
stockholders' equity.. $443,106 100.00%
======== =======
Net interest income........ $10,876
=======
Interest rate spread....... 4.82%
=====
Net interest margin........ 5.59%
=====
</TABLE>
- --------
(1) Annualized
67
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------
AVERAGE PERCENT OF INTEREST AVERAGE
BALANCE TOTAL ASSETS INCOME/EXPENSE YIELD/RATE(1)
-------- ------------ -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans.................... $251,663 63.06% $12,450 9.89%
Taxable securities....... 81,045 20.31% 2,346 5.79%
Nontaxable securities.... 5,005 1.26% 145 5.79%
FHLB Stock............... 1,081 0.27% 33 6.11%
Interest-bearing deposits
with other banks........ 1,723 0.43% 23 2.67%
Federal funds sold....... 11,612 2.91% 318 5.48%
-------- -------- -------
Total interest-earning
assets................ $352,129 88.24% $15,315 8.70%
Non interest-bearing
assets:
Cash and due from banks.. $ 23,191 5.81%
Premises and equipment... 17,849 4.47%
Other assets............. 5,553 1.39%
Goodwill................. 2,930 0.73%
Reserve for loan losses.. (2,575) (0.64)%
-------- --------
Total assets........... $399,077 100.00%
======== ========
Interest-bearing
liabilities:
NOW accounts............. $ 50,032 12.54% $ 541 2.16%
Savings accounts......... 37,228 9.33% 501 2.69%
Money market accounts.... 31,895 7.99% 471 2.95%
Time deposits and
individual retirement
accounts................ 154,058 38.60% 4,016 5.21%
Short-term borrowings.... 1,432 0.36% 6 .84%
Notes payable............ 5,182 1.30% 203 7.83%
Debentures payable....... 1,925 0.48% 79 8.21%
-------- -------- -------
Total interest-bearing
liabilities........... $281,752 70.60% $ 5,817 4.13%
Non interest-bearing
liabilities:
Demand deposits.......... $ 89,365 22.39%
Other liabilities........ 2,743 0.69%
-------- --------
Total liabilities...... $373,860 93.68%
Stockholders' equity....... $ 25,217 6.32%
-------- --------
Total liabilities and
stockholders' equity.. $399,077 100.00%
======== ========
Net interest income........ $ 9,498
=======
Interest rate spread....... 4.57%
=====
Net interest margin........ 5.39%
=====
</TABLE>
- --------
(1) Annualized
68
<PAGE>
Net interest income is affected both by the interest rate earned and paid
and by changes in volume, principally in loans, investment securities,
deposits and borrowed funds. The following table depicts the dollar effect and
rate changes for interest-earning assets and interest-bearing liabilities and
the resulting change in interest income and interest expense:
<TABLE>
<CAPTION>
JUNE 30, 1997 COMPARED TO
JUNE 30, 1996
INCREASE (DECREASE) DUE TO
-----------------------------
VOLUME RATE(1) NET
--------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans......................................... $ 2,336 $ (1,090) $ 1,246
--------
Taxable securities............................ 1,278 (523) 767
--------
Nontaxable securities......................... 30 (20) (6)
--------
FHLB Stock.................................... 9 (9) --
--------
Interest-bearing deposits with other banks.... (96) 74 (22)
--------
Federal funds sold............................ (349) 169 (180)
-------- --------- --------
Total interest-earning assets............... 3,208 (1,403) 1,805
--------
Interest paid on:
NOW accounts.................................. 22 (88) (66)
--------
Savings accounts.............................. 614 (607) 7
--------
Money market accounts......................... (396) 561 165
--------
Time deposits and individual retirement
accounts..................................... 918 (587) 331
--------
Short-term borrowings......................... 9 8 17
--------
Notes payable................................. 82 (93) (11)
--------
Debentures payable............................ (33) 17 (16)
-------- --------- --------
Total interest-bearing liabilities.......... 1,216 (789) 427
-------- --------- --------
Net interest income......................... $ 1,992 $ (614) $ 1,378
======== ========= ========
</TABLE>
- --------
(1) Changes in interest income and interest expense due to both rate and
volume are included in rate variances
Non Interest Income. Non-interest income increased by $639,000 for the six
months ended June 30, 1997 compared with the six months ended June 30, 1996.
This included an increase of $526,000 in service charge income. This increase
in service charge income resulted primarily from the operations of Pharr
Financial being included for the full six months during 1997 compared with
only three months in 1996.
Non Interest Expense. Non-interest expense increased by $616,000 for the six
months ended June 30, 1997 compared with the six months ended June 30, 1996.
The increase resulted primarily from the operations of Pharr Financial being
included for the full six months during 1997 compared with only three months
in 1996, nonrecurring expenses related to the acquisition of Pharr Financial
in 1996, and $610,000 in compensation expense relating to the incentive
compensation plan in 1997, compared with $240,000 in 1996.
69
<PAGE>
Years Ended December 31, 1996, 1995 and 1994
Generally. Net income was $3,671,000 ($4.97 per share), $3,341,000 ($4.62
per share), and $3,777,000 ($5.39 per share) for the years ended December 31,
1996, 1995 and 1994, respectively.
The increase in net income for 1996 compared to 1995 is attributable to the
operations of Pharr Financial being included for nine months during 1996, and
$699,000 in compensation expense relating to the termination of Valley's 1993
incentive compensation plan in 1995.
The decrease in net income for 1995 compared to 1994 was caused primarily by
nonrecurring costs related to the merger with Raymondville in 1995, increased
provisions for loan losses, and technology (computer) costs incurred in 1995
to update the internal computer systems necessitated by expansion within the
banking industry and the Raymondville merger.
Valley's primary market area was negatively affected by a devaluation of the
Mexican Peso in December 1994. As a result, beginning in 1995 and continuing
into 1996, Valley's charge-offs of installment and consumer loans increased
significantly. Charge-offs for the year ended December 31, 1996 and 1995
totaled $1,501,000 and $725,000 of which 81% and 74% were installment and
personnel loans, respectively, compared with $359,000 in 1994 (64% installment
and consumer loans). Provisions for loan losses included in the statement of
earnings for the years ended December 31, 1996, 1995 and 1994, totaled
$1,393,000, $892,000 and $106,000, respectively.
A discussion of changes in the major components of net income for the years
ending December 31, 1996, 1995 and 1994 are as follows:
Net Interest Income. Net interest income is the principal source of Valley's
net income and represents the difference between interest income and interest
expense. Net interest income increased approximately $2,648,000 in 1996
compared to 1995 as a result of an increase in interest-earning assets of
$58,351,000 offset by an increase in interest-bearing liabilities of
$50,305,000. Interest rate spread was 4.68% and 4.82%, and net interest margin
was 5.47% and 5.65% for 1996 and 1995, respectively.
Net interest income increased approximately $2,321,000 in 1995 compared to
1994 as a result of an increase in interest-earning assets of $23,809,000
offset by an increase in interest-bearing liabilities of $23,347,000. Interest
rate spread was 4.82% and 4.61%, and net interest margin was 5.65% and 5.30%
for 1995 and 1994, respectively.
The following schedules provide a summary of net interest income, average
earning asset balances and the related interest rates/yields for the periods
indicated. Nonaccruing loans are included in the interest-earning assets;
interest income on such loans is recorded when received.
70
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
AVERAGE PERCENT OF INTEREST AVERAGE
BALANCE TOTAL ASSETS INCOME/EXPENSE YIELD/RATE
-------- ------------ -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans....................... $256,145 61.98% $25,689 10.03%
Taxable securities.......... 89,813 21.73% 5,483 6.10%
Nontaxable securities....... 5,817 1.41% 268 4.61%
FHLB Stock.................. 1,101 0.26% 65 5.90%
Interest-bearing deposits
with other banks........... 568 0.14% 2 0.35%
Federal funds sold.......... 11,805 2.86% 639 5.41%
-------- -------- -------
Total interest-earning
assets................... $365,249 88.38% $32,146 8.80%
Non interest-bearing assets:
Cash and due from banks..... $ 20,550 4.97%
Premises and equipment...... 19,135 4.63%
Other assets................ 6,673 1.62%
Goodwill.................... 4,181 1.01%
Reserve for loan losses..... (2,524) (0.61)%
-------- --------
Total assets.............. $413,264 100.00%
======== ========
Interest-bearing liabilities:
NOW accounts................ $ 50,670 12.26% $ 1,078 2.13%
Savings accounts............ 37,355 9.04% 1,023 2.74%
Money market accounts....... 36,692 8.88% 1,083 2.95%
Time deposits and individual
retirement accounts........ 161,793 39.15% 8,398 5.19%
Short-term borrowings....... 1,355 0.33% 87 6.42%
Notes payable............... 5,318 1.29% 353 6.64%
Debentures payable.......... 1,925 0.46% 147 7.64%
-------- -------- -------
Total interest-bearing
liabilities.............. $295,108 71.41% $12,169 4.12%
Non interest-bearing
liabilities:
Demand deposits............. $ 88,585 21.44%
Other liabilities........... 2,369 0.57%
-------- --------
Total liabilities......... $386,062 93.42%
Stockholders' equity.......... $ 27,202 6.58%
-------- --------
Total liabilities and
stockholders' equity..... $413,264 100.00%
======== ========
Net interest income........... $19,977
=======
Interest rate spread.......... 4.68%
======
Net interest margin........... 5.47%
======
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
AVERAGE PERCENT OF INTEREST AVERAGE
BALANCE TOTAL ASSETS INCOME/EXPENSE YIELD/RATE
-------- ------------ -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans....................... $209,546 60.63% $21,732 10.37%
Taxable securities.......... 80,940 23.42% 4,810 5.94%
Nontaxable securities....... 6,787 1.96% 234 3.45%
FHLB Stock.................. 1,024 0.30% 59 5.76%
Interest-bearing deposits
with other banks........... 47 0.01% 2 4.26%
Federal funds sold.......... 8,554 2.48% 453 5.30%
-------- -------- -------
Total interest-earning
assets................... $306,898 88.80% $27,290 8.89%
Non interest-bearing assets:
Cash and due from banks..... $ 18,639 5.39%
Premises and equipment...... 15,653 4.53%
Other assets................ 4,785 1.38%
Goodwill.................... 1,748 0.51%
Reserve for loan losses..... (2,129) (0.61)%
-------- --------
Total assets.............. $345,594 100.00%
======== ========
Interest-bearing liabilities:
NOW accounts................ $ 51,019 14.76% $ 1,280 2.51%
Savings accounts............ 30,347 8.78% 841 2.77%
Money market accounts....... 28,507 8.25% 795 2.79%
Time deposits and individual
retirement accounts........ 125,533 36.33% 6,427 5.12%
Short-term borrowings....... 3,153 0.91% 184 5.84%
Notes payable............... 3,953 1.15% 246 6.22%
Debentures payable.......... 2,291 0.66% 188 8.21%
-------- -------- -------
Total interest-bearing
liabilities.............. $244,803 70.84% $ 9,961 4.07%
Non interest-bearing
liabilities:
Demand deposits............. $ 77,054 22.30%
Other liabilities........... 1,815 0.52%
-------- --------
Total liabilities......... $323,672 93.66%
Stockholders' equity.......... $ 21,922 6.34%
-------- --------
Total liabilities and
stockholders' equity..... $345,594 100.00%
======== ========
Net interest income........... $17,329
=======
Interest rate spread.......... 4.82%
======
Net interest margin........... 5.65%
======
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------
AVERAGE PERCENT OF INTEREST AVERAGE
BALANCE TOTAL ASSETS INCOME/EXPENSE YIELD/RATE
-------- ------------ -------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans....................... $176,392 56.42% $16,694 9.46%
Taxable securities.......... 86,172 27.56% 4,245 4.93%
Nontaxable securities....... 7,433 2.38% 522 7.02%
FHLB Stock.................. 612 0.20% 25 4.08%
Interest-bearing deposit
with other banks.......... 1,077 0.34% 45 4.18%
Federal funds sold.......... 11,403 3.65% 467 4.10%
-------- -------- -------
Total interest-earning
assets................... $283,089 90.55% $21,998 7.77%
Non interest-bearing assets:
Cash and due from banks..... $ 13,221 4.22%
Premises and equipment...... 12,419 3.97%
Other assets................ 4,144 1.33%
Goodwill.................... 1,733 0.55%
Reserve for loan losses..... (1,964) (0.62)%
-------- --------
Total assets.............. $312,642 100.00%
======== ========
Interest-bearing liabilities:
NOW accounts................ $ 50,884 16.27% $ 1,133 2.23%
Savings accounts............ 29,625 9.47% 731 2.47%
Money market accounts....... 31,429 10.05% 802 2.55%
Time deposits and individual
retirement accounts........ 102,948 32.93% 3,937 3.82%
Short-term borrowings....... 1,142 0.37% 73 6.39%
Notes payable............... 3,003 0.96% 137 4.56%
Debentures payable.......... 2,425 0.78% 177 7.29%
-------- -------- -------
Total interest-bearing
liabilities.............. $221,456 70.83% $ 6,990 3.16%
Non interest-bearing
liabilities:
Demand deposits............. $ 73,938 23.65%
Other liabilities........... 1,309 0.42%
-------- --------
Total liabilities......... $296,703 94.90%
Stockholders' equity.......... $ 15,939 5.10%
-------- --------
Total liabilities and
stockholders' equity..... $312,642 100.00%
======== ========
Net interest income........... $15,008
=======
Interest rate spread.......... 4.61%
=====
Net interest margin........... 5.30%
=====
</TABLE>
73
<PAGE>
Net interest income is affected both by the interest rate earned and paid
and by changes in volume, principally in loans, investment securities,
deposits and borrowed funds. The following table depicts the dollar effect and
rate changes for interest-earning assets and interest-bearing liabilities and
the resulting change in interest income and interest expense:
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------- -----------------------------
VOLUME RATE(1) NET VOLUME RATE(1) NET
--------- ---------- --------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans................. $ 4,673 $ (716) $ 3,957 $ 3,438 $ 1,600 $ 5,038
Taxable securities.... 542 131 673 (311) 87 565
Nontaxable
securities........... (45) 79 34 (22) (266) (288)
FHLB Stock............ 5 1 6 2 10 34
Interest-bearing
deposits with other
banks................ 2 (2) -- (44) 1 (43)
Federal funds sold.... 176 10 186 (151) 137 (14)
--------- -------- --------- -------- -------- --------
Total interest-
earning assets..... $ 5,353 $ (497) $ 4,856 $ 2,934 $ 2,358 $ 5,292
Interest paid on:
NOW accounts.......... $ (7) $ (195) $ (202) $ 3 $ 144 $ 147
Savings accounts...... 192 (10) 182 20 90 110
Money market
accounts............. 242 46 288 (81) 74 (7)
Time deposits and
individual retirement
accounts............. 1,882 89 1,971 1,156 1,334 2,490
Short-term
borrowings........... (115) 18 (97) 117 (6) 111
Notes payable......... 91 16 107 59 50 109
Debentures payable.... (28) (137) (41) (11) 22 11
--------- -------- --------- -------- -------- --------
Total interest-
bearing
liabilities........ $ 2,257 $ (49) $ 2,208 $ 1,263 $ 1,708 $ 2,971
--------- -------- --------- -------- -------- --------
Net interest
income............. $ 3,096 $ (448) $ 2,648 $ 1,671 650 $ 2,321
========= ======== ========= ======== ======== ========
</TABLE>
- --------
(1) Changes in interest income and interest expense due to both rate and
volume are included in rate variances.
Non Interest Income. Non interest income increased by $911,000 for the year
ended December 31, 1996 compared with the year ended December 31, 1995. This
included an increase of $766,000 in service charge income, a reduction in
security gains from $156,000 in 1995 to a loss of $3,000 in 1996, and an
increase in other income of $352,000. The increase in service charge income
and other income resulted primarily from the operations of Pharr Financial
being included for nine months during 1996.
Non interest income increased by $523,000 for the year ended December 31,
1995 compared with the year ended December 31, 1994. This included an increase
of $151,000 in service charge income, an increase in security gains from a
loss of $2,000 in 1994 to a gain of $156,000 in 1995, an increase in other
gains of $151,000 (primarily from the sale of real estate in 1995), and an
increase in other income of approximately $63,000. Valley's primary market
area was negatively effected by a devaluation of the Mexican Peso in December
1994. As a result, beginning in 1995, Valley experienced increased demand for
loans as its competitor banks experienced loan problems with foreign sector
customers. Therefore, Valley liquidated approximately 20% of its investment
securities to fund the increase in loans, at a time when the market value of
its investment portfolio was increasing. As a result, gains were recognized on
the sale of the securities.
74
<PAGE>
Non Interest Expense. Non interest expense increased by $2,529,000 for the
year ended December 31, 1996 compared with the year ended December 31, 1995.
This included an increase of $1,129,000 in salaries and employee benefits, an
increase in occupancy expense of $615,000, an increase in furniture and
equipment expense of $446,000, an increase in other expense of $212,000, and
an increase in amortization expense of intangibles of $127,000. The increase
in expenses resulted primarily from the operations of Pharr Financial being
included for nine months during 1996, a reduction in incentive compensation
costs in 1996 compared with 1995, and an increase in goodwill also resulting
from the Pharr Financial acquisition.
Non interest expense increased by $2,588,000 for the year ended December 31,
1995 compared with the year ended December 31, 1994. This included an increase
of $1,028,000 in salaries and employee benefits, an increase in occupancy
expense of $227,000, an increase in furniture and equipment expense of
$105,000, an increase in other expense of $1,215,000, and an increase in
amortization expense of intangibles of $13,000. The increase in non interest
expense for 1995 compared to 1994 was significantly effected by acquisition
costs related to the merger with Raymondville in 1995, technology (computer)
costs incurred in 1995 to update the internal computer system necessitated by
expansion within the banking industry and the Raymondville merger and Pharr
Financial acquisition, and an increase in incentive compensation costs in 1995
compared with 1994 resulting from the termination of the 1993 incentive
compensation plan in 1995.
FINANCIAL CONDITION
Loans. Valley's loan portfolio has increased by $111,000,000 from December
31, 1993 to 1996. Of that amount, the Pharr Financial loans at acquisition
totaled $26,000,000. Valley's primary market area was negatively affected by a
devaluation in the Mexican Peso in December 1994. Beginning in 1995 and
continuing into 1996, Valley's charge-offs of installment and consumer loans
significantly increased. As a result, Valley concentrated its lending efforts
in the area of commercial and real estate loans, while focusing less on
installment and consumer loans. Approximately 74% of the loan growth from
December 31, 1993 to December 31, 1996, was from commercial and real estate
loans.
The following table sets forth the composition of the loan portfolio for the
periods presented:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT
--------------------------------------------------------------
JUNE 30, DECEMBER 31,
----------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Type of loan:
Commercial, financial
and agricultural....... $ 74,823 $ 67,004 $ 65,157 $ 51,612 $ 42,179 $ 41,597 $ 43,171
Real estate--
construction........... 16,136 11,327 16,602 8,148 7,078 4,882 3,158
Real estate--mortgage... 137,010 132,047 130.851 113,879 98,374 83,660 65,155
Installment loans to
individuals............ 57,757 61,973 57,339 50,517 39,078 30,567 22,881
States and political
subdivisions........... 327 846 352 763 187 542 245
Lease financing......... 22 32 27 36 46 54 --
Other................... 1,919 1,936 3,568 4,656 3,728 2,145 2,009
-------- -------- -------- -------- -------- -------- --------
$287,994 $275,165 $273,896 $229,611 $190,670 $163,447 $136,619
======== ======== ======== ======== ======== ======== ========
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF LOAN PORTFOLIO
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Type of loan:
Commercial, financial and
agricultural................ 25.98 24.35 23.79 22.48 22.12 25.45 31.60
Real estate--construction.... 5.60 4.12 6.06 3.55 3.71 2.99 2.31
Real estate--mortgage........ 47.57 47.99 47.77 49.60 51.59 51.19 47.69
Installment loans to
individuals................. 20.06 22.52 20.94 22.00 20.50 18.70 16.75
States and political
subdivisions................ 0.11 0.31 0.13 0.33 0.10 0.33 0.18
Lease financing.............. 0.01 0.01 0.01 0.01 0.02 0.03 0.00
Other........................ .67 .70 1.30 2.03 1.96 1.31 1.47
------ ------ ------ ------ ------ ------ ------
100.00 100.00 100.00 100.00 100.00 100.00 100.00
====== ====== ====== ====== ====== ====== ======
</TABLE>
The following table sets forth the maturity composition and interest
sensitivity of total loans at December 31, 1996 (Dollars in Thousands):
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
------------------------
AMOUNT PERCENTAGE FIXED RATE VARIABLE RATE
-------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
In one year or less............... $145,471 53.11% $ 68,285 $77,186
After one through five years...... 120,966 44.17% 120,958 8
After five years.................. 7,459 2.72% 7,459 --
-------- ------ -------- -------
Total loans..................... $273,896 100.00% $196,702 $77,194
======== ====== ======== =======
</TABLE>
Provision for Loan Losses and Allowance for Loan Losses. Following is a
table of activity for loan losses for the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $ 2,552 $ 2,147 $2,147 $1,901 $1,845 $1,604 $1,583
Charge-offs:
Commercial, financial
and agricultural..... 179 92 256 144 112 207 321
Real estate--
construction......... -- -- -- -- -- -- --
Real estate--
mortgage............. 16 8 34 44 16 59 21
Installment loans to
individual........... 867 485 1,211 537 231 162 152
------- ------- ------ ------ ------ ------ ------
1,062 585 1,501 725 359 428 494
Recoveries:
Commercial, financial
and agricultural..... 64 9 35 32 116 26 112
Real estate--
construction......... -- -- -- -- -- -- --
Real estate--
mortgage............. 36 6 7 1 78 24 4
Installment loans to
individual........... 131 46 141 46 115 31 31
------- ------- ------ ------ ------ ------ ------
231 61 183 79 309 81 147
Net charge-offs......... 831 524 1,318 646 50 347 347
Additions charged to
operations............. 1,189 667 1,393 892 106 486 368
Allowance for loan
losses for acquired
portfolio.............. -- 347 330 -- -- 102 --
------- ------- ------ ------ ------ ------ ------
Balance at end of
period................. $ 2,910 $ 2,637 $2,552 $2,147 $1,901 $1,845 $1,604
======= ======= ====== ====== ====== ====== ======
Ratio of net charge-offs
during the period to
average loans
outstanding during the
period................. 0.30% 0.21% 0.52% 0.31% 0.03% 0.22% 0.26%
</TABLE>
76
<PAGE>
The allowance for loan losses is not allocated to specific categories of
loans. However, based on Valley's review of remaining collateral and/or
financial condition or identified loans with characteristically more than a
normal degree of risk, historical loan loss percentages, and economic
conditions, management believes the allowance for loan losses at June 30,
1997, is adequate to cover losses inherent in the portfolio.
The reserve for loan losses is established through a provision for loan
losses charged to operations. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal is
unlikely. The reserve is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions that may affect the
borrower's ability to pay. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
Non-performing Assets. Non-performing assets are defined as loans delinquent
90 or more days, nonaccrual loans, restructured loans, and foreclosed assets.
Such assets do not necessarily represent future losses to Valley since
underlying collateral can be sold and the financial condition of the borrowers
may improve. The following table sets forth the detail of nonperforming loans.
Valley had no restructured loans at any of the dates listed herein.
<TABLE>
<CAPTION>
JUNE 30, YEAR ENDED DECEMBER 31,
------------- ------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans.................. $ 646 $1,062 $1,018 $ 510 $ 727 $314 $503
Loans past due 90 days or more.... 1,261 461 1,676 2,134 360 448 271
------ ------ ------ ------ ------ ---- ----
Total non-performing loans...... $1,907 $1,523 $2,694 $2,644 $1,087 $762 $774
====== ====== ====== ====== ====== ==== ====
</TABLE>
Total non-performing loans as a percentage of total loans was .66% and 55%
for the six months ended June 30, 1997 and 1996, respectively, and .57%, 1.15%
and .98% for the years ended December 31, 1994, 1995 and 1996, respectively.
The increase from 1994 levels is primarily attributed to installment loans to
individuals adversely impacted by local economic effects of the 1994 peso
devaluation.
Valley's policy is to discontinue accruing interest on loans when principal
or interest is due and remains unpaid for 90 days or more, unless the loan is
well secured and in the process of collection. Valley would have recognized
additional interest income of $57,000 for the six months ended June 30, 1997
and $220,000 for the period ended December 31, 1996, if contractual interest
on these loans had been recognized. Interest income actually collected on
nonaccrual loans during the six months ended June 30, 1997 and year ended
December 31, 1996 approximated that amount.
At December 31, 1996, there were no significant commitments to lend
additional funds to borrowers whose loans were considered non-performing.
Management is not aware of any loans which were not included as non-
performing loans where known information about possible credit problems causes
serious doubt as to the borrower's ability to comply with repayment terms
which may result in such loans becoming non-performing.
The loan portfolio does not include any loans to foreign countries or highly
leveraged transaction loans. Senior management closely monitors concentrations
to individual customers and actively participates within their lending areas.
Valley has written policies that require security for loans including liens on
residential mortgage loans and certain of the other loans secured by real
estate. In addition, policies and procedures are in place to assess the
creditworthiness of borrowers for all loans and commitments. A borrower's
ability to honor loan
77
<PAGE>
contracts can be largely dependent upon economic conditions within Valley's
market areas, on a national level and within Mexico.
Investments. Valley accounts for investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). Under SFAS 115, each security is
classified as either trading, available for sale, or held to maturity. Valley
has no securities held in a trading account. Investments classified as held to
maturity are recorded at amortized cost. The securities classified as
available for sale are recorded at their fair value. The after-tax difference
between amortized cost and fair value of securities available for sale is
recorded as "unrealized gain (loss) on securities" in the equity section of
the balance sheet. The tax impact is recorded as an adjustment to the deferred
tax liability.
Investment securities are stated at fair market value (book value) which
approximates amortized cost.
The following table presents the composition of investment securities for
the periods presented:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------- -------------------------
1997 1996 1996 1995 1994
-------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Treasuries and agencies...... $ -- $ -- $ -- $ -- $ --
Obligation of states and political
subdivisions..................... -- -- -- -- 8,034
Other securities.................. -- -- -- -- 96
-------- ------- -------- ------- --------
-- -- -- -- 8,130
Available for sale:
U.S. Treasuries and agencies...... 67,971 72,239 75,943 57,585 79,505
Obligations of states and
political subdivisions........... 6,020 7,917 7,149 7,225 2,496
Mortgage-backed securities........ 27,704 15,928 26,248 10,800 8,767
Other securities.................. 1,691 1,422 1,461 1,465 1,653
-------- ------- -------- ------- --------
103,386 97,506 110,801 77,075 92,421
-------- ------- -------- ------- --------
Total........................... $103,386 $97,506 $110,801 $77,075 $100,551
======== ======= ======== ======= ========
</TABLE>
Investment Securities--Maturities and Yields. The following tables show the
maturities and yields for the various forms of investment securities at
June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------------------------
IN ONE AFTER ONE AFTER FIVE AFTER
YEAR OR LESS THROUGH 5 YEARS THROUGH TEN YEARS TEN YEARS
------------- ----------------- ------------------ ------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- --------- ------- --------- -------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and
agencies............... $25,504 5.73% $ 42,467 6.32% $ -- -- $ -- --
Obligation of states and
political
subdivisions(1)........ 2,317 6.97% 3,120 7.23% 258 8.75% 325 6.75%
Mortgage-backed
securities(2).......... 1,200 6.38% 22,714 6.53% 1,558 6.06% 2,232 6.14%
Other................... -- -- 25 7.38% -- -- -- --
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------
IN ONE AFTER ONE AFTER FIVE AFTER
YEAR OR LESS THROUGH 5 YEARS THROUGH TEN YEARS TEN YEARS
------------- ----------------- ------------------ ------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- --------- ------- --------- -------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries and
agencies............... $29,235 5.49% $ 46,708 6.17% $ -- -- $ -- --
Obligation of states and
political
subdivisions(1)........ 2,038 6.93% 4,555 7.44% 179 8.73% 377 6.75%
Mortgage-backed
securities(2).......... 2,028 6.54% 20,390 6.50% 1,569 5.73% 2,261 5.88%
Other................... -- -- 25 7.38% -- -- -- --
</TABLE>
- --------
(1) Yield presented on a tax-equivalent basis assuming a tax rate of 34%
(2) Included in maturity table based on their average remaining life or call
date, if applicable
Other equity securities includes FHLB stock of $1,666,000 at June 30, 1997
and $1,436,000 at December 31, 1996. The dividends received on this stock
provided an annualized return of 5.49% and 5.88% for the six months ended June
30, 1997 and the year ended December 31, 1996, respectively.
Deposits. The deposit base provides the major funding source for Valley's
interest earning assets of Valley. In general, Valley's deposits have
increased during the period from December 31, 1993 to December 31, 1996.
During those periods, Valley combined operations with Raymondville, opened 4
new branches and acquired Pharr Financial and a branch of Mercedes National
Bank in Weslaco, Texas. Management believes that demand, savings and
certificates of deposit less than $100,000 represent a core base of deposits
while certificates of deposit in excess of $100,000 and public funds are more
interest rate sensitive and, thus, are not viewed as part of the core deposit
base. Because of these factors, management views the growth of demand, savings
and time certificates of deposit less than $100,000 as more stable growth.
79
<PAGE>
The following table reflects the average balance and average interest rate
paid on deposits for the period presented.
<TABLE>
<CAPTION>
AVERAGE BALANCE AVERAGE RATE PAID
--------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
June 30, 1997
Demand deposits............................ $ 96,152 0.00%
NOW accounts............................... 51,203 1.86%
Savings accounts........................... 39,768 2.55%
Money Market accounts...................... 40,728 3.12%
Time deposits and individual retirement
accounts.................................. 172,243 5.05%
--------
$400,094
========
June 30, 1996
Demand deposits............................ $ 89,365 0.00%
NOW accounts............................... 50,032 2.16%
Savings accounts........................... 37,228 2.69%
Money Market accounts...................... 31,895 2.95%
Time deposits and individual retirement
accounts.................................. 154,058 5.21%
--------
$362,578
========
December 31, 1996
Demand deposits............................ $ 88,585 0.00%
NOW accounts............................... 50,670 2.13%
Savings accounts........................... 37,355 2.74%
Money market accounts...................... 36,692 2.95%
Time deposits and individual retirement
accounts.................................. 161,793 5.19%
--------
$375,095
========
December 31, 1995
Demand deposits............................ $ 77,054 0.00%
NOW accounts............................... 51,019 2.51%
Savings accounts........................... 30,347 2.77%
Money market accounts...................... 28,507 2.79%
Time deposits and individual retirement
accounts.................................. 125,533 5.12%
--------
$312,460
========
December 31, 1994
Demand deposits............................ $ 73,938 0.00%
NOW accounts............................... 50,884 2.23%
Savings accounts........................... 29,625 2.47%
Money market accounts...................... 31,429 2.55%
Time deposits and individual retirement
accounts.................................. 102,948 3.82%
--------
$288,824
========
</TABLE>
80
<PAGE>
The following tables reflect the maturities of certificates and other time
deposits as of June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------
3 MONTHS 3-12 OVER
OR LESS MONTHS 12 MONTHS TOTAL
-------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Certificates of deposit, including other
time deposits of $4,142................... $18,851 $20,650 $15,984 $55,485
<CAPTION>
DECEMBER 31, 1996
----------------------------------
3 MONTHS 3-12 OVER
OR LESS MONTHS 12 MONTHS TOTAL
-------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Certificates of deposit, including other
time deposits of $3,317................... $25,514 $19,799 $ 5,354 $50,667
</TABLE>
Return on Equity and Assets. The following table sets forth Valley's ratios
for the periods indicated:
<TABLE>
<CAPTION>
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -----------------------
1997 1996 1996 1995 1994
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Return on average assets.......... 1.05%(1) .082%(1) 0.89% 0.97% 1.21%
Return on average equity.......... 15.75%(1) 12.97%(1) 13.49% 15.24% 23.70%
Dividend payout ratio on common
shares........................... 0.00% 0.00% 0.00% 0.00% 0.00%
Equity to assets ratio............ 6.65% 6.32% 6.58% 6.34% 5.10%
</TABLE>
- --------
(1) Annualized
Short-term Borrowings. The amount and interest rates related to short-term
borrowings for the periods presented are as follows:
<TABLE>
<CAPTION>
JUNE 30, YEAR ENDED DECEMBER 31,
-------------- -------------------------
1996 1997 1996 1995 1994
------ ------ ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal Funds Purchased:
Outstanding balance at period-
end.............................. $ -- $ -- $ -- $ -- $ --
Average interest rate at period-
end.............................. 5.62% 5.76% 5.61% -- --
Average outstanding during
period........................... $ 187 $ 584 $ 122 $ -- $ --
Weighted average interest rate.... 5.64% 5.77% 5.63% -- --
Highest outstanding balance at any
month-end........................ $ -- $5,155 $ -- $ -- $ --
Federal Home Loan Bank Advances:
Outstanding balance at period-
end.............................. $1,116 $1,017 $ 1,069 $ 1,165 $ 1,256
Average interest rate at period-
end.............................. 6.19% 6.19% 6.19% 6.11% 6.05%
Average outstanding during
period........................... $1,127 $1,029 $ 1,104 $ 1,698 $ 1,174
Weighted average interest rate.... 6.54% 6.54% 6.54% 7.23% 6.01%
Highest outstanding balance at any
month-end........................ $1,157 $1,049 $ 1,167 $ 1,249 $ 1,310
</TABLE>
Liquidity. Valley's principal source of funds consists of dividends from
Bank, which derives its funds from deposits, interest, and principal payments
on loans and investment securities, sales of investment securities and
borrowings. For the year ended December 31, 1996, Valley realized proceeds
from sales and maturities of investments of $65,414,000, a net increase in
deposits of $19,394,000 and net cash provided by operating activities of
$7,581,000. Funds were used to acquire investment securities of $76,860,000
and fund a net increase in loans to customers of $19,672,000. For the year
ended December 31, 1995, Valley realized proceeds from sales and maturities of
investment securities of $31,922,000, net cash provided by operating
activities of
81
<PAGE>
$3,606,000 and a net increase in deposits of $21,335,000. These proceeds were
partially offset by a purchase of investment securities of $7,228,000 and a
net increase in loans to customers of $37,208,000.
Asset liquidity is provided by cash and readily marketable assets, which can
be pledged or which will mature in the near future. These include cash,
federal funds sold, and U.S. Government-backed securities. Valley's liquidity
ratio, defined as cash, U.S. Government-backed securities, and federal funds
sold as a percentage of total deposits, was 35.19% and 34.09% as of December
31, 1996 and 1995, respectively. Liability liquidity is provided by access to
core funding sources, principally various customers' interest-bearing accounts
in Valley's market areas. Valley does not have and does not solicit brokered
deposits.
Federal funds purchased and short-term borrowings by Valley are additional
sources of liquidity. These sources of liquidity are short-term in nature and
are used by Valley as necessary to fund asset growth and meet short-term
liquidity needs. As of December 31, 1996, 1995 and 1994, Valley had no federal
funds purchased, no borrowings from the Federal Reserve System, and no
borrowings on securities sold under repurchase agreements.
Capital. Valley's total shareholders' equity as of June 30, 1997 was
$31,261,000, an increase of $2,459,000 or 8.54% compared with stockholders'
equity of $28,802,000 as of December 31, 1996.
Total shareholders' equity as of December 31, 1996 was $28,802,000, an
increase of $4,178,000 or 16.97% compared with shareholders' equity of
$24,624,000 as of December 31, 1995. Included in the increase was $3,671,000
from earnings and $821,000 from the issuance of new common stock.
Total shareholders' equity as of December 31, 1995 was $24,624,000 an
increase of $5,747,000 or 30.44% compared with shareholders' equity of
$18,877,000 as of December 31, 1994. Included in the increase was $3,341,000
from earnings and $551,000 from the issuance of new common stock.
Valley 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
Valley's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Valley must meet specific
capital guidelines that involve quantitative measures of Valley's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Valley's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Valley 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 in the regulations), and of Tier I capital (as
defined in the regulations) to average assets (as defined in the regulations).
Management believes that Valley meets all capital adequacy requirements, as of
December 31, 1996, to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
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 Bank's category.
82
<PAGE>
Valley's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
FOR CAPITAL
ACTUAL ADEQUACY PURPOSES
-------------- ------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO
------- ------ --------------------------------- -----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
As of June 30, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated................................ $30,416 11.11% greater than or equal to $21,901 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Consolidated................................ $27,507 10.05% greater than or equal to $10,950 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Consolidated................................ $27,507 6.21% greater than or equal to $17,724 greater than or equal to 4.0%
As of June 30, 1996:
Total Capital (to Risk-Weighted Assets):
Consolidated................................ $24,414 9.64% greater than or equal to $20,265 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Consolidated................................ $21,956 8.67% greater than or equal to $10,133 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Consolidated................................ $21,956 5.50% greater than or equal to $15,963 greater than or equal to 4.0%
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets):
Consolidated................................ $27,842 10.5% greater than or equal to $21,212 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Consolidated................................ $24,562 9.3% greater than or equal to $10,606 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Consolidated................................ $24,562 5.7% greater than or equal to $17,344 greater than or equal to 4.0%
As of December 31, 1995:
Total Capital (to Risk-Weighted Assets):
Consolidated................................ $26,212 12.4% greater than or equal to $16,869 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Consolidated................................ $22,825 10.8% greater than or equal to $ 8,435 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Consolidated................................ $22,825 6.5% greater than or equal to $14,028 greater than or equal to 4.0%
As of December 31, 1994:
Total Capital (to Risk-Weighted Assets):
Consolidated................................ $22,599 11.68% greater than or equal to $15,480 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Consolidated................................ $19,017 9.83% greater than or equal to $ 7,740 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Consolidated................................ $19,017 6.08% greater than or equal to $12,506 greater than or equal to 4.0%
</TABLE>
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
The financial statements and related financial data concerning Valley
presented in this Proxy Statement-Prospectus have been prepared in accordance
with generally accepted accounting principles, which require the measurement
of financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money over
time due to inflation. The primary effect of inflation on the operation of
Valley is reflected in increased operating costs. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, changes in interest rates
have a more significant effect on the performance of a financial institution
than do the effects of changes in the general rate of inflation and changes in
prices. Interest rates do not necessarily move in the same direction or in
83
<PAGE>
the same magnitude as the prices of goods and services. Interest rates are
highly sensitive to many factors which are beyond the control of Valley,
including the influence of domestic and foreign economic conditions and the
monetary and fiscal policies of the United States government and federal
agencies, particularly the Federal Reserve Board. The Federal Reserve Board
implements national monetary policy such as seeking to curb inflation and
combat recession by its open market operations in United States government
securities, control of the discount rate applicable to borrowing by banks and
establishment of reserve requirements against bank deposits. The actions of
the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits, and affect the interest rates charged on loans and
paid on deposits. The nature, timing and impact of any future changes in
federal monetary and fiscal policies on Valley and the Bank and their results
of operations are not predictable.
84
<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, 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. Norwest's federally insured banking
subsidiaries 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 SEC, 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
85
<PAGE>
mergers in the state) or opt in early (thereby allowing interstate mergers
prior to June 1, 1997). Norwest will be 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. 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), such agency 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 FDI 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 covered transactions with all affiliates in the aggregate, to 20%
of the banking subsidiary's capital and surplus. Also, loans and extensions of
credit to affiliates generally are required to be secured in specified
amounts.
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<PAGE>
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-weighted assets
(including certain off-balance sheet items, such as stand-by letters of
credit) ("total capital ratio") is 8%. The minimum ratio of Tier 1 capital to
risk-weighted assets ("Tier 1 capital ratio") is 4%. As of June 30, 1997,
Norwest's total capital and Tier 1 capital to risk-weighted assets ratios were
11.03% and 9.11%, 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 5%. The Federal Reserve Board has not advised Norwest
of any specific leverage ratio applicable to it. As of June 30, 1997,
Norwest's leverage ratio was 6.43%.
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<PAGE>
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-weighted 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 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 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 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 June 30, 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 regulatory agency 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
88
<PAGE>
include receipt by the 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 bank regulatory agency 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 is 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 $100.00
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. Deposits insured by SAIF are currently assessed at the
BIF rate of zero to 27 cents per $100.00 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.
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.
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<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 $100.00 of SAIF-assessable
deposits and approximately 1.3 cents per $100.00 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 Valley and subsidiaries as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 included in this Proxy Statement-Prospectus are
included herein in reliance on the report of Burton, McCumber & Prichard,
L.L.P., independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing.
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<PAGE>
LEGAL MATTERS
Stanley S. Stroup, Executive Vice President and General Counsel of Norwest
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 Merger, (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 Valley Common Stock (including shares of Valley Common
Stock received upon conversion of the Series C Preferred and the Series D
Preferred), the shares of Norwest Common Stock issued in the Merger 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 0.1% of
the outstanding shares of Norwest Common Stock.
The material U.S. Federal income tax consequences of the Merger to Valley's
shareholders will be passed upon for Valley by the law firm of Jenkens &
Gilchrist, a Professional Corporation, Dallas, Texas.
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. Valley's 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 Valley's shareholders in the Merger.
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 Merger 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 reports on Form 10-Q for the quarters ended March
31, 1997 and June 30, 1997;
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<PAGE>
. Norwest's current reports on Form 8-K dated January 16, 1997 (filed
January 23, 1997), April 14, 1997 (filed April 21, 1997), June 3, 1997
(filed June 10, 1997), July 14, 1997 (filed July 21, 1997) and October
10, 1997 (filed October 14, 1997) and October 13, 1997 (filed October
22, 1997).
. Norwest's current report on Form 8-K dated October 10, 1997 (filed
October 14, 1997) 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 October 14, 1997 (filed October 14,
1997), 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 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
(612) 667-8655
To ensure delivery of the copies in time for the Meeting, your request
should be received by Norwest by November 19, 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 VALLEY 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 OCTOBER 24 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.
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FINANCIAL STATEMENTS
OF FIRST VALLEY BANK GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants........................ F-2
Consolidated Balance Sheets at June 30, 1997, December 31, 1996, and
December 31, 1995........................................................ F-3
Consolidated Statements of Earnings for Six Months Ended June 30, 1997 and
June 30, 1996 and for Years Ended December 31, 1996, December 31, 1995,
and December 31, 1994.................................................... F-4
Consolidated Statement of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows for Six Months Ended June 30, 1997
and June 30, 1996 and for Years Ended December 31, 1996, December 31,
1995, and December 31, 1994.............................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
First Valley Bank Group, Inc.
We have audited the consolidated balance sheets of First Valley Bank Group,
Inc. and subsidiaries and as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of First Valley Bank Group, Inc. and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Burton McCumber & Prichard, L.L.P.
Brownsville, Texas
March 14, 1997
F-2
<PAGE>
FIRST VALLEY BANK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.................. $ 24,838 $ 24,794 $ 22,501
Federal funds sold....................... 2,780 8,805 14,080
-------- -------- --------
Cash and cash equivalents (note A12)... 27,618 33,599 36,581
Interest-bearing deposits................ -- 100 --
Investment securities (notes A2 and B)
Available-for-sale..................... 103,386 110,801 77,075
Loans--net (notes A3, A4, A10, C, D, and
I)...................................... 282,204 267,812 223,872
Bank premises and equipment--net (notes
A5 and E)............................... 20,866 22,617 16,063
Other assets (notes A7, A8 and F)........ 11,807 11,494 7,506
-------- -------- --------
Total Assets......................... $445,881 $446,423 $361,097
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non interest-bearing................... $ 98,670 $100,705 $ 79,904
Interest-bearing (note L).............. 303,601 305,017 248,622
-------- -------- --------
Total deposits....................... 402,271 405,722 328,526
Notes payable (note H).................. 6,467 6,691 3,855
Subordinated debentures (note P)........ 1,408 1,639 2,210
Other liabilities (notes G and K)....... 4,474 3,569 1,882
-------- -------- --------
Total liabilities.................... 414,620 417,621 336,473
COMMITMENTS AND CONTINGENCIES (note K)... -- -- --
STOCKHOLDERS' EQUITY
Convertible preferred stock (note O).... 2,646 2,518 2,578
Common stock--no par value; authorized
2,000,000 shares (1,000,000 in 1995);
issued 745,010 and 673,010 in 1996 and
1995, respectively; outstanding 693,139
and 673,581 shares in 1996 and 1995,
respectively (note J).................. 8,604 8,604 5,604
Guaranteed ESOP obligation (notes H and
J)..................................... (1,964) (2,179) --
Retained earnings....................... 21,976 19,760 16,318
Net unrealized gain (loss) on securities
available-for-sale, net of tax of $51
and $64 in 1996 and 1995,
respectively........................... (1) 99 124
-------- -------- --------
Total stockholders' equity........... 31,261 28,802 24,624
-------- -------- --------
Total liabilities and stockholders'
equity.............................. $445,881 $446,423 $361,097
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- ------------------------
1997 1996 1996 1995 1994
------------ ------------ ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest and fees on
loans.................. $ 13,696 $ 12,450 $25,689 $21,732 $16,694
Interest and dividends
on investment
securities
Taxable............... 3,146 2,379 5,367 4,689 4,370
Nontaxable............ 139 145 297 234 339
------------ ------------ ------- ------- -------
3,285 2,524 5,664 4,923 4,709
Other................... 139 341 793 635 595
------------ ------------ ------- ------- -------
Total interest
income (note N).... 17,120 15,315 32,146 27,290 21,998
Interest on deposits.... 5,966 5,529 11,582 9,343 6,584
Interest on long-term
debt................... 278 288 587 618 406
------------ ------------ ------- ------- -------
Total interest
expense (note R)... 6,244 5,817 12,169 9,961 6,990
------------ ------------ ------- ------- -------
Net interest
income............. 10,876 9,498 19,977 17,329 15,008
Provision for loan
losses (notes A4 and
D)..................... 1,189 667 1,393 892 106
------------ ------------ ------- ------- -------
Net interest income
after provision for
loan losses........ 9,687 8,831 18,584 16,437 14,902
Other Income
Service charges on
deposit accounts..... 2,473 1,947 4,344 3,578 3,427
Security gains
(losses)............. 19 7 (3) 156 (2)
Other income.......... 747 646 1,445 1,141 927
------------ ------------ ------- ------- -------
3,239 2,600 5,786 4,875 4,352
------------ ------------ ------- ------- -------
Other expenses
Salaries and employee
benefits (notes J and
K)................... 5,095 4,071 8,559 7,430 6,402
Occupancy expense..... 1,929 1,735 1,947 1,332 1,105
Other operating
expenses (notes A8
and F)............... 2,450 3,052 8,178 7,393 6,060
------------ ------------ ------- ------- -------
9,474 8,858 18,684 16,155 13,567
------------ ------------ ------- ------- -------
Income before income
taxes.............. 3,452 2,573 5,686 5,157 5,687
Income tax expense
(notes A6 and G)
Currently payable..... 1,406 1,062 1,912 1,756 2,076
Deferred tax
(credit)............. (276) (124) 103 60 (166)
------------ ------------ ------- ------- -------
1,130 938 2,015 1,816 1,910
------------ ------------ ------- ------- -------
Net income.......... $ 2,322 $ 1,635 $ 3,671 $ 3,341 $ 3,777
============ ============ ======= ======= =======
Earnings Per Share:
Primary:
Primary earnings per
common share......... $ 3.22 $ 2.28 $ 4.97 $ 4.62 $ 5.39
============ ============ ======= ======= =======
Weighted average
common shares
outstanding.......... 687,609 668,872 693,211 676,321 654,682
============ ============ ======= ======= =======
Fully-diluted:
Fully-diluted earnings
per common share..... $ 3.17 $ 2.28 $ 4.91 $ 4.48 $ 5.09
============ ============ ======= ======= =======
Weighted average
common shares
outstanding.......... 732,047 715,963 747,282 745,432 741,348
============ ============ ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NET UNREALIZED
PREFERRED PREFERRED PREFERRED GUARANTEED GAIN (LOSS) ON TOTAL
STOCK STOCK STOCK COMMON ESOP RETAINED AVAILABLE-FOR STOCKHOLDERS'
SERIES B SERIES C SERIES D STOCK OBLIGATION EARNINGS SALE SECURITIES EQUITY
--------- --------- --------- ------ ---------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... $ 2,013 $ 565 $ -- $5,053 $ -- $13,196 $(1,950) $18,877
Issuance of 18,057
shares of common stock
related to termination
of FirstBank Group,
Inc. Incentive
Compensation Plan...... -- -- -- 551 -- -- -- 551
Unrealized gain on
available-for-sale
securities, net of
taxes of $1,068........ -- -- -- -- -- -- 2,074 2,074
Dividends declared on
preferred stock ($.085
per share)............. -- -- -- -- -- (219) -- (219)
Net Income.............. -- -- -- -- -- 3,341 -- 3,341
------- ----- ------ ------ ------- ------- ------- -------
Balance at December 31,
1995................... 2,013 565 -- 5,604 -- 16,318 124 24,624
Redemption of Preferred
Stock Series B......... (2,013) -- -- -- -- -- -- (2,013)
Issuance of 71,429
shares of common stock
to ESOP................ -- -- -- 3,000 (3,000) -- -- -
Shares released for
allocation............. -- -- -- -- 821 -- -- 821
Sale of 19,531 shares of
Preferred Stock Series
D...................... -- -- 1,953 -- -- -- -- 1,953
Unrealized loss on
available-for-sale
securities, net of tax
benefit of $13......... -- -- -- -- -- -- (25) (25)
Dividends declared on
preferred stock ($.07,
$.085 and $.02 per
share for Series B, C,
and D, respectively)... .07 .085 .02 -- -- (229) -- (229)
Net income.............. -- -- -- -- -- 3,671 -- 3,671
------- ----- ------ ------ ------- ------- ------- -------
Balance at December 31,
1996................... -- 565 1,953 8,604 (2,179) 19,760 99 28,802
Shares released for
allocation
(unaudited)............ -- -- -- -- 215 -- -- 215
Sale of 1,280 shares of
Preferred Stock Series
D (unaudited).......... -- -- 128 -- -- -- -- 128
Unrealized loss on
available-for-sale
securities, net of tax
benefit of $52
(unaudited)............ -- -- -- -- -- -- (100) (100)
Dividends declared on
preferred stock
(unaudited) ($.025 and
$.04 per share for
Series C and D,
respectively).......... -- .0425 .04 -- -- (106) -- (106)
Net income (unaudited).. -- -- -- -- -- 2,322 -- 2,322
------- ----- ------ ------ ------- ------- ------- -------
Balance at June 30, 1997
(unaudited)............ $ -- $ 565 $2,081 $8,604 $(1,964) $21,976 $ (1) $31,261
======= ===== ====== ====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30. YEAR ENDED DECEMBER 31,
---------------------------- ----------------------------
1997 1996 1996 1995 1994
------------ ------------ -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating
activities:
Net income............. $ 2,322 $ 1,635 $ 3,671 $ 3,341 $ 3,777
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 1,272 1,001 2,273 1,643 1,154
Provision for loan
losses............... 1,189 667 1,393 892 106
(Increase) decrease in
other assets......... (457) -- (403) (2,013) (608)
Increase (decrease) in
other liabilities.... 905 611 619 173 269
Other................. (33) (37) 28 (430) 442
------------ ------------ -------- -------- --------
Net cash provided by
operating
activities......... 5,198 3,877 7,581 3,606 5,140
Cash flows from
investing activities:
Acquisition of Pharr
BHC (notes A8 and M).. -- (1,754) (1,754) -- --
Purchase of investment
securities............ (12,993) (29,232) (76,860) (7,228) (40,595)
Proceeds from sales and
maturities of
investment
securities............ 17,545 31,955 69,618 33,936 33,013
Net increase in loans.. (15,610) (19,405) (19,672) (37,208) (27,471)
Other.................. 3,317 (367) (3,533) (3,172) (4,771)
------------ ------------ -------- -------- --------
Net cash provided by
investing
activities......... (7,741) (18,803) (32,201) (13,672) (39,824)
Cash flows from
financing activities:
Acquisition debt....... -- 5,500 5,500 -- --
Increase in deposits... -- -- 19,394 21,335 19,538
Other.................. (3,438) 127 (3,256) (25) 779
------------ ------------ -------- -------- --------
Net cash provided
from (used in)
financing
activities......... (3,438) 5,627 21,638 21,310 20,317
Increase (decrease)
in cash and cash
equivalents........ (5,981) (9,299) (2,982) 11,244 (14,367)
Cash and cash equiva-
lents at beginning of
period................. 33,599 36,581 36,581 25,337 39,704
------------ ------------ -------- -------- --------
Cash and cash equiva-
lents at end of peri-
od..................... $ 27,618 $ 27,282 $ 33,599 $ 36,581 $ 25,337
============ ============ ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE A--SUMMARY OF ACCOUNTING POLICIES
On October 27, 1995, First Valley Bank Group, Inc. and Subsidiaries (FVBG)
and Pharr Financial Corporation (Pharr BHC) signed an Agreement and Plan of
Reorganization (Agreement) whereby FVBG would acquire all of the issued and
outstanding stock of Pharr BHC through the merger of New Pharr Financial
Corporation (Newco), a subsidiary of the Company, with and into Pharr BHC.
Pharr BHC owned all of the stock of Security State Bank, Pharr, Texas, a state
banking association (Pharr Bank). Effective at the opening of business on
April 1, 1996, the stock of Pharr BHC was acquired for cash of $9,697.
The transaction has been accounted for as a purchase in accordance with
generally accepted accounting principles. Accordingly, the assets and
liabilities were accounted for at their respective estimated fair values.
Goodwill of $2,646 was recorded and is being amortized over a period of 15
years on a straight-line basis. The statement of earnings includes the
operations of Pharr BHC for the period from April 1, 1996 through December 31,
1996. As the transaction represented a purchase of corporate stock, the assets
and liabilities were accounted for at their respective historical tax base for
federal income tax purposes. As a result, a deferred tax liability of $1,135
was recorded based on the difference between the tax and financial statement
bases of the assets and liabilities.
The following unaudited pro forma consolidated results of operations assume
that the purchase occurred on January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues........................................... $ 39,349 $ 37,590
Net Income......................................... $ 3,793 $ 3,974
</TABLE>
On May 19, 1995, the shareholders of FirstBank Group, Inc. and Raymondville
State Bancshares, Inc. (Raymondville) approved the merger of Raymondville with
and into FirstBank Group, Inc. effective June 1, 1995. The surviving entity's
name was changed to First Valley Bank Group, Inc. Raymondville's wholly-owned
subsidiary, First Valley Delaware Financial Corporation, is the parent of
First Valley Bank, the surviving bank resulting from the merger of
Raymondville's subsidiary bank--First Valley Bank (formerly Raymondville State
Bank) and FirstBank Group's subsidiary bank--FirstBank. Under the terms of the
agreement, Raymondville shareholders received 3.3 shares of First Valley Bank
Group, Inc. stock for each share of Raymondville stock. Accordingly, First
Valley Bank Group, Inc. issued 239,677 shares of common stock. Both banks have
been active in the Rio Grande Valley for many years.
The merger qualified as a tax-free reorganization and was accounted for as a
pooling of interests.
Combined and separate results of FirstBank Group, Inc. and Raymondville
during the period preceding the merger are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS ENDED FIRSTBANK
MAY 31, 1995 (UNAUDITED) GROUP, INC. RAYMONDVILLE COMBINED
------------------------ ----------- ------------ --------
<S> <C> <C> <C>
Net revenues............................. $6,417 $3,778 $10,195
Net income............................... 1,272 485 1,757
</TABLE>
In connection with the merger, transaction costs of $426 were incurred. The
costs include expenses primarily for professional fees.
F-7
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The accounting policies of the Company conform to practices within the
banking industry and are based on generally accepted accounting principles. A
summary of the significant accounting and reporting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include First Valley Bank Group, Inc.
(Company) and its subsidiary, First Valley Delaware Financial Corporation
(First Valley Delaware) and its subsidiary, First Valley Bank (Bank). First
Valley Bank Group, Inc. accounts for its investment in First Valley Delaware
and Bank using the equity method of accounting. All significant intercompany
accounts and transactions have been eliminated in the accompanying
consolidated financial statements.
2. INVESTMENT SECURITIES
In accordance with Financial Accounting Standards Board Statement 115,
Accounting for Certain Investments in Debt and Equity Securities (FASB 115),
the Company is required to classify investments in marketable equity
securities and debt securities as trading securities, available-for-sale
securities, or held-to-maturity securities. The Statement requires trading
securities and available-for-sale securities to be carried at fair value, with
unrealized holding gains and losses of trading securities included in the
determination of net income and unrealized holding gains and losses of
available-for-sale securities included in equity. Held-to-maturity securities
are to be carried at amortized cost.
The adjusted carrying amount of the specific securities sold is used to
compute gains or losses on the sale of securities.
3. LOAN INCOME RECOGNITION
Installment loans are made on a discount basis, whereby the amount of the
discount is subsequently included in interest income ratably over the period
of the related loan under the sum-of-the-months digits (Rule of 78's) method.
Income recognized under the sum-of-the-months digits method is not materially
different from income that would be recognized under the level yield or
"interest method". Interest on other loans is accrued as earned.
4. RESERVE FOR LOAN LOSSES
The reserve for loan losses is established through a provision for loan
losses charged to operations. Loans are charged against the reserve for loan
losses when management believes that the collectibility of the principal is
unlikely. The reserve is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions that may affect the
borrower's ability to pay. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. When interest accrual is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided principally on the straight-line basis
over the estimated useful life of each type of asset. Costs of major additions
F-8
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
and improvements are capitalized. When an item is retired or otherwise
disposed of, the bank premises and equipment accounts are relieved of the
cost, and the accumulated depreciation, up to the date of disposition, is
charged against the allowance for accumulated depreciation. Any resulting gain
or loss is reflected in current operations. Expenditures for maintenance and
repairs are charged to operations as incurred.
6. INCOME TAX
The Company files a consolidated income tax return.
Under the liability method specified by Financial Accounting Standards Board
Statement 109, Accounting For Income Taxes (FASB 109), deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse. Deferred tax
expense is the result of changes in deferred tax assets and liabilities. The
principal types of differences between assets and liabilities for financial
statement and tax return purposes are provisions for loan losses,
depreciation, premises and equipment, loan origination costs and deferred
compensation costs.
7. OTHER REAL ESTATE OWNED
Other real estate owned is comprised of property to which the Company has
obtained title through foreclosure in lieu of payment of debts. At
acquisition, these properties are valued at the lower of estimated fair value
or the unpaid principal and interest on the related loans. Any resulting loss
at that time is charged to the reserve for loan losses. Operating expenses of
such properties, net of related income, are included in other operating
expenses. Gains and losses on disposition are included in other gains and
losses.
8. INTANGIBLE ASSETS
Core deposit base represents the present value of the future net income
stream associated with acquired deposit relationships. The core deposit base
intangible is amortized over its estimated life. Goodwill is amortized on a
straight-line basis over 15 to 40 years. The assumption premium paid to the
Federal Deposit Insurance Corporation is amortized over 15 years. Organization
costs are amortized on a straight-line basis over 5 years.
9. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has a qualified employee stock ownership plan for all eligible
employees. Both employer and employee contributions are permitted under the
plan.
10. LOAN COMMITMENT FEES AND LOAN ORIGINATION COSTS
Loan origination fees and certain direct loan origination costs are deferred
and the net amount amortized as an adjustment of the related loan's yield over
the life of the loans.
11. CREDIT CARD DEPARTMENT
The Bank provides credit approval related to the issuance of its credit
cards. The processing of charges, billing, and collection is performed by a
service company which settles transactions with the Bank on a daily basis.
12. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash and due from banks and federal funds
sold.
F-9
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
13. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosures 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.
14. IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (FASB 121), effective for
fiscal years beginning after December 15, 1995. The provisions of FASB 121
require the Bank to review long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If it is
determined that an impairment has occurred, the amount of the impairment will
be charged to operations. No impairments were recognized in 1996.
15. INCENTIVE COMPENSATION PLAN
The Company has adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FASB 123), effective January 1, 1996
in accounting for its Incentive Compensation Plan (see note K3).
16. UNAUDITED FINANCIAL STATEMENTS
The consolidated balance sheets as of June 30, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity and cash
flows for the six months ended June 30, 1997 and 1996 have been prepared
without audit. In the opinion of management, the consolidated financial
statements include all adjustments (which include only normal recurring
adjustments) and eliminations necessary to present fairly the consolidated
financial position as of June 30, 1997 and 1996 and the consolidated results
of their operations and their cash flows for the six months ended June 30,
1997 and 1996.
17. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by dividing net income (less
preferred dividends) by the weighted average number of common shares and
common share equivalents outstanding during the period. On a fully-diluted
basis, both net earnings and shares outstanding are adjusted to assume the
conversion of convertible preferred stock.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 128 (FASB 128) "Earnings Per Share", which supersedes APB
Opinion 15 (APB 15), "Earnings Per Share". The statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Early adoption is not permitted. The Company does
not expect a material change in earnings per share data in any of the periods
presented in the accompanying Consolidated Statements of Earnings as a result
of adopting FASB 128.
F-10
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE B--INVESTMENT SECURITIES
The carrying amounts of investment securities as shown in the accompanying
consolidated balance sheets and their approximate fair values at December 31,
1996 and 1995, are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities............ $ 69,271 $238 $ -- $ 69,509
Obligations of U.S. government agen-
cies............................... 6,438 -- (4) 6,434
Obligations of states and political
subdivisions....................... 7,085 64 -- 7,149
Mortgage-backed securities.......... 26,396 -- (148) 26,248
Corporate and other bonds........... 25 -- -- 25
Equity securities................... 1,436 -- -- 1,436
-------- ---- ----- --------
Totals............................ $110,651 $302 $(152) $110,801
======== ==== ===== ========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1995 COST GAINS LOSSES VALUE
---- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities............ $ 54,612 $286 $ -- $ 54,898
Obligations of U.S. government agen-
cies............................... 2,705 -- (18) 2,687
Obligations of states and political
subdivisions....................... 7,143 82 -- 7,225
Mortgage-backed securities.......... 10,963 -- (163) 10,800
Corporate and other bonds........... 120 1 -- 121
Equity securities................... 1,344 -- -- 1,344
-------- ---- ----- --------
Totals............................ $ 76,887 $369 $(181) $ 77,075
======== ==== ===== ========
</TABLE>
The scheduled maturities of debt securities available-for-sale at December
31, 1996, are shown below. Scheduled maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less.................................. $ 31,261 $ 31,273
Due after one year through five years.................... 50,987 51,288
Due after five years through ten years................... 171 179
Due after ten years...................................... 400 377
-------- --------
82,819 83,117
Mortgage-backed securities............................... 26,396 26,248
-------- --------
$109,215 $109,365
======== ========
</TABLE>
Proceeds from sales and maturities of investment securities during 1996,
1995 and 1994 were $69,618 and $33,936 and $33,013, respectively. Gains
(losses) of $(3) and $156 and $(2) were realized on sales in 1996, 1995 and
1994, respectively.
At December 31, 1996, investment securities having a carrying value of
approximately $45,179 were pledged to secure public funds on deposit and for
other purposes required or permitted by law.
F-11
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE C--LOANS
The composition of the Company's loan portfolio is as follows at December
31,:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Real estate and mortgage loans........................... $147,453 $122,027
Commercial and agricultural loans........................ 65,157 51,612
Consumer loans........................................... 26,328 22,090
Installment add-ons...................................... 31,011 28,427
Other.................................................... 3,947 5,455
-------- --------
273,896 229,611
Unearned discount........................................ (3,532) (3,592)
-------- --------
270,364 226,019
Reserve for loan losses (note D)......................... (2,552) (2,147)
-------- --------
$267,812 $223,872
======== ========
</TABLE>
Impairment of loans having recorded investments of $1,018 and $510 at
December 31, 1996 and 1995, respectively, has been recognized in conformity
with FASB 114, as amended by FASB 118. The average recorded investment in
impaired loans during 1996 and 1995 was $764 and $618, respectively. The total
allowance for loan losses related to these loans was $77 and $51 on December
31, 1996 and 1995, respectively.
The majority of the Bank's loans are concentrated in the lower Rio Grande
Valley. The ultimate source of repayment of the Bank's loans depends in large
part upon the local economy of that area.
NOTE D--RESERVE FOR LOAN LOSSES
Transactions in the reserve for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance--January 1,................................. $2,147 $1,901 $1,845
Provisions charged to operating expenses............ 1,393 892 106
Loans charged off................................... (1,501) (725) (359)
Recoveries on loans previously charged off.......... 183 79 309
Reserves related to Security State Bank portfolio... 330 -- --
------ ------ ------
Balance--December 31,............................... $2,552 $2,147 $1,901
====== ====== ======
</TABLE>
F-12
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE E--BANK PREMISES AND EQUIPMENT
Bank premises and equipment are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Banking house.............................................. $16,161 $10,775
Furniture, fixtures and equipment.......................... 12,303 9,668
Automobiles................................................ 322 304
------- -------
28,786 20,747
Less accumulated depreciation.............................. (10,822) (9,089)
------- -------
17,964 11,658
Construction in progress................................... 209 406
Land....................................................... 4,444 3,999
------- -------
$22,617 $16,063
======= =======
</TABLE>
NOTE F--INTANGIBLE ASSETS
Intangible assets are as follows at December 31:
<TABLE>
<CAPTION>
1996
------------------------------
ORIGINAL ACCUMULATED CARRYING
AMOUNT AMORTIZATION VALUE
-------- ------------ --------
<S> <C> <C> <C>
Core deposit base............................. $2,658 $2,448 $ 210
Goodwill...................................... 4,650 852 3,798
Organization costs............................ 196 189 7
Assumption premium............................ 290 156 134
------ ------ ------
$7,794 $3,645 $4,149
====== ====== ======
<CAPTION>
1995
------------------------------
ORIGINAL ACCUMULATED CARRYING
AMOUNT AMORTIZATION VALUE
-------- ------------ --------
<S> <C> <C> <C>
Core deposit base............................. $2,588 $2,411 $ 177
Goodwill...................................... 2,004 661 1,343
Organization costs............................ 196 185 11
Assumption premium............................ 290 136 154
------ ------ ------
$5,078 $3,393 $1,685
====== ====== ======
</TABLE>
NOTE G--FEDERAL INCOME TAXES
The income tax provision is as follows for the years ended December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current................................................ $1,912 $1,756 $2,076
Deferred............................................... 103 60 (166)
------ ------ ------
$2,015 $1,816 $1,910
====== ====== ======
</TABLE>
F-13
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The income tax provision reconciled to the tax computed at the statutory
federal rate was:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Tax at statutory rates............................... $1,933 $1,752 $1,931
Increase (reduction) in tax resulting from:
Tax exempt income.................................. (103) (91) (129)
Dividend received deduction........................ -- -- (4)
Goodwill amortization.............................. 56 18 4
Other.............................................. 129 137 108
------ ------ ------
$2,015 $1,816 $1,910
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are as follows at December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Depreciation on premises
and equipment.......... $-- $ 912 $-- $352 $-- $266
Loan origination costs.. -- 398 -- 95 -- 95
Bad debt reserve........ 366 -- 302 -- 227 --
Deferred compensation... 231 -- 27 -- 78 --
Net operating loss
carryforward........... 99 -- 127 -- 155 --
Basis difference in
premises and
equipment.............. -- 580 -- -- -- --
Other................... 14 -- 49 -- 19 --
---- ------ ---- ---- ---- ----
710 1,890 505 447 479 361
Less: valuation
allowance.............. -- -- -- -- -- --
---- ------ ---- ---- ---- ----
$710 $1,890 $505 $447 $479 $361
==== ====== ==== ==== ==== ====
</TABLE>
As discussed in note A, a deferred tax liability of $1,135 was recorded as a
result of the purchase of Pharr BHC.
Management anticipates full utilization of the deferred tax assets reflected
above; therefore, no valuation allowance has been established.
An analysis of income tax liabilities (assets) is as follows as of December
31,:
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Current liability............................................. $ 81 $ 92
Deferred liability (asset).................................... 1,180 (58)
------ ----
$1,261 $ 34
====== ====
</TABLE>
F-14
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE H--NOTES PAYABLE
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Notes payable to the Federal Home Loan Bank; interest at fixed
rates ranging from 5.23% to 7.18%; principal and interest due
monthly; collateralized by loans............................... $1,069 $1,165
Note payable to Texas Independent Bank; interest at the daily
Wall Street Journal rate (8.5% at December 31, 1995); interest
payable quarterly beginning September 1, 1995; principal due on
demand, but if no demand is made, then in annual installments
of $700 on July 20, 1996, 1997 and 1998. The final payment of
principal of $590 plus accrued interest is due July 20, 1999.
The note is collateralized by 80,000 shares of First Valley
Bank stock, 1,000 shares of First Valley Delaware Financial
Corporation stock, all dividends and proceeds thereof and a
keyman life insurance policy on the president of First Valley
Bank Group, Inc. .............................................. -- 2,690
Note payable to Texas Independent Bank; interest at the daily
Wall Street Journal rate (8.25% at December 31, 1996); interest
payable quarterly beginning June 20, 1996; principal due on de-
mand, but if no demand is made, then in annual installments of
$741 on July 20, 1996, 1997 and 1998; final payment of princi-
pal of $2,967 plus accrued interest is due July 20, 1999; col-
lateralized by all of the capital stock of First Valley Bank,
all of the capital stock of First Valley Delaware Financial
Corporation, all dividends and proceeds thereof, a security in-
terest in all deposits now or hereafter acquired and a keyman
life insurance policy on the president of First Valley Bank
Group, Inc. ................................................... 3,443 --
ESOP note payable to Texas Independent Bank; due in 27 quarterly
installments of $107, plus interest at the daily Wall Street
Journal rate (8.25% at December 31, 1996), beginning June 30,
1996; final payment of principal of $107 plus accrued interest
is due March 31, 2003; collateralized by 51,871 shares of First
Valley Bank Group, Inc.'s common stock; all of the capital
stock of First Valley Bank, all of the capital stock of First
Valley Delaware Financial Corporation, all dividends and pro-
ceeds therefrom and a keyman life insurance policy on the pres-
ident of First Valley Bank Group, Inc.; guaranteed by First
Valley Bank Group, Inc. and First Valley Delaware Financial
Corporation.................................................... 2,179 --
------ ------
$6,691 $3,855
====== ======
</TABLE>
Maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997............................................................ $3,972
1998............................................................ 536
1999............................................................ 542
2000............................................................ 554
2001............................................................ 564
Thereafter...................................................... 523
------
$6,691
======
</TABLE>
F-15
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Texas Independent Bank loan agreement contains certain covenants, the
most restrictive of which are limitations on total criticized assets of the
Bank as a percentage of Tier 1 capital and maintenance of certain capital to
assets ratios by the Bank. The Company was in compliance with these covenants
at December 31, 1996.
NOTE I--LOANS TO RELATED PARTIES
In the normal course of business, the Company has made loans to officers and
directors and their related business interests. In the opinion of management,
such loans are consistent with sound banking practices and are within
applicable regulatory lending limitations. The outstanding balance of these
loans totaled approximately $8,592 and $7,426 at December 31, 1996 and 1995,
respectively.
NOTE J--EMPLOYEE STOCK OWNERSHIP PLAN
On April 1, 1996, the Employee Stock Ownership Plan (ESOP) borrowed $3,000,
which is guaranteed by the Company (see note H), and used the proceeds to
purchase 71,429 shares of First Valley Bank Group, Inc.'s common stock at
$42.00 per share. The leveraged ESOP plan covers substantially all employees.
Employee contributions are matched at the discretion of the Company to a
maximum of 3% (6% in 1995) of the individual's compensation, as defined in the
plan. The Company's match contributions amounted to $169, $215 and $156 for
the years 1996, 1995 and 1994, respectively. Additional contributions to the
plan are determined annually at the discretion of the Company's Board of
Directors and were $486, $300 and $200 for the years 1996, 1995 and 1994,
respectively. The 71,429 shares were initially pledged as collateral for the
ESOP debt. As the debt is repaid, shares are released from collateral and
allocated to active employees based on the proportion of debt service paid in
the year. The Company accounts for its ESOP in accordance with Statement of
Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.
Accordingly, the Company reports in its balance sheet the debt of the ESOP and
unearned ESOP shares, which are the ESOP shares pledged as collateral for the
debt. As shares are released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding. The ESOP shares are appraised annually. The ESOP shares were as
follows as of December 31,:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Allocated shares............................................ 106,724 102,222
Shares released for allocation.............................. 19,558 --
Unreleased shares........................................... 51,871 --
------- -------
Total ESOP shares......................................... 178,153 102,222
======= =======
Fair value of unreleased shares at December 31.............. $ 2,179 $ --
======= =======
</TABLE>
NOTE K--COMMITMENTS AND CONTINGENCIES
1. COMMITMENTS TO EXTEND CREDIT
In the normal course of business, the Company is a party to financial
instruments which are not reflected in the accompanying financial statements.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
balance sheets. The Company evaluates its credit and market risks on each
commitment on a case by case basis and obtains collateral as deemed necessary.
Losses are provided during the same evaluation process as for existing loans
as set forth in note A4. The Company does not anticipate any losses as a
result of these commitments.
F-16
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
The Company had outstanding letters of credit of approximately $1,373 and
$985 as of December 31, 1996 and 1995, respectively. The Company had
outstanding loan commitments of approximately $24,558 and $19,865 as of
December 31, 1996 and 1995, respectively.
2. LITIGATION
The Company is currently involved in various claims and litigation arising
in the normal course of business. The plaintiffs in certain of the lawsuits
are requesting unspecified actual damages, unspecified punitive damages and
other requested relief. In the opinion of the Company's management, after
consultation with outside legal counsel, these matters will not have a
material effect on the consolidated financial position or results of
operations of the Company.
3. INCENTIVE COMPENSATION PLAN
FirstBank Group, Inc.'s Board of Directors established an Incentive
Compensation Plan in 1993. Incentive contracts with certain senior management
of FirstBank Group, Inc. were consummated under the plan with an effective
date of January 1, 1993. The plan, which was a non-qualified plan for federal
income tax purposes, was terminated May 31, 1995. The plan provided certain
incentives in the form of deferred compensation based upon computations as
defined in the plan. The accompanying statements of earnings include pre-tax
charges of $699 and $114 for incentive compensation in 1995 and 1994 related
to this plan.
An Incentive Compensation Plan benefitting senior management was established
June 1, 1995. The plan provides certain incentives in the form of deferred
compensation based upon computations as defined in the plan. The plan is a
non-qualified plan for federal income tax purposes. The accompanying
consolidated statements of earnings include pre-tax charges of $480 and $200
for incentive compensation in 1996 and 1995, respectively, related to this
plan.
NOTE L--INTEREST-BEARING DEPOSITS
Interest-bearing deposits are as follows at December 31,:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
NOW and super NOW accounts............................... $ 55,199 $ 52,347
Money market accounts.................................... 38,861 26,089
Savings deposits......................................... 38,739 30,955
Certificates of deposit less than $100,000............... 110,750 88,126
Certificates of deposit and state time deposits of
$100,000 or more........................................ 50,667 42,965
Individual retirement accounts........................... 10,801 8,140
-------- --------
$305,017 $248,622
======== ========
</TABLE>
F-17
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The following is a schedule of maturities of certificates of deposit and
individual retirement accounts:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997.......................................................... $142,827
1998.......................................................... 12,678
1999.......................................................... 7,530
2000-2001..................................................... 9,107
2002 and thereafter........................................... 76
--------
$172,218
========
</TABLE>
NOTE M--STATEMENTS OF CASH FLOWS
Noncash activities consisted of the following at December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Other real estate owned acquired through settle-
ment of loans.................................. $ 355 $ 152 $ 215
Other real estate owned sold for notes.......... 134 164 --
Unrealized gain (loss) on available-for-sale se-
curities....................................... ( 38) 3,142 (3,610)
Tax (expense) benefit........................... 13 (1,068) 1,079
------- ------- -------
Net unrealized gain (loss)...................... (25) 2,074 (2,531)
Property sold for notes......................... -- 440 --
Refinancing of Texas Independent Bank notes into
one note....................................... -- 2,690 --
Refinancing of Corpus Christi National Bank note
with Texas Independent Bank.................... -- -- 1,955
Common stock issued to ESOP..................... 3,000 -- --
Cash paid for interest and taxes are as follows for the year ended December
31,:
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest........................................ $14,929 $ 9,827 $ 6,990
Taxes........................................... 1,934 1,901 1,745
------- ------- -------
$16,863 $11,728 $ 8,735
======= ======= =======
</TABLE>
Details of the acquisition of Pharr HC and Subsidiary in 1996 are as follows:
<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill of $2,646...... $69,133
Liabilities assumed.............................................. 59,436
-------
Cash paid........................................................ (9,697)
Less cash acquired............................................... 7,943
-------
Net cash used in acquisition..................................... $(1,754)
=======
</TABLE>
F-18
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE N--INTEREST INCOME
A summary of the major components of interest income and other income is as
follows for the years ended December 31,:
<TABLE>
<CAPTION>
INTEREST INCOME 1996 1995 1994
--------------- ------- ------- -------
<S> <C> <C> <C>
Interest and fees on loans.......................... $25,689 $21,732 $16,694
Interest on deposits with banks..................... 2 2 45
Interest on federal funds sold...................... 639 453 467
Interest on investment securities................... 5,664 4,923 4,709
Other interest income............................... 152 180 83
------- ------- -------
$32,146 $27,290 $21,998
======= ======= =======
</TABLE>
NOTE O--PREFERRED STOCK
Convertible preferred stock is as follows at December 31,:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Series B--8.5% cumulative, convertible preferred stock--$100
par value; authorized, issued and outstanding 20,126
shares..................................................... $ -- $2,013
Series C--8.5% cumulative, convertible preferred stock--$100
par value; authorized 10,000 shares; issued and outstanding
5,650 shares............................................... 565 565
Series D--8% cumulative, convertible preferred stock--$100
par value; authorized 50,000 shares; issued and outstanding
19,531 shares.............................................. 1,953 --
------ ------
$2,518 $2,578
====== ======
</TABLE>
1. SERIES B
During 1992 and 1993, the Series B Preferred stock was offered to the
shareholders of FirstBank Group, Inc. and to certain other persons who at the
time the offer was consummated were residents of Texas or who met the other
qualifications described in the offering circular. The stock is non-voting and
bears cumulative dividends of 8.5% per annum. At any time after December 31,
1994, the Series B Preferred stock may be redeemed by paying in cash the sum
of $100.00 per share plus all accrued but unpaid dividends thereon.
The Series B Preferred stock will be convertible at the option of the
holder, at any time after December 31, 1995, on the following conversion
ratios:
<TABLE>
<CAPTION>
AFTER YEAR END NUMBER OF COMMON SHARES
DECEMBER 31, CONVERSION BASIS PER SHARE OF PREFERRED
- -------------- ---------------- -----------------------
<S> <C> <C>
1995................... 150% of book value per
share as of December 31, $100 divided by 150% of
1995 book value per share
1996................... 125% of book value per
share as of December 31, $100 divided by 125% of
1996 book value per share
1997................... At book value per share as $100 divided by book value
of December 31, of the per share
preceding year
</TABLE>
F-19
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
For purposes of the above, "book value" per share is defined as the sum of
the stated value of the common stock account on the books plus retained
earnings and any other common stock surplus accounts on the books divided by
the number of shares of common stock outstanding at the appropriate year end.
The conversion ratios are subject to the adjustment for any subdivision,
combination, stock distribution or stock dividend which may occur.
The Series B Preferred stock was redeemed in 1996 for $100.00 per share plus
accrued dividends.
2. SERIES C
During 1994, the Series C Preferred stock was offered to the shareholders
and to certain other persons who at the time the offer was consummated were
residents of Texas or who met the other qualifications described in the
offering circular. The stock is non-voting and bears cumulative dividends of
8.5% per annum. The Series C Preferred stock may be redeemed at any time by
paying in cash the sum of $100.00 per share plus all accrued but unpaid
dividends thereon.
The Series C Preferred stock will be convertible at the option of the
holder, at any time after December 31, 1997, on the following conversion
ratios:
<TABLE>
<CAPTION>
AFTER YEAR END NUMBER OF COMMON SHARES
DECEMBER 31, CONVERSION BASIS PER SHARE OF PREFERRED
-------------- ---------------- -----------------------
<S> <C> <C>
1997.................. 150% of book value per $100 divided by 150% of
share as of December 31, book value per share
1997
1998.................. 140% of book value per $100 divided by 140% of
share as of December 31, book value per share
1998
1999 and thereafter... 130% of book value per $100 divided by 130% of
share as of December 31, book value per share
of the preceding year
</TABLE>
For purposes of the above, "book value" per share is defined as the sum of
the stated value of the common stock account on the books plus retained
earnings and any other common stock surplus accounts on the books divided by
the number of shares of common stock outstanding at the appropriate year end.
The conversion ratios are subject to the adjustment for any subdivision,
combination, stock distribution or stock dividend which may occur.
3. SERIES D
During 1996, the Series D Preferred stock was offered to the shareholders
and to certain other persons who at the time the offer was consummated were
residents of Texas or who met the other qualifications described in the
offering circular. The stock is non-voting and bears cumulative dividends of
8% per annum. The Series D Preferred stock may be redeemed at any time by
paying in cash the sum of $100.00 per share plus all accrued but unpaid
dividends thereon.
F-20
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Series D Preferred Stock will be convertible at the option of the
holder, at any time after December 31, 1999, on the following conversion
ratios:
<TABLE>
<CAPTION>
AFTER YEAR END NUMBER OF COMMON
DECEMBER 31, CONVERSION BASIS SHARES PER SHARE OF PREFERRED
-------------- ---------------- -----------------------------
<S> <C> <C>
1999................... 150% of book value per $100 divided by 150% of
share as of December 31, book value per share
1999
2000................... 140% of book value per $100 divided by 140% of
share as of December 31, book value per share
2000
2001 and thereafter.... 130% of book value per $100 divided by 130% of
share as of December 31, book value per share
of the preceding year
</TABLE>
For purposes of the above, "book value" per share is defined as the sum of
the stated value of the common stock account on the books plus retained
earnings and any other common stock surplus accounts on the books divided by
the number of shares of common stock outstanding at the appropriate year end.
The conversion ratios are subject to the adjustment for any subdivision,
combination, stock distribution or stock dividend which may occur.
NOTE P--SUBORDINATED DEBENTURES
1. VARIABLE RATE
In 1992 and 1993, FirstBank Group, Inc. offered variable rate cumulative,
subordinated debentures to its shareholders and to certain other persons who
at the time the offer was consummated were residents of Texas or who met the
other qualifications described in the offering circular. The debentures
provide for payments of principal in eight equal annual installments
commencing on March 31, 1993, and continuing on the same date in each year
thereafter until the debentures finally mature on March 31, 2000. The
debentures accrue interest payable quarterly on March 31, June 30, September
30 and December 31 of each year at one-half of one percent (0.5%) above the
floating prime rate.
2. SERIAL VARIABLE AND FIXED RATE
In 1992 and 1993, FirstBank Group, Inc. offered five serial variable and
fixed rate cumulative, subordinated debentures as follows:
<TABLE>
<CAPTION>
MATURITY FIXED VARIABLE
SERIES MARCH 31, INTEREST RATE INTEREST RATE
------ --------- ------------- -------------
<S> <C> <C> <C>
A...................................... 1996 6.75% Prime + .5%
B...................................... 1997 7.25% Prime + .5%
C...................................... 1998 7.75% Prime + .5%
D...................................... 1999 8.25% Prime + .5%
E...................................... 2000 8.75% Prime + .5%
</TABLE>
Debentures within each series of both classes of the Serial Debentures are
payable as to principal in a single payment at the respective maturity dates
stated. The Serial Debentures accrue interest payable quarterly on March 31,
June 30, September 30 and December 31 of each year. The serial variable rate
debentures bear interest at one-half of one percent (0.5%) above the floating
prime rate, or similarly denominated rate of Chase Manhattan Bank. Principal
of $55 was added to the Series C Debentures in 1994. Principal payments
totaled
F-21
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
$161 in each of the years 1996 and 1995. The Series A Debentures were redeemed
at par plus accrued interest on March 31, 1996.
Raymondville State Bancshares, Inc. issued 12% Subordinated Debentures in a
prior year. The rate was reduced to 7% in 1993. Interest is payable annually
and principal is due December 27, 1998.
At December 31, 1996, the following serial variable and fixed rate
debentures had been issued.
<TABLE>
<CAPTION>
SERIES FIXED VARIABLE TOTAL
------ ----- -------- -----
<S> <C> <C> <C>
B....................................................... $ 70 $ -- $ 70
C....................................................... 210 10 220
D....................................................... 30 50 80
E....................................................... 260 90 350
7%...................................................... 274 -- 274
---- ----- ----
$844 $ 150 $994
==== ===== ====
</TABLE>
NOTE Q--REGULATORY CAPITAL MATTERS
The Company 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 Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 Capital (as defined in the regulations) to
risk-weighted assets (as defined in the regulations), and of Tier 1 Capital
(as defined in the regulations) to average assets (as defined in the
regulations). Management believes that the Company meets all capital adequacy
requirements, as of December 31, 1996, to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Company as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Company must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Company's category.
F-22
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The Company'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):
Consolidated........ $27,842 10.5% greater than or equal to $ 21,212 8.0% N/A
First Valley Bank... $34,775 13.1% greater than or equal to $ 21,164 8.0% $ 26,455 10.0%
Tier 1 Capital (to
Risk Weighted
Assets):
Consolidated........ $24,562 9.3% greater than or equal to $ 10,606 4.0% N/A
First Valley Bank... $32,198 12.2% greater than or equal to $ 10,582 4.0% $ 15,873 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated........ $24,562 5.7% greater than or equal to $ 17,344 4.0% N/A
First Valley Bank... $32,198 7.4% greater than or equal to $ 17,391 4.0% $ 21,739 5.0%
As of December 31, 1995:
Total Capital (to Risk
Weighted Assets):
Consolidated........ $26,212 12.4% greater than or equal to $ 16,869 8.0% N/A
First Valley Bank... $30,261 14.4% greater than or equal to $ 16,784 8.0% $ 20,981 10.0%
Tier 1 Capital (to
Risk Weighted
Assets):
Consolidated........ $22,825 10.8% greater than or equal to $ 8,435 4.0% N/A
First Valley Bank... $28,114 13.4% greater than or equal to $ 8,392 4.0% $ 12,588 6.0%
Tier 1 Capital (to
Average Assets):
Consolidated........ $22,825 6.5% greater than or equal to $ 14,028 4.0% N/A
First Valley Bank... $28,114 7.9% greater than or equal to $ 14,292 4.0% $ 17,865 5.0%
</TABLE>
NOTE R--INTEREST EXPENSE
A summary of the major components of interest expense is as follows for the
years ended December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
NOW accounts.......................................... $ 1,078 $1,280 $1,135
Money market accounts................................. 1,083 795 801
Savings accounts...................................... 1,023 841 731
Certificates of Deposit (Less than) $100,000.......... 5,981 4,668 2,728
Certificates of Deposit (Greater than) $100,000....... 2,417 1,759 1,189
FHLB borrowings....................................... 71 85 82
Debentures............................................ 147 188 159
Notes................................................. 353 246 152
Other................................................. 16 99 13
------- ------ ------
$12,169 $9,961 $6,990
======= ====== ======
</TABLE>
NOTE S--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL STATEMENTS
In accordance with Financial Accounting Standards Board Statement 107,
Disclosures about Fair Value of Financial Statements (FASB 107), the Company
is required to disclose fair values of financial instruments.
F-23
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:
Cash and cash equivalents--for these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investment securities--fair value equals quoted market price, if available;
otherwise, fair value is estimated using quoted market prices for similar
securities.
Loans--fair value was estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Deposit liabilities--fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. Fair value of fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturity.
Notes payable and debentures--fair value of the notes payable and debentures
are estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same remaining
maturities.
Commitments to extend credit, standby letters of credit, financial
guarantees written--fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The fair value of guarantees and letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the reporting
date.
F-24
<PAGE>
FIRST VALLEY BANK GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
The estimated fair values of the Company's financial instruments as of
December 31 are as follows:
<TABLE>
<CAPTION>
1996
---------------------
CARRYING
AMOUNT FAIR VALUE
--------- ----------
<S> <C> <C>
Financial Assets
Cash and cash equivalents........................... $ 33,599 $ 33,599
Investment securities............................... 110,801 110,801
Loans, net.......................................... 267,812 267,812
--------- ---------
$ 412,212 $ 412,212
========= =========
Financial Liabilities
Deposits............................................ $(405,722) $(405,722)
Notes payable....................................... (6,691) (6,691)
Subordinated Debentures
Variable rate..................................... (645) (645)
Serial variable and fixed rate.................... (994) (994)
--------- ---------
$(414,052) $(414,052)
========= =========
Unrecognized financial instruments:
Commitments to extend credit........................ $ (24,558) $ (24,558)
Standby letters of credit........................... (1,373) (1,373)
--------- ---------
$ (25,931) $ (25,931)
========= =========
<CAPTION>
1995
---------------------
CARRYING
AMOUNT FAIR VALUE
--------- ----------
<S> <C> <C>
Financial Assets
Cash and cash equivalents........................... $ 36,581 $ 36,581
Investment securities............................... 77,075 77,075
Loans, net.......................................... 223,872 223,872
--------- ---------
$ 337,528 $ 337,528
========= =========
Financial Liabilities
Deposits............................................ $(328,526) $(328,526)
Notes payable....................................... (3,855) (3,855)
Subordinated debentures.............................
Variable rate..................................... (806) (806)
Serial variable and fixed rate.................... (1,404) (1,404)
--------- ---------
$(334,591) $(334,591)
========= =========
Unrecognized financial instruments:
Commitments to extend credit........................ $ (19,865) $ (19,865)
Standby letters of credit........................... (985) (985)
--------- ---------
$ (20,850) $ (20,850)
========= =========
</TABLE>
F-25
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION,
AS AMENDED AND RESTATED,
BETWEEN
FIRST VALLEY BANK GROUP, INC.
AND
NORWEST CORPORATION
DATED AS OF
MAY 2, 1997
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION*
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), as amended and
restated, entered into as of the 2nd day of May, 1997, by and between FIRST
VALLEY BANK GROUP, INC. ("Valley"), a Texas corporation, and NORWEST
CORPORATION ("Norwest"), a Delaware corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest will merge with and into Valley (the
"Merger") pursuant to an agreement and plan of merger (the "Merger Agreement")
in substantially the form attached hereto as Exhibit A, which provides, among
other things, for the conversion and exchange of the shares of Common Stock of
Valley, no par value per share ("Valley Common Stock"), outstanding
immediately prior to the time the Merger becomes effective in accordance with
the provisions of the Merger Agreement, into shares of voting Common Stock of
Norwest of the par value of $1 2/3 per share ("Norwest Common Stock").
NOW, THEREFORE, to effect such reorganization and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLAN OF REORGANIZATION
(a) Merger. Subject to the terms and conditions contained herein, a wholly-
owned subsidiary of Norwest (the "Merger Co.") will be merged by statutory
merger with and into Valley pursuant to the Merger Agreement, with Valley as
the surviving corporation, in which Merger: (i) each share of Valley Common
Stock outstanding immediately prior to the Effective Time of the Merger (as
defined below) (other than shares as to which statutory dissenters' appraisal
rights have been exercised) will be converted into and exchanged for the
number of shares of Norwest Common Stock equal to the Norwest Share Amount (as
defined below); and (ii) each participant in the First Valley Bank Group, Inc.
Incentive Compensation Plan, as amended (the "ICP") listed on Schedule 1(a)
("Participant") hereto shall receive the number of shares of Norwest Common
Stock set forth opposite the name of such Participant in Schedule 1(a) (an
"ICP Share Equivalent"). The "Norwest Share Amount" shall be an amount
determined by dividing 1,394,366 by the number of shares of Valley Common
Stock outstanding immediately prior to the Effective Time of the Merger. If
the Effective Time of the Merger does not occur on or before the record date
for the payment of the regular quarterly dividend on the Norwest Common Stock
declared during the fourth quarter of 1997, then, notwithstanding the
foregoing, the number of shares of Norwest Common Stock included in the
Norwest Share Amount shall be 1,403,366 .
(b) Norwest Common Stock Adjustments. If, between the date hereof and the
Effective Time of the Merger, shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared with
a record date within such period (a "Common Stock Adjustment"), then the
number of shares of Norwest Common Stock into which a share of Valley Common
Stock or ICP Share Equivalents 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 Valley
Common Stock or ICP Share Equivalents shall be converted will equal the number
of
- --------
* On September 23, 1997, the Norwest Board declared a two-for-one stock split
in the form of a 100% stock dividend paid on October 10, 1997 to
stockholders of record on October 2, 1997. The Norwest Share Amount and
other references to Norwest Common Stock in the Reorganization Agreement
have not been restated to reflect the two-for-one split. However, shares of
Norwest Common Stock which Valley's shareholders will receive in the Merger
will be adjusted to reflect the split pursuant to paragraph 1(b) of the
Reorganization Agreement.
A-1
<PAGE>
shares of Norwest Common Stock which holders of shares of Valley Common Stock
or ICP Share Equivalents would have received pursuant to such Common Stock
Adjustment had the record date therefor been immediately following the
Effective Time of the Merger.
(c) Fractional Shares. No fractional shares of Norwest Common Stock and no
certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of
cash equal to the product obtained by multiplying the fractional share
interest to which such holder is entitled by the average of the closing prices
of a share of Norwest Common Stock as reported by the consolidated tape of the
New York Stock Exchange for each of the five (5) trading days ending on the
day immediately preceding the meeting of shareholders required by paragraph
4(c) of this Agreement.
(d) Mechanics of Closing Merger. Subject to the terms and conditions set
forth herein, the Merger Agreement shall be executed and it or Articles of
Merger or a Certificate of Merger shall be filed with the Secretary of State
of the State of Texas within ten (10) business days following the satisfaction
or waiver of all conditions precedent set forth in Sections 6 and 7 of this
Agreement or on such other date as may be agreed to by the parties (the
"Closing Date"), but, unless otherwise mutually agreed by the parties hereto,
in no event shall the Closing Date occur prior to October 2, 1997. Each of the
parties agrees to use its best efforts to cause the Merger to be completed as
soon as practicable after the receipt of final regulatory approval of the
Merger and the expiration of all required waiting periods. The time that the
filing referred to in the first sentence of this paragraph is made, or such
other date specified in the Articles of Merger or Certificate of Merger is
herein referred to as the "Time of Filing." The day on which such filing is
made and accepted is herein referred to as the "Effective Date of the Merger."
The "Effective Time of the Merger" shall be 12:01 a.m., Los Fresnos, Texas
time, on the Effective Date of the Merger. At the Effective Time of the Merger
on the Effective Date of the Merger, the separate existence of Merger Co.
shall cease and Merger Co. will be merged with and into Valley pursuant to the
Merger Agreement.
The closing of the transactions contemplated by this Agreement and the
Merger Agreement (the "Closing") shall take place on the Closing Date at the
offices of Norwest, Norwest Center, Sixth and Marquette, Minneapolis,
Minnesota.
2. REPRESENTATIONS AND WARRANTIES OF VALLEY. Valley represents and warrants
to Norwest as follows:
(a) Organization and Authority. Valley is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas, is
duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Valley and the Valley 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. Valley is registered as a
bank holding company with the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). Valley has furnished Norwest
true and correct copies of its articles of incorporation and bylaws, as
amended, and of all resolutions establishing or designating classes of
preferred stock.
(b) Valley's Subsidiaries. Schedule 2(b) sets forth a complete and correct
list of all of Valley's subsidiaries as of the date hereof (individually a
"Valley Subsidiary" and collectively the "Valley 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 Valley. Except as set forth
on Schedule 2(b), no equity security of any Valley 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 Valley Subsidiary is bound to
issue additional shares of its capital stock, or any option, warrant or right
to purchase or acquire any additional shares of its capital stock. Subject to
the Texas Business Corporation Act, all of such shares so owned by Valley are
fully paid and nonassessable and are owned by it free and clear of any lien
(except the liens described on Schedule 2(b)), claim, charge, option,
encumbrance
A-2
<PAGE>
or agreement with respect thereto. Each Valley Subsidiary is a corporation
duly organized, validly existing, duly qualified to do business and in good
standing under the laws of its jurisdiction of incorporation, and has
corporate power and authority to own or lease its properties and assets and to
carry on its business as it is now being conducted. Except as set forth on
Schedule 2(b), Valley does not own beneficially, directly or indirectly, more
than 5% of any class of equity securities or similar interests of any
corporation, bank, business trust, association or similar organization, and is
not, directly or indirectly, a partner in any partnership or party to any
joint venture.
(c) Capitalization. The authorized capital stock of Valley consists of
2,000,000 shares of common stock, no par value, and 200,000 shares of
preferred stock, $100 par value per share ("Preferred Stock"), consisting of
10,000 shares of Series A preferred stock, par value $100 per share ("Series A
Preferred"), 20,126 of Series B preferred stock, par value $100 per share
("Series B Preferred"), 10,000 shares of Series C preferred stock, par value
$100 per share ("Series C Preferred"), and 50,000 shares of Series D preferred
stock, par value $100 per share ("Series D Preferred"), of which as of the
close of business on December 31, 1996, 745,010 shares of Valley Common Stock,
no shares of Series A Preferred, no shares of Series B Preferred, 5,650 shares
of Series C Preferred, and 20,811 shares of Series D Preferred were
outstanding, and no shares of Series A Preferred, no shares of Series B
Preferred, no shares of Series C Preferred, no shares of Series D Preferred,
and no shares of Valley Common Stock were held in the treasury. The maximum
number of shares of Valley Common Stock (assuming for this purpose that
phantom shares and other share-equivalents constitute Valley Common Stock)
that would be outstanding as of the Effective Date of the Merger if all
options, warrants, conversion rights (other than those arising under the ICP)
and other rights with respect thereto were exercised is 785,322. All of the
outstanding shares of capital stock of Valley have been duly and validly
authorized and issued and are fully paid and nonassessable. Except as set
forth in Schedule 2(c), there are no outstanding subscriptions, contracts,
conversion privileges, options, warrants, calls, preemptive rights or other
rights obligating Valley or any Valley Subsidiary to issue, sell or otherwise
dispose of, or to purchase, redeem or otherwise acquire, any shares of capital
stock of Valley or any Valley Subsidiary. Since December 31, 1996 no shares of
Valley capital stock have been purchased, redeemed or otherwise acquired,
directly or indirectly, by Valley or any Valley Subsidiary and, except as set
forth on Schedule 2(c), no dividends or other distributions have been
declared, set aside, made or paid to the shareholders of Valley.
As of the date hereof, there are no dividends due and payable with respect
to the Series C Preferred or Series D Preferred. Subject to the approval of
the holders of the Series C Preferred and Series D Preferred, respectively, of
the amendments of the "Statement of Resolution Establishing Series of
Preferred Stock" filed on May 27, 1994 ("Series C Statement of Designation")
and June 25, 1996 ("Series D Statement of Designation"), respectively, as
required by paragraph 4(c) hereof and pursuant to the Texas Business
Corporation Act, the total number of shares of Valley Common Stock into which
shares of Series C Preferred would be convertible into upon the Merger is
8,607 and the number of shares of Valley Common Stock into which shares of
Series D Preferred would be convertible into upon the Merger is 31,705.
(d) Authorization. Valley has the corporate power and authority to enter
into this Agreement and the Merger Agreement and, subject to any required
approvals of its shareholders, to carry out its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
Merger Agreement by Valley and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Valley. Subject to such approvals of shareholders and of
government agencies and other governing boards having regulatory authority
over Valley as may be required by statute or regulation, this Agreement and
the Merger Agreement are valid and binding obligations of Valley enforceable
against Valley in accordance with their respective terms.
Except as set forth on Schedule 2(d), neither the execution, delivery and
performance by Valley of this Agreement or the Merger Agreement, nor the
consummation of the transactions contemplated hereby and thereby, nor
compliance by Valley 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,
A-3
<PAGE>
charge or encumbrance upon any of the properties or assets of Valley or any
Valley Subsidiary under any of the terms, conditions or provisions of (x) its
articles of incorporation or by-laws or (y) any material note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Valley or any Valley Subsidiary is a party or by which it
may be bound, or to which Valley or any Valley Subsidiary or any of the
properties or assets of Valley or any Valley 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 Valley, violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Valley or any Valley Subsidiary or any of their respective
properties or assets.
Other than in connection or in compliance with the provisions of the
Securities Act of 1933 and the rules and regulations thereunder (the
"Securities Act"), the Securities Exchange Act of 1934 and the rules and
regulations thereunder (the "Exchange Act"), the securities or blue sky laws
of the various states or filings, consents, reviews, authorizations, approvals
or exemptions required under the BHC Act or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act"), and filings required to effect the
Merger under Texas law, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Valley of the transactions contemplated by
this Agreement and the Merger Agreement.
(e) Valley Financial Statements. The consolidated balance sheets of Valley
and Valley's Subsidiaries as of December 31, 1995 and 1994 and related
consolidated statements of income, shareholders' equity and cash flows for the
three years ended December 31, 1995, together with the notes thereto,
certified by Burton, McCumber & Prichard, L.L.P. and the unaudited
consolidated statements of financial condition of Valley and Valley's
Subsidiaries as of September 30, 1996 and the related unaudited consolidated
statements of income, shareholders' equity and cash flows for the nine (9)
months then ended (collectively, the "Valley 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 Valley and Valley's Subsidiaries at the
dates and the consolidated results of operations and cash flows of Valley and
Valley's Subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1991, Valley and each Valley Subsidiary has
filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file, if any, with (i) the
Securities and Exchange Commission (the "SEC"), (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 "Valley Reports." As of their respective dates, the
Valley Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and applicable state securities or banking authorities, as the
case may be, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Copies of all the Valley Reports have
been made available to Norwest by Valley.
(g) Properties and Leases. Except as may be reflected in the Valley
Financial Statements and except for any lien for current taxes not yet
delinquent, Valley and each Valley 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 Valley's
consolidated balance sheet as of September 30, 1996, and all real and personal
property acquired since such date, except such real and personal property as
has been disposed of in the ordinary course of business. All leases of real
property and all other leases material to Valley or any Valley Subsidiary
pursuant to which Valley or such Valley 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 Valley or such Valley
Subsidiary or any event which, with notice or lapse of time or both, would
constitute such a material default. Substantially all Valley's and each
A-4
<PAGE>
Valley 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 Valley and the Valley Subsidiaries has filed all 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 Valley and the Valley 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 Valley nor any Valley Subsidiary is a party to any pending action or
proceeding, nor is any such action or proceeding threatened by any
governmental authority, for the assessment or collection of taxes, interest,
penalties, assessments or deficiencies and (ii) no issue has been raised by
any federal, state, local or foreign taxing authority in connection with an
audit or examination of the tax returns, business or properties of Valley or
any Valley Subsidiary which has not been settled, resolved and fully satisfied
or adequately reserved for. Each of Valley and the Valley Subsidiaries has
paid all taxes owed or which it is required to withhold from amounts owing to
employees, creditors or other third parties. Except as set forth on Schedule
2(h), the consolidated balance sheet as of September 30, 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 Valley and the Valley 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 Valley
or any Valley 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 Valley and the Valley Subsidiaries taken as a whole
(other than changes in banking laws or regulations, or interpretations
thereof, that affect the banking industry generally or changes in the general
level of interest rates).
(j) Commitments and Contracts. Except as set forth on Schedule 2(j), neither
Valley nor any Valley 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 Valley or such Valley Subsidiary);
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing
or similar arrangement with respect to any present or former officer,
director, employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business containing
covenants which limit the ability of Valley or any Valley 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, Valley
or any Valley 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;
or
(vii) any agreement or commitment with respect to the Community
Reinvestment Act with any state or federal bank regulatory authority or any
other party; or
(viii) any current or past agreement, contract or understanding with any
current or former director, officer, employee, consultant, financial
adviser, broker, dealer, or agent providing for any rights of
indemnification in favor of such person or entity.
A-5
<PAGE>
(k) Litigation and Other Proceedings. Valley has furnished Norwest copies of
(i) all attorney responses to the request of the independent auditors for
Valley with respect to loss contingencies as of December 31, 1995 in
connection with the Valley Financial Statements, and (ii) a written list of
legal and regulatory proceedings filed against Valley or any Valley Subsidiary
since said date. Neither Valley nor any Valley Subsidiary is a party to any
pending or, to the best knowledge of Valley, 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 Valley and the Valley
Subsidiaries taken as a whole.
(l) Insurance. Valley and each Valley Subsidiary maintains in effect the
insurance described (including type of policy, premiums, limits, term, and the
period during which each policy has been maintained) in Schedule 2(l) and has
furnished true and correct copies of such policies to Norwest. All such
policies are in full force and effect.
(m) Compliance with Laws. Valley and each Valley 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 Valley or such
Valley Subsidiary; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best knowledge
of Valley, no suspension or cancellation of any of them is threatened; and all
such filings, applications and registrations are current. The conduct by
Valley and each Valley 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 Valley nor any Valley
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 Valley or any
Valley Subsidiary which reasonably could be expected to have a material
adverse effect on the business or properties of Valley and the Valley
Subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Valley or any Valley Subsidiary is
pending or, to the best knowledge of Valley, threatened. Neither Valley nor
any Valley 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 Valley or such Valley
Subsidiary. Employees of Valley and the Valley Subsidiaries are not
represented by any labor union nor are any collective bargaining agreements
otherwise in effect with respect to such employees.
(o) Material Interests of Certain Persons. Except as set forth on Schedule
2(o), to the best knowledge of Valley no officer or director of Valley or any
Valley Subsidiary, or any "associate" (as such term is defined in Rule l4a-1
under the Exchange Act) of any such officer or director, has any interest in
any material contract or property (real or personal), tangible or intangible,
used in or pertaining to the business of Valley or any Valley Subsidiary.
Schedule 2(o) sets forth a correct and complete list of any loan from Valley
or any Valley 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
Valley's or such Valley Subsidiary's Board of Directors.
(p) Valley 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 Valley or any Valley 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 Valley or
any Valley Subsidiary are those
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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) Except as set forth on Schedule 2(p), 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), Valley
or the Valley subsidiaries have received favorable determination letters
from the Internal Revenue Service under the provisions of the Tax Reform
Act of 1986 ("TRA") 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. Valley 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) Except as disclosed in Schedule 2(p), and to the best knowledge of
Valley, 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 Valley, 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 Valley and the Valley Subsidiaries taken as a whole.
(iv) No Plan is subject to Title IV of ERISA.
(v) No Plan or any trust created thereunder subject to Section 412 of the
Code has incurred any "accumulated funding deficiency", as such term is
defined in Section 412 of the Code (whether or not waived), since the
effective date of ERISA.
(vi) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement nor the consummation of
the transactions contemplated hereby and thereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or employee or former employee of Valley or any Valley 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.
(vii) Valley has provided Norwest with a true and complete copy of the
ICP, as amended.
(q) Proxy Statement, etc. None of the information regarding Valley and the
Valley Subsidiaries supplied or to be supplied by Valley 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 Valley Common Stock pursuant to the provisions of the Merger
Agreement (the "Registration Statement"), (ii) the proxy statement to be
mailed to Valley's shareholders in connection with the meeting to be called to
consider the Merger (the "Proxy Statement") and (iii) any other documents to
be filed with the SEC or any regulatory authority in connection with the
transactions contemplated hereby or by the Merger Agreement will, at the
respective times such documents are filed with the SEC or any regulatory
authority and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed, be false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not misleading or, in
the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of shareholders referred to in paragraph
4(c), be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for such meeting.
All documents which Valley and the Valley Subsidiaries are responsible for
filing with the SEC and any other regulatory authority in connection with the
Merger will comply as to form in all material respects with the provisions of
applicable law.
(r) Registration Obligations. Except as set forth on Schedule 2(r), neither
Valley nor any Valley Subsidiary is under any obligation, contingent or
otherwise, which will survive the Merger by reason of any agreement to
register any of its securities under the Securities Act.
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(s) Brokers and Finders. Except for Joel E. Meek and The Bank Advisory
Group, Inc., neither Valley nor any Valley 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 Valley or any Valley Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(t) Administration of Trust Accounts. Valley and each Valley Subsidiary has
properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of Valley and the Valley
Subsidiaries taken as a whole all accounts for which it acts as a fiduciary,
including, but not limited to, accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither
Valley, any Valley Subsidiary, nor any director, officer or employee of Valley
or any Valley Subsidiary has committed any breach of trust with respect to any
such fiduciary account which is material to or could reasonably be expected to
be material to the financial condition of Valley and the Valley Subsidiaries
taken as a whole, and the accountings for each such fiduciary account are true
and correct in all material respects and accurately reflect the assets of such
fiduciary account.
(u) No Defaults. Neither Valley nor any Valley 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 Valley and the Valley Subsidiaries, taken as a
whole. To the best of Valley's knowledge, all parties with whom Valley or any
Valley Subsidiary has material leases, agreements or contracts or who owe to
Valley or any Valley Subsidiary material obligations other than with respect
to those arising in the ordinary course of the banking business of the Valley
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 Valley or any Valley 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 ("CERCLA"), pending or to the best of
Valley's knowledge, threatened against Valley or any Valley Subsidiary the
result of which has had or could reasonably be expected to have a material
adverse effect upon Valley and Valley's Subsidiaries taken as a whole; to the
best of Valley's knowledge there is no reasonable basis for any such
proceeding, claim or action; and to the best of Valley's knowledge neither
Valley nor any Valley 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. Valley 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.
(w) Conversion Ratio. Subject to approval of the "Series C Amendment" and
"Series D Amendment" (as hereinafter defined) pursuant to paragraph 4(c)
hereof, for purposes of lettered paragraph (a) under the heading "Conversion"
in the Series C Statement of Designation and the Series D Statement of
Designation, the "book value per share" for calculating the "Conversion Ratio"
(as defined in the Series C Amendment and Series D Amendment) is $43.76.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Valley 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
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now being conducted. Norwest is registered as a bank holding company with the
Federal Reserve Board under the BHC Act.
(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
list as of December 31, 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.
(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 Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory authority over Norwest as may be required by statute
or regulation, this Agreement is a valid and binding obligation of Norwest
enforceable against Norwest in accordance with its terms.
Neither the execution, delivery and performance by Norwest of this Agreement
or the Merger Agreement, nor the consummation of the transactions contemplated
hereby and thereby, nor compliance by Norwest with any of the provisions
hereof or thereof, will (i) violate, conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration of, or result in the creation of, any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Norwest or any Norwest Subsidiary under any of the terms, conditions
or provisions of (x) its certificate of incorporation or by-laws or (y) any
material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Norwest or any Norwest
Subsidiary is a party or by which it may be bound, or to which Norwest or any
Norwest Subsidiary or any of the properties or assets of Norwest or any
Norwest Subsidiary may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in the next paragraph, to the best
knowledge of Norwest, violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to Norwest or any Norwest
Subsidiary or any of their respective properties or assets.
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Other than in connection with or in compliance with the provisions of the
Securities Act, the Exchange Act, the securities or blue sky laws of the
various states or filings, consents, reviews, authorizations, approvals or
exemptions required under the BHC Act or the HSR Act, and filings required to
effect the Merger under Texas law, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Norwest of the transactions
contemplated by this Agreement and the Merger Agreement.
(e) Norwest Financial Statements. The consolidated balance sheets of Norwest
and Norwest's subsidiaries as of December 31, 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 accordance with generally accepted accounting principles
applied on a consistent basis and present fairly (subject, in the case of
financial statements for interim periods, to normal recurring adjustments) the
consolidated financial position of Norwest and its subsidiaries at the dates
and the consolidated results of operations, changes in financial position and
cash flows of Norwest and its subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1990, Norwest and each Norwest Subsidiary
has filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with (i) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q and proxy statements,
(ii) the Federal Reserve Board, (iii) the FDIC, (iv) the Comptroller and (v)
any applicable state securities or banking authorities. All such reports and
statements filed with any such regulatory body or authority are collectively
referred to herein as the "Norwest Reports." As of their respective dates, the
Norwest Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and any applicable state securities or banking authorities, as the
case may be, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(g) Properties and Leases. Except as may be reflected in the Norwest
Financial Statements and except for any lien for current taxes not yet
delinquent, Norwest and each Norwest Subsidiary has good title free and clear
of any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Norwest's
consolidated balance sheet as of September 30, 1996 included in Norwest's
Quarterly Report on Form 10-Q, 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
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authority, for the assessment or collection of taxes, interest, penalties,
assessments or deficiencies which could reasonably be expected to have any
material adverse effect on Norwest and its subsidiaries taken as a whole, and
(ii) no issue has been raised by any federal, state, local or foreign taxing
authority in connection with an audit or examination of the tax returns,
business or properties of Norwest or any Norwest Subsidiary which has not been
settled, resolved and fully satisfied, or adequately reserved for. Each of
Norwest and the Norwest Subsidiaries has paid all taxes owed or which it is
required to withhold from amounts owing to employees, creditors or other third
parties.
(i) Absence of Certain Changes. Since December 31, 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 or self-insured, for reasonable amounts with financially sound and
reputable insurance companies against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable law and
regulation.
(m) Compliance with Laws. Norwest and each Norwest Subsidiary has all
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to
own or lease its properties or assets and to carry on its business as
presently conducted and that are material to the business of Norwest or such
Subsidiary; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect, and to the best knowledge of Norwest,
no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current. The conduct by Norwest
and each Norwest Subsidiary of its business and the condition and use of its
properties does not violate or infringe, in any respect material to any such
business, any applicable domestic (federal, state or local) or foreign law,
statute, ordinance, license or regulation. Neither Norwest nor any Norwest
Subsidiary is in default under any order, license, regulation or demand of any
federal, state, municipal or other governmental agency or with respect to any
order, writ, injunction or decree of any court. Except for statutory or
regulatory restrictions of general application, no federal, state, municipal
or other governmental authority has placed any restrictions on the
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business or properties of Norwest or any Norwest Subsidiary which reasonably
could be expected to have a material adverse effect on the business or
properties of Norwest and its subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Norwest or any Norwest Subsidiary is
pending or, to the best knowledge of Norwest, threatened. Neither Norwest nor
any Norwest Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding which could
materially and adversely affect the business of Norwest or such Norwest
Subsidiary. Except as set forth on Schedule 3(j), employees of Norwest and the
Norwest Subsidiaries are not represented by any labor union nor are any
collective bargaining agreements otherwise in effect with respect to such
employees.
(o) Norwest Benefit Plans.
(i) As of December 31, 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 TRA 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 Merger Agreement.
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the Merger
Agreement nor the consummation of the transactions contemplated hereby and
thereby will (i) result in any material payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or employee or former employee of
Norwest under any Norwest Plan or otherwise, (ii) materially increase any
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
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other documents to be filed with the SEC or any regulatory authority in
connection with the transactions contemplated hereby or by the Merger
Agreement will, at the respective times such documents are filed with the SEC
or any regulatory authority and, in the case of the Registration Statement,
when it becomes effective and, with respect to the Proxy Statement, when
mailed, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of shareholders referred to in
paragraph 4(c), be false or misleading with respect to any material fact, or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for such
meeting. All documents which Norwest and the Norwest Subsidiaries are
responsible for filing with the SEC and any other regulatory authority in
connection with the Merger will comply as to form in all material respects
with the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor any
of their respective officers, directors or employees has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by
which it or any of its assets is bound or to which any of its assets is
subject, the result of which has had or could reasonably be expected to have a
material adverse effect upon Norwest and its subsidiaries taken as a whole. To
the best of Norwest's knowledge, all parties with whom Norwest or any Norwest
Subsidiary has material leases, agreements or contracts or who owe to Norwest
or any Norwest Subsidiary material obligations other than with respect to
those arising in the ordinary course of the banking business of the Norwest
Subsidiaries are in compliance therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
result in the imposition, on Norwest or any Norwest Subsidiary of any
liability relating to the release of hazardous substances as defined under any
local, state or federal environmental statute, regulation or ordinance
including, without limitation, CERCLA, pending or to the best of Norwest's
knowledge, threatened against Norwest or any Norwest Subsidiary, the result of
which has had or could reasonably be expected to have a material adverse
effect upon Norwest and its subsidiaries taken as a whole; to the best of
Norwest's knowledge there is no reasonable basis for any such proceeding,
claim or action; and to the best of Norwest's knowledge neither Norwest nor
any Norwest Subsidiary is subject to any agreement, order, judgment, or decree
by or with any court, governmental authority or third party imposing any such
environmental liability.
(t) Merger Co. As of the Closing Date, Merger Co. will be a corporation duly
organized, validly existing, duly qualified to do business and in good
standing under the laws of its jurisdiction of incorporation, and will have
corporate power and authority to own or lease its properties and assets and to
carry on its business.
(u) Regulatory Approval. Norwest is not aware of any circumstance in
existence as of the date hereof that would prevent the transactions
contemplated by this Agreement and the Merger Agreement from being approved by
the Federal Reserve Board.
4. COVENANTS OF VALLEY. Valley covenants and agrees with Norwest as follows:
(a) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Merger, Valley, and each Valley
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
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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 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 $300,000, except when cash advances would not be greater than
$50,000 on an unsecured loan or $150,000 on a secured loan; maintain proper
business and accounting records in accordance with generally accepted
principles; maintain in all material respects presently existing insurance
coverage; use its best efforts to preserve its business organization intact,
to keep the services of its present principal employees and to preserve its
good will and the good will of its suppliers, customers and others having
business relationships with it; use its best efforts to obtain any approvals
or consents required to maintain existing leases and other contracts in effect
following the Merger; comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable to the
properties and operations of Valley and each Valley Subsidiary the non-
compliance with which reasonably could be expected to have a material adverse
effect on Valley and the Valley Subsidiaries taken as a whole; and permit
Norwest and its representatives (including KPMG Peat Marwick LLP) upon prior
notice to Valley 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 Valley herein expressed.
(b) Except as otherwise contemplated or required by this Agreement, from the
date hereof until the Effective Time of the Merger, Valley and each Valley
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 in U.S. Treasury securities having a maturity of three
years or less; amend or terminate any Plan except as required by law or
requested by Norwest; make any contributions to any Plan except as required by
the terms of such Plan in effect as of the date hereof or, with respect to the
First Valley Bank Group, Inc. Employee Stock Ownership Plan (the "ESOP"), as
necessary to service the indebtedness of the ESOP as and when such
indebtedness becomes due and to correct any prohibited transaction disclosed
on Schedule 2(p); declare, set aside, make or pay any dividend or other
distribution with respect to its capital stock except (i) any dividend
declared by the Board of Directors of a Valley Subsidiary in accordance with
applicable law and regulation; and (ii) dividends paid on the Series C
Preferred and Series D Preferred in accordance with the terms thereof; redeem,
purchase or otherwise acquire, directly or indirectly, any of the capital
stock of Valley; increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans (including
bonus plans) and consistent with past practices (including bonus plans),
provided, however, that Valley may, in addition, accrue and pay bonuses in
accordance with Schedule 4(b) attached hereto, and provided, further, however,
that such bonus amounts shall be calculated without regard to the effect of
the accruals and reserves taken in accordance with paragraph 4(m) hereof; sell
or otherwise dispose of any shares of the capital stock of any Valley
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 Valley will duly call, and will cause to be
held not later than twenty-five (25) business days following the effective
date of the Registration Statement referred to in paragraph 5(c) hereof, a
meeting of its shareholders and will direct that this Agreement and the Merger
Agreement and the amendment to the Series C Statement of Designation in the
form of Exhibit D ("Series C Amendment") and the amendment to the Series D
Statement of Designation in the form of Exhibit E ("Series D Amendment") be
submitted to a vote at such meeting. In addition, the Board of Directors of
Valley shall submit to a vote at such meeting a resolution
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approving the payments in the form of shares of Norwest Common Stock to be
made to Participants in the ICP pursuant to the terms of the ICP and the
resolutions of the Incentive Compensation Committee dated May 1, 1997. The
Board of Directors of Valley will (i) cause proper notice of such meeting to
be given to its shareholders in compliance with the Texas Business Corporation
Act and other applicable law and regulation, and (ii) except to the extent
that the Board of Directors of Valley shall conclude in good faith, after
taking into account the advice of counsel, that to do so would violate its
fiduciary obligations under applicable law, (A) recommend by the affirmative
vote of the Board of Directors a vote in favor of approval of this Agreement
and the Merger Agreement and the Series C Amendment and Series D Amendment,
and approval of the payments to be made under the ICP, and (B) use its best
efforts to solicit from its shareholders proxies in favor thereof.
(d) Valley will furnish or cause to be furnished to Norwest all the
information concerning Valley and its subsidiaries required for inclusion in
the Registration Statement referred to in paragraph 5(c) hereof, or any
statement or application made by Norwest to any governmental body in
connection with the transactions contemplated by this Agreement. Any financial
statement for any fiscal year provided under this paragraph must include the
audit opinion and the consent of Burton, McCumber & Prichard, L.L.P. to use
such opinion in such Registration Statement.
(e) Valley 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 Valley 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) Valley 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) Valley will hold in confidence all documents and information concerning
Norwest and its subsidiaries furnished to Valley 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 Valley'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 Valley, in the public domain, or later
acquired by Valley 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 Valley, nor any Valley Subsidiary, nor any director, officer,
representative or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of or except to the extent that the Board of
Directors of Valley shall conclude in good faith, after taking into account
the written advice of its outside counsel, that to fail to do so could
reasonably be determined to violate its fiduciary obligations under applicable
law, enter into any negotiations with any corporation, partnership, person or
other entity or group (other than Norwest) concerning any offer or possible
offer (i) except as otherwise permitted by paragraph 4(b), 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 Valley or any Valley 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 Valley
or any Valley Subsidiary except in the ordinary course of business, or (iv) to
merge, consolidate or otherwise combine with Valley or any Valley Subsidiary.
If any corporation, partnership, person or other entity or group makes an
offer or inquiry to Valley or any Valley Subsidiary concerning any of the
foregoing, Valley or such Valley Subsidiary will promptly disclose such offer
or inquiry, including the terms thereof, to Norwest.
(i) Valley 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.
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(j) Valley and each Valley Subsidiary will take all action necessary or
required (i) to terminate or amend, if requested by Norwest, all qualified
pension and welfare benefit plans and all non-qualified benefit plans and
compensation arrangements as of the Effective Date of the Merger 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,
and (ii) to submit application to the Internal Revenue Service for a favorable
determination letter for each of the Plans which is subject to the
qualification requirements of Section 401(a) of the Code prior to the
Effective Date of the Merger.
(k) Neither Valley nor any Valley Subsidiary shall take any action which
with respect to Valley would disqualify the Merger as a "pooling of interests"
for accounting purposes.
(l) Valley shall use its best efforts to obtain and deliver at least 32 days
prior to the Effective Date of the Merger signed representations substantially
in the form attached hereto as Exhibit B to Norwest by each executive officer,
director or shareholder of Valley who may reasonably be deemed an "affiliate"
of Valley within the meaning of such term as used in Rule 145 under the
Securities Act.
(m) Valley shall establish such additional accruals and reserves as may be
necessary to conform Valley's accounting and credit loss reserve practices and
methods to those of Norwest and Norwest's plans with respect to the conduct of
Valley's business following the Merger and, to the extent permitted by
generally accepted accounting principles, to provide for the costs and
expenses relating to the consummation by Valley of the Merger and the other
transactions contemplated by this Agreement.
(n) Valley shall obtain, at its sole expense, Phase I environmental
assessments for each bank facility and each non-residential OREO property.
Oral reports of such environmental assessments shall be delivered to Norwest
no later than four (4) weeks and written reports shall be delivered to Norwest
no later than eight (8) weeks from the date of this Agreement. Valley 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. Valley shall obtain a survey and assessment of all
potential asbestos containing material in owned or leased properties (other
than OREO property) and a written report of the results shall be delivered to
Norwest within four (4) weeks of execution of the definitive agreement.
(o) Valley shall obtain, at its sole expense, commitments for title
insurance and boundary surveys for each bank facility which shall be delivered
to Norwest no later than four (4) weeks from the date of this Agreement.
(p) Valley shall obtain the written acknowledgment of each Participant in
the ICP, which acknowledgment will provide the agreement of such Participant
to elect to either (i) authorize the repurchase by Norwest from each
Participant on the day on which the Norwest publishes 30 days of combined
operations of Norwest and Valley ("Pooling Restriction Termination Date"), at
the average of the Closing Price of a share of Norwest Common Stock as
reported by the consolidated tape of the New York Stock Exchange as of such
date, a sufficient number of shares of Norwest Common Stock necessary to
satisfy minimum federal (and, if applicable, state) tax withholding
obligations, rounded up to the nearest whole share ("Withholding Repurchase
Option"), or (ii) contains the agreement by such Participant to pay to Norwest
in cash an amount of money sufficient to satisfy minimum federal (and, if
applicable, state) tax withholding obligations on the Pooling Restriction
Termination Date in exchange for the shares of Norwest Common Stock to be
issued to such Participant pursuant to paragraph 1(a) hereof. Such
acknowledgment will further provide that in the event that such Participant
has (i) not provided a written election to Norwest at least five (5) business
days prior to the Pooling Restriction Termination Date, or (ii) provided to
Norwest sufficient cash to satisfy such minimum withholding obligations prior
to the Pooling Restriction Termination Date, that such Participant shall be
deemed to have irrevocably elected the Withholding Repurchase Election. The
Participants shall further (i) agree in the acknowledgment that the amount of
taxable gain for determining the number of shares of Norwest Common Stock to
be repurchased pursuant to the Withholding repurchase Option shall be
calculated as of the Pooling Restriction Termination Date, (ii) agree in the
acknowledgment that their shares of Norwest Common Stock will not be delivered
to such Participants until minimum federal (and, if applicable, state)
withholding obligations have been satisfied, and
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(iii) include executed stock powers in blank with the acknowledgment to enable
Norwest to execute the Withholding Repurchase Option.
(q) Valley will file the Series C Amendment and Series D Amendment with the
Secretary of State of the State of Texas prior to the Effective Time of the
Merger and take all such other actions as are necessary to convert each
outstanding share of Series C Preferred and Series D Preferred into 1.5235
shares of Valley Common Stock.
(r) Valley shall take all action necessary to fulfill its obligations under
paragraph 7(q).
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Valley as
follows:
(a) From the date hereof until the Effective Time of the Merger, Norwest
will maintain its corporate existence in good standing; conduct, and cause the
Norwest Subsidiaries to conduct, their respective businesses in compliance
with all material obligations and duties imposed on them by all laws,
governmental regulations, rules and ordinances, and judicial orders, judgments
and decrees applicable to Norwest or the Norwest Subsidiaries, their
businesses or their properties; maintain all books and records of it and the
Norwest Subsidiaries, including all financial statements, in accordance with
the accounting principles and practices consistent with those used for the
Norwest Financial Statements, except for changes in such principles and
practices required under generally accepted accounting principles.
(b) Norwest will furnish to Valley all the information concerning Norwest
required for inclusion in a proxy statement or statements to be sent to the
shareholders of Valley, or in any statement or application made by Valley to
any governmental body in connection with the transactions contemplated by this
Agreement.
(c) As promptly as practicable after the execution of this Agreement,
Norwest will file the Registration Statement with the SEC and will use its
best efforts to cause the Registration Statement to become effective. At the
time the Registration Statement becomes effective, the Registration Statement
will comply in all material respects with the provisions of the Securities Act
and the published rules and regulations thereunder, and will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not false or
misleading, and at the time of mailing thereof to the Valley shareholders, at
the time of the Valley shareholders' meeting referred to in paragraph 4(c)
hereof and at the Effective Time of the Merger the prospectus included as part
of the Registration Statement, as amended or supplemented by any amendment or
supplement filed by Norwest (hereinafter the "Prospectus"), will not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not false or misleading; provided,
however, that none of the provisions of this subparagraph shall apply to
statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information furnished by Valley
or any Valley Subsidiary for use in the Registration Statement or the
Prospectus.
(d) Norwest will file all documents required to be filed to list the Norwest
Common Stock to be issued pursuant to the Merger Agreement on the New York
Stock Exchange and the Chicago Stock Exchange and use its best efforts to
effect said listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Valley pursuant to this Agreement and the Merger Agreement
will, upon such issuance and delivery to said shareholders pursuant to the
Merger Agreement, be duly authorized, validly issued, fully paid and
nonassessable. The shares of Norwest Common Stock to be delivered to the
shareholders of Valley pursuant to the Merger Agreement are and will be free
of any preemptive rights of the stockholders of Norwest.
(f) Norwest will file all documents required to obtain, prior to the
Effective Time of the Merger, all necessary Blue Sky permits and approvals, if
any, required to carry out the transactions contemplated by this Agreement,
will pay all expenses incident thereto and will use its best efforts to obtain
such permits and approvals.
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(g) Norwest will take all necessary corporate and other action and file all
documents required to obtain and will use its best efforts to obtain all
approvals of regulatory authorities, consents and approvals required of it to
carry out the transactions contemplated by this Agreement and will cooperate
with Valley to obtain all such approvals and consents required by Valley.
(h) Norwest will hold in confidence all documents and information concerning
Valley and Valley'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 Valley (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 Valley. Norwest will not directly solicit for employment any
officer or employee of Valley or a Valley Subsidiary for a period until the
expiration of eighteen (18) months following termination of this Agreement,
provided, however, that nothing herein shall prohibit Norwest from
interviewing or hiring any officer or employee of Valley or a Valley
Subsidiary who responds to a general employment solicitation placed by or on
behalf of Norwest in a publication of general circulation.
(i) Norwest will file any documents or agreements required to be filed in
connection with the Merger under the Texas Business Corporation Act.
(j) Norwest will use its best efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at
the Closing.
(k) Norwest shall consult with Valley 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 furnish Valley with copies, prior to filing, of the
nonconfidential portions of the applications referred to in paragraph 7(e) and
shall give Valley notice of receipt of the regulatory approvals referred to in
paragraph 7(e).
(m) Neither Norwest nor any Norwest Subsidiary shall take any action which
with respect to Norwest would disqualify the Merger as a "pooling of
interests" for accounting purposes. Norwest shall use its best efforts to
obtain and deliver to Valley, prior to the Effective Date of the Merger,
signed representations from the directors and executive officers of Norwest to
the effect that, except for de minimus dispositions which will not disqualify
the Merger as a pooling of interests, they will not dispose of shares of
Norwest or Valley during the period commencing 30 days prior to the Effective
Date and ending upon publication by Norwest of financial results including at
least 30 days of combined operations of Valley and Norwest.
(n) For a period not exceeding fifteen days prior to the Closing Date,
Norwest will permit Valley 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
Valley or its representatives shall in any way affect, diminish or terminate
any of the representations, warranties or covenants of Norwest herein
expressed.
(o) With respect to the indemnification of directors and officers and with
respect to directors' and officers' insurance, Norwest agrees as follows:
(i) Norwest shall ensure that all rights to indemnification and all
limitations of liability existing in favor of any person who is now, or has
been at any time prior to the date hereof, or who becomes prior to the
Effective Time of the Merger, a director or officer of Valley or any Valley
Subsidiary (an "Indemnified Party" and, collectively, the "Indemnified
Parties"), in Valley's Articles of Incorporation or Bylaws or similar
governing documents of any Valley Subsidiary, as applicable in the
particular case and as in effect
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on the date hereof, shall, with respect to claims arising from (A) facts or
events that occurred before the Effective Time of the Merger, or (B) this
Agreement or any of the transactions contemplated by this Agreement,
whether in any case asserted or arising before or after the Effective Time
of the Merger, survive the Merger and shall continue in full force and
effect. Nothing contained in this paragraph 5(o)(i) shall be deemed to
preclude the liquidation, consolidation or merger of Valley or any Valley
Subsidiary, in which case all of such rights to indemnification and
limitations on liability shall be deemed to survive and continue as
contractual rights notwithstanding any such liquidation or consolidation or
merger; provided, however, that in the event of liquidation or sale of
substantially all of the assets of Valley, Norwest shall guarantee, to the
extent of the net asset value of Valley or any Valley Subsidiary as of the
Effective Date of the Merger, the indemnification obligations of Valley or
any Valley Subsidiary to the extent of indemnification obligations of
Valley and the Valley Subsidiaries described above. Notwithstanding
anything to the contrary contained in this paragraph 5(o)(i), nothing
contained herein shall require Norwest to indemnify any person who was a
director or officer of Valley or any Valley Subsidiary to a greater extent
than Valley or any Valley Subsidiary is, as of the date of this Agreement,
required to indemnify any such person;
(ii) any Indemnified Party wishing to claim indemnification under
paragraph 5(o)(i), upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Norwest thereof, but the
failure to so notify shall not relieve Norwest of any liability it may have
to such Indemnified Party. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time of the Merger), (A) Norwest shall have the right to assume the defense
thereof and Norwest shall not be liable to any Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Party in connection with the defense thereof, except
that if Norwest elects not to assume such defense or counsel for the
Indemnified Party advises that there are issues which raise conflicts of
interest between Norwest and the Indemnified Party, the Indemnified Party
may retain counsel satisfactory to them, and Norwest shall pay the
reasonable fees and expenses of such counsel for the Indemnified Party
promptly as statements therefor are received; provided, however, that
Norwest shall be obligated pursuant to this subparagraph (ii) to pay for
only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present
such counsel with a conflict of interest and (B) such Indemnified Party
shall cooperate in the defense of any such matter;
(iii) for a period of three years after the Effective Time of the Merger,
Norwest shall use its best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained
by Valley (provided that Norwest may substitute therefor policies of at
least the same coverage and amount containing terms and conditions which
are substantially no less advantageous) with respect to claims arising from
facts or events which occurred before the Effective Time of the Merger;
provided, however, that Norwest shall not be required to maintain the
coverage for employees (other than directors and officers) which is
currently included in the directors' and officers' liability policies
maintained by Valley; and provided, further, however, that in no event
shall Norwest be obligated to expend, in order to maintain or provide
insurance coverage pursuant to this paragraph 5(o)(iii), any amount per
annum in excess of 125% of the amount of the annual premiums paid as of the
date hereof by Valley for such insurance (the "Maximum Amount") and
provided further that, prior to the Effective Time of the Merger, Valley
shall notify the appropriate directors' and officers' liability insurers of
the Merger and of all pending or threatened claims, actions, suits,
proceedings or investigations asserted or claimed against any Indemnified
Party, or circumstances likely to give rise thereto, in accordance with
terms and conditions of the applicable policies. If the amount of the
annual premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, Norwest shall use reasonable efforts to
maintain the most advantageous policies of directors' and officers'
insurance obtainable for an annual premium equal to the Maximum Amount;
(iv) if Norwest or any of its successors or assigns (A) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger or (B) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each
such case, proper provision shall be made so that the successors and
assigns of Norwest shall assume the obligations set forth in this paragraph
5(o); and
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(v) the provisions of this paragraph 5(o) are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
6. CONDITIONS PRECEDENT TO OBLIGATION OF VALLEY. The obligation of Valley to
effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following further conditions, which may be waived in writing
by Valley:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or
transactions after the date of this Agreement made in the ordinary course of
business and not expressly prohibited by this Agreement, the representations
and warranties contained in paragraph 3 hereof shall be true and correct in
all respects material to Norwest and its subsidiaries taken as a whole as if
made at the Time of Filing.
(b) Norwest shall have, or shall have caused to be, performed and observed
in all material respects all covenants, agreements and conditions hereof to be
performed or observed by it and Merger Co. at or before the Time of Filing.
(c) Valley shall have received a favorable certificate, dated as of the
Effective Date of the Merger, signed by the Chairman, the President or any
Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs
(a) and (b) of this paragraph 6.
(d) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Valley required for approval of a plan of merger in accordance with the
provisions of Valley's Articles of Incorporation and the Texas Business
Corporation Act, the Series C Amendment in the form of Exhibit D and the
Series D Amendment in the form of Exhibit E shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Valley Series C Preferred and Series D Preferred, respectively, required for
approval of amendment of the terms of a class of capital stock in accordance
with the provisions of Valleys' Articles of Incorporation and the Texas
Business Corporation Act, and the payments to Participants under the ICP shall
have been approved by the vote of at least 75% of the outstanding shares of
Valley entitled to vote thereon.
(e) Norwest shall have received approval by the Federal Reserve Board and by
such other governmental agencies as may be required by law of the transactions
contemplated by this Agreement and the Merger Agreement and all waiting and
appeal periods prescribed by applicable law or regulation shall have expired.
(f) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(g) The shares of Norwest Common Stock to be delivered to the stockholders
of Valley pursuant to this Agreement and the Merger Agreement shall have been
authorized for listing on the New York Stock Exchange and the Chicago Stock
Exchange.
(h) Valley shall have received an opinion, dated the Closing Date, of
counsel to Valley, substantially to the effect that, for federal income tax
purposes: (i) the Merger will constitute a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code; (ii) no gain or loss
will be recognized by the holders of Valley 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
Valley will be the same as the basis of Valley Common Stock exchanged
therefor; and (iv) the holding period of the shares of Norwest Common Stock
received by the shareholders of Valley will include the holding period of the
Valley Common Stock, provided such shares of Valley Common Stock were held as
a capital asset as of the Effective Time of the Merger.
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(i) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action, suit, proceeding or investigation by the SEC to suspend
the effectiveness of the Registration Statement shall have been initiated and
be continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to
carry out the transactions contemplated by this Agreement.
(j) Prior to the mailing of the Proxy Statement referred to in paragraph
4(c), Valley and the Board of Directors of Valley shall have received an
opinion from The Bank Advisory Group, Inc., or other financial advisor,
addressed to Valley and the Board of Directors of Valley, and for their
exclusive benefit, for inclusion in said Proxy Statement and dated effective
as of the date of mailing of such Proxy Statement, based on such matters as
The Bank Advisory Group, Inc., or other financial advisor, deems appropriate
or necessary, to the effect that the consideration to be received by
stockholders of Valley pursuant to the Merger is fair from a financial point
of view. Valley shall promptly provide a copy of such opinion to Norwest upon
receipt.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of Norwest
to effect the Merger shall be subject to the satisfaction at or before the
Time of Filing of the following conditions, which may be waived in writing by
Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or
transactions or events occurring after the date of this Agreement made in the
ordinary course of business and not expressly prohibited by this Agreement,
the representations and warranties contained in paragraph 2 hereof shall be
true and correct in all respects material to Valley and the Valley
Subsidiaries taken as a whole as if made at the Time of Filing.
(b) Valley shall have, or shall have caused to be, performed and observed in
all material respects all covenants, agreements and conditions hereof to be
performed or observed by it at or before the Time of Filing.
(c) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Valley required for approval of a plan of merger in accordance with the
provisions of Valley's Articles of Incorporation and the Texas Business
Corporation Act, the Series C Amendment and the Series D Amendment shall have
been approved by the affirmative vote of the holders of the percentage of the
outstanding shares of Valley Series C Preferred and Series D Preferred,
respectively, required for an approval of amendment of the terms of a class of
capital stock in accordance with the provisions of Valleys' Articles of
Incorporation and the Texas Business Corporation Act, and the payments to
Participants under the ICP shall have been approved by the vote of at least
75% of the outstanding shares of Valley Common Stock entitled to vote thereon.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Merger signed by the Chairman or President and by the
Secretary or Assistant Secretary of Valley, as to the matters set forth in
subparagraphs (a) through (c) of this paragraph 7.
(e) Norwest shall have received approval by all governmental agencies as may
be required by law of the transactions contemplated by this Agreement and the
Merger Agreement and all waiting and appeal periods prescribed by applicable
law or regulation shall have expired. No approvals, licenses or consents
granted by any regulatory authority shall contain any condition or requirement
relating to Valley or any Valley Subsidiary that, in the good faith judgment
of Norwest, is unreasonably burdensome to Norwest.
(f) Valley and each Valley Subsidiary shall have obtained any and all
material consents or waivers from other parties to loan agreements, leases or
other contracts material to Valley's or such subsidiary's business required
for the consummation of the Merger, and Valley and each Valley Subsidiary
shall have obtained any and all material permits, authorizations, consents,
waivers and approvals required for the lawful consummation by it of the
Merger.
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<PAGE>
(g) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement.
(h) The Merger shall qualify as a "pooling of interests" for accounting
purposes and Norwest shall have received from Burton, McCumber & Prichard,
L.L.P., as Valley's auditors and at Valley's expense, an opinion to the effect
that the activities of Valley would not preclude the Merger from being
accounted for as a pooling of interests.
(i) At any time since the date hereof (A) the total number of shares of
Valley Common Stock outstanding and subject to issuance upon exercise
(assuming for this purpose that phantom shares and other share-equivalents
constitute Valley 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 745,010 (excluding conversion of the Series C
Preferred and Series D Preferred) and 785,322 (including conversion of the
Series C Preferred and Series D Preferred); (B) the total number of shares of
Series C Preferred outstanding shall not exceed 5,650; (C) the total number of
shares of Series D Preferred outstanding shall not exceed 19,531; (D) the
total number of shares of Valley Common Stock into which shares of Series C
Preferred are convertible upon filing of the Series C Amendment will be 8,607
and into which shares of Series D Preferred will be convertible upon filing of
the Series D Amendment will be 31,705; and (E) the number of ICP Share
Equivalents shall be as set forth on Schedule 1(a).
(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 Valley 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 Valley 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 Valley;
(ii) the amounts reported in the interim quarterly financial statements
of Valley agree with the general ledger of Valley;
(iii) the annual and quarterly financial statements of Valley and the
Valley Subsidiaries included in, or incorporated by reference in, the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the published
rules and regulations thereunder;
(iv) from the date of the most recent unaudited consolidated financial
statements of Valley and the Valley 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 Valley and the Valley 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 Valley and the Valley
Subsidiaries, or in income before equity in undistributed income of
subsidiaries, in each case as compared with the comparable period of the
preceding year, except in each case for changes, increases or decreases
which the Registration Statement discloses have occurred or may occur or
which are described in such letters;
(v) they have reviewed certain amounts, percentages, numbers of shares
and financial information which are derived from the general accounting
records of Valley and the Valley Subsidiaries, which appear in the
Registration Statement under the certain captions to be specified by
Norwest, and have compared
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certain of such amounts, percentages, numbers and financial information
with the accounting records of Valley and the Valley Subsidiaries and have
found them to be in agreement with financial records and analyses prepared
by Valley included in the annual and quarterly financial statements, except
as disclosed in such letters.
(l) Valley and the Valley 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
Valley or any Valley Subsidiary of, any liability relating to the release of
hazardous substances as defined under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
CERCLA, which has had or could reasonably be expected to have a material
adverse effect upon Valley 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 of Valley and the Valley 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). No action taken by Valley solely in order to comply
with the requirements of paragraph 4(m) hereof shall be deemed to have a
material adverse effect for purposes of this paragraph 7(n).
(o) Valley shall have obtained the written acknowledgments required by
paragraph 4(p).
(p) Valley shall have taken the actions required by paragraph 4(q) hereof
and each share of Series C Preferred and Series D Preferred shall have been
converted into 1.5235 shares of Valley Common Stock.
(q) Valley shall have terminated the ICP effective as of the Effective Time
of the Merger and obtained the written consent of the ICP Participants (i) to
such termination and (ii) that the issuance of the shares of Norwest Common
Stock in the amounts set forth on Schedule 1(a) shall satisfy in full their
rights under the ICP.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Valley or any
Valley Subsidiary as of the Effective Date of the Merger ("Valley 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 Valley 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
not subject to pre-existing condition exclusions, except with respect to the
Norwest Long Term Care Plan) and shall enter each plan not later than the
first day of the calendar quarter which begins at least 32 days after the
Effective Date of the Merger (provided, however, that it is Norwest's intent
that the transition from the Valley plans to the Norwest plans be facilitated
without gaps in coverage to the participants and without duplication in costs
to Norwest):
Medical Plan Basic Group Life Insurance Plan
Dental Plan Group Universal Life Insurance Plan
Vision Plan Dependent Group Life Insurance Plan
Short Term Disability Plan Business Travel Accident Insurance
Long Term Disability Plan Plan
Long Term Care Plan Accidental Death and Dismemberment
Flexible Benefits Plan Plan
Severance Pay Plan
Vacation Program
For the purpose of determining each Valley Employee's benefit for the year in
which the Merger occurs under the Norwest vacation program, vacation taken by
a Valley Employee in the year in which the Merger occurs will
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be deducted from the total Norwest benefit. Valley Employees shall receive
credit for years of service to Valley, the Valley Subsidiaries and any
predecessors of the Valley Subsidiaries (to the extent credited under the
vacation and short-term disability programs of Valley and the Valley
Subsidiaries) for the purpose of determining benefits under the Norwest
Vacation Program and Short Term Disability Plan.
(b) Employee Retirement Benefit Plans. Each Valley 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 Valley and the Valley 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 Valley and the Valley 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 Merger.
Each Valley Employee shall be eligible for participation, as a new employee,
in the Norwest Pension Plan under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of
Filing:
(i) by mutual written consent of the parties hereto;
(ii) by either of the parties hereto upon written notice to the other
party if the Merger shall not have been consummated by December 31, 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 Valley 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 Valley, within five business days after the end of the Index
Measurement Period (as defined in subparagraph (c)(ii) below),
(A) if both of the following conditions are satisfied:
(1) the Norwest Measurement Price (as defined in subparagraph
(c)(ii) below) is less than $41.00; and
(2) the number obtained by dividing the Norwest Measurement Price
by the closing price of Norwest Common Stock on the trading day
immediately preceding the date of this Agreement is less than the
number obtained by dividing the Final Index Price (as defined in
subparagraph (c) below) by the Initial Index Price (as defined in
subparagraph (c) below) and subtracting 0.15 from such quotient; or
(B) if the Norwest Average Price is less than $39.00. The "Norwest
Average Price" is defined as the average of the closing prices of a
share of Norwest Common Stock as reported on the consolidated tape of
the New York Stock Exchange during the period of 15 trading days ending
on the day immediately preceding the meeting of the shareholders of
Valley held to vote on this Agreement and the Merger Agreement.
(v) by either Norwest or Valley upon written notice to the other party if
the Board of Directors of Valley shall in good faith determine that a
Takeover Proposal constitutes a Superior Proposal; provided, however, that
Valley shall not be permitted to terminate this Agreement pursuant to this
paragraph (a)(v) unless (i) it has not breached any covenant contained in
paragraph 4(h) and (ii) it delivers to Norwest simultaneously with such
notice of termination the fee referred to in paragraph 9(d) below. As used
in this Agreement; (i) "Takeover Proposal" means a bona fide proposal or
offer by a person to make a tender or exchange offer, or to engage in a
merger, consolidation or other business combination involving Valley or
A-24
<PAGE>
to acquire in any manner a substantial equity interest in, or all or
substantially all of the assets of, Valley, and (ii) "Superior Proposal"
means a bona fide proposal or offer made by a person to acquire Valley
pursuant to a tender or exchange offer, a merger, consolidation or other
business combination or an acquisition of all or substantially all of the
assets of Valley and the Valley Subsidiaries on terms which the Board of
Directors of Valley shall determine in good faith, after taking into
account the advice of counsel, to be more favorable to Valley and its
shareholders than the transactions contemplated hereby.
(vi) by Norwest upon written notice to Valley if (A) the Board of
Directors of Valley fails to recommend, withdraws, or modifies in a manner
materially adverse to Norwest, its approval or recommendation of this
Agreement, or the transactions contemplated hereby, (B) after an agreement
to engage in or the occurrence of an Acquisition Event (as defined below)
or after a third party shall have made a proposal to Valley or Valley 's
shareholders to engage in an Acquisition Event, the transactions
contemplated hereby are not approved at the meeting of Valley shareholders
contemplated by paragraph 4(c), or (C) the meeting of Valley shareholders
contemplated by paragraph 4(c) is not held prior to December 31, 1997 and
Valley has failed to comply with its obligations under paragraph 4(c).
"Acquisition Event" means any of the following: (i) a merger, consolidation
or similar transaction involving Valley, its intermediate bank holding
company ("Holding Company"), its bank subsidiary (the "Bank") or any
successor to Valley, the Holding Company or the Bank, (ii) a purchase,
lease or other acquisition in one or a series of related transactions of
assets of Valley or any of the Valley Subsidiaries representing 25% or more
of the consolidated assets of Valley and the Valley Subsidiaries or (iii) a
purchase or other acquisition (including by way of merger, consolidation,
share exchange or any similar transaction) in one or a series of related
transactions of beneficial ownership of securities representing 25% or more
of the voting power of Valley or any Valley Subsidiary in each case with or
by a person or entity other than Norwest or an affiliate of Norwest.
(b) Termination of this Agreement under this paragraph 9 shall not release,
or be construed as so releasing, either party hereto from any liability or
damage to the other party hereto arising out of the breaching party's willful
and material breach of the warranties and representations made by it, or
willful and material failure in performance of any of its covenants,
agreements, duties or obligations arising hereunder, and the obligations under
paragraphs 4(g), 5(h) and 10 shall survive such termination.
(c) For purposes of this paragraph 9:
(i) The "Company Market Capitalization" shall mean (a) the price of one
share of the common stock of a given company at the close of the trading
day immediately preceding the date of this Agreement multiplied by (b) the
number of shares of common stock of such company outstanding as of June 30,
1996 (adjusted for any stock dividend, reclassification, recapitalization,
exchange of shares or similar transaction between June 30, 1996 and the
close of the trading day immediately preceding the date of this Agreement).
(ii) The "Index Group" shall mean all of those companies listed on
Exhibit C the common stock of which is publicly traded and as to which
there is, during the period of 20 trading days ending on the day
immediately preceding the meeting of the shareholders of Valley held to
vote on this Agreement and the Merger Agreement (the "Index Measurement
Period"), no pending publicly announced proposal for such company to be
acquired, nor has there been any proposal by such company publicly
announced subsequent to the day before the date of this Agreement to
acquire another company in exchange for stock where, if the company to be
acquired were to become a subsidiary of the acquiring company, the company
to be acquired would be a "significant subsidiary" as defined in Rule 1-02
of Regulation S-X promulgated by the SEC nor has there been any program
publicly announced subsequent to the day before the date of this Agreement
to repurchase 5% or more of the outstanding shares of such company's common
stock. 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 Index
Measurement Period.
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<PAGE>
(iii) The "Initial Index Price" shall mean the sum of the following,
calculated for each of the companies in the Index Group: (a) the closing
price per share of common stock of each such company on the trading day
immediately preceding the date of this Agreement multiplied by (b) the
Weighting Factor (as defined below) for each such company.
(iv) The "Final Index Price" shall mean the sum of the following,
calculated for each of the companies in the Index Group: (a) the Final
Price for each such company multiplied by (b) the Weighting Factor (as
defined below) for each such company.
(v) The "Final Price" of any company in the Index Group shall mean the
average of the daily closing prices of a share of common stock of such
company, as reported on the consolidated transaction reporting system for
the market or exchange on which such common stock is principally traded,
during the Index Measurement Period.
(vi) The "Total Market Capitalization" shall mean the sum of the Company
Market Capitalization for each of the companies in the Index Group.
(vii) The "Weighting Factor" for any given company shall mean the Company
Market Capitalization for such company divided by the Total Market
Capitalization.
If a Common Stock Adjustment occurs with respect to the shares of Norwest or
any company in the Index Group between the date of this Agreement and the
Valley shareholder meeting date, the closing prices for the common stock of
such company shall be appropriately and proportionately adjusted for the
purposes of the definitions above so as to be comparable to what the price
would have been if the record date of the Common Stock Adjustment had been
immediately following the Effective Time of the Merger.
(d) If this Agreement is terminated pursuant to paragraphs 9(a)(v) or
9(a)(vi), and if terminated pursuant to paragraph 9(a)(vi) and prior thereto
or within 12 months after such termination:
(i) Valley, the Holding Company or the Bank or any successor to Valley,
the Holding Company or the Bank shall have entered into an agreement to
engage in an Acquisition Event (as defined above) or an Acquisition Event
shall have occurred; or
(ii) the Board of Directors of Valley shall have authorized or approved
an Acquisition Event or shall have publicly announced an intention to
authorize or approve or shall have recommended that the shareholders of
Valley approve or accept any Acquisition Event,
then Valley shall promptly, but in no event later than five business days
after the first of such events shall have occurred, pay Norwest a fee equal to
$1,750,000.
(e) If this Agreement is terminated pursuant to this paragraph 9, Norwest
shall immediately pay to Valley an amount equal to Valley's actual expenses in
connection with obtaining the environmental assessments, asbestos surveys,
title commitments and boundary surveys required by paragraphs 4(n) and 4(o)
hereof.
10. EXPENSES. Except as otherwise provided in paragraph 9 hereof, all
expenses in connection with this Agreement and the transactions contemplated
hereby, including without limitation legal and accounting fees, incurred by
Valley and Valley Subsidiaries shall be borne by Valley, and all such expenses
incurred by Norwest shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Each party hereto intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of
any person other than the parties hereto.
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<PAGE>
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 Valley:
First Valley Bank Group, Inc.
205 North Arroyo Boulevard
Los Fresnos, Texas 78566
Attention: Mr. Cleve Breedlove
With a copy to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Attention: Charles E. Greef, Esq.
or to such other address with respect to a party as such party shall notify
the other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Merger Agreement contain the
complete agreement between the parties hereto with respect to the Merger and
other transactions contemplated hereby and supersede all prior agreements and
understandings between the parties hereto with respect thereto.
15. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by a signed writing,
give any consent, take any action pursuant to paragraph 9 hereof or otherwise,
or waive any inaccuracies in the representations and warranties by the other
party and compliance by the other party with any of the covenants and
conditions herein.
17. AMENDMENT. At any time before the Time of Filing, the parties hereto, by
action taken by their respective Boards of Directors or pursuant to authority
delegated by their respective Boards of Directors, may amend this Agreement;
provided, however, that no amendment after approval by the shareholders of
Valley shall be made which changes in a manner adverse to such shareholders
the consideration to be provided to said shareholders pursuant to this
Agreement and the Merger Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas.
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreement shall survive the
Merger or except as set forth in paragraph 9(b), the termination of this
Agreement. Paragraph 10 shall survive the Merger.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NORWEST CORPORATION
/s/ Kenneth R. Murray
By __________________________________
Executive Vice President
Its _________________________________
FIRST VALLEY BANK GROUP, INC.
/s/ Cleve T. Breedlove
By __________________________________
Chairman
Its _________________________________
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<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
SEE APPENDIX B
A-29
<PAGE>
EXHIBIT B
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attn: Secretary
Gentlemen:
I have been advised that I might be considered to be an "affiliate," as that
term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule
145") promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act") of First
Valley Bank Group, Inc., a Texas corporation ("Valley").
Pursuant to an Agreement and Plan of Reorganization, dated as of May 2,
1997, as amended and restated (the "Reorganization Agreement"), between Valley
and Norwest Corporation, a Delaware corporation ("Norwest") it is contemplated
that a wholly-owned subsidiary of Norwest will merge with and into Valley (the
"Merger") and as a result, I will receive in exchange for each share of Common
Stock, no par value per share, of Valley ("Valley Common Stock") and ICP Share
Equivalents (as defined in the Reorganization Agreement) owned by me
immediately prior to the Effective Time of the Merger (as defined in the
Reorganization Agreement), a number of shares of Common Stock, par value $1
2/3 per share, of Norwest ("Norwest Common Stock"), as more specifically set
forth in the Reorganization Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the shares
of Valley Common Stock or Norwest Common Stock held by me during the 30 days
prior to the Effective Time of the Merger.
I will not offer to sell, transfer or otherwise dispose of any of the shares
of Norwest Common Stock issued to me pursuant to the Merger (the "Stock")
except (a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or (c) in an offering registered under the Securities Act.
I will not sell, transfer or otherwise dispose of the Stock or in any way
reduce my risk relative to any shares of Norwest Common Stock issued to me
pursuant to the Merger until such time as financial results covering at least
30 days of post-Merger combined operations of Valley and Norwest have been
published.
I consent to the endorsement of the Stock issued to me pursuant to the
Merger with a restrictive legend which will read substantially as follows:
"The shares represented by this certificate were issued in a transaction
to which Rule 145 promulgated under the Securities Act of 1933, as amended
(the "Act"), applies, and may be sold or otherwise transferred only in
compliance with the limitations of such Rule 145, or upon receipt by
Norwest Corporation of an opinion of counsel reasonably satisfactory to it
that some other exemption from registration under the Act is available, or
pursuant to a registration statement under the Act."
Norwest's transfer agent shall be given an appropriate stop transfer order
and shall not be required to register any attempted transfer of the shares of
the Stock, unless the transfer has been effected in compliance with the terms
of this letter agreement.
It is understood and agreed that this letter agreement shall terminate and
be of no further force and effect and the restrictive legend set forth above
shall be removed by delivery of substitute certificates without such
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<PAGE>
legend, and the related stop transfer restrictions shall be lifted forthwith,
if (a) (i) any such shares of Stock shall have been registered under the
Securities Act for sale, transfer or other disposition by me or on my behalf
and are sold, transferred or otherwise disposed of, or (ii) any such shares of
Stock are sold in accordance with the provisions of paragraphs (c), (e), (f)
and (g) of Rule 144 promulgated under the Securities Act, or (iii) I am not at
the time of such disposition an affiliate of Norwest and have been the
beneficial owner of the Stock for at least two years (or such other period as
may be prescribed thereunder) and Norwest has filed with the Commission all of
the reports it is required to file under the Securities Exchange Act of 1934,
as amended, during the preceding twelve months, or (iv) I am not and have not
been for at least three months an affiliate of Norwest and have been the
beneficial owner of the Stock for at least three years (or such other period
as may be prescribed by the Securities Act, and the rules and regulations
promulgated thereunder), or (v) Norwest shall have received an opinion of
counsel acceptable to Norwest to the effect that the stock transfer
restrictions and the legend are not required, and (b) financial results
covering at least 30 days of post-Merger combined operations have been
published.
I have carefully read this letter agreement and the Reorganization Agreement
and have discussed their requirements and other applicable limitations upon my
ability to offer to sell, transfer or otherwise dispose of shares of Valley
Common Stock, Norwest Common Stock or the Stock, to the extent I felt
necessary, with my counsel or counsel for Valley.
Sincerely,
_____________________________________
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<PAGE>
EXHIBIT C
BancOne Corporation
Bank of Boston Corporation
Bank of New York
BankAmerica Corporation
Barnett Banks, Inc.
Comerica, Inc.
CoreStates Financial Corporation
First Chicago NBD Corporation
First Union Corporation
Fleet Financial
KeyCorp
Mellon Bank Corporation
National City Corporation
PNC Financial Corporation
Signet Banking Corporation
Suntrust Banks, Inc.
U.S. Bancorp.
Wachovia Corporation
Wells Fargo
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<PAGE>
EXHIBIT D
AMENDMENT TO SERIES C
STATEMENT OF DESIGNATION
SEE APPENDIX C
A-33
<PAGE>
EXHIBIT E
AMENDMENT TO SERIES D
STATEMENT OF DESIGNATION
SEE APPENDIX D
A-34
<PAGE>
APPENDIX B
AGREEMENT
AND
PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF MERGER*
BETWEEN
FIRST VALLEY BANK GROUP, INC.
A TEXAS CORPORATION
(THE SURVIVING CORPORATION)
AND
NORWEST VBG MERGER CO.
A TEXAS CORPORATION
(THE MERGED CORPORATION)
This Agreement and Plan of Merger dated as of , 1997, between FIRST
VALLEY BANK GROUP, INC. ("Valley"), a Texas corporation (hereinafter sometimes
called "Valley" and sometimes called the "surviving corporation") and NORWEST
VBG MERGER CO., a Texas corporation ("Merger Co.") (said corporations being
hereinafter sometimes referred to as the "constituent corporations"),
WHEREAS, Merger Co., a wholly-owned subsidiary of Norwest Corporation
("Norwest"), was incorporated by Articles of Incorporation filed in the office
of the Secretary of State of the State of Texas on 19 , and said
corporation is now a corporation subject to and governed by the provisions of
the Texas Business Corporation Law Merger Co. has authorized capital stock of
shares of common stock, no par value per share ("Merger Co. Common
Stock"). As of , 1997, there were shares of Merger Co. Common
Stock outstanding and shares were held in the treasury; and
WHEREAS, Valley was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Texas on November 19, 1981,
and said corporation is now a corporation subject to and governed by the
provisions of the Texas Business Corporation Law, with an authorized capital
stock consisting of 2,000,000 shares of common stock, no par value per share
("Valley Common Stock"), and 200,000 shares of Preferred Stock, $100.00 par
value per share ("Preferred Stock"), of which shares of Valley Common
Stock were outstanding and shares of Valley Common Stock were held in
the treasury, and no shares of Preferred Stock were outstanding and no shares
of Preferred Stock were held in the treasury as of , 1997; and
WHEREAS, Norwest and Valley are parties to an Amended and Restated Agreement
and Plan of Reorganization dated as of May 2, 1997 (the "Reorganization
Agreement"), setting forth certain representations, warranties and covenants
in connection with the merger provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the constituent
corporations respectively deem it advisable for the welfare and advantage of
said corporation and for the best interests of the respective shareholders of
said corporations that said corporations merge and that Merger Co. be merged
with and into Valley, with Valley continuing as the surviving corporation, on
the terms and conditions hereinafter set forth in accordance with the
provisions of the Texas Business Corporation Act, which statute permits such
merger;
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of Merger Co. and Valley, in consideration of the premises and of
the mutual covenants and agreements contained herein and of the benefits to
accrue to the parties hereto, have agreed and do hereby agree that Merger Co.
shall be merged with and into Valley pursuant to the laws of the State of
Texas, and do hereby agree upon, prescribe and set forth the
- --------
* On September 23, 1997, the Norwest Board declared a two-for-one stock split
in the form of a 100% stock dividend paid on October 10, 1997 to
stockholders of record on October 2, 1997. The Norwest Share Amount and
other references to Norwest Common Stock in the Merger Agreement have not
been restated to reflect the two-for-one split. However, shares of Norwest
Common Stock which Valley's shareholders will receive in the Merger will be
adjusted to reflect the split pursuant to Article Sixth, paragraph 3 of this
Merger Agreement.
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terms and conditions of the merger of Merger Co. with and into Valley, the
mode of carrying said merger into effect, the manner and basis of converting
the shares of Valley Common Stock, and "ICP Share Equivalents" (as defined in
the Reorganization Agreement) into shares of common stock, par value $1 2/3
per share, of Norwest ("Norwest Common Stock"), and such other provisions with
respect to said merger as are deemed necessary or desirable, as follows:
FIRST: At the time of merger, Merger Co. shall be merged with and into
Valley, one of the constituent corporations, which shall be the surviving
corporation, and the separate existence of Merger Co. shall cease and the name
of the surviving corporation shall remain "First Valley Bank Group, Inc."
SECOND: The Articles of Incorporation of Valley at the time of merger shall
be the Articles of Incorporation of the surviving corporation until amended
according to law.
THIRD: The Bylaws of Valley at the time of merger shall be and remain the
Bylaws of the surviving corporation until amended according to the provisions
of the Articles of Incorporation of the surviving corporation or of said
Bylaws.
FOURTH: At the time of merger, the following-named persons shall become the
directors of the surviving corporation and shall hold office from the time of
merger until their respective successors are elected and qualify:
Stanley S. Stroup
William H. Queenan
John T. Thornton
FIFTH: At the time of merger, the following named persons shall become and
remain the officers of the surviving corporation and shall hold office from
the time of merger until their respective successors are elected or appointed
and qualify:
<TABLE>
<S> <C>
John T. Thornton President
Charles D. White Senior Vice President and Treasurer
Stanley S. Stroup Senior Vice President
J. Daniel
Vandermark Vice President
Robert J. Murphy Vice President
James A. Horton Vice President
Michael A. Graf Vice President
David M. Stautz Vice President
Diana Lea-Kahle Secretary
Margaret M. Weber Assistant Secretary
Rachelle M. Graham Assistant Secretary
</TABLE>
SIXTH: The manner and basis of converting the shares of Valley Common Stock
shall be as follows:
1. At the time of merger, by virtue of the merger and without any action
on the part of the holder or holders thereof (i) each share of Valley
Common Stock outstanding immediately prior to the time of the merger (other
than shares as to which statutory dissenters' appraisal rights have been
exercised) will be converted into and exchanged for the number of shares of
Norwest Common Stock equal to the Norwest Share Amount (as defined below);
and (ii) each participant in the First Valley Bank Group, Inc. Incentive
Compensation Plan, as amended (the "ICP") listed on Schedule 1(a)
("Participant") hereto shall receive the number of shares of Norwest Common
Stock set forth opposite the name of such Participant in Schedule 1(a)
("ICP Share Equivalents"). The "Norwest Share Amount" shall be an amount
determined by dividing [The following (A) or (B) to be inserted: (A) To be
inserted if the time of the merger occurs on or before the record date for
the payment of the regular quarterly dividend on the Norwest Common Stock
declared during the fourth quarter of 1997: 1,394,366 or (B) to be inserted
if the time of the merger is after such date: 1,403,366] by the number of
shares of Valley Common Stock outstanding immediately prior to the time of
the merger.
2. As soon as practicable after the merger becomes effective, each holder
of a certificate for shares of Valley Common Stock, and, subject to the
terms of the ICP (as defined in the Reorganization Agreement),
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<PAGE>
each ICP Participant (as defined in the Reorganization Agreement)
outstanding immediately prior to the time of merger shall be entitled, upon
surrender of such certificate for cancellation to the surviving corporation
or to Norwest Bank Minnesota, National Association, as the designated agent
of the surviving corporation (the "Agent"), to receive a new certificate
for the number of whole shares of Norwest Common Stock to which such holder
shall be entitled on the basis set forth in paragraph 1 above. Until so
surrendered each certificate which, immediately prior to the time of
merger, represented shares of Valley Common Stock and ICP Share Equivalents
shall not be transferable on the books of the surviving corporation but
shall be deemed to evidence the right to receive (except for the payment of
dividends as provided below) ownership of the number of whole shares of
Norwest Common Stock into which such shares of Valley Common Stock and ICP
Share Equivalents have been converted on the basis above set forth;
provided, however, until the holder of such certificate for Valley Common
Stock and ICP Share Equivalents shall have surrendered the same for
exchange as above set forth, no dividend payable to holders of record of
Norwest Common Stock as of any date subsequent to the effective date of
merger shall be paid to such holder with respect to the Norwest Common
Stock, if any, represented by such certificate, but, upon surrender and
exchange thereof as herein provided, there shall be paid by the surviving
corporation or the Agent to the record holder of such certificate for
Norwest Common Stock issued in exchange therefor an amount with respect to
such shares of Norwest Common Stock equal to all dividends that shall have
been paid or become payable to holders of record of Norwest Common Stock
between the effective date of merger and the date of such exchange.
3. If between the date of the Reorganization Agreement and the time of
merger, shares of Norwest Common Stock shall be changed into a different
number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared
with a record date within such period, then the number of shares of Norwest
Common Stock, if any, into which a share of Valley Common Stock or ICP
Share Equivalent shall be converted on the basis above set forth, will be
appropriately and proportionately adjusted so that the number of such
shares of Norwest Common Stock into which a share of Valley Common Stock or
ICP Share Equivalent shall be converted will equal the number of shares of
Norwest Common Stock which the holders of shares of Valley Common Stock or
ICP Share Equivalent would have received pursuant to such reclassification,
recapitalization, split-up, combination, exchange of shares or
readjustment, or stock dividend had the record date therefor been
immediately following the time of merger.
4. No fractional shares of Norwest Common Stock and no certificates or
scrip certificates therefor shall be issued to represent any such
fractional interest, and any holder of a fractional interest shall be paid
an amount of cash equal to the product obtained by multiplying the
fractional share interest to which such holder is entitled by the 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 held to approve the merger.
5. Each share of Merger Co. Common Stock issued and outstanding at the
time of merger shall be converted into and exchanged for one (1) share of
the surviving corporation after the time of merger.
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
1. The effective date of merger shall be the date on which the Articles
of Merger (as described in subparagraph 1(b) of this Article Seventh) shall
be delivered to and filed by the Secretary of State of the State of Texas
or such other date specified in the Articles of Merger; provided, however,
that all of the following actions shall have been taken in the following
order:
a. This Agreement shall be approved and adopted on behalf of Merger
Co. and Valley in accordance with the Texas Business Corporation Act;
and
b. Articles of merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by
the Texas Business Corporation Act, shall be executed by the President
or a Vice President of Merger Co. and by the Secretary or an Assistant
Secretary of Merger Co., and by the President or a Vice President of
Valley and by the Secretary or an Assistant Secretary
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<PAGE>
of Valley, and shall be filed in the office of the Secretary of State
of the State of Texas in accordance with the Texas Business Corporation
Act; and
2. The merger shall become effective as of 12:01 a.m. (the "time of
merger") on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Merger Co. shall cease, and the corporate
existence and identity of Valley shall continue as the surviving
corporation.
2. The merger shall have the other effects prescribed by Section 5.06 of
the Texas Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
1. If at any time Valley shall consider or be advised that any further
assignment or assurance in law or other action is necessary or desirable to
vest, perfect or confirm in Valley the title to any property or rights of
Merger Co. acquired or to be acquired as a result of the merger provided
for herein, the proper officers and directors of Valley and Merger Co. may
execute and deliver such deeds, assignments and assurances in law and take
such other action as may be necessary or proper to vest, perfect or confirm
title to such property or right in Valley and otherwise carry out the
purposes of this Agreement.
2. For the convenience of the parties and to facilitate the filing of
this Agreement, any number of counterparts hereof may be executed and each
such counterpart shall be deemed to be an original instrument.
3. This Agreement and the legal relations among the parties hereto shall
be governed by and construed in accordance with the laws of the State of
Texas.
4. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
5. At any time prior to the filing of Articles of Merger with the
Secretary of State of the State of Texas, this Agreement may be terminated
in accordance with the terms of the Reorganization Agreement upon approval
by the Board of Directors of either of the constituent corporations
notwithstanding the approval of the shareholders of either constituent
corporation.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan of
Merger to be signed in their respective corporate names by the undersigned
officers and their respective corporate seals to be affixed hereto, pursuant
to authority duly given by their respective Boards of Directors, all as of the
day and year first above written.
NORWEST VBG MERGER CO.
By: _________________________________
Its: ______________________________
Attest:
_____________________________________
Secretary
FIRST VALLEY BANK GROUP, INC.
By: _________________________________
Its: ______________________________
Attest:
_____________________________________
Secretary
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<PAGE>
APPENDIX C
AMENDMENT TO SERIES C
STATEMENT OF DESIGNATION
<PAGE>
RESOLVED, that the Statement of Resolution Establishing Series of Preferred
Stock of First Valley Bank Group, Inc., as filed with the Secretary of State
of the State of Texas on May 27, 1994, designating a series of preferred stock
as Series C, be amended by deleting the Section entitled "Conversion" and
replacing it to read in its entirety as follows:
"Conversion
(a) Effective immediately upon the filing of this Amendment to the Articles of
Incorporation (this "Amendment") in the office of the Secretary of State
of the State of Texas, each share of the Series C Preferred Stock issued
and outstanding immediately prior to the filing of this Amendment, and all
rights in respect thereof shall thereupon, by virtue of the filing of this
Amendment and without any further action on the part of the holder
thereof, automatically become and be converted into 1.5235 shares of
Common Stock. All shares of the Series C Preferred Stock, and all rights
in respect thereof, by virtue of the filing of this Amendment and without
any further action on the part of the holder thereof, are hereby
permanently canceled.
(b) No fractions of shares of Common Stock will be issued upon conversion of
the Series C Preferred Stock, but in lieu thereof the Corporation shall
pay therefor in cash the value of any fractional share of Common Stock as
computed on the basis of $100.00 per whole share of Series C Preferred
Stock.
(c) The term "Common Stock," as used in connection with conversion of the
Series C Preferred Stock shall mean the Common Stock, no par value, of the
class authorized as of the date of issue of the Series C Preferred Stock,
and the stock of any other class or classes into which such Common Stock
or any such other class may thereafter be changed or reclassified."
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<PAGE>
APPENDIX D
AMENDMENT TO SERIES D
STATEMENT OF DESIGNATION
<PAGE>
RESOLVED, that the Statement of Resolution Establishing Series of Preferred
Stock of First Valley Bank Group, Inc., as filed with the Secretary of State
of the State of Texas on June 25, 1996, designating a series of preferred
stock as Series D, be amended by deleting the Section entitled "Conversion"
and replacing it to read in its entirety as follows:
"Conversion
(a) Effective immediately upon the filing of this Amendment to the Articles of
Incorporation (this "Amendment") in the office of the Secretary of State
of the State of Texas, each share of the Series D Preferred Stock issued
and outstanding immediately prior to the filing of this Amendment, and all
rights in respect thereof shall thereupon, by virtue of the filing of this
Amendment and without any further action on the part of the holder
thereof, automatically become and be converted into 1.5235 shares of
Common Stock. All shares of the Series D Preferred Stock, and all rights
in respect thereof, by virtue of the filing of this Amendment and without
any further action on the part of the holder thereof, are hereby
permanently canceled.
(b) No fractions of shares of Common Stock will be issued upon conversion of
the Series D Preferred Stock, but in lieu thereof the Corporation shall
pay therefor in cash the value of any fractional share of Common Stock as
computed on the basis of $100.00 per whole share of Series D Preferred
Stock.
(c) The term "Common Stock," as used in connection with conversion of the
Series D Preferred Stock shall mean the Common Stock, no par value, of the
class authorized as of the date of issue of the Series D Preferred Stock,
and the stock of any other class or classes into which such Common Stock
or any such other class may thereafter be changed or reclassified."
D-1
<PAGE>
APPENDIX E
TEXAS BUSINESS CORPORATION ACT
ARTICLES 5.11, 5.12, AND 5.13
<PAGE>
ART. 5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise:
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation
requiring the special authorization of the shareholders as provided by this
Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if (1) the shares held by the shareholder are part
of a class shares of which are listed on a national securities exchange, or
are held of record by not less than 2,000 holders, on the record date fixed to
determine the shareholders entitled to vote on the plan of merger or the plan
of exchange, and (2) the shareholder is not required by the terms of the plan
of merger or the plan of exchange to accept for his shares any consideration
other than (a) shares of a corporation that, immediately after the effective
time of the merger or exchange, will be part of a class or series of shares of
which are (i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange, or (ii) held of record by not
less than 2,000 holders, and (b) cash in lieu of fractional shares otherwise
entitled to be received.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts
1957, 55th Leg., p. 111, ch. 54, (S) 10; Acts 1973, 63rd Leg., p. 1508, ch.
545, (S) 36, eff. Aug. 27, 1973; Acts 1989, 71st Leg., ch. 801 (S) 34 eff.
August 28, 1989; Acts 1991, 72nd Leg., ch. 901, (S) 32, eff. Aug. 26, 1991.
ART. 5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign
or domestic) or other entity that is liable to discharge the shareholder's
right of dissent, in the case
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of a merger, shall, within ten (10) days after the date the action is
effected, mail to each shareholder of record as of the effective date of
the action notice of the fact and date of the action and that the
shareholder may exercise the shareholder's right to dissent from the
action. The notice shall be accompanied by a copy of this Article and any
articles or documents filed by the Corporation with the Secretary of State
to effect the action. If the shareholder shall not have consented to the
taking of the action, the shareholder may, within twenty (20) days after
the mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the date the written
consent authorizing the action was delivered to the corporation pursuant to
Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the
number and class of shares owned by the dissenting shareholder and the fair
value of the shares as estimated by the shareholder. Any shareholder
failing to make demand within the twenty (20) day period shall be bound by
the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporate (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty
(60) day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the list at the
addresses therein stated. The forms of the notices by mail shall be approved
by the court. All shareholders thus notified and the corporation (foreign or
domestic) or other entity shall thereafter be bound by the final judgment of
the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
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<PAGE>
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled
to payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to
payment. The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only
upon, and simultaneously with, the surrender to the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of
duly endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as
court costs, and all court costs shall be allotted between the parties in the
manner that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of
the agreed value of the shares or pursuant to payment of the judgment entered
for the value of the shares, as in this Article provided, shall, in the case
of a merger, be treated as provided in the plan of merger and, in all other
cases, may be held and disposed of by the corporation as in the case of other
treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article,
any shareholder who fails to comply with the requirements of this Article
shall not be entitled to bring suit for the recovery of the value of his
shares or money damages to the shareholder with respect to the action.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955. Amended by Acts
1967, 60th Leg., p. 1721, ch. 657 (S) 12, eff. June 17, 1967; Acts 1983, 68th
Leg., p. 2570, ch. 442 (S) 9, eff. Sept. 1, 1983; Acts 1987, 70th Leg., ch.
93, (S) 27, eff. Aug. 31, 1987; Acts 1989, 71st Leg., ch. 801, (S) 35, eff.
Aug 28, 1989; Acts 1993, 73rd Leg., ch 215, (S) 2.16, eff. Sept. 1, 1993.
ART. 5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled
to vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles
and the right to maintain an appropriate action to obtain relief on the ground
that the corporate action would be or was fraudulent, and the respective
shares for which payment has been demanded shall not thereafter be considered
outstanding for the purposes of any subsequent vote of shareholders.
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B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good
and sufficient cause shown shall otherwise direct. If uncertificated shares
for which payment has been demanded or shares represented by a certificate on
which notation has been so made shall be transferred, any new certificate
issued therefor shall bear similar notation together with the name of the
original dissenting holder of such shares and a transferee of such shares
shall acquire by such transfer no rights in the corporation other than those
which the original dissenting shareholder had after making demand for payment
of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section
B of this Article the corporation shall terminate the shareholder's rights
under Article 5.12 or 5.16 of this Act, as the case may be, or if no petition
asking for finding and determination of a fair value of such shares by a court
shall have been filed within the time provided in Article 5.12 or 5.16 of this
Act, as the case may be, or if after the hearing of a petition filed pursuant
to Article 5.12 or 5.16, the court shall determine that such shareholder is
not entitled to the relief provided by those articles, then, in any such case,
such shareholder and all persons claiming under him shall be conclusively
presumed to have approved and ratified the corporate action from which he
dissented and shall be bound thereby, the right of such shareholder to be paid
the fair value of his shares shall cease, and his status as a shareholder
shall be restored without prejudice to any corporate proceedings which may
have been taken during the interim, and such shareholder shall be entitled to
receive any dividends or other distributions made to shareholders in the
interim.
Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sep. 6, 1955. Amended by Acts
1967, 60th Leg., p. 1723, ch. 657 (S) 13, eff. June 17, 1967; Acts 1983, 68th
Leg., p. 2573, ch. 442, (S) 10, eff. Sept. 1, 1983; Acts 1993, 73rd Leg., ch.
215, (S) 2.17, eff. Sept. 1, 1993.
E-4
<PAGE>
APPENDIX F
FAIRNESS OPINION
OF
THE BANK ADVISORY GROUP, INC.
<PAGE>
October 10, 1997
Board of Directors
First Valley Bank Group, Inc.
Los Fresnos, Texas
Gentlemen:
You have requested that The Bank Advisory Group, Inc. act as an independent
financial analyst and advisor to the common shareholders of First Valley Bank
Group, Inc., a Texas corporation ("Valley"), and its wholly-owned bank
subsidiary, First Valley Bank ("Bank"). Specifically, we have been asked to
render advice and analysis in connection with the proposed merger of Norwest
VBG Merger Co., a wholly-owned subsidiary of Norwest Corporation, Minneapolis,
Minnesota ("Norwest"), with and into Valley (the "Merger"). If the Merger is
completed, Valley will become a wholly-owned subsidiary of Norwest and Valley
shareholders will receive shares of Norwest stock for their shares of Valley
stock. In our role as an independent financial analyst, you have requested our
opinion with regard to the fairness--from the perspective of both the common
and preferred shareholders of Valley--of the financial terms of the proposed
merger pursuant to the provisions of the Agreement and Plan of Reorganization,
as amended and restated, dated as of May 2, 1997 and the Agreement and Plan of
Merger attached in draft form as an exhibit to the Agreement and Plan of
Reorganization (collectively referred to as the "Agreements").
In conjunction with our review of the Agreements, our understanding is that
Norwest proposes to consummate the Merger pursuant to the following financial
terms:
. Immediately prior to the Merger, and subject to approval by the holders
of Valley Series C Preferred Stock and Valley Series D Preferred Stock,
each share of the Valley Series C Preferred Stock and Valley Series D
Preferred Stock will be converted into 1.5235 shares of Valley Common
Stock.
. In conjunction with the Merger, and subsequent to the conversion of
Valley Series C Preferred Stock and Valley Series D Preferred Stock into
shares of Valley Common Stock, Norwest will exchange 2,806,732 shares of
Norwest Common stock for all of the outstanding shares of Valley Common
Stock.
. Based on 785,322 shares of Valley Common Stock outstanding after
conversion of the Valley Series C Preferred Stock and Valley Series D
Preferred Stock into shares of Valley Common Stock, Norwest will issue
approximately 3.57 shares of Norwest Common Stock for each share of
Valley Common Stock outstanding at the time of the Merger.
The Bank Advisory Group, Inc., as part of its line of professional services,
specializes in rendering valuation opinions of banks and bank holding
companies in connection with mergers and acquisitions nationwide. Prior to our
retention for this assignment, The Bank Advisory Group provided financial
advisory services to Valley and Bank; however, the revenues derived from the
delivery of such services are insignificant when compared to The Bank Advisory
Group's total gross revenues. The Bank Advisory Group has not provided any
services to Norwest Corporation.
In connection with this opinion and with respect to Valley we have reviewed,
among other things:
1. Audited consolidated financial statements for the years ended December
31, 1996, 1995, and 1994;
2. Consolidated financial statements, on form F.R. Y-9C, for the years
ended December 31, 1996, 1995, and 1994, and for the six-month period ended
June 30, 1997, as filed with the Federal Reserve System;
3. Parent company only financial statements, on form F.R. Y-9LP, for the
years ended December 31, 1996, 1995, and 1994, and for the six-month period
ended June 30, 1997, as filed with the Federal Reserve System;
F-1
<PAGE>
4. Reports of Condition and Income for Bank for the years ended December
31, 1996, 1995, and 1994, and for the six-month period ended June 30, 1997,
as filed with Federal bank regulatory agencies;
5. The condition of the commercial banking industry, as indicated in
financial reports filed with various Federal bank regulatory authorities by
all federally-insured commercial banks;
6. Certain internal financial analyses and forecasts for Valley prepared
by the management of Valley, including projections of future performance;
7. Certain other summary materials and analyses with respect to Valley's
loan portfolio, securities portfolio, deposit base, fixed assets, and
operations including, but not limited to: (i) schedules of loans and other
assets identified by management as deserving special attention or
monitoring given the characteristics of the loan/asset and the local
economy, (ii) analyses concerning the adequacy of the loan loss reserve,
(iii) schedules of "other real estate owned," including current carrying
values and recent appraisals, and (iv) schedules of securities, detailing
book values, market values, and lengths to maturity; and,
8. Such other information--including financial studies, analyses,
investigations, and economic and market criteria--that we deem relevant to
this assignment.
In connection with this opinion and with respect to Norwest, we have
reviewed, among other things:
1. Audited consolidated financial statements, in Annual Report Form and
Form 10-K, for the years ended December 31, 1996, 1995, and 1994;
2. Quarterly financial statements, on Form 10-Q, for the three month
period ended March 31, 1997, and for the six-month period ended June 30,
1997;
3. Consolidated financial statements, on form F.R. Y-9C, for the years
ended 1996, 1995, and 1994, as filed with the Federal Reserve System;
4. Equity research reports regarding Norwest prepared by various analysts
who cover the financial institutions sector;
5. The condition of the commercial banking industry, as indicated in
financial reports filed with various Federal bank regulatory authorities by
all federally-insured commercial banks; and,
6. Such other information--including financial studies, analyses,
investigations, and economic and market criteria--that we deem relevant to
this assignment.
In connection with this opinion and with respect to the proposed Merger, we
have reviewed, among other things:
1. The Agreements, and any amendments thereto, that set forth, among
other items, the terms, conditions to closing, pending litigation against
both Valley and Norwest, and representations and warranties of Valley and
Norwest with respect to the proposed Merger;
2. The Proxy Statement-Prospectus, in draft form dated October 10, 1997,
that will be furnished to the shareholders of Valley in connection with the
proposed Merger;
3. The financial terms and price levels for commercial banks with assets
between $300 million and $600 million recently acquired in the United
States together with the financial performance and condition of such banks;
4. The price-to-equity and price-to-earnings multiples of commercial
banking organizations based in the United States that have publicly-traded
common stock, together with the financial performance and condition of such
banking organizations, compared with the price-to-equity and price-to-
earnings multiples for Norwest common stock; and,
5. Such other information--including financial studies, analyses,
investigations, and economic and market criteria--that we deem relevant to
this assignment.
F-2
<PAGE>
Based on our experience, we believe our review of, among other things, the
aforementioned items provides a reasonable basis for our opinion, recognizing
that we are expressing an informed professional opinion--not a certification
of value.
We have relied upon the information provided by the management of Valley and
Norwest, or otherwise reviewed by us, as being complete and accurate in all
material respects. Furthermore, we have not verified through independent
inspection or examination the specific assets or liabilities of Valley and
Norwest or their subsidiary banks. We have also assumed that there has been no
material change in the assets, financial condition, results of operations, or
business prospects of Valley and Norwest since the date of the last financial
statements made available to us. We have met with the management of Valley for
the purpose of discussing the relevant information that has been provided to
us.
Based on all factors that we deem relevant and assuming the accuracy and
completeness of the information and data provided to us, we conclude that:
. The terms--specifically the conversion ratio--for the conversion of
Valley Series C Preferred Stock and Valley Series D Preferred Stock into
shares of Valley Common Stock, as outlined herein, are fair, from a
financial standpoint, to both the Preferred and Common shareholders of
Valley.
. The terms of the proposed Merger with Norwest, as outlined herein, are
fair, from a financial standpoint, to all shareholders of Valley.
This opinion is available for disclosure to the shareholders of Valley.
Accordingly, we hereby consent to the inclusion of our opinion as an appendix
to the Proxy Statement-Prospectus relating to the proposed Merger, and to the
reference of our firm in the Proxy Statement-Prospectus.
Respectfully submitted,
The Bank Advisory Group, inc.
/s/ Robert J. Walters
By __________________________________
F-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors and officers of a Delaware corporation under
certain circumstances against expenses, judgments and the like in connection
with an action, suit or proceeding. Article Fourteenth of Norwest's 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.
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Reorganization, as amended and restated, dated
as of May 2, 1997, between First Valley Bank Group, Inc. and Norwest
Corporation (included in Proxy Statement-Prospectus as Appendix A).
2.2 --Form of Agreement and Plan of Merger between First Valley Bank Group,
Inc. and Merger Co. (included in Proxy Statement-Prospectus as
Appendix B).
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 to Norwest's Current
Report on Form 8-K dated October 10, 1997 (filed October 14, 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, Executive Vice President and General
Counsel to Norwest.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
8 --Form of Opinion of Jenkens & Gilchrist, 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 Burton McCumber & Prichard, L.L.P.
23.4 --Consent of Jenkens & Gilchrist, P.C.
24 --Powers of Attorney.
99.1 --Form of proxy card for holders of Common Stock for Special Meeting of
Shareholders of First Valley Bank Group, Inc.
99.2 --Form of proxy card for holders of Series C Preferred Stock for Special
Meeting of Shareholders of First Valley Bank Group, Inc.
99.3 --Form of proxy card for holders of Series D Preferred Stock for Special
Meeting of Shareholders of First Valley Bank Group, Inc.
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
posteffective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
posteffective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that whichwas
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.
II-2
<PAGE>
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF MINNEAPOLIS, STATE OF MINNESOTA, ON OCTOBER 24, 1997.
Norwest Corporation
/s/ Richard M. Kovacevich
By: _________________________________
RICHARD M. KOVACEVICH CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON OCTOBER 24, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
/s/ Richard M. Kovacevich Chairman and Chief Executive Officer
- ------------------------------------- (Principal Executive Officer)
RICHARD M. KOVACEVICH
/s/ John T. Thornton Executive Vice President and Chief
- ------------------------------------- Financial Officer (Principal
JOHN T. THORNTON Financial Officer)
/s/ Michael A. Graf Senior Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
MICHAEL A. GRAF
LES S. BILLER
J.A. BLANCHARD III
DAVID A. CHRISTENSEN
PIERSON M. GRIEVE
CHARLES M. HARPER
WILLIAM A. HODDER
REATHA CLARK KING A majority of the Board of
RICHARD M. KOVACEVICH Directors*
RICHARD S. LEVITT
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-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT FORM OF
NUMBER DESCRIPTION* FILING
------- ------------ -------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization, as amended and
restated, dated as of May 2, 1997 between First Valley Bank
Group, Inc. and Norwest (included in Proxy Statement-
Prospectus as Appendix A).
2.2 Form of Agreement and Plan of Merger between First Valley
Bank Group, Inc. and Norwest VSB Merger Co. (included in
Proxy Statement-Prospectus as Appendix B).
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 to Norwest's
Current Report on Form 8-K dated October 10, 1997 (filed
October 14, 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, Executive Vice President and
General Counsel to Norwest.
8 Form of Opinion of Jenkens & Gilchrist, 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT FORM OF
NUMBER DESCRIPTION* FILING
------- ------------ -------
<C> <S> <C>
23.3 Consent of Burton McCumber & Prichard, L.L.P.
23.4 Consent of Jenkens & Gilchrist, P.C.
24 Powers of Attorney.
99.1 Form of proxy card for holders of Common Stock for Electronic
Special Meeting of Shareholders of First Valley Bank Transmission
Group, Inc.
99.2 Form of proxy card for holders of Series C Preferred Electronic
Stock for Special Meeting of Shareholders of First Transmission
Valley Bank Group, Inc.
99.3 Form of proxy card for holders of Series D Preferred Electronic
Stock for Special Meeting of Shareholders of First Transmission
Valley Bank Group, Inc.
</TABLE>
- --------
* 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.
<PAGE>
COMMON STOCK EXHIBIT 99.1
FIRST VALLEY BANK GROUP, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
This proxy is for use at the Special Meeting (the "Meeting") of Shareholders
of First Valley Bank Group, Inc. ("Valley") to be held at Rancho Viejo Country
Club, 1 Rancho Viejo Drive, Rancho Viejo, Texas 78575-9740 at 9:00 a.m. on
November 26, 1997, or at any adjournment or postponement thereof.
Of the proposals being presented for approval at the Meeting and described
in the Notice of the Meeting and accompanying Proxy Statement-Prospectus,
holders of the common stock of Valley (the "Common Stock") are entitled to
vote only on Proposals 1, 4, 5, 6, 7, and 8. The shares of Valley Common Stock
which you are entitled to vote will be voted on these proposals as you specify
on this proxy card.
IF NO CHOICE IS SPECIFIED FOR A GIVEN PROPOSAL, THIS PROXY WILL BE VOTED "FOR"
PROPOSALS 1, 4, 5, 6, 7, AND 8, RESPECTIVELY.
By signing this proxy, you revoke all prior proxies and appoint Cleve T.
Breedlove, and John A. Calkins, and each of them, with the full power of
substitution, to vote your shares as specified on this card and on any other
business which may properly come before the Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 4, 5, 6, 7, AND 8.
PROPOSAL 1
- ----------
To approve the Agreement and Plan of Reorganization, as amended and
restated, dated as of May 2, 1997 (the "Reorganization Agreement") between
Valley and Norwest Corporation ("Norwest"), and the related Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which a wholly-owned subsidiary
of Norwest will merge with Valley and Valley will become a wholly-owned
subsidiary of Norwest (the "Merger"), all upon the terms and subject to the
conditions set forth in the Reorganization Agreement, and the Merger
Agreement, copies of which are included as Appendix A and Appendix B,
respectively, in the Proxy Statement-Prospectus; and to authorize such further
action by the board of directors and officers of Valley as may be necessary or
appropriate to carry out the intent and purposes of the Merger.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSALS 4 THROUGH 8 --
------------------------
PLEASE NOTE: INTERNAL REVENUE CODE REGULATIONS REQUIRE THE AUTHORIZED
REPRESENTATIVE OF A VALLEY SHAREHOLDER WHO IS AN ENTITY TO MAKE CERTAIN
REPRESENTATIONS TO VALLEY IN CONNECTION WITH APPROVING ANY OF PROPOSALS 4
THROUGH 8. SEE THE REVERSE SIDE OF THIS PROXY CARD.
PROPOSAL 4
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to Cleve T. Breedlove under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 5
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to John A. Calkins under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE>
PROPOSAL 6
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to Gary L. Kimberling under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 7
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to James Manatt under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 8
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to C. Michael Scott under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
ANY AUTHORIZED REPRESENTATIVE OF A VALLEY SHAREHOLDER THAT IS A CORPORATION,
PARTNERSHIP, TRUST, ESTATE, OR OTHER ENTITY WHO VOTED "FOR" ANY ONE OR MORE OF
PROPOSALS 4, 5, 6, 7, OR 8 SHOULD READ THE FOLLOWING STATEMENTS CAREFULLY
BEFORE SIGNING THIS PROXY CARD:
If you are a person authorized to vote the shares of Valley Common Stock
held by a corporation, partnership, trust, estate, or other entity on behalf
of such entity with respect to Proposals 4, 5, 6, 7, or 8 listed above, then
by signing this proxy card where indicated below, you are representing to
Valley on behalf of such entity and in connection with each vote "FOR"
Proposals 4, 5, 6, 7, or 8, that one or more of the following statements are
true: (1) the entity owns (directly or indirectly) one percent (1%) or less of
the outstanding stock of Valley (by value) or (2) the total value of the stock
of Valley owned (directly and indirectly) by the entity is less than one-third
(by value) of the assets of the entity; or (3) the Valley stock held by the
entity is one-third or more of its assets, but (a) each such proposal has been
approved by those persons who hold, as of September 22, 1997, the record date
for the Meeting, more than 75% of the voting power of the entity, and (b) the
entity's stock and the stock of any member of an affiliated group of which the
entity is a member is not readily tradable on an established securities market
or otherwise.
Dated:___________________________, 1997
---------------------------------------
Signature
---------------------------------------
Signature
Please sign exactly as your name
appears on this card. In the case of
joint owners, each should sign. If
signing as executor, trustee,
guardian, or in any other
representative capacity or as an
officer of a corporation, please
indicate your full title as such.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF FIRST VALLEY BANK GROUP, INC.
<PAGE>
SERIES C PREFERRED STOCK EXHIBIT 99.2
FIRST VALLEY BANK GROUP, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
This proxy is for use at the Special Meeting (the "Meeting") of Shareholders
of First Valley Bank Group, Inc. ("Valley") to be held at Rancho Viejo Country
Club, 1 Rancho Viejo Drive, Rancho Viejo, Texas 78575-9740 at 9:00 a.m. on
November 26, 1997, or at any adjournment or postponement thereof.
Of the proposals being presented for approval at the Meeting that are
described in the Notice of Meeting and the accompanying Proxy Statement-
Prospectus, holders of the Series C Preferred Stock of Valley (the "Series C
Preferred") are entitled to vote only on Proposals 1, 2, 4, 5, 6, 7, and 8.
The shares of Series C Preferred which you are entitled to vote will be voted
on these proposals as you specify on this proxy card.
IF NO CHOICE IS SPECIFIED FOR A GIVEN PROPOSAL, THIS PROXY WILL BE VOTED "FOR"
PROPOSALS 1, 2, 4, 5, 6, 7, AND 8, RESPECTIVELY.
By signing this proxy, you revoke all prior proxies and appoint Cleve T.
Breedlove and John A. Calkins, and each of them, with full power of
substitution, to vote your shares as specified on this card and on any other
business which may properly come before the Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" PROPOSALS 1, 2, 4, 5, 6, 7, AND 8.
PROPOSAL 1
- ----------
To approve the Agreement and Plan of Reorganization, as amended and
restated, dated as of May 2, 1997 (the "Reorganization Agreement") between
Valley and Norwest Corporation ("Norwest"), and the related Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which a wholly-owned subsidiary
of Norwest will merge with Valley and Valley will become a wholly-owned
subsidiary of Norwest (the "Merger"), all upon the terms and subject to the
conditions set forth in the Reorganization Agreement, and the Merger
Agreement, copies of which are included as Appendix A and Appendix B,
respectively, to the Proxy Statement-Prospectus; and to authorize such further
action by the board of directors and officers of Valley as may be necessary or
appropriate to carry out the intent and purposes of the Merger.
FOR [_]AGAINST [_]ABSTAIN [_]
PROPOSAL 2
- ----------
To amend the Statement of Resolution Establishing the Series of Preferred
Stock governing the Series C Preferred to convert the shares of the Series C
Preferred Stock into shares of Valley's common stock immediately prior to the
Merger, a copy of which amendment is included as Appendix C to the Proxy
Statement-Prospectus; and to authorize such further action by the board of
directors and officers of Valley as be necessary or appropriate to carry out
the intent and purposes of such amendment.
FOR [_]AGAINST [_]ABSTAIN [_]
PROPOSALS 4 THROUGH 8 --
PLEASE NOTE: INTERNAL REVENUE CODE REGULATIONS REQUIRE
THE AUTHORIZED REPRESENTATIVE OF A VALLEY SHAREHOLDER WHO IS AN ENTITY
TO MAKE CERTAIN REPRESENTATIONS TO VALLEY IN CONNECTION WITH APPROVING ANY OF
PROPOSALS 4 THROUGH 8. SEE THE REVERSE SIDE OF THIS PROXY CARD.
PROPOSAL 4
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to Cleve T. Breedlove under Valley's Incentive Compensation Plan.
FOR [_]AGAINST [_]ABSTAIN [_]
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE>
PROPOSAL 5
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to John A. Calkins under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 6
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to Gary L. Kimberling under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 7
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to James Manatt under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 8
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to C. Michael Scott under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
ANY AUTHORIZED REPRESENTATIVE OF A VALLEY SHAREHOLDER THAT IS A CORPORATION,
PARTNERSHIP, TRUST, ESTATE, OR OTHER ENTITY WHO VOTED "FOR" ANY ONE OR MORE OF
PROPOSALS 4, 5, 6, 7, OR 8 SHOULD READ THE FOLLOWING STATEMENTS CAREFULLY
BEFORE SIGNING THIS PROXY CARD:
If you are a person authorized to vote the shares of Valley Common Stock
held by a corporation, partnership, trust, estate, or other entity on behalf
of such entity with respect to Proposals 4, 5, 6, 7, or 8 listed above, then
by signing this proxy card where indicated below, you are representing to
Valley on behalf of such entity and in connection with each vote "FOR"
Proposals 4, 5, 6, 7, or 8, that one or more of the following statements are
true: (1) the entity owns (directly or indirectly) one percent (1%) or less of
the outstanding stock of Valley (by value) or (2) the total value of the stock
of Valley owned (directly and indirectly) by the entity is less than one-third
(by value) of the assets of the entity; or (3) the Valley stock held by the
entity is one-third or more of its assets, but (a) each such proposal has been
approved by those persons who hold, as of September 22, 1997, the record date
for the Meeting, more than 75% of the voting power of the entity, and (b) the
entity's stock and the stock of any member of an affiliated group of which the
entity is a member is not readily tradable on an established securities market
or otherwise.
Dated: , 1997
----------------------------
----------------------------------------
Signature
----------------------------------------
Signature
Please sign exactly as your name
appears on this card. In the case of
joint owners, each should sign. If
signing as executor, trustee, guardian,
or in any other representative capacity
or as an officer of a corporation,
please indicate your full title as
such.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF VALLEY
<PAGE>
SERIES D PREFERRED STOCK EXHIBIT 99.3
FIRST VALLEY BANK GROUP, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
This proxy is for use at the Special Meeting (the "Meeting") of Shareholders
of First Valley Bank Group, Inc. ("Valley") to be held at Rancho Viejo Country
Club, 1 Rancho Viejo Drive, Rancho Viejo, Texas 78575-9740 at 9:00 a.m. on
November 26, 1997, or at any adjournment or postponement thereof.
Of the proposals being presented for approval at the Meeting that are
described in the Notice of Meeting and the accompanying Proxy Statement-
Prospectus, holders of the Series D Preferred Stock of Valley (the "Series D
Preferred") are entitled to vote only on Proposals 1, 3, 4, 5, 6, 7, and 8.
The shares of Series D Preferred which you are entitled to vote will be voted
on these proposals as you specify on this proxy card.
IF NO CHOICE IS SPECIFIED FOR A GIVEN PROPOSAL, THIS PROXY WILL BE VOTED "FOR"
PROPOSALS 1, 3, 4, 5, 6, 7, AND 8, RESPECTIVELY.
By signing this proxy, you revoke all prior proxies and appoint Cleve T.
Breedlove and John A. Calkins and each of them, with full power of
substitution, to vote your shares as specified on this card and on any other
business which may properly come before the Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" PROPOSALS 1, 3, 4, 5, 6, 7, AND 8.
PROPOSAL 1
- ----------
To approve the Agreement and Plan of Reorganization, as amended and
restated, dated as of May 2, 1997 (the "Reorganization Agreement") between
Valley and Norwest Corporation ("Norwest"), and the related Agreement and Plan
of Merger (the "Merger Agreement") pursuant to which a wholly-owned subsidiary
of Norwest will merge with Valley and Valley will become a wholly-owned
subsidiary of Norwest (the "Merger"), all upon the terms and subject to the
conditions set forth in the Reorganization Agreement, and the Merger
Agreement, copies of which are included as Appendix A and Appendix B,
respectively, to the Proxy Statement-Prospectus; and to authorize such further
action by the board of directors and officers of Valley as may be necessary or
appropriate to carry out the intent and purposes of the Merger.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 3
- ----------
To amend the Statement of Resolution Establishing the Series of Preferred
Stock governing the Series D Preferred to convert the shares of the Series D
Preferred into shares of Valley's common stock immediately prior to the
Merger, a copy of which is included as Appendix C to the Proxy Statement-
Prospectus; and to authorize such further action by the board of directors and
officers of Valley as be necessary or appropriate to carry out the intent and
purposes of such amendment.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSALS 4 THROUGH 8 --
PLEASE NOTE: INTERNAL REVENUE CODE REGULATIONS REQUIRE
THE AUTHORIZED REPRESENTATIVE OF A VALLEY SHAREHOLDER WHO IS AN ENTITY
TO MAKE CERTAIN REPRESENTATIONS TO VALLEY IN CONNECTION WITH APPROVING ANY OF
PROPOSALS 4 THROUGH 8. SEE THE REVERSE SIDE OF THIS PROXY CARD.
PROPOSAL 4
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to Cleve T. Breedlove under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
(CONTINUED, AND TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE>
PROPOSAL 5
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to John A. Calkins under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 6
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to Gary L. Kimberling under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 7
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to James Manatt under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 8
- ----------
To approve certain payments described in the Proxy Statement-Prospectus to
be made to C. Michael Scott under Valley's Incentive Compensation Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
ANY AUTHORIZED REPRESENTATIVE OF A VALLEY SHAREHOLDER THAT IS A CORPORATION,
PARTNERSHIP, TRUST, ESTATE, OR OTHER ENTITY WHO VOTED "FOR" ANY ONE OR MORE OF
PROPOSALS 4, 5, 6, 7, OR 8 SHOULD READ THE FOLLOWING STATEMENTS CAREFULLY
BEFORE SIGNING THIS PROXY CARD:
If you are a person authorized to vote the shares of Valley Common Stock
held by a corporation, partnership, trust, estate, or other entity on behalf
of such entity with respect to Proposals 4, 5, 6, 7, or 8 listed above, then
by signing this proxy card where indicated below, you are representing to
Valley on behalf of such entity and in connection with each vote "FOR"
Proposals 4, 5, 6, 7, or 8, that one or more of the following statements are
true: (1) the entity owns (directly or indirectly) one percent (1%) or less of
the outstanding stock of Valley (by value) or (2) the total value of the stock
of Valley owned (directly and indirectly) by the entity is less than one-third
(by value) of the assets of the entity; or (3) the Valley stock held by the
entity is one-third or more of its assets, but (a) each such proposal has been
approved by those persons who hold, as of September 22, 1997, the record date
for the Meeting, more than 75% of the voting power of the entity, and (b) the
entity's stock and the stock of any member of an affiliated group of which the
entity is a member is not readily tradable on an established securities market
or otherwise.
Dated: , 1997
----------------------------
---------------------------------------
Signature
---------------------------------------
Signature
Please sign exactly as your name
appears on this card. In the case of
joint owners, each should sign. If
signing as executor, trustee,
guardian, or in any other
representative capacity or as an
officer of a corporation, please
indicate your full title as such.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF VALLEY
