AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1996
Registration Statement No. 333-08529
_________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933
_________________________________
MARK TWAIN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Missouri 6061 43-0895344
(State or other (Primary Standard (IRS Employer
jurisdiction of incor- Industrial Class- Identification No.)
poration or organization) fication Code Number)
8820 Ladue Road
St. Louis, Missouri 63124
(314) 727-1000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Principal Executive Offices)
__________________________
Carl A. Wattenberg, Jr., Esq. Copies to:
Senior Vice President, General
Counsel and Corporate Secretary John A. Niemoeller, Esq.
Mark Twain Bancshares, Inc. The Stolar Partnership
8820 Ladue Road 911 Washington Avenue, 7th Fl.
St. Louis, Missouri 63124 St. Louis, Missouri 63101
(314) 889-0707
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code,
of Agent For Service)
Approximate date of commencement of proposed sale of the securities to the
public: Mailing is expected to commence approximately August 7, l996
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: [___]
___________________________
Amending the Prospectus and Supplying Certain Additional Exhibits
<PAGE>
<PAGE>
CROSS REFERENCE SHEET
(Between Items in Form S-4 and the Prospectus and Proxy Statement)
Form S-4 Item Number and Prospectus and Proxy Statement
Caption Caption
---------------------------- ------------------------------
1. Forepart of the Registration Front Cover
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Available Information; Table of
Back Cover Pages of Contents; Incorporation of
Prospectus Documents by Reference
3. Risk Factors, Ratio of Summary
Earnings to Fixed Charges
and Other Information
4. Terms of the Transaction Description of the Transaction;
Description of Mark Twain Capital
Stock; Accounting Treatment;
Federal Income Tax Consequences;
Termination of Shareholders
Agreement; Exhibit Index; Exhibits
A and B
5. Pro Forma Financial Not Applicable
Information
6. Material Contacts With the Interests of Certain Persons in the
Company Being Acquired Merger
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts Legal Opinion; Experts
and Counsel
9. Disclosure of Commission Not Required
Position on Indemnification
for Securities Act Liabilities
10. Information with Respect to Mark Twain Bancshares, Inc.;
S-3 Registrants Regulatory Matters Relating to
Mark Twain
11. Incorporation of Certain Incorporation of Documents by
Information by Reference Reference; Mark Twain Bancshares,
(S-3 Registrants) Inc. - Incorporation of Documents
12. Information with Respect to Not Applicable
S-2 or S-3 Registrants
<PAGE>
<PAGE>
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other than S-2 or
S-3 Registrants
15. Information with Respect to Not Applicable
S-3 Companies (Company being
acquired)
16. Information with Respect to Not Applicable
S-2 or S-3 Companies (Company
being acquired)
17b. Information with Respect to Northland Bancshares, Inc.;
Companies Other than S-2 or Termination of Shareholders
S-3 Companies (Company being Agreement; Exhibit D
acquired)
18. Information if Proxies, Notice of Special Meeting;
Consents or Authorizations Incorporation of Documents By
are to be Solicited Reference; Description of the
Transaction - Dissenters' Rights
of Appraisal; The Special Meeting;
Mark Twain Bancshares, Inc.;
Northland Bancshares, Inc.;
Termination of Shareholders
Agreement; Interests of Certain
Persons in the Merger; Exhibit C
19. Information if Proxies; Not Applicable
Consents or Authorizations
are not to be Solicited in an
Exchange Offer
<PAGE>
<PAGE>
PART I
[Paragraphs which have been revised since the initial filing of the
registration statement are tagged with and in this filing.]
NORTHLAND BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 10, 1996
TO THE SHAREHOLDERS OF NORTHLAND BANCSHARES, INC.:
A special meeting of the shareholders of Northland Bancshares, Inc., a
Missouri bank holding company, will be held at the principal office of
Northland, 7667 Northwest Prairie View Road, Kansas City, Missouri 64151,
on September 10, 1996, at 9:00 a.m., local time, for the purpose of
considering and voting upon the proposed merger of Northland into a wholly-
owned subsidiary of Mark Twain Bancshares, Inc., as described in the
accompanying Prospectus and Proxy Statement, and for the purpose of
transacting such other business as may properly come before the meeting.
In addition to the Prospectus and Proxy Statement, a copy of Mark Twain's
1995 Annual Report and Second Quarter Report for 1996 are enclosed with
this notice; these documents should be reviewed carefully by each
shareholder.
As explained more fully in the Prospectus and Proxy Statement, at this
time you are being asked only to mark, sign, and return the enclosed proxy
form. Do not send your Northland stock certificates to Northland or any
other person at this time; if the Merger is approved and otherwise is
expected to close, you will be sent instructions telling you what to do
with your stock certificates at that time.
The close of business on August 7, 1996, has been fixed by the Board
of Directors as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of Directors
Leland M. Walker, President
Kansas City, Missouri
August 7, 1996
YOU ARE URGED TO SIGN, DATE, AND RETURN THE ENCLOSED
PROXY EVEN IF YOU PLAN TO ATTEND THE MEETING.
YOU MAY REVOKE YOUR PROXY AT THE MEETING IF
YOU DO ATTEND, AND THEN VOTE IN PERSON.
<PAGE>
<PAGE>
PROSPECTUS OF
[LOGO]
MARK TWAIN BANCSHARES, INC.
AND
PROXY STATEMENT OF
NORTHLAND BANCSHARES, INC.
This Prospectus and Proxy Statement relates to a proposed merger (the
"Merger") of Northland Bancshares, Inc., a Missouri one-bank holding
company ("Northland"), with Mark Twain Acquisition Corp. II ("Sub"), a
wholly-owned subsidiary of Mark Twain Bancshares, Inc., a Missouri bank
holding company ("Mark Twain"), pursuant to a Plan and Agreement of Merger
(as amended, the "Merger Agreement"), dated as of May 7, 1996, among Mark
Twain, Sub, Northland, and certain shareholders of Northland (the
"Principal Shareholders").
Under the Merger Agreement, subject to the conditions specified
therein, Northland will merge into Sub. Each outstanding share of
Northland common stock, par value $0.20 per share, will be converted into a
certain number of shares of Mark Twain common stock, par value $1.25 per
share, based upon certain factors that include Northland's adjusted
financial net worth and the average market price per share of Mark Twain's
common stock shortly before the closing date of the Merger. A certain
number of shares having a value determined pursuant to the Merger Agreement
which are otherwise distributable to the shareholders of Northland (the
"Shareholders") will be held in escrow pursuant to an Escrow Agreement to
be executed upon the consummation of the Merger (the "Escrow Agreement") to
satisfy certain indemnity obligations of Northland shareholders. Northland
shareholders may have indemnity obligations to Mark Twain in the event of
the breach of any representation or warranty made to Mark Twain in the
Merger Agreement, or in the event of the breach of any of Northland's
agreements therein. Each shareholder has the statutory right to dissent
from the Merger Agreement and seek a judicial appraisal of the value of his
or her shares. See "CONVERSION OF SHARES," "INDEMNITY OBLIGATION," and
"DISSENTERS' RIGHTS OF APPRAISAL" under the caption "DESCRIPTION OF THE
TRANSACTION" herein.
This document constitutes the Proxy Statement issued by Northland in
connection with a special meeting of its shareholders to be held on
September 10, 1996, or any adjournment thereof (the "Special Meeting") to
consider and vote upon the merger. This document also constitutes the
Prospectus of Mark Twain relating to the shares of common stock of Mark
Twain, par value $1.25 per share, to be issued in the merger. Mark Twain's
common stock is quoted on the NASDAQ National Market System under the
symbol MTWN. See "SUMMARY - MARKET PRICE INFORMATION" herein. SHARES OF
MARK TWAIN STOCK ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, OR ANY OTHER GOVERNMENTAL AGENCY.
In order for the Merger to be approved, the affirmative vote of the
holders of at least two-thirds of the shares of voting common stock of
Northland outstanding on August 7, 1996 is required. In addition, Mark
Twain has the right to withdraw from the transaction if holders of more
than 10% of Northland's stock exercise their statutory dissenters' rights.
As of such date, Northland had 598,471 shares outstanding. In the Merger
Agreement, shareholders of Northland who hold or control a total of 312,911
shares have agreed to vote in favor of the Merger, subject to the other
conditions of the Merger Agreement.
Northland's Board of Directors unanimously recommends that the
Shareholders vote FOR the Merger.
_________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________
The date of this Prospectus and Proxy Statement is August 7, 1996.
<PAGE>
<PAGE>
No person has been authorized to give any information or to make any
representations, other than as contained herein, in connection with the
offer contained in this Prospectus and Proxy Statement, and if given or
made, such information or representations must not be relied upon. This
Prospectus and Proxy Statement does not constitute an offer of any
securities other than the registered securities to which it relates or an
offer to any person in any state where such offer would be unlawful. The
delivery of this Prospectus and Proxy Statement at any time does not imply
that information herein is correct as of any time subsequent to the date
hereof.
===========================================================================
TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . 2
Incorporation of Documents by Reference . . . . . . 2
Summary Consolidated Financial Information
Relating to Mark Twain . . . . . . . . . . . . . .3
Summary . . . . . . . . . . . . . . . . . . . . . . 4
The Special Meeting . . . . . . . . . . . . . . . . 7
Background of Transaction, Recommendation of
the Northland Board, and Reasons for the Merger . 8
Description of the Transaction . . . . . . . . . . .9
Restrictions on Transfer . . . . . . . . . . . . . 20
Accounting Treatment . . . . . . . . . . . . . . . 21
Federal Income Tax Consequences . . . . . . . . . .21
Mark Twain Bancshares, Inc. . . . . . . . . . . . .23
Northland Bancshares, Inc. . . . . . . . . . . . . 25
Termination of Shareholders Agreement . . . . . . .27
Regulatory Matters Relating to Mark Twain . . . . .28
Interests of Certain Persons in the Merger . . . . 33
Description of Mark Twain Capital Stock . . . . . .34
Legal Opinion . . . . . . . . . . . . . . . . . . .36
Experts . . . . . . . . . . . . . . . . . . . . . .36
Exhibit Index . . . . . . . . . . . . . . . . . . .36
===========================================================================
AVAILABLE INFORMATION
Mark Twain is subject to the informational requirements of the
Securities Exchange Act of 1934, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission. Such filings can be inspected and copies may be obtained (at
prescribed rates) at the Commission's Public Reference Section, 450 Fifth
Street N.W., Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: Suite 1400, Citicorp Center, 500 W.
Madison St., Chicago, Illinois 60661; and Suite 1300, Seven World Trade
Center, New York, New York 10048. Such filings also may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street N.W., Washington D.C. 20006.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by Mark Twain with the Securities and
Exchange Commission (file no. 0-4543) are incorporated herein by reference:
(a) Mark Twain's annual report on Form 10-K for the fiscal year ended
December 31, 1995 and quarterly reports on Form 10-Q for the periods ended
March 31 and June 30, 1996; (b) the description of Mark Twain's common
stock contained in Mark Twain's registration statement filed under the
Securities Exchange Act of 1934, as amended, and any amendment or report
filed for the purpose of updating such description; (c) Mark Twain's
current reports on Form 8-K dated April 11 and July 11, 1996; (d) Mark
Twain's Proxy Statement dated March 18, 1996; and (e) all documents filed
by Mark Twain, under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the date of this Prospectus and
Proxy Statement and prior to the date of the meeting of Northland's
Shareholders to vote on the Merger. Information set forth herein which
updates or modifies information in any such document incorporated by
reference shall be deemed to supersede the information so incorporated by
reference. Any information so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus and Proxy Statement incorporates documents by
reference which are not presented herein or delivered herewith. These
documents (not including exhibits), as well as additional copies of Mark
Twain's 1995 Annual Report to its shareholders, are available upon request
from Carl A. Wattenberg, Jr., Senior Vice President, Secretary and General
Counsel, Mark Twain Bancshares, Inc., 8820 Ladue Road, St. Louis, Missouri
63124, telephone (314) 889-0707. In order to ensure timely delivery of the
documents, any request should be made by September 3, 1996, five business
days prior to the Special Meeting.
2
<PAGE>
[IN THE PRINTED DOCUMENT, THE FOLLOWING TABLE IS COMPLETELY ENCLOSED IN A
RECTANGULAR BOX]
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION RELATING TO MARK TWAIN
(Dollars in thousands, except per share data)
SIX MONTHS ENDED
JUNE 30 (UNAUDITED) YEARS ENDED DECEMBER 31,
--------------------------- ----------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income,
fully tax equivalent $113,806 $110,602 $224,361 $195,959 $177,079 $178,954 $204,823
Interest Expense 50,551 45,762 94,932 70,592 63,896 79,195 113,313
---------------------------------------------------------------------------------
Net interest income 63,255 64,820 129,429 125,367 113,183 99,759 91,510
Provision for loan losses 1,495 2,631 5,003 5,526 6,282 8,687 15,338
---------------------------------------------------------------------------------
Net interest income after
provision for loan losses 61,760 62,189 124,426 119,841 106,901 91,072 76,172
Non-interest income 19,471 18,305 36,786 35,500 43,996 37,090 31,118
Non-interest expense 40,947 43,880 86,522 90,282 95,649 84,040 76,133
-------------------------------------------------------------------------------
Income before income taxes 40,284 36,614 74,690 65,059 55,248 44,122 31,157
Taxable equivalent adjustment* 528 633 1,188 1,346 1,451 1,687 2,096
Applicable income taxes 14,250 12,988 25,789 22,731 18,694 14,092 8,659
--------------------------------------------------------------------------------
Net income $25,506 $22,993 $47,713 $40,982 $35,103 $28,343 $20,402
=================================================================================
Per Share Data**
Primary earnings/share $1.55 $1.42 $2.93 $2.54 $2.24 $1.91 $1.48
Fully diluted earnings/share $1.54 $1.38 $2.85 $2.48 $2.17 $1.84 $1.43
Common dividends declared/share $0.62 $0.54 $1.08 $0.96 $0.81 $0.68 $0.61
Common dividend payout ratio 40.00% 38.03% 36.86% 37.80% 36.17% 35.52% 41.34%
Book value/share $17.05 $15.97 $17.09 $14.65 $13.63 $12.20 $10.88
Fully diluted book value/share $17.03 $15.96 $17.05 $14.68 $13.71 $12.39 $11.15
Balance Sheet Data
(Averages for the period)
Total assets $2,941,043 $2,723,890 $2,766,634 $2,645,508 $2,484,696 $2,341,473 $2,290,979
Earning assets 2,752,662 2,535,093 2,571,745 2,460,554 2,289,298 2,168,834 2,105,020
Total loans 1,990,354 1,893,702 1,916,374 1,748,639 1,626,068 1,563,903 1,604,090
Total deposits 2,356,979 2,222,539 2,282,771 2,199,501 2,089,102 1,989,108 1,969,209
Long-term debt 7,929 20,123 19,666 23,144 26,358 28,613 30,631
Shareholders' equity 276,870 245,462 255,433 223,972 197,401 167,556 139,753
Net interest margin 4.62% 5.16% 5.03% 5.10% 4.94% 4.60% 4.35%
Balance Sheet Data (Period-End)
Total assets $2,900,844 $2,753,539 $2,968,231 $2,688,716 $2,595,451 $2,376,312 $2,327,718
Earning assets 2,722,258 2,543,625 2,731,663 2,492,839 2,407,669 2,167,852 2,130,620
Total loans 2,016,177 1,933,140 1,971,939 1,860,155 1,716,394 1,541,083 1,573,154
Total deposits 2,361,901 2,317,655 2,457,392 2,272,057 2,191,913 2,034,404 1,984,921
Long-term debt 3,375 19,876 18,490 20,389 24,696 28,822 28,819
Shareholders' equity 272,897 255,828 275,906 234,049 214,994 179,046 158,958
Ratios
Return on average
total assets 1.74% 1.70% 1.72% 1.55% 1.41% 1.21% 0.89%
Return on average
shareholders' equity 18.53% 18.89% 18.68% 18.30% 17.78% 16.92% 14.60%
Return on average realized
shareholders' equity 18.43% 18.43% 18.41% 17.93% 17.78% 16.92% 14.60%
Average shareholders' equity
to average assets 9.41% 9.01% 9.23% 8.47% 7.94% 7.16% 6.10%
Average shareholders' equity
to average loans 13.91% 12.96% 13.33% 12.81% 12.14% 10.71% 8.71%
Period-end shareholders' equity
to period-end assets 9.41% 9.29% 9.30% 8.70% 8.28% 7.53% 6.83%
Period-end shareholders' equity
to period-end loans 13.54% 13.23% 13.99% 12.58% 12.53% 11.62% 10.10%
Long-term total debt to
total shareholders' equity 1.24% 7.77% 6.70% 8.71% 11.49% 16.10% 18.13%
Efficiency Ratio 49.64% 52.82% 52.15% 56.23% 61.19% 62.03% 62.89%
================================================================================================================
* The taxable equivalent adjustments are calculated using the federal statutory tax rate of 35% for
1996, 1995, 1994, and 1993, and 34% for 1992 and 1991.
** 1992 and 1991 per share data have been restated to reflect a three-for-two stock split effected in
1993.
</TABLE>
3
<PAGE>
[IN THE PRINTED DOCUMENT, EACH PAGE OF "THE SUMMARY" SECTION, ON PAGES 4,
5, AND 6, IS COMPLETLY ENCLOSED IN A RECTANGULAR BOX]
SUMMARY
The following summary is qualified in its entirety by the more
detailed information set forth elsewhere in this Prospectus and Proxy
Statement or in the documents which have been incorporated herein by
reference.
Mark Twain
Mark Twain Bancshares, Inc., is a bank holding company incorporated in
Missouri and headquartered at 8820 Ladue Road, St. Louis, Missouri 63124
(314/727-1000). It is the parent company of two Missouri and one Illinois
state-chartered banks operating from 35 locations in the St. Louis and
Kansas City metropolitan areas. It is the 6th largest banking operation
headquartered in Missouri. Through its subsidiaries Mark Twain also
performs brokerage and various other financial services. Mark Twain's
address on the internet is http://www.marktwain.com.
Northland
Northland Bancshares, Inc. is a one-bank holding company incorporated
in Missouri. It is the parent company of First National Bank of Platte
County, a national banking association (the "Bank") and North American
Credit Service, Inc., a Missouri corporation ("NACSI"). The offices of
Northland, the Bank and NACSI (which are owned by NACSI) are located at
7667 Northwest Prairie View Road, Kansas City, Missouri 64151 (816/746-
2000).
Market Price Information
The closing market price of Mark Twain common stock on May 7, 1996,
the business day before the Merger was publicly announced, was $37.25 per
share, as reported on the Nasdaq National Market System. Northland stock
is not traded on any exchange or over the counter, and there is no
organized market for it. In the last sale known to Northland, 2,000 shares
were sold for $12.50 per share on August 25, 1995. As of June 30, 1996,
the book value of Northland's common stock was approximately $10.83 per
share.
The Merger
Under the Merger Agreement, subject to certain conditions, Northland
will merge into Sub. Each outstanding share of Northland common stock will
be converted into a certain number of shares of Mark Twain common stock,
with fractional shares settled in cash. The conversion ratio will be based
upon the net worth of Northland, as well as the average market price of
Mark Twain's common stock, shortly before the Closing of the Merger;
accordingly, the final conversion ratio cannot be determined until near the
Closing. However, based on certain facts and assumptions, if the Closing
had occurred on July 11, 1996, the conversion ratio would have been 0.6106
shares of Mark Twain common for each share of Northland common. There can
be no assurance that the actual conversion ratio will be greater than, less
than, or equal to this hypothetical ratio.
The amount of Mark Twain shares to be delivered to Shareholders at
Closing will be affected by two other factors. First, 15% of the Mark
Twain shares otherwise distributable to Shareholders will be held in escrow
under an Escrow Agreement to secure any indemnity obligation to Mark Twain
under the Merger Agreement. Subject to certain exceptions and limitations,
Shareholders agree to indemnify Mark Twain for breach of the
representations and warranties made in the Merger Agreement and for other
breaches of the Merger Agreement. Further, Mark Twain shares otherwise
distributable to Shareholders will be withheld, and the proceeds will be
used by Mark Twain, on behalf of the Shareholders, to pay certain legal and
other expenses of the Shareholders, and to cover potential losses related
to certain loans. See "Conversion of Shares," "Agreement Respecting
Adjustments," "Reductions in Mark Twain Shares to be Delivered," "Fees and
Expenses," "Indemnity Obligation," and "Escrow Agreement" under the caption
"Description of the Transaction," and Exhibits B and C below.
Shareholder Vote Required
The Merger requires the approval of the holders of at least two-thirds
of the shares of common stock of Northland outstanding at the close of
business on August 7, 1996 (the "Record Date"). As of the Record
4
<PAGE>
Date, 598,471 Northland shares were outstanding. Of those, 312,911, or
about 52%, were held by the Principal Shareholders; the Principal
Shareholders have contractually committed to vote such shares in favor of
the Merger. Northland management believes the Principal Shareholders may
indirectly control at least 2,324 additional shares, which are not
contractually committed. Due to certain stock bonus commitments to an
officer, the total number of outstanding shares on the Closing Date will be
greater than the number of shares outstanding on the Record Date. See
"Employee Stock Grants," "Additional Northland Shares," and "Principal
Shareholders of Northland" under the caption "Northland Bancshares, Inc."
below.
Shareholders Agreement
The Merger cannot be effected without terminating the existing
Shareholders Agreement among Northland and its shareholders. That
Agreement will be terminated, effective on the Closing Date of the Merger.
See "Termination of Shareholders Agreement."
Regulatory Approvals
The Merger will be subject to the review of, or otherwise require the
approval of, the Federal Reserve Board, the United States Department of
Justice, and the Missouri Commissioner of Finance. Applications for these
approvals have been filed and are pending.
Dissenters' Rights of Appraisal
Northland shareholders who object to the Merger, and who follow the
procedures required by Section 351.455 of the Revised Statutes of Missouri,
are entitled to receive payment of the fair value of their shares as of the
effective date of the Merger. Such procedures require any such objecting
shareholder to take specific actions prior to or at the Special Meeting, as
well as after the Special Meeting. Failure to follow such procedures could
result in the loss of rights under Section 351.455. See "Description of
the Transaction - Dissenters' Rights of Appraisal" and Exhibit D.
Tax Consequences
In the opinion of The Stolar Partnership, counsel to Mark Twain, a
Northland Shareholder receiving Mark Twain common stock in the Merger will
not recognize any gain or loss for federal income tax purposes; the
aggregate basis of the Mark Twain common stock received will be the same as
the aggregate basis of the Northland common stock surrendered in the
Merger; and the holding period of the Mark Twain common stock received will
include the holding period of the Northland common stock surrendered. A
Northland Shareholder who receives cash in lieu of fractional shares will
recognize capital gain or loss. A Northland Shareholder will recognize
capital gain or loss, or ordinary income, upon the use of Mark Twain shares
to pay fees and expenses, or to satisfy obligations under the Escrow
Agreement. See "Federal Income Tax Consequences."
Conditions to Closing; Termination
The Closing is subject to the satisfaction or waiver of certain
conditions. Failure to satisfy or waive a condition could allow Mark
Twain, Northland, or either to abandon the Merger, depending upon the
condition. For further information see "DESCRIPTION OF THE TRANSACTION -
CONDITIONS TO CLOSING" herein.
In addition, Mark Twain or Northland has the right to abandon the
Merger if one or more specified events occur. See "DESCRIPTION OF THE
TRANSACTION - TERMINATION" for further information.
Shareholder Representative
Mr. William E. Johnson has agreed to act as the successor
representative of those Shareholders who surrender Northland shares for
Mark Twain shares in connection with the Merger transaction. As a result,
Mr. Johnson has the power, under the Merger Agreement, to act for such
Shareholders in connection with a number of matters, including the giving
and receipt of notices and the taking of actions (including the waiver of
conditions to closing) required or permitted under the Merger Agreement.
5
<PAGE>
Pro Forma Information
The pro forma information below assumes that the Merger closed on July
11, 1996, that 100% of the 598,471 shares of Northland common stock
outstanding on the assumed Closing Date were converted into Mark Twain
common stock in the Merger at an assumed conversion ratio of 0.6106 to 1,
that 4,091 additional shares were issued as incentive compensation to a
Northland officer (as described above) and were converted, that no
additional Northland shares are issued prior to Closing, and that no
Shareholder exercised dissenters' rights of appraisal. For additional
information regarding these assumptions see "CONVERSION OF SHARES" and
"DISSENTERS' RIGHTS OF APPRAISAL" under the caption "DESCRIPTION OF THE
TRANSACTION," and "EMPLOYEE STOCK GRANTS" and "ADDITIONAL NORTHLAND SHARES"
under the caption "NORTHLAND BANCSHARES, INC."
Two pro forma columns are shown for each company: those columns
labelled "Northland" show pro forma information before taking into account
the effect of Mark Twain's proposed acquisition of First City Bancshares,
Incorporated of Springfield, Missouri; those columns labelled "Northland
and First City" show pro forma information assuming that the First City
acquisition has occurred and, in connection therewith, that Mark Twain has
issued 272,000 shares of its common stock. See "MARK TWAIN BANCSHARES,
INC. - RECENT DEVELOPMENTS" for further information regarding the First
City transaction. The First City transaction will have no legal effect on
the number of Mark Twain shares which will be issued to Northland
shareholders after the Merger.
<TABLE>
<CAPTION>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
Mark Twain Northland
------------------------------------------ --------------------------------------
Pro Forma Equivalent Pro Forma
--------------------------- -------------------------
Northland & Northland &
Reported Northland First City Reported Northland First City
------------- --------------------------- ----------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Book Value Per Share
June 30, 1996
(Fully Diluted) $17.03 $17.05 $17.37 $10.80 $10.41 $10.61
December 31, 1995
(Fully Diluted) 17.05 17.05 17.37 10.30* 10.41* 10.60*
Cash Dividends
Declared Per Share
1st Half 1996 0.62 0.62 0.62 -0- 0.38 0.38
Fiscal 1995 1.08 1.08 1.08 -0- 0.66 0.66
Fiscal 1994 0.96 0.96 0.96 -0- 0.59 0.59
Fiscal 1993 0.81 0.81 0.81 -0- 0.49 0.49
Income Per Share
1st Half 1996: Primary 1.55 1.55 1.63 0.91 0.95 1.00
Fully Diluted 1.54 1.54 1.62 0.91 0.94 0.99
1st Half 1995: Primary 1.42 1.40 1.40 0.42* 0.86* 0.86*
Fully Diluted 1.38 1.36 1.37 0.42* 0.83* 0.83*
Fiscal 1995: Primary 2.93 2.91 2.86 1.21* 1.78* 1.75*
Fully Diluted 2.85 2.83 2.78 1.21* 1.73* 1.70*
Fiscal 1994: Primary 2.54 2.52 2.52 0.80** 1.54** 1.54**
Fully Diluted 2.48 2.46 2.46 0.80** 1.50** 1.50**
Fiscal 1993: Primary 2.24 2.23 2.23 1.14** 1.36** 1.36**
Fully Diluted 2.17 2.17 2.17 1.14** 1.32** 1.32**
===========================================================================================================
* Data is restated to reflect a pro-rata stock dividend of 10% in 1996.
** Data is restated to reflect a pro-rata stock dividend of 5% in 1995 and
a 10% stock dividend in 1996.
</TABLE>
6
<PAGE>
THE SPECIAL MEETING
This Prospectus and Proxy Statement is being provided to Northland's
Shareholders in connection with the Board of Director's solicitation of
proxies to approve the Merger at the Special Meeting. Proxy forms marked
FOR the Merger, and those which are signed but not marked, will be voted in
favor of the Merger and will be voted in the discretion of the persons
named on the proxy form on any other matters which come before the meeting.
The Board of Directors of Northland unanimously recommends that the
shareholders vote FOR the Merger. The proxy form delivered with this
Prospectus and Proxy Statement should be completed, signed, dated, and
returned promptly to Northland in the enclosed envelope.
Record Date; Outstanding Shares; Vote Required for Approval
The Board of Directors of Northland has fixed the close of business on
August 7, 1996 as the Record Date for determining the persons entitled to
notice of, and to vote at, the Special Meeting. At the Record Date, there
were 598,471 shares of common stock outstanding held of record by
approximately 128 shareholders. Although it is anticipated that certain
additional Northland shares will be issued as incentive compensation prior
to the Closing (see "NORTHLAND BANCSHARES, INC. - EMPLOYEE STOCK GRANTS"),
these shares were not outstanding as of the Record Date and will not be
entitled to vote at the Special Meeting. Each share outstanding as of the
Record Date entitles the holder to one vote. The affirmative vote of the
holders of two-thirds of Northland's shares outstanding on the Record Date,
or 398,981 shares, is needed to approve the Merger. See "DESCRIPTION OF
THE TRANSACTION - VOTE REQUIRED" below for further information.
In order for shares to be voted at the meeting, the holder of record
must either (i) complete, sign, and return the enclosed proxy form prior to
the vote or (ii) attend the Special Meeting and vote in person. Any shares
not represented at the Special Meeting by proxy or in person cannot be
voted.
Voting and Revocation of Proxies
Each fully completed and signed proxy form which is received prior to
the vote, and not revoked prior to the vote, will be voted in accordance
with the instructions indicated on the proxy form. If no box is checked
but the proxy form otherwise is fully completed and signed, the shares
represented by that proxy will be voted FOR approval of the Merger. It is
not expected that any other matters will come before the Special Meeting;
however, if other matters are properly presented, the person named in the
proxy form will vote on such other matters in his discretion. In addition,
giving a proxy automatically confers discretionary authority on such person
to vote on procedural and all other matters incident to the conduct of the
Special Meeting.
A Shareholder may revoke a proxy by submitting a new proxy form, fully
completed (with a later date) and signed, to Northland prior to taking the
vote at the Special Meeting, or by attending the Special Meeting and voting
in person. Attendance at the Special Meeting will not (by itself)
automatically revoke a proxy, and any Shareholder wishing to attend the
Special Meeting may vote by proxy without voting in person.
NORTHLAND SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES TO
NORTHLAND AT THIS TIME. If the Merger is approved and the other conditions
to Closing are satisfied (or waived), Shareholders will be sent
instructions relating to the exchange procedures.
Solicitation of Proxies
Any costs of soliciting proxies for the meeting are being paid by
Northland, except that Mark Twain has paid for (1) the costs of registering
its shares with the Securities and Exchange Commission, (2) the cost of
printing and mailing this Prospectus and Proxy Statement and its
accompanying 1995 Annual Report and First Quarter Report for 1996, and (3)
its own legal and accounting expenses. Proxies are being solicited by
mail; in addition, Northland may solicit proxies by telephone or in person.
No director or officer of Northland will receive any special compensation
for any solicitation activities.
7
<PAGE>
BACKGROUND OF TRANSACTION,
RECOMMENDATION OF THE NORTHLAND BOARD,
AND REASONS FOR THE MERGER
Since its inception, Northland's Board of Directors has held a
strategic planning retreat each year to carefully consider areas of its
business, such as risk management, capital requirements, business
development plans, changes in the financial services industry and responses
to inquiries from the companies and individuals interested in purchasing
Northland. Over its ten year history the Board of Directors has received
inquiries regarding the purchase of Northland. Many of these inquiries
were only an unformulated expression of interest by the potential buyer.
During the early days of the operation, Northland's profits were not at an
adequate level to command a substantial price and no formal follow-up
occurred in these years. However, with the growth and improvement in
profitability, Northland recently began receiving more serious approaches
to a sale or merger. In 1994 Mr. M.J. Swords with Sword Associates, Inc.
was hired to consult with the Board of Directors and advise them as to the
value of Northland and assist with any response to offers or requests for
information received by Northland. At about this time a regional bank
holding company had sent a letter of intent with a price proposal therein.
The Board authorized Mr. Swords to discuss the proposed price with the
regional bank holding company, but that company did not increase its
proposed price and the Board of Directors felt the proposed price did not
represent value for Northland.
Under these circumstances, the Board, at the strategic planning
retreat held in 1995, reviewed information available reflecting the rapid
change in the financial services industry along with significant changes
occurring in consumer payment systems. After careful consideration and
discussion with Mr. Swords, it was the Board's opinion that the banking
environment was significantly different than when the Bank opened in 1986
and that the future success of the Bank was uncertain, based to some large
extent, on factors beyond the control of the Board. Further, if the Bank
was to continue to grow as it had in the early years, there could be a need
for additional capital, particularly in view of long-term growth
requirements for investment in necessary technology to remain competitive.
Based on this review, a special Bank Marketing Committee of the Board
consisting of Leland M. Walker, John T. Schott, and Gerard J. Mos III was
appointed to evaluate the future of Northland and to make recommendations
to the Board concerning the best interest of the holders of Northland
shares. Also a formal agreement was entered into with Mr. Swords (see
"DESCRIPTION OF THE TRANSACTION - FEES AND EXPENSES") for this purpose.
The Committee consulted not only with Mr. Swords on the potential value of
Northland, but also consulted with other banking experts as to the future
for community banks in metropolitan areas.
Beginning in October, 1995, Mr. Swords began contacting banking
companies and individuals who had expressed an interest in Northland or who
he believed would have such interest. From the period October 1995 to
April 1996, a number of companies and individuals expressed some interest
in purchasing Northland. During that period of time, the Board of
Directors reviewed responses from those contacted at their regular monthly
board meetings. However, only one other offer was actually presented to
Northland. No one expressed a serious interest in paying cash for
Northland's shares and all expressions of interest, and the structure of
the other offer made for Northland, all involved the holders of Northland's
shares receiving stock in the acquiring entity. In each instance, the
shares presumably would have been freely tradeable (except for restrictions
on Affiliates as discussed in "RESTRICTIONS ON TRANSFER" herein) and would
have been distributed to holders of Northland shares in a tax-free
transaction similar to that proposed here.
The other offer received at this time was made by the same regional
holding company that had sent the letter of intent in 1994. The price
offered to Northland Shareholders was the same price offered in 1994.
Despite further negotiations, that company was not willing to increase its
offer. Although such offer was made by a bank holding company whose shares
were also publicly traded, the conversion ratio being offered there to
Northland Shareholders was materially less than that offered by Mark Twain.
Further, the purchase price ratio in such other offer was to be based on
Northland's Net Worth at the time of the execution of a merger agreement
rather than, as is the case in this Merger, at the time of Closing.
8
<PAGE>
The Board felt that the Mark Twain shares represented a prudent
investment for holders of Northland shares and that the materially greater
price and more beneficial timing offered by Mark Twain clearly favored
acceptance of the Mark Twain offer represented by the Merger. The Board
noted that no holder of Northland shares would own as much as one half of
the one percent of the outstanding shares of Mark Twain and that Northland
shareholders (except Affiliates), if they so desired would be able to
immediately liquidate their shares at the market prices then prevailing for
Mark Twain shares without adversely impacting the market in the Mark Twain
shares being held by other holders of Northland shares participating in the
Merger.
After careful consideration of the responses and offers received, the
Board of Directors of Northland determined that Merger with Mark Twain
maximized the value of Northland to the Shareholders and approved the final
form of Merger Agreement which is attached hereto as Exhibit A. In
reaching its conclusion to approve the Merger Agreement, the Board
considered information previously provided by representatives of Mark Twain
and other public information that was available, including (i) information
concerning the financial performance and condition, business operations,
capital levels, asset quality, loan portfolio breakdown and the prospects
of Mark Twain and information concerning the Mark Twain and Northland on a
combined basis, (ii) the structure of the transaction, (iii) the terms of
the Merger Agreement, (iv) the presentations and recommendations of
management of Northland, and (v) the terms of recent comparable
transactions, especially as to price.
After considering these factors, the Board unanimously approved the
Merger Agreement by vote. The Board of Directors believes that the Merger
Agreement is in the best interests of and fair to the Shareholders of
Northland. ACCORDINGLY, THE BOARD OF DIRECTORS OF NORTHLAND UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER.
The Board of Directors of Northland did not obtain an opinion as to
the financial fairness of the Merger from an independent adviser. The
Board elected not to do so because the cost of such an opinion can be
substantial, and, in its judgment, the benefits to Northland and its
Shareholders from obtaining an opinion were not likely to be significant.
DESCRIPTION OF THE TRANSACTION
The terms of the Merger are set forth in the Merger Agreement. Under
the Merger Agreement, on the closing date (the "Closing Date") of the
Merger, Northland will be merged into Sub, Sub will be the surviving
corporation in the Merger, and Northland will cease to exist. As a result,
Mark Twain will indirectly acquire 100% of the outstanding capital stock of
the Bank and of NACSI.
Conversion of Shares
Under the Merger Agreement, on the Closing Date each outstanding share
of Northland common stock will be converted into a certain number of shares
of Mark Twain common stock, with any fractional shares settled in cash.
The number of Mark Twain shares into which each Northland share will
be converted will be determined as follows:
STEP ONE: Multiply the Book Value per share (as defined in the Merger
Agreement) of Northland's common shares as of the end of the calendar month
preceding the Closing Date by 2.10.
STEP TWO: Divide the result obtained in Step One by the "MTBI Share
Value" as of the Closing Date, carrying the result to the fourth decimal
place. The MTBI Share Value is equal to the average closing sale price of
Mark Twain's common stock for each of the most recent 20 trading days
ending on the fifth business day prior to the Closing Date, provided,
however, that the MTBI Share Value cannot be less than $35.00 nor greater
than $39.00.
As described in Step One, the number of Mark Twain shares to be issued
in the Merger will be based on the Book Value per Share of the Northland
shares, and such Book Value per Share will be determined
9
<PAGE>
on the basis of the Net Worth of Northland as of the end of the calendar
month preceding the Closing Date. For these purposes, "Net Worth" of
Northland means the consolidated net worth, determined in accordance with
generally accepted accounting principles and approved (to the extent
required by Mark Twain and at the cost of Mark Twain) by Ernst & Young LLP,
subject to the following provisions and adjustments required by the Merger
Agreement:
(a) In accordance with Sections 1.8(a) and 4.2 of the Merger
Agreement, Mark Twain may determine to reduce Northland's current Net Worth
in connection with the write down or write off the value of certain assets,
subject to certain limitations.
(b) Downward adjustments to the Net Worth may not aggregate
more than $100,000 except with the mutual agreement of Northland and Mark
Twain. If such adjustments are not agreed to, the Merger may be abandoned
as provided in Section 10.3(g) of the Merger Agreement.
(c) Net Worth will not be affected by unrealized gains and
losses on securities designated as "available for sale," even though the
financial statements will continue to show such unrealized gains and
losses.
(d) The Merger Agreement provides that certain accounting
adjustments relating to the shift from Northland's accounting practices to
Mark Twain's will not cause an adjustment in Northland's Net Worth, subject
to certain exceptions.
Under the Merger Agreement, Mark Twain has the right to review
Northland's assets, liabilities, and operations and, as mentioned above, to
request that adjustments or changes be made. Mark Twain has completed its
review. As of the date of this Prospectus and Proxy Statement, no
adjustments described in paragraphs (a) and (b) above have been made, and,
although such adjustments prior to Closing are possible, presently none are
anticipated to be significant. However, in connection with certain matters
raised by Mark Twain with Northland after its review, the parties have
entered into an Agreement Respecting Adjustments, which is discussed below.
As of June 30, 1996 the Net Worth of Northland was $6,533,971, based
on Northland's unaudited balance sheet as of that date. The average
closing price reported for Mark Twain's common stock during the 20 trading
days ending on July 5, 1996 was $37.2938 per share, which would have been
the MTBI Share Value had the Merger closed on July 11. The number of
Northland shares outstanding on July 11, 1996 was 598,471. Based on the
foregoing, and assuming that 4,091 shares were issued prior to Closing as
incentive compensation to a Northland officer but that no additional shares
of Northland stock were issued prior to Closing, if the Closing had
occurred on July 11, 1996, the conversion ratio would have been 0.6106 Mark
Twain shares for each Northland share. (Using the actual $37.00 closing
price of Mark Twain stock on July 11, the equivalent value of each
Northland share would have been approximately $22.59 at the close of
business on July 11.) The foregoing hypothetical conversion ratio and
equivalent value calculation does not take into account certain reductions
in the Mark Twain shares to be delivered (discussed below). Northland
Shareholders should note that the actual conversion ratio and equivalent
value could be higher or lower than the hypothetical figures computed
above.
No fractional shares of Mark Twain common stock will be issued in the
Merger, and any Northland shareholder otherwise entitled to receive
fractional shares will receive a cash adjustment based on the value of the
Mark Twain common stock used to determine the conversion ratio, as
indicated above.
Agreement Respecting Adjustments
As described above, the Merger Agreement gives Mark Twain the right to
review Northland in certain respects, and to request adjustments affecting
Northland's Net Worth. After that review, Mark Twain raised certain
matters with Northland which, among other things, could have resulted in
such adjustments being made. In order to avoid making such adjustments,
and in order to make more certain what adjustments would, and would not, be
made, the parties have entered into an Agreement Respecting Adjustments
(the "Adjustment Agreement"), a conformed copy of which is attached hereto
as Exhibit C.
10
<PAGE>
In Section 4 of the Adjustment Agreement, Mark Twain has agreed to
request no adjustments relating to the Net Worth of Northland or the value
of its assets with respect to events or circumstances disclosed to Mark
Twain on or before April 30, 1996, other than as provided in the Adjustment
Agreement.
In the Adjustment Agreement, Northland and Mark Twain have further
agreed as follows:
(a) Northland will maintain its allowance for loan losses at
1.5%.
(b) Three loans (the "Scheduled Loans"), currently treated as
assets on Northland's balance sheet, will not be written down or off prior
to Closing but will be identified as possible problem loans under the
Escrow Agreement (described below). The aggregate amount of the Scheduled
Loans which the parties have agreed is at risk is either $168,000 or
$338,000, depending upon whether a U.S. government agency affirms a
guaranty as to the largest of the Scheduled Loans.
(c) The Escrow Agreement as signed at Closing will be amended
in certain respects, particularly with respect to the treatment of losses
from the Scheduled Loans. See "ESCROW AGREEMENT" below.
None of the actions described above will be considered an adjustment as
described in paragraphs (a) and (b) under the caption "CONVERSION OF
SHARES," and none will affect, nor be affected by, the $100,000 threshold
referred to in paragraph (b) under that caption.
Reductions in Mark Twain Shares to be Delivered
The Merger Agreement provides for the number of Mark Twain shares
deliverable on or after the Closing to be reduced (i) to pay the
transaction costs incurred by or for the benefit of Northland or its
Shareholders, and (ii) to secure certain indemnity obligations of the
shareholders to Mark Twain. These reductions are described more fully
below under the captions "FEES AND EXPENSES," "INDEMNITY OBLIGATIONS," and
"ESCROW AGREEMENT".
Fees and Expenses
Section 10.8 of the Merger Agreement provides that the Northland
Shareholders will bear all costs and expenses of Northland and its
Shareholders incurred in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement. Those costs and
expenses are expected to include, among other things, legal fees and
expenses payable to Northland's attorneys (Swanson, Midgley, Gangwere,
Kitchin & McLarney, L.L.C.) and a finder's or broker's fee payable to
Swords Associates, Inc. The legal fees are to be for actual time expended
at regular hourly rates, whether or not the Merger closes. The fee to
Swords Associates, Inc. is contingent on the Merger closing, and is to be
determined using a two-part formula based upon the book value of Northland
multiplied by 2.10, the Net Worth multiplier used in the Merger Agreement
to determine the conversion ratio. Northland estimates that all such fees
and expenses will total approximately $300,000, or approximately $0.50 per
Northland share.
Mark Twain has agreed to pay such fees and expenses in cash upon the
receipt of payment directions by the Shareholder Representative (Mr.
William E. Johnson). However, Mark Twain will reimburse itself for such
cash payments by reducing the aggregate number of Mark Twain shares to be
issued in the Merger by that number as have a value, determined pursuant to
Section 1.2(a) of the Merger Agreement, equal to the total amount of such
payments. Northland Shareholders should note that the value of Mark Twain
shares used to pay such fees and expenses may differ from the MTBI Share
Value used to calculate the conversion ratio because (1) the valuation
dates may differ, and (2) the MTBI Share Value cannot be less than $35.00
or greater than $39.00, whereas the value used for fee and expense
reimbursement is not limited.
Indemnity Obligations
In the Merger Agreement, all Shareholders who participate in the
Merger make certain representations, warranties, and agreements to and with
Mark Twain relating to the organization, existence, financial condition,
and business of Northland. See the Merger Agreement (Exhibit A hereto),
11
<PAGE>
especially Section 3.1 and Article 4. Such representations, warranties,
and agreements relate to matters which may be material to Mark Twain in its
determination to proceed with the Merger.
In Article 7 of the Merger Agreement, each Shareholder of Northland
who participates in the Merger jointly and severally agrees to indemnify
Mark Twain and hold it harmless from and against all loss, liability, cost,
and expense (including reasonable attorneys' fees, costs and expenses in
contesting the same) (each, a "loss") resulting from any misrepresentation
or breach of warranty by Northland or any of its shareholders, or any
failure by Northland or any of its shareholders to perform any covenant or
agreement contained in or made pursuant to the Merger Agreement, and from
any third party claim which, if proven, would result in any such loss.
However, the foregoing is subject to several limitations:
(a) Mark Twain has no right to make any claim for indemnity
in excess of the Mark Twain shares held under the Escrow Agreement
(described below), subject to certain exceptions as provided in Section 7.2
of the Merger Agreement. Those exceptions relate to free and clear
ownership of Northland shares, the absence of certain legal restrictions,
and the absence of broker or finder fees (other than the fees payable to
Swords Associates, Inc. described in "FEES AND EXPENSES" above). However,
only the Principal Shareholders shall be responsible for any loss resulting
from a breach of the warranties as to the absence of certain legal
restrictions and the absence of broker or finders fees (other than the fees
payable to Swords Associates, Inc.) in excess of the Mark Twain shares in
escrow.
(b) If a breach or failure is related to an individual
Shareholder's breach of warranty as to his or her ownership of Northland
shares, the breaching Shareholder shall pay the entire amount of the loss
therefrom. If such individual loss exceeds the Mark Twain shares on
deposit in the escrow as to such breaching Shareholder, Mark Twain's rights
to indemnity for such loss shall not be limited to the breaching
Shareholder's Mark Twain shares then being held in escrow.
(c) If a loss, if it had been known on or prior to the end of
the calendar month preceding the Closing, would have resulted in a
reduction in the Net Worth of Northland, the amount of indemnity due Mark
Twain shall be the amount of such loss multiplied by 2.10.
Similarly, Mark Twain has agreed in Article 7 to indemnify and hold
harmless the Shareholders from and against all losses resulting from any
misrepresentation or breach of warranty by Mark Twain or any failure by
Mark Twain to perform any covenant or agreement contained in or made
pursuant to the Merger Agreement, and from any third party claim which, if
proven, would result in any such loss.
The indemnity obligations for each side of the transaction (Mark Twain
and the Shareholders) apply only if the losses of that side (collectively)
exceed $50,000, in which event the entire amount of losses is subject to
indemnification. (Losses relating to the Scheduled Loans under the
Adjustment Agreement are not reduced by, and do not count against, the
$50,000 threshhold for this purpose.) In addition, the indemnity
obligations cease to apply, except in respect of claims as to which the
claiming party has given notice to the indemnifying party(ies) (or the
Shareholder Representative, in the case of the Shareholders collectively),
on or before the earlier of (i) nine calendar months after Closing or (ii)
the filing by Mark Twain of its first Quarterly Report on Form 10-Q or
Annual Report on Form 10-K (whichever occurs first) which includes the
results of operations of Mark Twain for a period of at least 30 days
following the effective date of the Merger.
Escrow Agreement
General Provisions
In order to secure the Shareholders' indemnity obligations to Mark
Twain (described above), the Shareholder Representative (on behalf of all
Northland Shareholders participating in the Merger) will enter into an
Escrow Agreement on the Closing Date with Mark Twain (the "Escrow
Agreement"), substantially in the form attached to this Prospectus and
Proxy Statement as Exhibit B. At the Closing, 15% of the Mark Twain shares
otherwise due to Shareholders (without regard to any reduction for
reimbursement of fees and expenses) will be issued to the respective
Shareholders entitled to receive them, but will be delivered
12
<PAGE>
to Mark Twain Bank as Escrow Agent for deposit under the Escrow Agreement
(together, the "Escrowed Shares").
During the term of the escrow, the Escrowed Shares will remain
registered in the names of the various Shareholders for whom they were
deposited (the "Depositors") until they are either paid to Mark Twain to
satisfy indemnity claims, or delivered out of escrow to the appropriate
Depositors. Accordingly, during the escrow each Depositor may vote his or
her Escrowed Shares and receive any cash dividends paid in respect thereof.
The Escrow Agent may not deliver any Escrowed Shares to Mark Twain or
any Depositors except as jointly instructed by Mark Twain and the
Shareholder Representative in accordance with the Escrow Agreement.
However, delivery may be made to a court in the event of a dispute.
Delivery instructions will not be given to distribute deposited shares
until after the filing by Mark Twain of its first Quarterly Report on Form
10-Q or Annual Report on Form 10-K (whichever occurs first) which includes
the results of operations of Mark Twain for a period of at least 30 days
following the effective date of the Merger. Subject to the provisions
respecting the Scheduled Loans (described below), the Escrowed Shares are
to be delivered to the Depositors at that time unless an indemnity claim of
Mark Twain remains unsettled, in which case the Escrow Agent may continue
to hold a sufficient amount of Escrowed Shares as necessary to satisfy such
claim. At the time such unsettled claim is resolved, any Escrowed Shares
not needed to satisfy such claim will be distributed to Depositors.
Delivery of Escrowed Shares by Mark Twain, if appropriate, will be made
pro-rata among the Depositors. Any distribution to Depositors which is
described herein as being pro-rata means the distribution will be made in
proportion to the Depositors' initial deposits.
Provisions Respecting the Scheduled Loans
The Escrow Agreement has been modified since the Merger Agreement was
signed. The form of the Escrow Agreement attached as Exhibit B reflects
the amendments made to it pursuant to the Adjustment Agreement. See
"AGREEMENT RESPECTING ADJUSTMENTS" above. Those modifications relate to
the treatment of losses from the Scheduled Loans under the Adjustment
Agreement. Among other things, the Escrow Agreement and Adjustment
Agreement provide that:
(a) On the date on which the Escrowed Shares would otherwise
have been distributed (see "GENERAL PROVISIONS" above), Escrowed Shares
having a value (at the closing sale price of Mark Twain's common stock for
the last business day preceding such date) equal to the unpaid balance at
risk (as set forth on Schedule I to the Adjustment Agreement) of the
Scheduled Loans on such date will be retained in escrow (pro rata among the
Shareholders, based on their initial deposits). The "Retained Escrow
Shares" will serve as a reserve in the event of a loss with respect to the
Scheduled Loans. In the event of a loss with respect to a Scheduled Loan,
Mark Twain will receive Retained Escrowed Shares having a value equal to
the amount of such loss. If all such losses cumulatively exceed the value
of the Retained Escrowed Shares, determined as described in paragraph (d)
below, Mark Twain will not have any claim against the Shareholders for any
such deficiency.
(b) Following the Closing Date, Mark Twain has agreed to
cause the Bank diligently to attempt to collect the Scheduled Loans. In
addition, the Bank (through the Shareholder Representative) will consult
with and keep the Shareholders advised of the Bank's collection efforts
with respect to the Scheduled Loans and any action which could result in a
loss with respect to the Scheduled Loans. Upon request, the Bank will sell
any of the Scheduled Loans to one or more of the Shareholders, or their
designees, for a cash purchase price equal to the unpaid principal amount
thereof plus accrued interest.
(c) If a Scheduled Loan remains unpaid two years following
the Closing Date, Mark Twain and the Shareholders will attempt to agree on
the value of such Loans as of the date two years after Closing (the
"Valuation Date"). If they are unable to agree on the value, then that
Scheduled Loan will be valued by an independent appraiser. The valuation
shall be performed
13
<PAGE>
by a firm of independent certified public accountants agreed to by Mark
Twain and the Shareholders, with the costs divided equally between the two
sides.
(d) A loss with respect to a Scheduled Loan is an amount equal to
the difference between (i) the unpaid balance at risk of such Loan as of
the Valuation Date, and (ii) the value of such Loan determined as described
in subparagraph (c) above, net of any income tax benefit realizable by the
Bank in connection with such loss. Mark Twain will receive Retained
Escrowed Shares having a value equal to the amount of the loss of such
Loans, with such Shares being valued at the closing sale price of Mark
Twain's common stock for the last business day preceding the date of
receipt.
(e) One year following the Closing Date, and at such other
times, if any, as Mark Twain may deem to be appropriate, Mark Twain will
review the status and prospects for payment of any Scheduled Loans
remaining unpaid at that time to determine whether Mark Twain is willing to
release from escrow any of the Retained Escrowed Shares deposited with
respect thereto. If at any time the value of the Retained Escrowed Shares,
valuing such shares for purposes of this paragraph (e) at the closing sale
price of Mark Twain's common stock for the last business day preceding the
date of valuation, exceeds 120% of the unpaid balance at risk of the
Scheduled Loans as of such date, reduced by the amount of the special
reserve against such loan, then such number of Retained Escrowed Shares
having a value equal to the amount of such excess shall be released from
escrow and delivered to the Shareholders pro rata, provided that at the
time of the release the Shareholders enter into an agreement, satisfactory
to Mark Twain, to return shares or other collateral in the event that the
value of the remaining Retained Escrowed Shares falls below 120% of the
unpaid balance at risk of the Scheduled Loans, provided, however, that the
Shareholders will not be required to re-deposit more Mark Twain shares than
were released to them under this paragraph.
(f) The Escrow Agent will hold and dispose of the Retained
Escrowed Shares as follows:
(i) In the event of a loss with respect to the
Scheduled Loans, Mark Twain will notify the Escrow Agent and the
Shareholder Representative of such loss, making a demand upon the Escrow
Agent for the return of such number of the Retained Escrowed Shares
deposited by the Shareholders having a value equal to the amount of the
loss (the "Demanded Shares"), determined as described in paragraph (d)
above. The Shareholder Representative may object to the release of the
Demanded Shares. If the Shareholder Representative does not object in a
timely manner, the Escrow Agent will deliver the Demanded Shares to Mark
Twain. If such loss exceeds the value of the Retained Escrowed Shares, the
Escrow Agent will return to Mark Twain all of the Retained Escrowed Shares.
(ii) Promptly following the payment in full of any
Scheduled Loan, a proportionate number of Retained Escrowed Shares will be
released from escrow and delivered to the Shareholders pro rata, provided
that the Retained Escrowed Shares remaining in escrow may not have a value
less than the amount at risk of the remaining Scheduled Loans. If all
Scheduled Loans are repaid in full, Mark Twain will authorize the release
of all Retained Escrowed Shares to the appropriate Shareholders.
(iii) At any time that Mark Twain releases from escrow
any portion (but less than all) of the Retained Escrowed Shares ("Released
Shares"), the Escrow Agent will continue to hold any remaining Retained
Escrowed Shares, together with any redeposited shares, (the "Remaining
Retained Escrowed Shares").
(iv) In the event of a loss with respect to the
Scheduled Loans subsequent to any distribution of Released Shares, the
Escrow Agent will return to Mark Twain only such number of the Remaining
Retained Escrowed Shares having a value equal to the amount of the loss
with respect to such Loans. Mark Twain will not have any claim against any
Shareholder for any deficiency between the loss with respect to such Loans
and the value
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of the Remaining Retained Escrowed Shares, notwithstanding that the
original value of the Retained Escrowed Shares might have been sufficient
to compensate Mark Twain for such loss.
(v) In the event of any dispute regarding the valuation
of the loss with respect to the Scheduled Loans and/or the valuation of the
Retained Escrowed Shares deposited with respect to such Loans, the Escrow
Agent will initially deliver to Mark Twain only such number of Retained
Escrowed Shares having a value equal to the loss, using the Shareholder
Representative's good faith valuations of both the Retained Escrowed Shares
and the loss. The Escrow Agent will continue to hold any undistributed
Retained Escrowed Shares with respect to such Loans until the Shareholder
Representative and Mark Twain agree on the proper valuations for such
shares and/or such loss or until an independent appraiser selected in
accordance with paragraph (c) above establishes such valuations. The
Escrow Agent will then determine, using such subsequent valuations, the
additional number of Retained Escrowed Shares, if any, to be delivered to
Mark Twain to fully settle the loss with respect to such Loans (the
"Additional Shares"). Promptly thereafter, the Escrow Agent shall deliver
the Additional Shares to Mark Twain and shall immediately release and
deliver to the appropriate Shareholders any residual Retained Escrowed
Shares.
(vi) Notwithstanding the foregoing, in the event any of
the Retained Escrowed Shares are to be returned to Mark Twain pursuant to
the provisions summarized in this paragraph (f), any Shareholder may
deposit with the Escrow Agent cash in an amount equal to the value of the
Retained Escrowed Shares of such Shareholder which would otherwise be
returned to Mark Twain, which value will be determined as described in
paragraph (d) above.
Vote Required
Missouri law requires the affirmative vote of the holders of two-
thirds of the Northland shares outstanding on the Record Date to approve
the Merger. In determining the number of shares that have been
affirmatively voted for the Merger, the following shares will not be
considered to have been affirmatively voted (which is equivalent to being
voted against the Merger): shares not represented at the Special Meeting;
shares that are voted "ABSTAIN"; shares held by nominees for which no
voting instructions relating to the Merger have been given by the
beneficial owner and as to which the nominee has no discretionary voting
authority, even if the beneficial owner has given voting instructions on
other matters; and any other broker non-votes.
The Principal Shareholders own or directly control 312,911 shares of
the common stock of Northland, which is approximately 52% of the 598,471
outstanding shares, or substantially more than half the shares needed to
approve the Merger. In the Merger Agreement, the Principal Shareholders
have agreed to vote their shares in favor of the Merger. See "NORTHLAND
BANCSHARES, INC. - PRINCIPAL SHAREHOLDERS OF NORTHLAND" for further
information regarding the shareholdings of the Principal Shareholders and
their associates.
Covenants Prior to Closing
In Article 4 of the Merger Agreement Northland and the Principal
Shareholders have made certain covenants to Mark Twain relating to the
period before the Closing Date including, among others, that: (a) they
will cause business of the Bank to be operated in its normal course; (b)
Northland will not issue further shares of stock (except for certain
incentive compensation share described in "NORTHLAND BANCSHARES, INC. -
EMPLOYEE STOCK GRANTS" below) or otherwise change the amount of Northland
shares outstanding; or (c) neither Northland nor the Bank will pay any
dividends, unless Mark Twain consents.
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Closing; Conditions to Closing
The Merger Agreement provides that the Closing Date of the Merger will
be on the 10th business day of the month after the month in which is
received the last governmental or regulatory action necessary to close the
Merger, unless otherwise agreed by the Shareholder Representative and Mark
Twain. On and after the Closing Date, Mark Twain will exchange shares of
its common stock for Northland stock certificates using the conversion
ratio described above, subject to reductions in Mark Twain shares as
described above.
Article 6 of the Merger Agreement provides that certain conditions
must be met prior to the closing of the Merger (the "Closing"). Failure to
satisfy any of them could result in the Merger being abandoned. The
conditions which, if unsatisfied, would allow Mark Twain to abandon the
Merger include, among others:
* The representations and warranties of Northland and the Shareholders
participating in the Merger must be true, and their agreements must be
performed, on the Closing Date.
* The holders of at least two-thirds of Northland's outstanding shares
must approve the Merger, and holders of no more than 10% of Northland's
shares may exercise their dissenters' rights. See "VOTE REQUIRED" above
and "DISSENTERS' RIGHTS OF APPRAISAL" below.
* Any third party consents required by contract must be received
(Northland believes that none are required).
* At least 31 days prior to the Closing Date, certain holders of
Northland shares who are "affiliates" must agree to be bound by certain
restrictions on their right to transfer Mark Twain shares. See
"RESTRICTIONS ON TRANSFER" below.
* The Net Worth of the Bank as of the last day of the month preceding
Closing must be at least 6% of the Bank's total assets as of such day.
* Mark Twain must receive confirmation from its independent accountants
that the Merger will qualify for pooling of interests accounting treatment.
See "ACCOUNTING TREATMENT" below.
* The Northland shares to be issued to an officer of the Bank as
incentive compensation shall have been issued at least 30 days prior to the
Closing Date and no other rights of any sort to acquire or be issued
Northland shares shall be outstanding at Closing. See "EMPLOYEE STOCK
GRANTS" and "ADDITIONAL NORTHLAND SHARES" under the caption "NORTHLAND
BANCSHARES, INC." below.
There are certain conditions which, if unsatisfied, would allow
Northland or the Principal Shareholders to abandon the Merger including,
among others, that the representations and warranties of Mark Twain and Sub
must be true, and their agreements must be performed, on the Closing Date.
There are certain conditions which, if unsatisfied, would allow any party
to the Merger Agreement to abandon the Merger including, among others, that
all regulatory approvals must be obtained. See "REGULATORY APPROVALS
REQUIRED" below. In addition, certain certificates and opinions must be
delivered at the Closing. Any party who has the right to abandon the
Merger due to a failure to satisfy one of the conditions has the power to
waive that condition and proceed with the Merger, notwithstanding the
failure. The Shareholder Representative may waive any condition on behalf
of Northland and the Shareholders.
Termination
The Merger Agreement may be terminated if any of the conditions to
closing have not been satisfied or waived prior to the Closing Date, as
described in "CLOSING; CONDITIONS TO CLOSING" above. In addition, Section
10.3 of the Merger Agreement provides for termination if any of the
following occur:
* A material violation of the Merger Agreement by one party gives the
other party the right to terminate unless the violation is cured within 10
days after notice (Northland and the Principal Shareholders are considered
to be one party for this purpose).
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* The Closing has not occurred by October 31, 1996, except that if the
sole reason for delay is lack of regulatory approval, then the termination
date is December 31, 1996.
* Mark Twain may terminate the Merger Agreement if it discovers
information not satisfactory to it, subject to certain limitations and
procedures specified in Sections 10.3(c) and 10.3(d) of the Merger
Agreement.
* The Merger Agreement will terminate if certain regulatory approval
applications are denied, subject to certain limitations and procedures.
See "REGULATORY APPROVALS REQUIRED" below.
* Mark Twain may terminate the Merger Agreement if Northland or the Bank
becomes subject to certain regulatory agreements, orders, or proceedings.
* Mark Twain may terminate the Merger Agreement in lieu of requesting a
downward adjustment to Northland's Net Worth in excess of $100,000. See
"DESCRIPTION OF THE TRANSACTION - CONVERSION OF SHARES" above and Sections
1.8 and 10.3(g) of the Merger Agreement. However, if Mark Twain, in lieu
of termination, does request an adjustment in excess of $100,000, either
Mark Twain or Northland may terminate the Merger Agreement if Mark Twain
and Northland are unable to agree on the amount of any such downward
adjustment, subject to certain procedures.
Exchange of Northland Shares For Mark Twain Shares at Closing
If the Shareholders approve the Merger, and if the other conditions to
Closing are satisfied or waived by the appropriate parties, then a Closing
Date will be scheduled in accordance with the Merger Agreement. See
"CLOSING - CONDITIONS TO CLOSING" above. If the Merger is consummated, all
Northland shares not held by dissenters will be deemed cancelled and
converted into Mark Twain shares as of the Closing Date.
Northland Shareholders should not deliver certificates for their
Northland shares at this time; only proxy forms should be sent back to
Northland now. Shareholders are advised, however, to locate their
Northland stock certificates and to contact Northland immediately if they
cannot be found. In addition, lenders secured by Northland shares and
other lienholders should be apprised that the Merger may occur so that, if
and when the Merger is closed, the exchange will proceed smoothly.
Determination of Conversion Formula
The conversion formula for the Merger was determined by negotiation
between representatives of Mark Twain and representatives of Northland and
the Principal Shareholders. In these negotiations, the parties took into
account, among other things, the size, financial condition, location, and
future prospects of Northland, the anticipated future capital needs of
Northland, the benefits to Mark Twain and to Northland of making the
resources of Mark Twain available to the Northland operations, and the
current and historic market value of the Mark Twain common stock.
The Board of Directors of Northland believes the conversion formula is
fair to Northland's Shareholders. Each Principal Shareholder (including
all directors and executive officers of Northland) has agreed to vote in
favor of the Merger and to accept Mark Twain shares in accordance with the
conversion formula. However, Northland's shares have not been appraised by
any independent appraiser or consultant, nor is there any established
market, or market price, for Northland's shares. Accordingly, each
Shareholder should review the materials in this Prospectus and Proxy
Statement carefully in order to make his or her own determination regarding
the fairness of the conversion formula.
Regulatory Approvals Required
The Merger will require the approval of the Board of Governors of the
Federal Reserve System and the Missouri Commissioner of Finance. In
addition, the United States Department of Justice will have the opportunity
to review and disapprove the Merger on anti-trust grounds. Although the
federal and state applications have been filed, no approval has yet been
obtained. Moreover, although neither Mark Twain nor Northland believe that
the Merger will be disapproved, the regulatory process is not within their
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control and disapproval is possible. Final disapproval would result in the
Merger being abandoned. See "TERMINATION" above.
Changes in Rights of Holders of Common Stock
The rights of the shareholders of Mark Twain and Northland are
governed by The General and Business Corporation Law of Missouri, Ch. 351
R.S.Mo. and by the respective Articles of Incorporation and By-laws of the
two corporations. The legal rights of Northland shareholders, as such,
will be different after the Merger in certain respects. The following
paragraphs summarize certain material differences between the rights of
Northland shareholders and Mark Twain shareholders. The summary is not
comprehensive and is qualified by reference to the applicable Articles of
Incorporation and By-Laws; copies of Mark Twain's Articles of Incorporation
and By-laws have been given to Northland, and may be obtained from
Northland (for the cost of copying) by calling the office of Leland M.
Walker at (816) 746-2000.
Mark Twain's board of directors is classified into three nearly equal
groups of directors serving staggered three-year terms. The fact that Mark
Twain's board is staggered may tend to discourage, under certain
circumstances, attempts to take control of Mark Twain against the wishes of
Mark Twain's management. In contrast, the entire Northland board is
elected each year.
If the size of the Northland Board of Directors were increased, the
then-incumbent Northland directors could fill the newly-created vacancies
until the next shareholders' meeting; under Mark Twain's By-Laws, such
vacancies can be filled only by the shareholders. Northland's By-Laws
generally permit shareholders to inspect its corporate records; Mark
Twain's By-Laws contain no such general provision, and Missouri's corporate
law gives shareholders only limited inspection rights. Northland is
permitted to issue fractional shares of stock; Mark Twain does not issue
fractional common shares.
Northland's By-Laws require it to indemnify its directors and
executive officers to the full extent allowed by law, except in cases of
conduct adjudged to have been knowingly fraudulent, deliberately dishonest,
willfull misconduct, gross neglect of duty, or criminal. Northland also is
not required to provide indemnity in cases involving certain administrative
agencies. Mark Twain's By-Laws have a similar indemnity requirement,
except that all officers are covered and Mark Twain's By-Laws contain no
exceptions other than those provided by Missouri law. In addition, Mark
Twain's By-Laws expressly authorize (but do not require) the
indemnification of other Mark Twain employees; Northland's By-Laws have no
similar provision. Under Missouri law, indemnity is permitted generally
for judgments, fines, certain amounts paid in settlement, and expenses
(including attorneys' fees), if the indemnified person acted in good faith
and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation. Indemnity for criminal action is permitted
in Missouri if the person had no reasonable cause to believe his conduct
was unlawful. In actions by the corporation against an indemnified person,
indemnity is not permitted in Missouri if the person is adjudged to have
been liable for negligence or misconduct in the performance of his or her
duty to the corporation, except that a court may determine that the person
is fairly and reasonably entitled to indemnity for expenses.
Mark Twain's common stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended. For that reason, Mark Twain
is considered a public company and is required to provide publicly-
available periodic reports to the Securities and Exchange Commission, which
include financial statements, management discussion and analysis of
financial condition and results of operation, and current reports of
certain matters. Certain of these reports, or portions thereof, are
routinely sent to Mark Twain's shareholders. Northland is not a public
company and is not subject to such reporting requirements.
Mark Twain's common stock, unlike Northland's common stock, is quoted
on the NASDAQ National Market System. For that reason, Mark Twain is
required to extend to its shareholders certain privileges, including
requiring shareholder approval of certain transactions in which an officer
or director or substantial shareholder has a specified interest in the
transaction. Such shareholder approval provisions are not applicable to
Northland.
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The holders of Northland shares earlier entered into a Shareholders
Agreement restricting transfer of their shares. A sufficient percentage of
the holders of Northland shares (as required by the Shareholders Agreement)
have agreed to terminate the same, effective with the Closing. However, if
the Merger is not closed, Northland shares will remain subject to the
restrictions and other provisions of the Shareholders Agreement. Mark
Twain's shares are not subject to any such agreement. See "TERMINATION OF
SHAREHOLDERS AGREEMENT" below.
Dissenters' Rights of Appraisal
Section 351.455 of The General and Business Corporation Law of
Missouri, a copy of which is included as Exhibit D hereto, grants to any
Northland Shareholder who objects to the Merger and who follows the
procedures specified in such section the right to receive the fair value of
his or her Northland shares, determined as provided in such section.
Summary of Actions Required
A dissenter must follow all of the procedures of Section 351.455 in
order to preserve his or her statutory rights. Basically, a dissenter
must: (i) before the vote on approval of the Merger, file a written
objection with Northland (see below); (ii) fail to vote for the Merger;
(iii) within 20 days after the effective date of the Merger (the "Effective
Date"), file a written demand for payment with the surviving corporation
(see below); and (iv) state in the written demand the number of shares of
Northland common stock owned by such dissenter. If the dissenter and Mark
Twain cannot agree on a value for his or her Northland shares, the
dissenter must also file a petition in Missouri state court within a
certain time period. Any failure to observe any of these procedures could
result in the total loss of dissenters' rights under Section 351.455; a
dissenter who lost his or her dissenters' rights would be bound by the
Merger Agreement and would have to accept the Mark Twain shares as provided
therein. Each of these procedures is discussed in more detail below.
Actions Required Before and During the Special Meeting
Prior to or at the Special Meeting, but in any case before the Merger
is submitted to a vote, a dissenter must file with Northland a written
objection to the Merger (described below). In addition, the dissenter must
not vote in favor of the Merger.
Written Objection
The written objection to the Merger must be separate from a
dissenter's vote or proxy relating to the Merger, and must be executed by
the dissenting Shareholder of record, fully and correctly, as such
Shareholder's name appears on his or her stock certificate. In case of
fiduciaries or multiple co-owners of record, the objection must be executed
by all record owners in their proper capacities. An agent for a record
owner must specify the owner and the fact that execution is by an agent.
Written objections should be delivered to Mr. Leland Walker at Northland,
7667 Northwest Prairie View Road, Kansas City, Missouri 64151, before or at
the Special Meeting, but prior to the vote. Objections must be received by
Mr. Leland Walker before the vote is taken. Each dissenter is solely
responsible for timely delivery of the written objection.
Actions Required After Closing
Within 20 days after the Effective Date of the Merger, a dissenter
must make written demand (described below) on the surviving corporation for
payment of the fair value of the Northland shares held by such shareholder.
Written Demand
The written demand must be executed by the same person(s) and in the
same manner as the written objection (described above). Written demands
must be received by Mr. Leland Walker at 7667 Northwest Prairie View Road,
Kansas City, Missouri 64151, or by Mr. Carl A. Wattenberg, Jr., Mark Twain
Bancshares, Inc., 8820 Ladue Road, St. Louis, Missouri 63124, within the
20-day period described in the preceding paragraph. Each dissenter is
solely responsible for timely delivery of the written demand.
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Determination of Value; Filing of Court Petition
If within 30 days after the Effective Date the dissenting shareholder
and the surviving corporation agree on the fair value, payment will be made
within 90 days after the Effective Date, upon surrender of the applicable
stock certificates. If such agreement is not reached within the 30-day
period, the dissenting shareholder may, within 60 days after expiration of
the 30-day period, file a petition in any court of competent jurisdiction
within St. Louis County, Missouri, asking for a finding and determination
of the fair value of such shares. If the petition is filed in the proper
court within the 60-day period, the dissenting shareholder is entitled to
judgment against the surviving corporation for the fair value of the
Northland common stock as of the day prior to the date on which the vote
relating to the Merger was taken, with interest thereon to the date of
judgment. The judgment is payable upon surrender of the applicable stock
certificates. Any shareholder failing to file the petition within the 60-
day period is conclusively presumed to have approved and ratified the
Merger, and will be bound by its terms.
THE VALUE DETERMINED IN THE APPRAISAL PROCESS COULD BE HIGHER OR LOWER
THAN THE MARKET VALUE OF THE MARK TWAIN SHARES WHICH WOULD HAVE BEEN
RECEIVED UNDER THE TERMS OF THE MERGER AGREEMENT.
10% Limit on Dissenters
Under Section 6.1(i) of the Merger Agreement, Mark Twain has the right
to abandon the Merger if the holders of Northland shares who have exercised
their dissenters' rights of appraisal hold in the aggregate more than 10%
of Northland's outstanding shares. If the Merger is abandoned, no
Shareholder will have any right to receive any cash or stock from Mark
Twain or any of its subsidiaries in exchange for his or her Northland
shares. See "CLOSING; CONDITIONS TO CLOSING" above for other conditions to
Closing.
Legal Advice
Any Shareholder who believes he or she might wish to exercise
dissenters' rights should review the provisions of Section 351.455
carefully, and should consult with his or her own legal advisor. A failure
to comply with any of the requirements of Section 351.455 could result in a
total loss of the rights granted thereunder.
RESTRICTIONS ON TRANSFER
Merger Agreement
Mark Twain shares issued in the Merger generally will be freely
transferable on the over-the-counter market. See "DESCRIPTION OF MARK
TWAIN CAPITAL STOCK - MARKET FOR STOCK" below. However, the Merger
Agreement imposes certain transfer restrictions on certain Northland
Shareholders. Those restrictions, described briefly below, are intended to
ensure compliance with certain accounting and legal requirements. A legend
may be placed on Mark Twain stock certificates issued to affected Northland
Shareholders in order to help enforce these restrictions.
Affiliates
The transfer restrictions described below apply only to "affiliates"
of Northland, and to non-affiliates of Northland who become affiliates of
Mark Twain after the Merger. A person would be considered an affiliate of
Northland if such person is a director or senior executive officer of
Northland, or otherwise controls, is controlled by, or is in control of
Northland with others, immediately prior to the Effective Date of the
Merger. A similar definition would apply with respect to Mark Twain after
the Merger.
Northland has identified the Principal Shareholders as being
affiliates of it. Northland also has identified the following persons (and
certain associated trusts) who may be considered affiliates: Gerard J.
Mos, Jr. and Stephen G. Mos. Mark Twain intends to treat each such person
as being an affiliate. All other Northland Shareholders are expected to be
treated as being non-affiliates. Mark Twain is not aware
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of any Northland Shareholder who is expected to become a Mark Twain
affiliate immediately after the Merger.
Treatment of Non-Affiliates
Non-affiliate Shareholders of Northland who receive Mark Twain shares
in the Merger and who do not become affiliates of Mark Twain after the
Merger will not be subject to the restrictions described below, and the
Mark Twain shares received will be transferable in open market sales
without registration or further restriction under the Merger Agreement or
the Securities Act of 1933.
Accounting Rule Restrictions on Affiliates
Affiliates of Northland (including all Principal Shareholders) are not
permitted to dispose of any of their Northland shares during the 30-day
period preceding Closing. In addition, each affiliate will be required to
enter into an agreement with Mark Twain under which such person agrees (1)
that no transfer of any Mark Twain shares issued to any such person in the
Merger will occur until after the filing with the Securities and Exchange
Commission by Mark Twain of its first earnings release which includes the
post-Merger combined results of operations of Mark Twain for a period of at
least 30 days following the Effective Date of the Merger, and (2) to comply
with all applicable restrictions on transfer under the Securities Act of
1933 and other securities laws applicable to the transfer of such Mark
Twain shares.
Federal Securities Law Restrictions on Affiliates
The Merger Agreement requires compliance with Rule 145 under the
Securities Act of 1933, as it may be amended from time to time. As
currently amended, Rule 145 provides that a Northland affiliate may sell
Mark Twain shares received in the Merger on the open market only in
ordinary brokers' transactions, generally may sell no more than 1% of Mark
Twain's outstanding common stock in any 3-month period, and is subject to
certain other restrictions. Inasmuch as no Shareholder will receive Mark
Twain shares in the Merger equal to 1% of the currently outstanding common
stock of Mark Twain, it is not anticipated that the restrictions imposed by
Rule 145 and the requirement of brokers' transactions would be a material
deterrent to the sale by any Shareholder of all of the Mark Twain shares
received by him or her in the Merger. Affiliates, though, will still be
bound by the agreements reached with Mark Twain as described in "ACCOUNTING
RULE RESTRICTIONS ON AFFILIATES" above.
The Rule 145 restrictions on affiliates ordinarily would lapse after
three years, unless the person becomes a Mark Twain affiliate. The SEC has
proposed to shorten a related, but separate, three-year period under Rule
144 to two years. The SEC staff has informally advised Mark Twain that
although shortening of Rule 144's restriction period will not necessarily
be accompanied by a similar shortening of Rule 145's restriction, the
matter has not yet been decided. Mark Twain cannot predict if or when Rule
145's restriction may be shortened.
ACCOUNTING TREATMENT
Mark Twain intends to account for the Merger using the pooling of
interests method.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of The Stolar Partnership, counsel to Mark Twain, the
following summarizes the principal federal income tax consequences of the
Merger to Northland Shareholders. This summary addresses only persons who
hold Northland shares as a capital asset and does not cover special tax
situations which may be unique to a particular person. Each Northland
Shareholder should consult his or her own tax advisor regarding how the
Merger may affect his or her specific situation.
Neither Mark Twain nor Northland has sought, and neither intends to
seek, rulings from the Internal Revenue Service (the "Service") regarding
the federal income tax consequences of the Merger.
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Provided the Merger is consummated in accordance with the terms and
conditions set forth in the Merger Agreement, and conditioned on the
accuracy of certain representations made by the managements of Mark Twain,
Sub, and Northland, the Merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and Mark Twain, Northland, and Sub each will be a
party to that reorganization.
The federal income tax consequences of the Merger to a Northland
Shareholder depend upon whether Northland shares actually owned by such
Shareholder are exchanged for Mark Twain shares or for cash (upon the
exercise of dissenters' rights).
Tax Consequences to Northland Shareholders
Receiving Mark Twain Common Stock
Receipt of Mark Twain Common Stock
A Northland Shareholder who receives Mark Twain shares (including the
shares held under the Escrow Agreement) in exchange for the Northland
shares actually owned by such Shareholder will not recognize any gain or
loss upon such exchange. The aggregate basis of the Mark Twain shares
received will be the same as the aggregate basis of the Northland shares
surrendered in the Merger (less any basis allocable to a fraction of a Mark
Twain shares). The holding period of the Mark Twain shares received by
each Shareholder will include the holding period of the Northland shares
surrendered by such Shareholder.
Cash Received in Lieu of Fractional Shares
No fractional shares of Mark Twain will be issued in the Merger. A
Northland Shareholder who receives cash in lieu of a fractional share will
be treated as having received cash in redemption of such fractional share
and will recognize capital gain or loss on the redemption.
Tax Consequences to Northland Shareholders
Exercising Dissenters' Rights of Appraisal
The receipt of cash by a Northland Shareholder who exercises his or
her statutory dissenters' rights generally will be treated as a taxable
distribution in redemption of such shares surrendered and will result in
capital gain or loss or ordinary income in accordance with the provisions
of Section 302 of the Code. The tax consequences of such a receipt are
complex and depend on the individual circumstances of the dissenter.
Dissenters are advised to consult with their tax advisors in deciding
whether to exercise such rights.
Sale of Mark Twain Shares
Under the Escrow Agreement or
to Pay Fees and Expenses
The Merger Agreement provides for the number of Mark Twain shares
otherwise deliverable to the Northland Shareholders to be reduced to pay
certain transaction costs incurred in connection with the Merger and to
secure (pursuant to the Escrow Agreement) certain indemnity obligations of
such Shareholders to Mark Twain. See "REDUCTIONS IN MARK TWAIN SHARES TO
BE DELIVERED" under the caption "DESCRIPTION OF THE TRANSACTION" above.
The reduction of Mark Twain shares deliverable to Shareholders which
results from the payment of fees and expenses will be treated as a capital
gain or loss or ordinary income in accordance with the provisions and
limitations of Section 302 of the Code. The delivery of Mark Twain shares
to the escrow agent to be held in the event of a claim by Mark Twain in
regard thereto does not, of itself, create a capital gain or loss or
ordinary income as to depositing Shareholders. The use of deposited shares
to pay claims made by Mark Twain under the Escrow Agreement, however, will
create a capital gain or loss or ordinary income in accordance with the
provisions and limitations of Section 302 of the Code. Payments of fees
and expenses attributable to Shareholders by reduction of the shares
otherwise deliverable to them may increase a Shareholder's aggregate basis
in his or her Northland shares; payment of indemnity claims by the sale of
shares deposited in escrow may increase a Shareholder's aggregate basis in
his or her remaining Mark Twain
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shares. Shareholders are urged to consult with their tax advisors
regarding the tax treatment resulting from their payment of fees and
expenses or payment of indemnity obligations through the use of Mark Twain
shares otherwise deliverable to them in the Merger.
Mark Twain will be required to report any sales of shares to pay fees
and expenses and indemnity claims to the Internal Revenue Service using
Form 1099-B, a copy of which will be sent to each affected Shareholder.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. NORTHLAND SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, AND LOCAL TAX
CONSEQUENCES TO THEM OF THE MERGER.
MARK TWAIN BANCSHARES, INC.
Mark Twain is the 6th largest bank holding company in the state of
Missouri, and was incorporated in Missouri in 1967. Mark Twain operates 24
separate locations in the St. Louis metropolitan area (including 4 in
Illinois) through two banking subsidiaries: Mark Twain Bank and Mark Twain
Illinois Bank. Mark Twain also operates 11 separate locations in the
Kansas City metropolitan area through another banking subsidiary: Mark
Twain Kansas City Bank. All banking subsidiaries of Mark Twain are members
of the Federal Deposit Insurance Corporation.
All locations of Mark Twain's banking subsidiaries provide a full
range of commercial and retail banking services and serve primarily the St.
Louis and Kansas City metropolitan areas. Retail services include a wide
range of checking, savings and time deposits, consumer loans (including
personal consumer loans and home improvement loans), lines of credit,
overdraft protection, automobile financing, safe-deposit services, and the
MasterCard and VISA credit card services. The Bond Division of Mark Twain
Bank offers a variety of fixed income investment products including
government, municipal and corporate bonds, as well as short-term money
market investments and precious metals. Mark Twain Brokerage Services,
Inc., a member of the National Association of Securities Dealers, provides
bank customers with complete discount brokerage services on all exchanges.
A brokerage account may be linked with an interest-earning Mark Twain bank
account and debited or credited directly for customer convenience. Also,
complete security safekeeping services are available. The Mark Twain Trust
Division of Mark Twain Bank provides a complete line of personal trust,
employee benefit plan, investment advisory and management, and corporate
trust services.
Mark Twain traditionally has emphasized real estate lending, and
continues to do so. At December 31, 1995, approximately 55% of Mark
Twain's loan portfolio consisted of real estate construction or real estate
mortgage loans, and other loans are secured by real estate collateral,
including commercial and industrial loans.
The principal executive offices of Mark Twain are located at 8820
Ladue Road, St. Louis, Missouri 63124, telephone (314) 727-1000.
Financial Reports of Mark Twain
Delivered with this Prospectus and Proxy Statement is a copy of the
1995 Annual Report of Mark Twain, delivered to its shareholders pursuant to
the requirements of the Securities Exchange Act of 1934. That Report
includes information concerning the business and financial condition of
Mark Twain as of December 31, 1995 and for periods ended on that date,
including a consolidated balance sheet of Mark Twain as of December 31,
1995 and 1994, and consolidated statements of income, changes in
shareholders' equity and changes in financial position for the years ended
December 31, 1995, 1994, and 1993. In addition, a copy of Mark Twain's
Second Quarter Report for 1996 is being delivered with the 1995 Annual
Report. Additional copies of these financial reports may be requested by
calling Mr. Carl A. Wattenberg, Jr., Mark Twain's Senior Vice President,
Secretary, and General Counsel, at (314) 889-0707.
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Other information concerning Mark Twain also is available. See
"AVAILABLE INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE" at
page 2 above.
Recent Developments
First City Acquisition
Mark Twain has entered into a merger agreement with First City
Bancshares, Incorporated of Springfield, Missouri ("First City
Bancshares"), which owns 100% of the common stock of First City National
Bank in Springfield, Missouri. In connection with this agreement, Mark
Twain will acquire 100% of the stock of that bank along with certain real
estate. As of December 31, 1995, First City Bancshares had total
consolidated assets of $89.2 million, total consolidated deposits of $79.0
million, and total stockholders' equity of $4.0 million; its net loss for
fiscal 1995 was $21,000. Completion of the First City Bancshares merger is
subject to a variety of substantive and legal conditions. At present, Mark
Twain expects that the First City Bancshares acquisition will result in the
issuance of approximately 272,000 shares of its common stock; the final
number could be less or greater than that estimate. Mark Twain also
expects to pay approximately $2 million in cash. The First City Bancshares
acquisition is expected to be accounted for as a purchase, rather than a
pooling of interests. The issuance of Mark Twain shares in the First City
Bancshares acquisition will be considered a "private placement" under
federal securities laws. For additional information regarding the possible
financial accounting effects of the First City Bancshares acquisition
presented on a pro forma basis, see "SUMMARY - PRO FORMA INFORMATION"
above.
Change in Stock Listing
Mark Twain's common stock currently is a National Market System stock
quoted in the over-the-counter market on Nasdaq, as described below under
the caption "DESCRIPTION OF MARK TWAIN CAPITAL STOCK - MARKET FOR STOCK."
Mark Twain expects to file, shortly after the date of this Prospectus and
Proxy Statement, an original listing application with the New York Stock
Exchange, Inc. for the listing of its common stock on that Exchange. If
that application is filed with and accepted by the Exchange, Mark Twain's
shares would be listed on the Exchange, possibly prior to the the date of
the Special Meeting, and no longer would be quoted on Nasdaq. If the
application is filed, Mark Twain intends to request that its shares be
quoted on the Exchange under the symbol "MTB."
Dividend Rate Change
On January 4, 1996, Mark Twain announced an increase in the common
stock dividend effective in the first quarter. The new annualized dividend
rate is $1.24 per share ($0.31 quarterly per share), up from an annualized
rate of $1.08 per share ($0.27 quarterly per share), and was first paid on
February 9, 1996, to shareholders of record of Mark Twain common stock on
January 26, 1996. The first quarter dividend was the 105th consecutive
quarterly common stock dividend in the history of Mark Twain, which has
increased its dividend 31 times in the 27 years since its public formation
in 1969. The new higher dividend rate reflects Mark Twain's goal to pay
out between 35% and 45% of profits to shareholders in the form of cash
dividends, while investing the remainder in the company to support future
growth.
Major Stockholders
The only person who is known to Mark Twain to be the beneficial owner
of more than 10% of any class of its voting securities is Mr. Alvin
Siteman, the Chairman of the Board of Mark Twain, who (as of February 15,
1996) beneficially owned 2,281,077 shares of Mark Twain's common stock
(including 31,560 shares which he has a right to acquire through the
exercise of employee stock options). In all, Mr. Siteman beneficially owns
approximately 14.0% of Mark Twain's common stock.
Reasons for the Transaction
Mark Twain's objectives in entering into the Merger are to expand its
services in the Kansas City metropolitan area, while increasing its asset
size and its deposit base. Mark Twain intends to merge the Bank into Mark
Twain Kansas City Bank after the Closing. Mark Twain has no other
acquisitions of Kansas City area banks pending at the present time;
however, Mark Twain continues to evaluate and
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pursue the expansion of its western Missouri franchise by acquisition of
existing banks and by opening additional branch locations as permitted by
law.
Incorporation of Documents
A number of documents filed by Mark Twain with the Securities and
Exchange Commission are incorporated herein by reference. These documents
are available to Northland Shareholders upon request. See "AVAILABLE
INFORMATION" and "INCORPORATION OF DOCUMENTS BY REFERENCE" at page 2 of
this Prospectus and Proxy Statement.
NORTHLAND BANCSHARES, INC.
Northland Bancshares, Inc. is a Missouri business corporation which
owns all of the capital stock of First National Bank of Platte County, a
national banking association (the "Bank"), and of North American Credit
Service, Inc. ("NACSI"), which owns the building in which the Bank's
principal offices are located. Northland has no significant business other
than owning the Bank and NACSI. As of December 31, 1995, Northland's total
consolidated assets were $72.3 million, its total deposits were $60.9
million, and its total stockholders' equity was $6.0 million, or $11.33 per
share.
The headquarters of Northland is located at 7667 Northwest Prairie
View Road, Kansas City, Missouri 64151. Its telephone number is (816) 746-
2000.
Employee Stock Grants
On October 25, 1994, Northland granted stock options to the following
Bank employees, exercisable on or before October 24, 2004, for purchase of
shares of Northland as set forth opposite the listed name at a purchase
price of $9.53 per share (originally fixed at $11.00 per share and
thereafter adjusted for stock dividends).
Name Number of Shares
Leland M. Walker 3,465
Dale G. Rapp 3,465
Karen S. Wolters 3,465
Donna A. Stokes 1,732
The above stock options were exercised prior to the Record Date;
accordingly, the Northland shares listed have been issued to the optionees,
may be voted at the Special meeting, and (except as to shares issued to
Donna Stokes) are reflected in holdings of the Principal Shareholders set
forth below. There are no other options or agreements of any sort to buy
Northland shares outstanding and no further options or grants of right to
purchase Northland shares will be made.
The Board of Directors also earlier adopted a policy for service
awards payable in stock of Northland. The current service award policy is
that five-year employees receive 37 shares of Northland and ten-year
employees received 73 shares of Northland. The following persons are
entitled to receive service awards in the amount set opposite their names:
Name Number of Shares
Sharon Canino (5 years) 37
Cathy Way (5 years) 37
Karen S. Wolters (10 years) 73
Donna A. Stokes (10 years) 73
The service awards were issued prior to the Record Date and can be voted at
the Special Meeting. Northland received no cash payment for the shares
issued as service awards. No other service awards will be granted or made.
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Mr. Leland Walker and the Bank and Northland earlier entered into an
Employment Agreement, dated September 4, 1992, effective for a four-year
term, commencing January 1, 1993, for Mr. Walker's services as President of
the Bank. Under the Employment Agreement, Mr. Walker receives a fixed
salary which does not change during the term of the Employment Agreement.
In addition, incentive compensation is payable to Mr. Walker based on
Northland's consolidated net income after bonus payments for Bank
employees, but before deduction of income taxes and franchise taxes ("Net
Income"), said incentive compensation payable in part, in Northland shares
to be calculated on the basis of $11.00 per share. Incentive compensation
payable in cash is a percentage of total Net Income. Incentive
compensation payable in Northland shares is a percentage of Net Income less
$400,000. All incentive compensation for 1993, 1994, and 1995, both cash
and in Northland shares, has been paid. The incentive compensation for
1996 has been accrued as an expense of the Bank on a monthly basis.
Accrual for shares earned on the basis of 1996 Net Income have been valued
at $11.00 per share.
By Amendment, dated July 30, 1996, the Employment Agreement will be
terminated effective with the Closing of the Merger. The calculation of
the Northland shares to be issued as incentive compensation for that time
in 1996 prior to the Closing is also set forth. Incentive compensation
payable in Northland shares will only be made to the first day of the month
immediately preceding the anticipated Closing of the Merger and will be
based on Net Income to that date less $400,000 (without any proration based
on the partial year in such calculation). Assuming a Closing Date of
October 10, 1996, and further assuming 1996 Net Income of Northland to
September 1, 1996 of $1,300,000, the shares to be issued to Mr. Walker
based on such amount would be approximately 4,091. All incentive
compensation for the period from the first day of the month immediately
preceding Closing to the Closing Date otherwise payable in Northland shares
will be paid in cash at the rate of $11.00 per share. In the event the
Merger is abandoned, the Amendment is rescinded and the terms of the prior
Employment Agreement apply (subject to adjustment for amounts paid under
the Amendment). Mr. Walker's incentive compensation shares were not
outstanding on the Record Date, and so may not be voted at the Special
Meeting.
At the same time as the Amendment to Employment Agreement was
authorized, the directors of the Bank authorized payment of an immediate
bonus of $5,000 to Mr. Walker in connection with his efforts as to the
merger. In the event the merger does not close, for whatever reason, Mr.
Walker will be required to repay this bonus to the Bank.
Additional Northland Shares
Section 4.1(b)(i) of the Merger Agreement provides that Northland may
not issue any additional shares of its stock other than pursuant to the
employee stock grants described above.
Principal Shareholders of Northland
The Principal Shareholders are the directors and executive officers of
Northland and certain of their family members and associates. Each of the
Principal Shareholders has agreed, in the Merger Agreement, to vote his or
her shares in favor of the Merger. The names of the Principal
Shareholders, and the shares each has committed to vote in favor of the
Merger (inclusive of option and service award shares), are as follows:
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HOLDINGS OF NORTHLAND'S PRINCIPAL SHAREHOLDERS
Shares Committed
Name of Principal To Approval
-----------------
Shareholder Number Percent
-------------------------------------------------
Gerard J. Mos III 3,487 0.58%
John & Lois Schott 120,990 20.22%
Leland & Eileene Walker 30,344 5.07%
Dale Rapp 5,830 0.97%
Karen Wolters 4,157 0.69%
William & MaryAnn Johnson 18,231 3.05%
Richard & Doneda Mos 4,648 0.78%
Robert Burns 24,895 4.16%
Paul & Alice Bosch 2,324 0.39%
Ron & Margaret Hoffman 13,282 2.22%
Ronald Smith 26,391 4.41%
Kent & Judy Mayfield 4,985 0.83%
Patrick & Judith Kelley 11,622 1.94%
High Life Sales Co. 41,725 6.97%
-------- -------
Totals 312,911 52.28%
====================================================
Northland's management believes that approximately 2,324 additional
Northland shares may be indirectly controlled by one or more Principal
Shareholders; such additional shares are not committed to vote in favor of
the Merger under the terms of the Merger Agreement. The percentages in the
foregoing table are based on the 598,471 common shares of Northland
outstanding on the Record Date.
Other than as shown in the foregoing table, the Principal Shareholders
and their associates, there are no beneficial owners of more than 10% of
Northland's common stock known to Northland.
Financial Information
Included with this Prospectus and Proxy Statement in Exhibit E is a
copy of the audited consolidated financial statements of Northland
Bancshares, Inc., as of and for the years ended December 31, 1995, 1994,
and 1993, along with the reports of its auditors relating thereto, and a
copy of the unaudited consolidated financial statements of Northland
Bancshares, Inc., for the six months ended June 30, 1996.
Other Information
Included in Exhibit E to this Prospectus and Proxy Statement is
further information relating to Northland and its business and operations.
TERMINATION OF SHAREHOLDERS AGREEMENT
Northland and all of its Shareholders are parties to a certain
Shareholders Agreement, dated June 27, 1986, as amended. Under the terms
and provisions of the Shareholders Agreement, each holder, should he or she
thereafter desire to sell or transfer his or her shares, grants an
irrevocable right and option to the other holders of Northland shares to
purchase the shares desired to be sold or transferred. Under this
restriction, no holder could transfer his or her shares pursuant to the
Merger without first offering them to all other holders of Northland
shares. Section 2.03 of the Shareholders Agreement provides that the same
may be terminated upon the written consent of the holders of at least 70%
of the shares affected thereby. Northland and holders of more than 70% of
all outstanding shares have now agreed, in writing, to terminate the
Shareholders Agreement, the termination effective with the Closing of the
Merger. If the Merger is abandoned, such termination does not become
effective and the Shareholders Agreement continues in full force and effect
as fully as though no such termination had been made.
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REGULATORY MATTERS RELATING TO MARK TWAIN
Bank holding companies and banks are extensively regulated under both
federal and state law. The discussion below includes information relating
to the regulatory environment of Mark Twain and certain of its
subsidiaries. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change
in applicable laws or regulations may have a material effect on the
business of Mark Twain.
Regulatory Authorities
Mark Twain
Mark Twain is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). As a bank holding company, Mark Twain's
activities and those of its banking and nonbanking subsidiaries are limited
to the business of banking and activities closely related or incidental to
banking, and Mark Twain may not directly or indirectly acquire the
ownership or control of more than five percent of any class of voting
shares or substantially all of the assets of any company, including a bank,
without the prior approval of the Federal Reserve Board. Mark Twain also
is governed by the Missouri Bank Holding Company Act. In addition, as a
publicly-owned corporation, Mark Twain is subject to the reporting and
other requirements of the United States securities laws.
In 1994, legislation was enacted that is expected to have a
significant effect in restructuring the banking industry in the United
States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 facilitates the interstate expansion and consolidation of banking
organizations by permitting (i) bank holding companies that are adequately
capitalized and managed to acquire banks located in states outside their
home states regardless of whether such acquisitions are authorized under
the law of the host state, (ii) the interstate merger of banks after June
1, 1997, subject to the right of individual states to "opt in" or to "opt
out" of this authority before that date, (iii) banks to establish new
branches on an interstate basis provided that such action is specifically
authorized by the law of the host state, (iv) foreign banks to establish,
with approval of the regulators in the United States, branches outside
their home states to the same extent that national or state banks located
in the home state would be authorized to do so, and (v) banks to receive
deposits, renew time deposits, close loans, service loans, and receive
payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same state or a
different state. One effect of this legislation is to permit Mark Twain to
acquire banks located in any state and to permit bank holding companies
located in any state to acquire banks and bank holding companies in
Missouri, Kansas, and Illinois. Overall, this legislation is intended to
have the effects of increasing competition and promoting geographic
diversification in the banking industry.
Another piece of legislation, the Riegle Community Development and
Regulatory Improvement Act of 1994, also could have significant effects on
the banking industry. The Act was intended to (i) increase the flow of
loans to businesses in distressed communities by providing incentives to
lenders to provide credit within those communities, (ii) remove impediments
to the securitization of small business loans, (iii) provide for a
reduction in paperwork and the streamlining of bank regulation through, for
example, a reduction in the number of currency transaction reports required
and improvements to the National Flood Insurance Program that include
enabling lenders to force place flood insurance, and (iv) increase the
level of consumer protection provided to customers in banking transactions.
Mark Twain believes that these provisions will not have a material effect
on its operations.
Missouri Subsidiary Banks
Mark Twain Bank (the St. Louis-based subsidiary) and Mark Twain Kansas
City Bank operate under Missouri state banking charters, and are supervised
and regulated primarily by the Missouri Commissioner of Finance. In
addition, the Federal Deposit Insurance Corporation (the "FDIC") provides
deposit insurance for both of these banks' depositors, and regulates and
examines both banks. Mark Twain Bank also is subject to supervision by the
Department of Housing and Urban Development, Federal Housing Authority,
Veteran's Administration, Federal Home Loan Mortgage Corporation, Federal
National
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Mortgage Association, Government National Mortgage Association, Missouri
Real Estate Board, and Missouri Department of Finance, among others, due to
its participation in various mortgage programs.
Illinois Subsidiary Bank
Mark Twain Illinois Bank operates under an Illinois state banking
charter, and is supervised and regulated primarily by the Illinois
Commissioner of Banks and Trust Companies. This bank also is insured,
regulated, and examined by the FDIC.
Securities Brokerage Subsidiary
Mark Twain Brokerage Services, Inc. is a subsidiary of Mark Twain Bank
which is engaged in the securities brokerage business. It is regulated by
the Securities and Exchange Commission and the Missouri State Securities
Commissioner, and is a member of, and subject to the requirements of, the
National Association of Securities Dealers, Inc. and the Securities
Investors Protection Corporation.
Other Subsidiaries
The non-bank subsidiaries of Mark Twain are subject to regulation by
the Federal Reserve Board, which exercises certain supervision over all
non-bank subsidiaries of bank holding companies. In addition, the Bond
Division of Mark Twain Bank, which deals in federal, state and local
government securities, is regulated by the Municipal Securities Rulemaking
Board, among others.
Limitations on Subsidiary Bank Dividends
Subsidiary bank dividends are the principal source of funds for
payments of dividends by Mark Twain to its shareholders. The payment of
dividends by the state-chartered banks is restricted as to what prudent and
sound banking principles permit and what must be retained to meet minimum
legal capital requirements. As of December 31, 1995, up to $104.87 million
could be paid from the banking subsidiaries without violating any of the
applicable federal or state law restrictions on dividends. For further
information, see note 14 on page 40 of Mark Twain's 1995 Annual Report, a
copy of which has been delivered with this Prospectus and Proxy Statement.
Other Limitations on Subsidiary Banks
The operations of Mark Twain's subsidiary banks are subject to
requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the
types and amounts of loans that may be granted and the interest that may he
charged thereon, and limitations on the types of investments that may be
made and the types of services which may be offered. Various consumer laws
and regulations also affect the operations of the subsidiary banks.
Intercompany Transfers
Mark Twain's subsidiary banks are subject to legal restrictions which
limit transfers of funds from such banks to Mark Twain or certain non-
banking subsidiaries, whether such transfers are affected by loans, credit
extensions, investments or asset purchases. Such transfers by any one bank
to Mark Twain or such non-bank subsidiary are limited to 10% of the bank's
capital and surplus. In addition, all such transfers by all subsidiary
banks in the aggregate are limited to 20% of such banks' aggregate capital
and surplus. Any such loans or credit extensions must comply with certain
collateral requirements. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
Obligations to Subsidiary Banks
Under Federal Reserve Board policy, Mark Twain is expected to act as a
source of financial strength to its subsidiary banks, and to commit
resources to support such banks, in circumstances where Mark Twain might
not do so absent such policy. In addition, any capital loans by Mark Twain
to a subsidiary bank would also be subordinate in right of payment to
deposits and to certain other indebtedness of such bank.
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FIRREA and FDICIA
The Financial Institution Reform, Recovery, and Enforcement Act
("FIRREA") was enacted in 1989 primarily to deal with problems in the
savings and loan industry; however, the act also effects commercial banking
organizations. FIRREA mandates public disclosure by commercial banks of
their Community Reinvestment Act ratings and mortgage lending records,
establishes enhanced enforcement measures which are available for bank
regulators to use against commercial banks and bankers, and imposes cross
liability on insured institutions under common control with any insured
institution to which the FDIC gives financial assistance. FIRREA also
permits bank holding companies to acquire savings and loan associations,
subject to the approval of the Federal Reserve Board.
FIRREA contains a "cross-guarantee" provision that could result in
insured depository institutions owned by Mark Twain being assessed for
losses incurred by the FDIC in connection with the failure of, or
assistance provided by the FDIC to avert the failure of, any other insured
depository institution controlled by Mark Twain. Under FIRREA, failure to
meet certain capital guidelines could subject a banking institution to a
variety of enforcement remedies available to Federal regulatory
authorities, including the termination of deposit insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") increases funding for the FDIC's bank insurance fund, and
establishes standards for, and restrictions on, activities of depository
institutions based upon capital status and supervisory evaluation by
Federal banking regulators. Under FDICIA, banks are placed in one of five
capital categories, for which the Federal banking agencies have established
specific ratio levels. Pursuant to the agencies' regulations, an
institution is considered "well capitalized" if it has a total risk-based
capital ratio of at least 10%, a tier 1 risk-based capital ratio of at
least 6%, and a leverage capital ratio of at least 5%. In addition,
regardless of a bank's capital level, a bank is not considered "well
capitalized" if it is subject to a cease and desist order, formal
agreement, capital directive, or prompt corrective action directive that
requires it to achieve or maintain a higher level of capital. An
institution is considered "adequately capitalized" if it has a total risk-
based capital ratio of at least 8%, a tier 1 risk-based capital ratio of at
least 4%, and a leverage capital ratio of at least 4%. Institutions with
capital levels below those necessary to qualify as "adequately
capitalized," are deemed to be either "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized, depending on their
specific capital needs.
FDICIA, through its prompt corrective action system, imposes
significant operational and management restrictions on banks that are not
considered at least "adequately capitalized." Under FDICIA's prompt
corrective action system, a bank in the "undercapitalized" category must
submit a capital restoration plan guaranteed by its parent company. The
liability of the parent company under any such guarantee is limited to the
lesser of 5% of the bank's assets at the time it became "undercapitalized,"
or the amount needed to comply with the plan. A bank in the
"undercapitalized" category also is subject to limitations in numerous
areas including, but not limited to: asset growth; acquisitions;
branching; new business lines; acceptance of brokered deposits; and
borrowings from the Federal Reserve System. Progressively more burdensome
restrictions are applied to banks in the "undercapitalized" category that
fail to submit or implement a capital plan and to banks that are in the
"significantly undercapitalized" or "critically undercapitalized"
categories. A bank's primary Federal banking agency is authorized to
downgrade the bank's capital category to the next lower category upon a
determination that the bank is in an unsafe or unsound condition or is
engaged in an unsafe or unsound practice. An unsafe or unsound practice
can include receipt by an institution of a rating on its most recent
examination of three or worse (on a scale of 1 (best) to 5 (worst)), with
respect to its asset quality, management, earnings, or liquidity.
FDICIA and the regulations issued thereunder also have (i) limited the
use of brokered deposits to "well capitalized" banks, and to "adequately
capitalized" banks that have received waivers from the FDIC; (ii)
established restrictions on the permissible investments and activities of
FDIC-insured banks and their subsidiaries; (iii) implemented uniform real
estate lending rules; (iv) prescribed standards to limit risks posed by
credit exposure between banks; (v) revised risk-based capital rules to
include components for measuring the risk posed by interest rate changes;
(vi) amended various consumer banking laws; (vii) increased restrictions on
loans to a bank's insiders' (viii) established standards in a number of
areas to
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assure bank safety and soundness; and (ix) implemented additional
requirements for institutions that have $500 million or more in total
assets with respect to annual independent audits, audit committees, and
management reports related to financial statements, internal controls, and
compliance with designated laws and regulations.
Each Mark Twain subsidiary bank was considered "well-capitalized" as
of the most recent notification date. Mark Twain continues to analyze the
effect of, and address its ongoing compliance with, the various regulations
issued under FDICIA. It is anticipated that FDICIA, and the regulations
enacted thereunder, will continue to result in more limitations on banking
activities generally, and increased costs for Mark Twain and the banking
industry because of higher costs of compliance, documentation and record
keeping.
Depository Preference Statute
Legislation enacted in August 1993 provides a preference for deposits
and certain claims for administrative expenses and employee compensation
against an insured depository institution, such as Northland's and Mark
Twain's insured bank subsidiaries, in the liquidation of other resolution
of such an institution by any receiver. Such obligations would be afforded
priority over other general unsecured claims against such an institution,
including federal funds and letters of credit, as well as any obligation to
shareholders of such an institution in their capacity as such.
Capital Adequacy
Risk-based capital guidelines have been adopted for bank holding
companies such as Mark Twain (by the Federal Reserve Board) and non-member
state banks such as the subsidiary banks of Mark Twain (by the FDIC).
These guidelines establish two types of capital: Core ("Tier 1") Capital,
which consists of common stock, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangibles;
and Supplementary ("Tier 2") Capital, which consists of a certain
percentage of loss reserves, other forms of preferred stock, hybrid capital
instruments and subordinated debt. Certain forms of Tier 2 Capital are
subject to percentage limitations for inclusion in capital. "Total
Capital," as used in this Prospectus and Proxy Statement, means Tier 1 plus
Tier 2 Capital, less reciprocal holdings of bank capital instruments and
investments in unconsolidated subsidiaries. The minimum regulatory
guidelines presently in effect for Mark Twain and its subsidiary banks are
4% and 8% for Tier 1 and Total Capital, respectively. At December 31,
1995, Mark Twain's capital ratios under these measures were 11.4% Tier 1
Capital and 13.0% Total Capital. The risk-based capital rules are intended
to assess the relative risk of various assets and to apply to these assets
accordingly. Included in these calculations are off-balance sheet items.
For further information, see "CAPITAL" on page 29, and Note 11 on page 40,
of Mark Twain's 1995 Annual Report, a copy of which has been delivered with
this Prospectus and Proxy Statement.
In addition, the Federal Reserve Board has established minimum
leverage ratio guidelines for bank holding companies. These guidelines
provide for a minimum ratio of Tier 1 capital to adjusted average total
assets (the "leverage ratio") of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating.
Other bank holding companies generally are required to maintain a leverage
ratio of at least 3% plus 100 to 200 basis points. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above minimum supervisory levels, without significant
reliance on intangible assets. Furthermore, the Federal Reserve Board has
indicated that it may consider other indicia of capital strength in
evaluating proposals for expansion or new activities.
The federal bank regulatory agencies have issued various proposals to
amend the risk-based capital guidelines for banks and bank holding
companies. Under one proposal, banks would be required to give explicit
consideration to interest rate risk as an element of capital adequacy by
maintaining capital to compensate for such risk in an amount measured by
the bank's exposure to interest rate risk in excess of a regulatory
threshold. Another proposal would revise the treatment given to (i) low-
level recourse arrangements to reduce the amount of capital required and
(ii) certain direct credit substitutes provided by banking organizations to
require that capital be maintained against the value of the assets enhanced
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or the loans protected. A proposal recently issued by the Federal Reserve
Board and expected to be joined in by the other bank regulatory agencies
increases the amount of capital required to be carried against certain
long-term derivative contracts; in addition, the proposal recognizes the
effect of certain bilateral netting arrangements in reducing potential
future exposure under these contracts. Mark Twain believes that these
changes will not, if adopted, have a material effect on its compliance with
capital adequacy requirements.
FDIC Insurance Assessments
Mark Twain's subsidiary banks are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule. Under
this schedule, the annual premiums initially ranged from $.23 to $.31 for
every $100 of deposits. Each financial institution is assigned to one of
three capital groups-well capitalized, adequately capitalized, or
undercapitalized-and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors and on the basis of
other information relevant to the institution's financial condition and the
risk posed to the applicable insurance fund. The actual assessment rate
applicable to a particular institution will, therefore, depend in part upon
the risk assessment classification so assigned to the institution by the
FDIC. See "FIRREA AND FDICIA" above. Each Mark Twain subsidiary bank was
considered "well capitalized" as of the most recent notification date.
FIRREA requires the FDIC to establish separate deposit insurance
funds, including the Bank Insurance Fund ("BIF") for banks. The law also
requires the FDIC to set deposit insurance assessments at such levels as
will cause the BIF to reach its "designated reserve ratios" of 1.25 percent
of the deposits insured by it within a reasonable period of time. Due to
the low cost of resolving bank insolvencies in the last few years, the BIF
reached its designated reserve ratio in May 1995. As a result, effective
June 1, 1995, the FDIC lowered deposit insurance assessment rates for all
banks by revising the premium range to $.04 - $.31 for every $100 of
deposits. In addition, effective January 1, 1996, due to the fact that the
BIF had reached its designated reserve ratio, the FDIC eliminated deposit
insurance assessments (except for the minimum $2,000 payment required by
law) for banks that are well capitalized and well managed.
Pending Legislation
Many of the laws and regulations affecting the banking and financial
businesses are under review by Congress and may be changed dramatically in
the future. Such changes could affect the ability of bank holding
companies to engage in non-banking businesses such as securities
underwriting and insurance. In the past, bank holding companies have been
allowed to engage in such businesses only to a limited extent. The changes
also may affect the amount of capital that banks and bank holding companies
are required to maintain, the premiums paid for the availability of deposit
insurance, or other matters directly affecting financial condition and
earnings. Mark Twain cannot assess the impact that any such legislation
would have on its operations.
Impact of Monetary Policies
Banking has traditionally been a business which depends on rate
differentials. In general, the difference between the interest rate paid
by a bank on its deposits and its other borrowings, and the interest rate
received by a bank on loans extended to its customers and securities held
in its investment portfolio, would comprise a major portion of a bank's
earnings. However, due to recent deregulation of the industry, the banking
business is becoming increasingly dependent on the generation of fees and
service charges as well.
The earnings and growth of a bank will be affected not only by general
economic conditions, both domestic and foreign, but also by the monetary
and fiscal policies of the United States government and its agencies,
particularly the Federal Reserve Board. The Federal Reserve Board can and
does implement national monetary policy, such as seeking to curb inflation
and combat recession by its open market operations in United States
government securities, adjustments in the amount of reserves that banks and
other financial institutions are required to maintain and adjustments to
the discount rates applicable to borrowings by banks which are members of
the Federal Reserve System and target rates for federal funds
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<PAGE>
transactions. The actions of the Federal Reserve Board in these areas
influence the growth of bank loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits. The nature
and timing of any future changes in monetary policies and their potential
impact on Mark Twain are not predictable.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Employment Agreements
All of the officers of the Bank serve at will, except Leland M. Walker
(President) who is party to an Employment Agreement with the Bank and
Northland. See "NORTHLAND BANCSHARES, INC. - EMPLOYEE STOCK GRANTS" above.
Under an Amendment to such Employment Agreement, Mr. Walker's Employment
Agreement terminates at the Closing.
Mr. Walker and Mark Twain have been discussing the terms of a written
agreement for Mr. Walker's continued employment by the Bank after the
Merger. The compensation payable under any arrangement reached by Mr.
Walker and Mark Twain could include salary plus participation in Mark
Twain's system-wide incentive compensation program. Although no final
agreement has been reached, Mark Twain expects that a new employment
agreement, if agreed, probably will provide for Mr. Walker's employment for
a specific term of years at an agreed base salary which (in Mark Twain's
judgment) will be commensurate with his experience and the scope of his
responsibilities during the term of the agreement and with other executives
of Mark Twain's banks holding similar positions with similar duties. Mr.
Walker's responsibilities are expected to be determined from time to time
by Mark Twain's board of directors during the term. Mark Twain expects the
new agreement also to provide for specified benefits and perquisites
similar to those provided to executives holding similar positions with
other MarK Twain banks. Mark Twain also anticipates that Mr. Walker will
agree to a non-competition covenant which will apply during his employment
and extend for a period of time after his employment ends, and for which
Mr. Walker will be paid an agreed compensatory amount.
The outcome of these negotiations will not affect the Merger. Mark
Twain is not obligated under the Merger Agreement to continue the
employment of any employee of the Bank; obtaining the agreement of any
employee of the Bank, including Mr. Walker, to be employed after the
Closing is not a condition to Closing. See "DESCRIPTION OF THE
TRANSACTION - CLOSING; CONDITIONS TO CLOSING" for a brief summary of the
only conditions for which the Merger may be abandoned.
NACSI Lease
The Bank leases its principal banking office from NACSI, Northland's
other subsidiary. Lease payments to NACSI do not affect Northland's
consolidated financial results or position. At the time the Bank entered
into the lease with NACSI in 1991, NACSI was an independent corporation,
the primary owners of which were John T. Schott and his wife, Lois Schott,
both of whom are now Principal Shareholders of Northland. In 1992, the
shares of NACSI were acquired by Northland from Mr. and Mrs. Schott and
others.
Drive-In Facility Lease
The Bank leases the premises on which its drive-in facility is located
from Prairie Center Associates. Messrs. Kent Mayfield and Ron Smith, who
are directors of Northland and Principal Shareholders identified in the
Merger Agreement, are affiliates of Prairie Center Associates. Shirley
Mayfield, Kent Mayfield's mother, may also be an affiliate of Prairie
Center Associates and is the legal and beneficial owner of Northland
shares. Management of the Bank believes the lease for its drive-in
facility was made as an arms-length transaction on terms substantially
similar to those made for like leases and do not contain any unusual or
unfavorable provisions for the Bank. After Closing, the Bank will remain
liable for the balance of the term of such lease (approximately two years).
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There are no other leases or contracts for products or services
between Northland or the Bank and any holder of Northland shares, other
than certain service arrangements which are terminable at will by the Bank.
DESCRIPTION OF MARK TWAIN CAPITAL STOCK
The Articles of Incorporation of Mark Twain authorize the issuance of
30,000,000 shares of common stock, par value $1.25 per share, and 500,000
shares of preferred stock, $25.00 par value. As of December 31, 1995,
there were issued and outstanding 16,145,535 shares of common stock held of
record by approximately 2,500 shareholders. No shares of preferred stock
are outstanding.
The authorized but unissued shares of common stock and preferred stock
may be issued by the Board of Directors from time to time without the
consent of the shareholders of Mark Twain. The voting powers, dividends,
rights upon liquidation and other designations, preferences and rights of
any further series of preferred stock which may be issued are to be set
forth in an authorizing resolution adopted by the Board of Directors and
filed with the Secretary of State of Missouri. Preferred stock issued
under such an authorizing resolution may have dividend rights, special
voting rights and other priorities over the common stock.
Subject to the rights of the holders of any preferred stock which may
be issued and outstanding, the holders of the common stock are entitled to
share ratably in all dividends when and as declared by the Board of
Directors and in all assets available for distribution to shareholders upon
liquidation.
Each holder of common stock has one vote per share, except that the
holders have the right to cumulative voting in the election of Directors.
The Board of Directors, consisting of eleven directors, is classified into
three groups, each group as nearly equal in number as may be and elected
for staggered three year terms. The classification of the Board adversely
affects the shareholders' ability to replace all of the incumbent directors
at any single annual meeting of shareholders, and increases the number of
votes required to elect any specific number of directors pursuant to the
exercise of cumulative voting rights. There are no preemptive rights,
conversion rights, redemption provisions or sinking fund provisions with
respect to the common stock. Holders are not subject to any liability for
further calls or assessment by Mark Twain. There are no restrictions on
Mark Twain's repurchase or redemptions of shares of common stock other than
(i) under the provision of Section 351.390 of the General and Business
Corporation Law of Missouri, which, except for certain limited exceptions,
prohibits such repurchases when the net assets of a corporation are or
would thereby be reduced below its stated capital, (ii) undertakings by
Mark Twain from time to time to bank regulatory authorities, and (iii)
other generally applicable bank regulatory requirements.
In April 1995, Mark Twain's board of Directors authorized management
to purchase up to one million shares of the common stock of Mark Twain in a
systematic pattern to meet the common stock requirements of the Mark Twain
1995 Stock Option Plan and other corporate purposes. During 1995, Mark
Twain repurchased approximately 109,000 shares under this program
principally for this benefit plan. During the first six months of 1996,
Mark Twain has purchased approximately 133,000 shares for this benefit
plan. In addition, Mark Twain has purchased approximately 296,000 shares
related to the conversion of its 7% Convertible Subordinated Capital Notes
(the Notes). As of June 30, 1996, approximately 223,000 of the shares
purchased related to the Notes have been reissued upon conversion. Both
the 1995 Stock Option Plan and the Notes are described below. Mark Twain
has agreed that it will not purchase any of its shares during the twenty
trading day period used in determining MTBI Share Value for purposes of
calculating the conversion ratio for the Merger.
Except as to Mark Twain shares held by Affiliates (see "RESTRICTIONS
ON TRANSFER"), the Mark Twain shares to be received in the Merger will be
freely tradeable upon receipt by the Shareholders.
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Convertible Subordinated Capital Notes
As of December 31, 1995, Mark Twain had outstanding $6,911,000
principal amount of 7% Convertible Subordinated Capital Notes Due 1999.
These notes are convertible by the holders into a total of 434,955 shares
of common stock at a conversion price of $15.889 in principal amount per
share. At maturity, the noteholders are required to be paid in common
stock, or cash to the extent certain qualified funds are available.
Employee Stock Options
Mark Twain has adopted employee stock option plans which authorize the
grant of stock options for up to 2,025,000 shares of common stock. Options
may be granted by a committee of the Board of Directors to key employees
and officers of Mark Twain and its subsidiaries. The option price of each
option is required to be at least the market price of common stock on the
grant date, or 110% of that price in the case of a grant to a 10%
shareholder. One of the plans expired in 1993 (though options remain
outstanding under it), and the others expire in 2002 and 2005. As of May
31, 1996, the unexpired option plans had 572,854 shares still available for
grants.
As of May 31, 1996, a total of 1,033,878 options were outstanding
under these three plans. All options expire five years after grant.
Options become exercisable in four equal annual installments beginning on
the first anniversary after the grant date. The number of shares covered
and the exercise prices automatically are adjusted in the event of stock
splits or similar events.
Market for Stock
Mark Twain's Common Stock is traded on the Nasdaq Stock Market under
the symbol MTWN, and is a NASDAQ National Market System stock. The
following firms currently make a market in Mark Twain stock:
Merrill Lynch, Pierce, Fenner Everen Securities, Inc.
C.J. Lawrence, Inc./Deutsche Bank Securities Co. Stifel Nicolaus & Co.
Alex, Brown & Sons, Inc. Burns, Pauli & Co., Inc.
Donaldson, Lufkin & Jenrette Edward D. Jones & Co.
Robinson Humphrey Co. Inc. Herzog, Heine, Geduld, Inc.
Mayer & Schweitzer, Inc. Troster Singer Corp.
The Chicago Corporation Piper, Jaffray & Hopwood, Inc.
Smith, Moore & Co.
Mark Twain presently is considering whether to list its stock on the
New York Stock Exchange. See "MARK TWAIN BANCSHARES, INC. - RECENT
DEVELOPMENTS - CHANGE IN STOCK LISTING" above for additional details. If
Mark Twain does change its listing, it no longer would have market makers,
but instead would have specialists; its specialists would not necessarily
be as numerous as, or the same firms as, the market makers listed above. A
change in listing could, but normally would not be expected to, have a
significant short-term impact on the price of or market for Mark Twain's
stock. Over a longer time horizon, listing on the New York Stock Exchange
would be intended to improve the marketability of Mark Twain's stock.
Stockholder Plans
Mark Twain offers Automatic Dividend Reinvestment and Voluntary Cash
Only Payment plans to its stockholders. Common Stock of Mark Twain is
purchased for plan participants at least twice a month, on a bi-weekly
basis. Information concerning these plans may be obtained from Carl A.
Wattenberg, Jr., Corporate Secretary, at Mark Twain's executive offices.
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Transfer Agent
The transfer agent, registrar, and dividend agent for the Common Stock
is KeyCorp Shareholder Services, Inc., P.O. Box 6477, Cleveland, Ohio
44101. KeyCorp has an office in St. Louis at One Mercantile Center, Suite
2120, St. Louis, Missouri 63101, from which certain of the foregoing
services are performed for Mark Twain.
LEGAL OPINION
The legality of the shares of Mark Twain common stock to be issued in
the Merger will be passed upon for Mark Twain by The Stolar Partnership,
911 Washington Avenue, St. Louis, Missouri. The attorneys at The Stolar
Partnership handling the Merger for Mark Twain have reported to Mark Twain
that they personally own about 9,618 shares of Mark Twain's common stock.
EXPERTS
The consolidated financial statements of Mark Twain Bancshares, Inc.
incorporated by reference in Mark Twain Bancshares, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference
in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Northland Bancshares, Inc. at
December 31, 1995, 1994, and 1993 and for each of the three years in the
period ended December 31, 1995 included in Exhibit E to this Prospectus and
Proxy Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere
therein, and are included in reliance on such reports given on the
authority of such firm as experts in accounting and auditing.
EXHIBIT INDEX
All Exhibits are incorporated into this Prospectus and Proxy Statement
by this reference.
EXHIBIT A-Conformed copy of Plan and Agreement of Merger, excluding
exhibits and schedules
EXHIBIT B-Form of Escrow Agreement (as amended)
EXHIBIT C-Conformed Copy of Agreement Respecting Adjustments
EXHIBIT D-Section 351.455, R.S.Mo., of the Missouri General and Business
Corporation Law (relating to certain rights of dissenters to obtain a
judicial appraisal of their Northland shares)
EXHIBIT E-Further Information relating to Northland, including Consolidated
Financial Statements and Independent Auditors' Reports for Northland
Bancshares, Inc., at December 31, 1995, 1994, and 1993 and for each of the
three years in the period ended December 31, 1995, and Unaudited
Consolidated Financial Statements for Northland Bancshares, Inc., as of and
for the six-month periods ended June 30, 1996 and 1995.
36
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EXHIBIT A
Conformed Copy of
PLAN AND AGREEMENT OF MERGER
Dated May 7, 1996
<PAGE>
EXHIBIT A
___________________________________________________________________
Plan and Agreement of Merger
among
Mark Twain Acquisition Corp. II,
Northland Bancshares, Inc.
and Certain of Its Shareholders
_________________
Dated May 7, 1996
___________________________________________________________________
<PAGE>
Table of Contents
ARTICLE 1. THE MERGER 1
Section 1.1. Merger 1
Section 1.2. Conversion of Shares 1
Section 1.3. Restrictions on Disposition of MTBI Shares 2
Section 1.4. Charter Documents 3
Section 1.5. Directors and Officers 3
Section 1.6. Effect of the Merger 3
Section 1.7. Consummation of Merger 4
Section 1.8. Net Worth of Company 4
ARTICLE II. THE CLOSING 5
Section 2.1. Closing Date 5
Section 2.2. Actions at or In Connection with the
Closing 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES 6
Section 3.1. Representations of the Principal
Shareholders 6
(a) Ownership 6
(b) Organization and Good Standing of the Bank and
the Company 6
(c) Power and Authority 6
(d) Capitalization 7
(e) Financial Statements 7
(f) Books and Records 8
(g) Absence of Certain Changes 8
(h) Notification of Changes 9
(i) Agreements 9
(j) Concerning Assets 10
(k) Taxes 10
(l) No Brokerage or Finder's Fees 10
(m) Employee Benefit Plans 11
(n) Financial Assets 11
(o) Litigation 11
(p) Management Interlocks 11
(q) Insurance 11
(r) Environmental Matters 12
(s) Compliance with Laws 12
(t) Regulatory Enforcement Matters 12
(u) Licenses and Approvals 12
(v) Information for Registration Statement 12
(w) List of Company Affiliates 12
(x) Community Reinvestment 13
(y) Regulatory Enforcement Matters 13
Section 3.2. Amendment to Disclosure Schedule 13
A - (i)
<PAGE>
Section 3.3. Representations Concerning MTBI 13
(a) Organization, Power and Authority 13
(b) No Brokerage or Finder's Fees 14
(c) Capitalization 14
(d) The MTBI Shares 14
(e) SEC Reports: Financial Statements 14
(f) Litigation 14
(g) Absence of Changes 14
(h) Form S-4 Registration Statement 14
(i) The Prospectus 15
(j) 1934 Act Reports 15
ARTICLE 4. OBLIGATIONS AND COVENANTS PRIOR TO CLOSING 15
Section 4.1. Conduct of Business 15
Section 4.2. Examinations 17
Section 4.3. Environmental Reports 17
Section 4.4. Dividends and Distributions 17
Section 4.5. Shareholders' Meeting 17
Section 4.6. Accounting and Reserve Policies 18
Section 4.7. Obligations of Principal Shareholders 18
ARTICLE 5. REGULATORY APPROVAL 19
ARTICLE 6. CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS 19
Section 6.1. Conditions to MTBI's Obligations 19
(a) Representations and Warranties True as of the
Closing Date 19
(b) Compliance With Agreement 19
(c) No Litigation 19
(d) Director and Shareholder Approval 19
(e) Proceedings and Instruments Satisfactory 19
(f) Third Party Consents 20
(g) Restriction on Resales 20
(h) Further Agreements and Documents 20
(i) Dissenting Shareholders 20
(j) Net Worth At Closing 20
(k) Accounting Treatment 20
(l) Opinion of Company's Counsel 20
(m) Resignation of Officers and Directors 21
(n) Directors' Shares 21
(o) Stock Options 21
(p) Termination of Benefits 21
A - (ii)
<PAGE>
Section 6.2. Conditions of Company's and Principal
Shareholders' Obligations 21
(a) Representations and Warranties True as of
the Closing Date 22
(b) Compliance with Agreement 22
(c) No Litigation 22
(d) Proceedings and Instruments Satisfactory 22
(e) Further Agreements and Documents 22
(f) Corporate Approval 22
Section 6.3. Mutual Conditions to Closing 22
(a) Regulatory Approval 22
(b) Registration Statement 22
(c) Opinion of MTBI's Counsel 22
ARTICLE 7. INDEMNIFICATION 24
Section 7.1. Indemnification 24
(a) The Shareholders' Indemnities 24
(b) MTBI's Indemnities 24
Section 7.2. Limitations on Indemnity 24
Section 7.3. Claims Procedures 25
ARTICLE 8. DEFINITIONS 25
ARTICLE 9. CONFIDENTIALITY 27
Section 9.1. Definitions 27
Section 9.2. Confidentiality 27
Section 9.3. No Public Disclosure 27
Section 9.4. Return of Confidential Information 28
Section 9.5. Survival of Covenants 28
Section 9.6. Notice of Breach; Enforcement 28
ARTICLE 10. MISCELLANEOUS 28
Section 10.2. Assignment 28
Section 10.2. Satisfaction of Conditions to Closing 28
Section 10.3. Termination Rights 28
Section 10.4. Remedies 30
Section 10.5. Governing Law 30
Section 10.6. Notices 30
Section 10.7. Headings 31
A - (iii)
<PAGE>
Section 10.8. Fees and Expenses 31
Section 10.9. Entire Agreement 31
Section 10.10. Waiver and Amendment 32
Section 10.11. Separability 32
Section 10.12. No Third Party Beneficiaries 32
Section 10.13. Counterparts and Binding Effect 32
Section 10.14. Shareholder Representative 32
Section 10.15. Effect of Surrendering Shares 32
Exhibit A - Escrow Agreement (The form of Escrow Agreement appears
as Exhibit B to the Prospectus and
Proxy Statement)
A - (iv)
<PAGE>
<PAGE>
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger is made as of the 7th day of May,
1996, by and among Mark Twain Bancshares, Inc. ("MTBI"), Mark Twain
Acquisition Corp. II ("Sub"), a Missouri corporation and a wholly-owned
subsidiary of MTBI, Northland Bancshares, Inc, a Missouri corporation (the
"Company"), a one-bank holding company owning all of the issued and
outstanding capital stock of the First National Bank of Platte County, a
national banking association (the "Bank"), and those Shareholders of the
Company listed on the signature page hereof (the "Principal Shareholders"),
each owning the number of shares of the Company indicated on such signature
page.
This Agreement provides for the merger of the Company into Sub (the
"Merger"), which shall be the surviving corporation in the Merger, and the
issuance of common stock of MTBI upon the Merger, in a transaction intended
to be a tax free reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Upon the
effectiveness of the Registration Statement respecting the shares of MTBI
stock to be issued in the Merger, the benefits of this Agreement will be
offered to all persons (the "Shareholders", which term also includes the
Principal Shareholders except where specifically stated otherwise) holding
any stock of any class of the Company.
Certain capitalized terms used herein are defined in Article 8.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants and agreements herein contained, and for other good and valuable
considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
THE MERGER
Section 1.1. Merger. On the Closing Date (as hereinafter defined),
the Company shall be merged into Sub, which shall be the surviving
corporation in the Merger (the "Surviving Corporation"), under, in
accordance with, and having the effects provided by, the laws of the State
of Missouri. The Merger shall be effective upon the filing of Articles of
Merger with the Secretary of State of Missouri and the appropriate offices
in the State of Missouri, as required by law. The parties shall use their
best efforts to cause such filing to take place on the Closing Date. The
date on which the Merger becomes effective is called the "Effective Date".
Section 1.2. Conversion of Shares.
(a) The issued and outstanding shares of common stock of the
Company as of the Effective Date (the "Company Shares") will be converted
into shares of common stock, $1.25 par value, of MTBI. Each Company Share
shall be converted into that number of shares determined by (i) multiplying
the Book Value per Share of the Company Shares as of the end of the
calendar month preceding the Closing Date by 2.10 and (ii) dividing that
amount by the MTBI Share Value as of the Closing Date, and carrying the
result to the fourth decimal place. For this purpose, the "MTBI Share
Value" shall be equal to the average closing sale price of the common stock
of MTBI for each of the most recent 20 trading days ending on the fifth
business day prior to the Closing Date; provided, however, that if such
average closing sale price is less than $35.00 the MTBI Share Value should
be $35.00, and if such average closing sale price is more than $39.00 the
MTBI Share Value shall be $39.00. The shares of MTBI to be issued in the
Merger are referred to herein as the "MTBI Shares".
<PAGE>
(b) Company Shares held by the Company as treasury stock or held
by any direct or indirect subsidiary of the Company (except such Company
Shares held in trust accounts for the benefit of others or held in some
other fiduciary, nominee or similar capacity) shall not be considered as
outstanding and shall not be converted into MTBI Shares, but shall be
cancelled.
(c) If any Shareholder of the Company dissents from the Merger
and demands payment of the fair value of his or her shares under any
applicable corporate law, the issued and outstanding Company Shares held by
the dissenting shareholder shall not be converted but instead, from and
after the Effective Date, shall represent only the right to receive such
consideration as may be determined to be due to such dissenting holder
pursuant to the law; provided, however, that each Company Share outstanding
immediately prior to the Effective Date and held by a dissenting
Shareholder who, after the Effective Date, withdraws his or her demand for
appraisal or loses his or her right of appraisal shall have only such
rights as are provided by the applicable corporate law.
(d) On the Closing Date, or on such later date as MTBI shall
receive the certificate or certificates representing all of a Shareholder's
Company Shares, MTBI shall issue and deliver to the Escrow Agent for
deposit in the Escrow established pursuant to the Escrow Agreement attached
hereto as Exhibit A 15% of the MTBI Shares due such Shareholder and shall
deliver to such Shareholder one or more certificates representing all of
the remaining whole number of MTBI Shares due such Shareholder, registered
in the name of such Shareholder. No dividends that would otherwise be
payable on the MTBI Shares to be received in the Merger shall be paid to
any Shareholder of the Company until such Shareholder has surrendered the
certificate(s) representing such Shareholder's Company Shares.
(e) No certificates or scrip representing fractional MTBI Shares
shall be issued in the Merger. In lieu of any such fractional shares, MTBI
shall pay to each Shareholder who otherwise would be entitled to receive a
fractional MTBI Share an amount in cash determined by multiplying the MTBI
Share Value by the fraction of a MTBI Share to which such holder would
otherwise be entitled.
(f) Any outstanding Company Share which is not converted into
MTBI Shares because of the exercise of dissenters' rights shall be
cancelled upon payment therefor and surrender of the certificate(s)
representing such Company Shares.
(g) MTBI will not purchase any MTBI Shares during the 20 trading
day period used in determining the MTBI Share Value pursuant to paragraph
(a) of this Section.
Section 1.3. Restrictions on Disposition of MTBI Shares.
(a) Subject to the last sentence of this paragraph, each
Shareholder who (i) at the time of the Merger contemplated hereby is not
deemed to be an Affiliate of the Company and (ii) after the Merger does not
become an Affiliate of MTBI, shall be free to sell any MTBI Shares issued
hereunder. Subject to the last sentence of this paragraph, MTBI shall
place no restrictive legend on the certificates representing the MTBI
Shares issued hereunder to any such Shareholder, unless and until such time
as such Shareholder becomes an Affiliate of MTBI. Notwithstanding the
foregoing, the parties acknowledge that the SEC and its staff have
significant administrative discretion regarding the extent to which the
Registration Statement makes Shares freely transferable in the hands of
such Shareholders; if the SEC or its staff so require, the parties agree
that MTBI may place restrictive legends on Shares to the extent necessary
to accommodate such requirements.
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MTBI agrees to notify any such Shareholder who is thus affected by any
adverse position taken by the SEC or its staff.
(b) Each Shareholder who (i) at the time of the Merger is deemed
to be an Affiliate of the Company, or (ii) after the Merger becomes an
Affiliate of MTBI, will be subject to restrictions on transfer of the MTBI
Shares received by him under applicable securities laws, and will also be
restricted in his or her ability to transfer any of the MTBI Shares in
order to allow for the Merger to be accounted for by MTBI as a pooling of
interests. Each such Shareholder will be required to agree in writing (1)
that no transfer of any MTBI Shares issued to any such Shareholder in the
Merger will occur until after the filing by MTBI of its first Quarterly
Report on Form 10-Q or Annual Report on Form 10-K (whichever occurs first)
which includes the results of operations of MTBI for a period of at least
30 days following the Effective Date, and (2) to comply with all applicable
restrictions on transfer under the Securities Act and other securities laws
applicable to such MTBI Shares. A written agreement to such effect must be
delivered to MTBI prior to the Closing Date as provided in Section 6.1(g).
MTBI may place a restrictive legend, satisfactory to it, on the
certificates representing the MTBI Shares issued hereunder to each such
Shareholder, providing that no transfer of such MTBI Shares will be
permitted except on delivery to MTBI of an opinion of MTBI's counsel or
other satisfactory evidence that such transfer is permitted. Upon the
request of any such Shareholder who is an Affiliate of the Company but does
not become an Affiliate of MTBI, MTBI will cause such legend to be removed
at such time as the MTBI Shares in question may be sold under paragraph
(d) of Rule 145, as then in effect, in the opinion of MTBI's counsel.
(c) The Principal Shareholders acknowledge that each of them is
an Affiliate of the Company, as shown on the list provided pursuant to
Section 3.1(w). MTBI acknowledges that, as of the date of this Agreement,
it does not expect that any Shareholder will be an Affiliate of MTBI
immediately after Closing.
Section 1.4. Charter Documents. Upon the effectiveness of the
Merger, the Articles of Incorporation and By-Laws of Sub shall become the
Articles of Incorporation and By-Laws of the Surviving Corporation, and
shall remain in effect until subsequently altered, amended or modified by
appropriate corporate action.
Section 1.5. Directors and Officers. Upon the effectiveness of the
Merger, the Directors and officers of Sub immediately prior to such
effectiveness shall continue to serve as the Directors and Officers of the
Surviving Corporation until changed in accordance with Articles of
Incorporation and By-Laws of the Surviving Corporation.
Section 1.6. Effect of the Merger. Upon the effectiveness of the
Merger, the Surviving Corporation shall possess all the rights, privileges,
immunities, licenses and franchises of each of Sub and the Company; and all
property, real, personal and mixed, and all debts due on whatever account,
and all interests of or belonging to or due to either of them shall
continue or be deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the title to any real estate,
or any interest therein, vested in either of such corporations shall not
revert or be in any way impaired by reason of the Merger; and the Surviving
Corporation shall thereafter be responsible and liable for all the
liabilities and obligations of each of the Company and Sub; and, to the
extent permitted by law, any claim existing, or action or proceeding
pending, by or against either of such corporations may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be
substituted in the place of such corporation. Neither the rights of
creditors nor any liens upon the property of either of such corporations
shall be impaired by the Merger.
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Section 1.7. Consummation of Merger. If this Agreement is duly
approved and adopted or ratified by the Boards of Directors and by the
holders of at that number of the outstanding shares of voting stock of each
of Sub and the Company as is required by applicable law, and is not
terminated, the fact of such approval and adoption shall be certified by
the respective Secretaries or Assistant Secretaries of each of Sub and the
Company, under their respective corporate seals, and, at or promptly after
the Closing, appropriate Articles of Merger shall be prepared and filed in
accordance with applicable law.
Section 1.8. Net Worth of Company. As provided in Section 1.2.(a),
the number of MTBI Shares to be issued in the Merger will be based on the
Book Value Per Share of the Company Shares, and such Book Value Per Share
will be determined on the basis of the Net Worth of the Company as of the
end of the calendar month preceding the Closing Date. For these purposes,
"Net Worth" of the Company shall mean the consolidated net worth,
determined in accordance with GAAP and approved (to the extent required by
MTBI and at the cost of MTBI) by Ernst & Young, L.L.P., subject to the
following provisions and adjustments:
(a) As provided in Section 4.2, representatives of MTBI will
conduct examinations relating to the Company and the Bank prior to the
Closing Date. As a result of such examinations, MTBI may require the
Company to make adjustments to its consolidated net worth to write down or
write off the value of certain assets, subject to the limitations that:
(i) MTBI shall not require any such adjustment until and
unless it has given representatives of the Company the opportunity to
discuss with MTBI the basis on which the asset in question has been valued;
and
(ii) prior to requiring any such adjustment, MTBI shall
cooperate with the Company and the Principal Shareholders, if requested, in
entering into arrangements reasonably satisfactory to MTBI which will
provide protection to MTBI against loss in the event that such adjustment
is not made (which may include, if requested by the Company or the
Principal Shareholders, guarantee arrangements in respect of such potential
loss or an agreement to acquire the asset in question at a price not less
than the current book value).
MTBI acknowledges and agrees that the provisions of this paragraph are
not intended to allow MTBI to modify the economic terms of the Merger as
are set forth herein, but are intended to allow for appropriate adjustments
to the Net Worth to reflect new information which becomes known to MTBI
after the date of this Agreement.
(b) Except as reflected above in this Section, any accounting
adjustments which may be made pursuant to Section 4.6 shall not affect the
Net Worth.
(c) The Bank is required by FASB 115 to reflect in its equity
account any unrealized gain or loss on those securities designated as
"available for sale." The Bank will continue to maintain its FASB
designation as to securities available for sale and to reflect any
unrealized gain or loss on those securities in its equity account, but such
unrealized gain or loss shall not be taken into account in determining the
Net Worth of the Company.
(d) The aggregate downward adjustments to the Net Worth shall
not exceed $100,000 except with the mutual agreement of the Company and
MTBI. If such adjustments shall exceed such amount, the termination
provisions of Section 10.3(g) shall apply.
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ARTICLE 2
THE CLOSING
Section 2.1. Closing Date. Subject to the provisions of this
Agreement relating to conditions to Closing and rights of termination, the
closing of the Merger (the "Closing") shall take place at MTBI's offices in
Kansas City, Missouri, located at 11th and Baltimore, at 10:00 a.m. on that
day (the "Closing Date") which is the tenth business day of the month
following the month in which is received the last governmental or
regulatory approval which is necessary to consummate the Merger in
accordance with this Agreement, or at such other time and place as MTBI and
the Shareholder Representative may specify.
Section 2.2. Actions at or In Connection with the Closing.
(a) At Closing the Company shall deliver to MTBI:
(i) a Certificate signed by an appropriate officer of the
Company stating that (A) each of the representations and warranties
contained in Section 3.1 (except those in Subsections 3.1(a) and (c)(i),
which are personal to the Shareholders) is true and correct in all material
respects at the time of the Closing with the same force and effect as if
such representations and warranties had been made at Closing, and (B) all
of the conditions set forth in Section 6 have been satisfied or waived as
provided therein;
(ii) a certified copy of the resolutions of the Company's
Board of Directors and Shareholders, as required for valid approval of the
execution of this Agreement and the consummation of the Merger;
(iii) a Certificate of the Secretary of State of the State
of Missouri, dated a recent date, stating that the Company is in good
standing;
(iv) evidence satisfactory to MTBI and its counsel as to the
good standing of the Bank under the laws of the United States and the State
of Missouri; and
(v) the legal opinion from counsel for the Company required
by Section 6.1.(1).
(b) At the Closing, MTBI shall deliver to the Company:
(i) a Certificate signed by an appropriate officer of MTBI
and Sub stating that (A) each of the representations and warranties
contained in Section 3.3 is true and correct in all material respects at
the time of the Closing with the same force and effect as if such
representations and warranties had been made at Closing and (B) all of the
conditions set forth in Section 6.2 have been satisfied;
(ii) a certified copy of the resolutions of the MTBI Board
of Directors authorizing the execution of this Agreement and the
consummation of the Merger;
(iii) a certified copy of the resolutions of Sub's Board of
Directors and of MTBI as shareholder of Sub, approving or ratifying this
Agreement and the Merger; and
(iv) the legal opinion from counsel for MTBI and Sub
required by Section 6.3.(c).
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations of the Shareholders. The Shareholders
hereby represent and warrant to, and covenant and agree with, MTBI as set
forth in this Section 3.1, subject, however, to the exceptions and
limitations and matters set out on a disclosure schedule (the "Disclosure
Schedule"), substantially in the form required by Schedule 1 hereto, to be
delivered to MTBI not later than fifteen days following the date of this
Agreement or at such later date as MTBI may agree. Each of the
Shareholders shall be deemed to make such representations and warranties
jointly and severally, except for matters relating only to other
Shareholders.
(a) Ownership. Each of the Principal Shareholders owns that
number of issued and outstanding Company Shares indicated on the signature
page to this Agreement.
(b) Organization and Good Standing of the Bank and the Company.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Missouri, and the Bank is a duly organized and
existing national banking association, and is in good standing, under and
in accordance with the laws of the United States. Each has full corporate
power and all necessary licenses and permits to carry on its business as
now conducted and to own or lease and operate its properties as and in the
places where such business is now conducted and such properties are now
owned, leased or operated. The Bank does not have or exercise trust
powers. The Company has delivered or will cause to be delivered to MTBI
with the Disclosure Schedule true, complete and correct copies of the
charter and By-Laws of the Company and all of its subsidiaries, including
the Bank, as in force on the date hereof.
(c) Power and Authority.
(i) Each of the Shareholders has, and on the Closing Date
will have, full right, power and authority to, and will, surrender the
Company Shares owned by such Shareholder in the Merger, free and clear of
all claims, liens, restrictions, charges, encumbrances and equities
whatsoever. Each of the Company and the Principal Shareholders has full
power and lawful authority to execute, deliver and perform this Agreement,
and has properly executed and delivered this Agreement.
(ii) No provision of the Company's or the Bank's charter or
By-Laws or of any other instrument to which the Company, the Bank or any
Principal Shareholder is subject, prohibits or limits the right and
authority of the Company or such Principal Shareholder to enter into this
Agreement and (subject to the favorable vote of the Shareholders at the
meeting contemplated by Section 4.5) to consummate the Merger. The
execution and delivery of this Agreement and the consummation of the Merger
will not conflict with or result in any violation of or default under
(A) any provision of the charter or By-Laws of the Company or of the Bank,
(B) any mortgage, indenture, lease, bank credit agreement or other
agreement, permit, license, judgment, order or decree applicable to the
Company, the Bank or any of the Principal Shareholders or their respective
properties, or (C) any statute, law, ordinance, rule or regulation
applicable to the Company, the Bank, any of the Principal Shareholders or
their respective properties.
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<PAGE>
(d) Capitalization.
(i) The authorized capital stock of the Bank consists of
30,000 shares of common stock, par value $25 per share, of which 30,000
shares are issued and outstanding. All such issued shares of the Bank have
been duly authorized and are legally and validly issued in accordance with
the Bank's charter and By-Laws and with applicable law, and are fully paid
and non-assessable. The Company owns all of such shares free and clear of
all liens, restrictions or encumbrances. There are in existence no
options, warrants, convertible securities or other similar rights with
respect to the capital stock of the Bank, or any agreement to which the
Company, the Bank or any of the Principal Shareholders is a party or by
which the Company, the Bank or any of the Principal Shareholders is bound
for the issue or sale by the Company, the Bank or any of the Principal
Shareholders of any shares of any capital stock of the Bank, or of any
security convertible into any shares of any capital stock of the Bank.
(ii) The authorized capital stock of the Company consists of
1,000,000 shares of common stock, par value $0.20 per share, of which
586,234 shares are issued and outstanding. Except as described in
paragraph 3.1.(d) of the Disclosure Schedule, there are in existence no
options, warrants, convertible securities or other similar rights with
respect to the capital stock of the Company, or any agreement to which the
Company, the Bank or any of the Principal Shareholders is a party or by
which the Company, the Bank or any of the Principal Shareholders is bound
for the issue or sale by the Company, the Bank or any of the Principal
Shareholders of any shares of any capital stock of the Company, or of any
security convertible into any shares of any capital stock of the Company.
All issued shares of the Company have been duly authorized and are legally
and validly issued in accordance with the Company's charter and By-Laws and
with applicable law, and are fully paid and non-assessable. No other
classes or series of capital stock are authorized to be issued by the
Company.
(e) Financial Statements. The Company has delivered to MTBI
such financial statements and records, and reports to regulatory agencies,
as MTBI has requested, including the financial statements described in
paragraph 3.1.(e) of the Disclosure Schedule (the "Financial Statements").
The Financial Statements present fairly in all material respects the
financial condition and results of operations of the Bank and the Company,
respectively, as of their respective dates and for the respective periods
shown, all in accordance with generally accepted accounting principles
applied on a basis consistent with that of preceding periods ("GAAP")
except for reports filed with regulatory agencies, each of which was
prepared in accordance with the requirements of the agency with which filed
and all regulatory filings. Since December 31, 1995, there has not been
any material adverse change in the financial condition, results of
operations, or the business or prospects, of the Bank or the Company.
Nothing has come to the attention of the Company or any of the Principal
Shareholders which would lead any of them to believe that the Financial
Statements are incomplete, misleading or incorrect in any material respect.
The Company will, with reasonable promptness after public delivery or
filing, deliver to MTBI all reports and information delivered to all of its
or the Bank's stockholders and all periodic reports filed by the Company or
the Bank with state or federal regulatory agencies between the date of this
Agreement and the Closing. Any Call Reports of the Bank or consolidated
financial statements of the Company included in such reports and other
information will present fairly in all material respects the financial
condition and results of the Bank and the Company, respectively, as of
their respective dates and for the respective periods shown, all in
accordance with GAAP except as otherwise provided above.
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(f) Books and Records. The financial books and records of the
Company and the Bank accurately reflect the transactions to which they are
or were a party or by which their properties are or were bound, and such
books and records are and have been properly kept and maintained in
accordance with all applicable legal, accounting and regulatory
requirements. All of the minutes and other corporate and financial records
of the Company and of the Bank will be made available to representatives of
MTBI and are complete, accurate and current in all material respects.
(g) Absence of Certain Changes. Since December 31, 1995, the
business of the Bank and the Company have been operated only in the
ordinary and normal course and, except as set forth in paragraph 3.1.(g) of
the Disclosure Schedule, there has not been, after such date, as to the
Bank or the Company:
(i) any increase in the compensation payable or to become
payable to any employee or agent of the Bank or the Company (exclusive of
incentive compensation based on profits) in excess of 10% over the
compensation level prevailing as of December 31, 1995 or the entry into any
written employment agreement or arrangement with any person;
(ii) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind of (or on) any of the Bank's or the Company's
assets, except Permitted Liens;
(iii) the establishment by the Bank or the Company of any
new, or any increase in the formula for contributions to or benefits under
any existing, retirement, pension, profit sharing, stock bonus, savings or
thrift plan, or any similar plan for deferred compensation, whether funded
or unfunded and whether qualified (within the meaning of the Code) or
unqualified;
(iv) any action seeking any cancellation of, or decrease in
the insured limit under, or increase in the deductible amount or the
insured's retention (whether pursuant to coinsurance or otherwise) under,
or any notice of non-renewal of, or any expiration (without replacement of
like kind) of, any policy of insurance maintained by the Bank or the
Company on any of the assets or businesses of the Bank or the Company;
(v) any purchase or lease or commitment by the Bank or the
Company to purchase or lease any fixed asset having a purchase price or
market value in excess of $10,000 (or $25,000 with respect to computer
software, or in excess of $50,000 for all such fixed assets in the
aggregate), or any sale or transfer of any asset other than in the ordinary
course of business;
(vi) the entering into of any Material Agreement or
Commitment to which the Bank or the Company is a party or by which either
is bound, or any amendment or termination of any such Material Agreement or
Commitment;
(vii) any default by the Bank or the Company under any
agreement to which the Bank or the Company is a party or by which it is
bound, or any event which, with notice or lapse of time or both, would be
such a default or would cause any acceleration of any obligation of the
Bank or the Company;
(viii) other than in the ordinary course of business of the
Bank (and in accordance with customary banking standards), any forgiveness
or cancellation by the Bank or the Company of any debt owing to either of
them or any claim by either of them, or any waiver by either of them of any
of their respective rights;
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(ix) any damage or destruction of, or loss (whether or not
covered by insurance) by the Bank or the Company to or of, any of the
Bank's or the Company's physical plant and equipment that might materially
and adversely affect the condition (financial or otherwise) of the Bank or
the Company, or their respective business, operations or prospects;
(x) any declaration or setting aside or payment by the
Company or the Bank of any dividend or other distribution in respect of
their capital stock, except as expressly authorized and provided for in
Section 4.4 hereof, or any purchase or redemption by the Bank or the
Company, directly or indirectly, of any shares of their capital stock; or
(xi) except in the ordinary course of business of the Bank,
such as the taking of deposits, federal funds transactions, and repurchase
agreements, the incurring by the Bank or the Company of any indebtedness
for borrowed money or the issuance or sale by the Bank or the Company of
any debt securities.
(h) Notification of Changes. If, at any time between the date
of this Agreement and the Closing, the Company or any Principal Shareholder
shall become aware that any representation or warranty set forth herein
relating to any of them and/or the Bank is no longer accurate, it, he or
she shall give prompt written notice to MTBI to such effect, and shall
provide specific information as to the reasons for such inaccuracy.
(i) Agreements. Paragraph 3.1.(i) of the Disclosure Schedule
lists each contract, agreement or commitment to which the Bank or the
Company is a party (i) which is or may be material to the conduct of their
respective businesses or to the condition, financial or otherwise, of
either of them and which cannot be cancelled by the Company or the Bank,
without penalty, on notice of 60 days or less; or (ii) except for Permitted
Liens, which affects ownership of, title to, or use of, or any interest in,
real estate; or (iii) to which any person affiliated with the Company or
any of its Shareholders (including any person or business entity controlled
by, controlling or under common control with any one or more such
Shareholders) is a party (but not including loan documents, credit
agreements and similar banking arrangements entered into in the ordinary
course of business), or (iv) which obligates the Bank or the Company to
make aggregate payments after the date of this Agreement which may exceed
$50,000; or (v) which authorizes or engages any person or entity to act for
or as an employee of or provide personal services to, the Company or the
Bank, including any employment or consulting agreement; bonus, incentive
compensation, pension, profit sharing, group insurance or employee welfare
plan of any nature whatsoever; sales, agency, brokerage, or similar
agreement; power of attorney to any person, firm, corporation or other
entity for any purpose whatsoever; and contract with any advertising
agency, and each advertising contract or commitment; or (vi) which provides
for payment based in any manner upon the transactions, volume of business
or profits of either the Company or the Bank. Such paragraph 3.1.(i) also
describes each insurance policy and surety or fidelity bond protecting the
Company, the Bank or any of the respective properties or assets of either
of them. Each such contract, agreement and commitment is referred to
herein as a "Material Agreement or Commitment". The Company shall promptly
on request deliver to MTBI copies of all contracts and agreements,
including insurance policies, to which either the Company or the Bank is a
party, including any Material Agreement or Commitment. Each Material
Agreement or Commitment is in full force and effect and there has not been
any material default (or any event which, with notice or lapse of time or
both, would constitute a material default) in any obligation to be
performed by the Bank or the Company under any Material Agreement or
Commitment.
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Neither the Bank nor the Company has waived, and prior to the Closing Date
neither will waive, any material right under any Material Agreement or
Commitment.
(j) Concerning Assets. Paragraph 3.1.(j) of the Disclosure
Schedule identifies all real property owned or leased by the Company or the
Bank, including each option to purchase real property. The Bank and the
Company each have good and marketable title to their respective real
property (which title is insurable at standard rates), inventory,
equipment, furniture and fixtures (except for leased property, as to which
their rights are as lessee) reflected on the Financial Statements, except
as sold or otherwise disposed of in the ordinary course of business or in
any transaction expressly permitted by this Agreement, and such title is in
each case free and clear of all liens and encumbrances other than Permitted
Liens or as otherwise set forth in paragraph 3.1.(j) of the Disclosure
Schedule. All tangible assets of the Bank and the Company are in good
operating condition, reasonable wear and tear excepted.
(k) Taxes.
(i) Each of the Bank and the Company has duly filed with
the appropriate governmental agencies all federal, state and local income
and other tax returns and reports which are required to have been filed,
all of which properly reflect the respective taxes of the Bank and the
Company for the periods covered thereby except that (A) the Bank did not
file information reports for individual retirement accounts on IRS Form
5498 for years 1990, 1991 and 1992 until April 29, 1994, at which time it
requested a waiver (for which no response has been received) of all
penalties, and (B) it has not obtained a City of Kansas City occupational
license nor paid such City's occupational license tax, consistently
asserting since 1990 in response to repeated notices from the City, that
national banks are exempt from such tax and license requirements (the City
has taken no action to enforce collection of such tax or to require that
the Bank obtain such license). None of the Company's federal income tax
returns have been audited.
(ii) All taxes, assessments, interest, penalties,
deficiencies, fees or other governmental charges or impositions called for
by such tax returns, or claimed to be due by any taxing authority for
taxable years ending on or before December 31, 1995, have been properly
accrued or paid, except as described in (i) above and except those being
contested in good faith in proceedings described in paragraph 3.1.(k) of
the Disclosure Schedule.
(iii) Neither the Bank nor the Company has received any
notice of deficiency or assessment or proposed deficiency or assessment by
the Internal Revenue Service or any other taxing authority (including any
such notice or assessment relating to sales or use taxes). Neither the
Bank nor the Company has waived any law or regulation fixing, or consented
to the extension of, any period of time for assessment of any tax.
(iv) The Company will deliver to MTBI with the Disclosure
Schedule complete and accurate copies of the Bank's and the Company's
consolidated federal and state income tax returns for all tax years.
(v) The Company will deliver to MTBI with the Disclosure
Schedule a schedule showing the Bank's and the Company's respective tax
rates for any unemployment insurance and worker's compensation tax to which
either is subject.
(l) No Brokerage or Finder's Fees. Neither the Company, the
Bank nor any of the Shareholders has incurred any liability or obligation
committing MTBI, the Bank or the
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Company to any broker, finder or agent for any brokerage fee, finder's fee,
commission or the like with respect to the Merger, except for the agreement
dated October 24, 1995 between the Company, Swords Associates, Inc., et al.
(m) Employee Benefit Plans. Each "employee welfare benefit
plan" and "employee pension benefit plan," as such terms are defined by
ERISA, maintained by the Bank or the Company is listed in paragraph 3.1.(m)
of the Disclosure Schedule, and copies thereof have been delivered to MTBI.
Each of the Bank and the Company is in compliance in all material respects
with the applicable provisions of ERISA with respect to each such plan and
neither has received any notice to the contrary from the Internal Revenue
Service, the Pension Benefit Guaranty Corporation or any other governmental
agency.
(n) Financial Assets.
(i) All loans receivable (including discounts) and accrued
interest entered on the books of the Bank or the Company, to the extent
unpaid on the Closing Date, arose out of bona fide arm's-length
transactions, were made for good and valuable consideration in the ordinary
course of the Bank's or the Company's respective business, and the notes or
other evidences of indebtedness with respect to such loans or discounts are
true and genuine and are what they purport to be. The loans, discounts and
the accrued interest reflected on the books of the Bank and the Company are
subject to no defenses, set-offs or counterclaims (including, without
limitation, those afforded by usury or truth-in-lending laws), except as
may be provided by bankruptcy, insolvency or similar laws affecting
creditors' rights generally or by general principles of equity. All such
loans are owned by the Bank or the Company free and clear of any liens,
restrictions or encumbrances.
(ii) The notes and other evidences of indebtedness
evidencing such loans, and all pledges, mortgages, deeds of trust and other
collateral documents or security instruments relating thereto are and will
be, in all material respects, valid, true, genuine and enforceable, and
what they purport to be. Each of the Bank and the Company has good and
valid title to the investment securities shown on their respective
Financial Statements and all securities entered on the books of the Bank or
the Company subsequent to December 31, 1995, except for those sold or
redeemed in the ordinary course of business, and except for Permitted
Liens. A complete and accurate list of such investment securities as of
December 31, 1995 is attached to the Disclosure Schedule. Such list shall
be updated each month in writing until the Closing.
(o) Litigation. Paragraph 3.1.(o) of the Disclosure Statement
includes a listing of each judicial or administrative action, suit,
proceeding or investigation pending or, to the knowledge of the Company,
the Bank or any of the Principal Shareholders, threatened which could
result in liability on the part of the Bank or the Company.
(p) Management Interlocks. There is not in existence with
respect to the Company or the Bank any "management official interlock"
within the meaning of the Depository Institution Management Interlocks
Act.
(q) Insurance. Each of the Bank and the Company insures its
business and properties with such insurers, against such risks, with such
coverages and deductibles, and in such amounts, as are listed in paragraph
3.1.(q) of the Disclosure Schedule, and a copy of each such policy has been
delivered to MTBI. All of such insurance now is, and on the Closing Date
will be, in full force and effect with all premiums thereon paid as due
thereunder.
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(r) Environmental Matters. As used in this Agreement, the term
"Environmental Laws" means all local, state and federal environmental,
health and safety laws and regulations in all jurisdictions in which the
Company and its subsidiaries have done business or owned property,
including, without limitation, the Federal Resource Conservation and
Recovery Act, the Federal Comprehensive Environmental Response,
Compensation and Liability Act, the Federal Clean Water Act, the Federal
Clean Air Act, and the Federal Occupational Safety and Health Act.
Except as disclosed in paragraph 3.1.(r) of the Disclosure
Schedule, neither the conduct nor operation of the business of the Company
or its subsidiaries, including the Bank, nor any condition of any property
ever owned by any of them, violates any Environmental Laws in any material,
and no condition or event has occurred with respect to any of them or any
such property that, with notice or the passage of time, or both, would
constitute a material violation of any Environmental Laws or obligate (or
potentially obligate) the Company, the Bank or such other subsidiaries to
remedy, stabilize, neutralize or otherwise alter the environmental
condition of any such property. Neither the Company nor any of its
subsidiaries, including the Bank, has received any notice from any person
or entity that the Company or any subsidiary or the operation of any
facility or any property ever owned by any of them are or were in violation
of any of the Environmental Laws or that any of them are responsible (or
potentially responsible) for the cleanup of any pollutants, contaminants,
or hazardous or toxic wastes, substances or materials at, on or beneath any
such property.
(s) Compliance with Laws. Neither the Bank nor the Company is
in violation of any provision (including recordkeeping and reporting
provisions) of any law, ordinance, rule or regulation applicable to its
respective properties or business, including the Bank Secrecy Act of 1970,
the Truth-in-Lending law, any other law of any Federal, state or local
government regulating their banking or trust activities, zoning, building,
occupancy and fire laws, ordinances and regulations, and provisions
relating to wages, hours, working conditions, collective bargaining and
equal employment opportunity.
(t) Regulatory Enforcement Matters. Except as disclosed in
paragraph 3.1.(t) of the Disclosure Schedule, neither the Company nor any
of its subsidiaries, including the Bank, is subject to, or has received any
notice or advice that it may become subject to, any order, agreement or
memorandum of understanding with any federal or state agency charged with
the supervision or regulation of banks or bank holding companies or engaged
in the insurance of bank deposits or any other governmental agency having
supervisory or regulatory authority with respect to any subsidiary of the
Company.
(u) Licenses and Approvals. All licenses, permits, franchises
and other governmental and approvals required or necessary for the Bank or
the Company to own and/or occupy its properties or to carry on its business
have been obtained and are in full force and effect.
(v) Information for Registration Statement. The Principal
Shareholders will cause the Company to furnish to MTBI on request from time
to time all such information as MTBI may reasonably require for inclusion
in the Registration Statement on Form S-4 (the "Registration Statement")
which MTBI will prepare and file in connection with the Merger or as
necessary for compliance with any applicable state securities laws. All
such information shall be true and correct in all material respects without
omission of any material fact which is required to make such information
not false or misleading.
(w) List of Company Affiliates. Paragraph 3.1.(w) of the
Disclosure Schedule sets forth a complete list of each Shareholder who is
an Affiliate of the Company. If any
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Shareholder not included on such list shall become such an Affiliate at any
time prior to the Closing Date or the Effective Date, the Principal
Shareholders will promptly so advise MTBI in writing.
(x) Community Reinvestment. Neither the Company nor the Bank
has received within the twenty-four month period prior to the date hereof a
rating pursuant to the Community Reinvestment Act of 1977, as amended (12
U.S.C. Secs. 2901-2907), of either "needs to improve" or "substantial
noncompliance," or been advised that such a rating is forthcoming or that
the Bank does not have an acceptable record of meeting the credit needs of
its entire community, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of the Bank. No application
submitted by the Company or the Bank to any federal regulatory agency which
involves, as a condition for approval, an assessment of performance in
meeting the credit needs of its community has been delayed or denied
because of an unacceptable record in meeting such needs.
(y) Regulatory Enforcement Matters. Neither the Company nor the
Bank is subject to any cease-and-desist or other order issued by, or is a
party to any written agreement or memorandum of understanding with or
commitment or similar undertaking to, or subject to any order or directive
by, or a recipient of any extraordinary supervisory letter from, or has
adopted any board resolutions at the request of, any federal or state
agency charged with the supervision or regulation of banks or bank holding
companies or engaged in the insurance of bank deposits, or any court
administrative agency or commission or other governmental agency, authority
or instrumentality having supervisory or regulatory authority with respect
to the Company or the Bank, that materially restricts the conduct of its
business or that in any manner relates to its capital adequacy, credit
policies, management or business, nor does the Company or the Bank
reasonably believe any such action is likely.
Section 3.2. Amendment to Disclosure Schedule. Following the date of
this Agreement and until 60 days prior to the date of the Shareholders'
meeting contemplated by Section 4.5 (or until such later date as MTBI may
agree in writing), the Shareholder Representative may provide additional
written information to MTBI to supplement or amend information previously
supplied as a part of the Disclosure Schedule or together with the
Disclosure Schedule. Such additional information shall be deemed to
supplement and amend the Disclosure Schedule as of the date received by
MTBI, provided, that (i) such information is delivered to and received by
Keith Miller or Peter Benoist at the main offices of MTBI and (ii) the
information specifically identifies the applicable paragraphs or sections
of the Disclosure Schedule which are being supplemented or amended. As
provided in Section 10.3.(c), MTBI may have the right to terminate this
Agreement if such additional information is not satisfactory to it.
Section 3.3. Representations Concerning MTBI. MTBI hereby represents
and warrants to, and covenants and agrees with, the Company and the
Shareholders as set forth in this Section.
(a) Organization, Power and Authority. Each of MTBI and Sub is
a corporation duly organized, validly existing and in good standing under
the laws of the State of Missouri and has full corporate power to enter
into and perform this Agreement. Subject to ratification of this Agreement
by their respective Board of Directors (which action management shall seek
at the next regularly scheduled meetings following the date of this
Agreement), no further action will be necessary to make this Agreement
valid and binding upon MTBI and Sub in accordance with its terms.
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(b) No Brokerage or Finder's Fees. Neither MTBI nor Sub has
incurred any liability or obligation committing the Company, the Bank or
any Principal Shareholder to any broker, finder or agent for any brokerage
fee, finder's fee or commission with respect to the transactions
contemplated by this Agreement.
(c) Capitalization. As of December 31, 1995, the capitalization
of MTBI was as set forth in the Annual Report on Form 10-K filed by MTBI
with the SEC, copies of which have been delivered to the Principal
Shareholders as described below. All outstanding shares of common stock of
MTBI are validly issued and are fully paid and nonassessable.
(d) The MTBI Shares. The MTBI Shares to be delivered to the
Shareholders in the Merger pursuant to this Agreement have been duly
authorized and, when issued as provided herein, will be validly issued,
fully paid and non-assessable shares of MTBI, and will be delivered to the
Shareholders free and clear of any liens, restrictions or encumbrances
except for the restrictions on transfer referred to in Section 1.3.(b).
(e) SEC Reports: Financial Statements. MTBI has delivered or
made available to the Principal Shareholders true and complete copies of
(i) MTBI's Annual Reports on Form 10-K for the fiscal years ended December
31, 1995 and 1994, (ii) proxy statements relating to the annual meetings of
MTBI's stockholders held in 1995 and 1996, (iii) MTBI's Quarterly Reports
on Form 10-Q for the quarter ended March 31, 1996 and (iv) all other
reports filed by MTBI with the SEC or provided to the shareholders of MTBI
generally since December 31, 1995. MTBI will, with reasonable promptness
after public delivery or filing, deliver to the Principal Shareholders all
reports and other information delivered to its public stockholders and all
periodic reports filed with by MTBI with the SEC between the date of this
Agreement and the Closing. As of their respective dates, such reports and
other documents did 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, in the light of the circumstances under which
they were made, not misleading. The financial statements of MTBI included
or incorporated by reference therein were prepared in accordance with GAAP
(except as otherwise stated in such financial statements or, in the case of
audited statements, the related report thereon of independent certified
public accountants), and present fairly the financial position, results of
operations and changes in financial position of MTBI and its consolidated
subsidiaries as of the dates and for the periods indicated, except (with
respect to the unaudited interim financial statements) for year-end
adjustments.
(f) Litigation. Except as reflected in the financial and other
information delivered to the Shareholder Representative by MTBI as referred
to above, or except as otherwise described by MTBI in writing to the
Shareholder Representative, there is no judicial or administrative action,
suit, proceeding or investigation pending or, to the knowledge of MTBI,
threatened, which would be required to be reported by MTBI in its Annual
Report on Form 10-K (under the Securities Exchange Act of 1934) if such
Report or Form were filed with the Securities and Exchange Commission on
the date hereof.
(g) Absence of Changes. Since March 31, 1996, there has not
been any material adverse change in the business, financial condition or
operations or prospects of MTBI, or any event or condition (other than
changes in legal, economic or other conditions which are not specially
applicable to MTBI) which has materially and adversely affected the
business or financial condition of MTBI and its subsidiaries, taken as a
whole.
(h) Form S-4 Registration Statement. MTBI will prepare and file
with the SEC as soon as is reasonably practicable following the date of
this Agreement a Registration Statement
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on Form S-4 under the Securities Act of 1933 with respect to the MTBI
Shares to be issued and delivered in the Merger, and will use all
reasonable efforts to have such Registration Statement declared effective
by the SEC. MTBI shall also take all actions reasonably required to be
taken under state securities laws in connection with the issuance and
delivery of such MTBI Shares.
(i) The Prospectus. The Prospectus to be included in the
Registration Statement will not contain any statement which, at the time
and in the light of the circumstances under which it is made, is false or
misleading with respect to any material fact or omits to state any material
fact necessary in order to make the statements therein not false or
misleading, except that MTBI shall have no liability to the Shareholders in
respect of any information concerning the Company, the Bank or the
Shareholders which is provided to MTBI by or on behalf of the Shareholders
for use in the Prospectus. Subject to the foregoing, if at any time after
the delivery of the Prospectus but prior to the Closing Date an event
occurs relating to MTBI or its affiliates or associates which should be set
forth in an amendment of or supplement to the Prospectus, MTBI will with
reasonable dispatch present such information in an appropriate amendment or
supplement so that the Prospectus, as so amended or supplemented, will not
contain any statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading with respect
to any material fact or omits to state any material fact necessary in order
to make the statements therein not false or misleading.
(j) 1934 Act Reports. MTBI has filed in a timely manner all
reports required to be filed by it under the Securities Exchange Act of
1934, as amended, during at least the 12-month period preceding the date of
this Agreement, and agrees to file in a timely manner all such reports
until at least the third anniversary of the Closing Date and to give the
Company a copy of each such report filed between the date hereof and the
Closing Date.
ARTICLE 4.
OBLIGATIONS AND COVENANTS PRIOR TO CLOSING
The Company and the Principal Shareholders covenant and agree as
follows:
Section 4.1. Conduct of Business.
(a) Between the date hereof and the Closing Date, the Company will,
and will cause the Bank to, conduct their respective businesses in the
ordinary course and so as to preserve all material business relationships
with the Bank's and the Company's respective depositors, borrowers,
correspondent banks, suppliers and employees, and to pay the liabilities of
each as they become due in the ordinary course.
(b) Without limiting the general obligation of the Company and the
Principal Shareholders under Section 4.1.(a) above, the Company will not
do, and will not permit the Bank to do, without the prior written consent
of MTBI, any of the following:
(i) issue any additional shares of common or other capital
stock, or any options, warrants or other rights to subscribe for or
purchase any common or other capital stock or any securities convertible
into or exchangeable for any capital stock (except for the issuance of
Company Shares pursuant to the exercise of options to purchase the same
which are outstanding on the date of this Agreement and listed on the
Disclosure Schedule); or
(ii) directly or indirectly, purchase or otherwise acquire
any Company Shares or any other capital stock of the Company; or
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(iii) effect a reclassification, recapitalization, splitup,
exchange of shares, readjustment or other similar change in or to any
capital stock, or otherwise reorganize or recapitalize; or
(iv) change its certificate or articles of incorporation or
association, as the case may be, or By-Laws; or
(v) grant any material increase (other than normal periodic
increases consistent with past practices) in the compensation payable or to
become payable to officers or salaried employees, grant any stock options
or stock appreciation rights or adopt or make any change in any bonus,
insurance, pension, or other employee benefit plan, payment or arrangement
made to, for or with any of such officers or employees; or
(vi) except in the ordinary course of business, borrow or
agree to borrow any material amount of funds or directly or indirectly
guarantee or agree to guarantee any obligations of others; or
(vii) except pursuant to commitments in effect on this date
of this Agreement and reflected in the Financial Statements, make or commit
to make any new loan or letter of credit or any new or additional
discretionary advance under any existing line of credit in principal
amounts in excess of $100,000 or that would increase the aggregate credit
outstanding to any one borrower (or group of affiliated borrowers) to more
than $500,000 (excluding for this purpose any accrued interest or
overdrafts); or
(viii) purchase or otherwise acquire any investment security
for its own account having an average remaining life to maturity greater
than five years or any asset-backed securities other than those issued or
guaranteed by the Governmental National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation; or
(ix) increase or decrease the rate of interest paid on time
deposits, or on certificates of deposit, except in a manner and pursuant to
policies consistent with past practices; or
(x) enter into any agreement, contract or commitment out of
the ordinary course of business or having a term in excess of three
(3) months other than letters of credit, loan agreements, deposit
agreements, and other lending, credit and deposit agreements and documents
made in the ordinary course of business in accordance with prior practice;
or
(xi) except in the ordinary course of business, including
specifically its secondary mortgage business, place any mortgage, pledge,
lien, charge, or other encumbrance on any of its assets or properties; or
(xii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to the Company or its
subsidiaries, including the Bank, or any claims which the Company such
subsidiaries may possess or waive any material rights of substantial value;
or
(xiii) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property other than
properties acquired in foreclosure or otherwise in the ordinary collection
of indebtedness to the Company and its subsidiaries; or
(xiv) foreclose upon or otherwise take title to or
possession or control of any real property without first obtaining a phase
one environmental report thereon which
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indicates that the property is free of hazardous, toxic or polluting waste
materials; provided, however, that the Company and its subsidiaries shall
not be required to obtain such a report with respect to single family, non-
agricultural residential property of one acre or less to be foreclosed upon
unless it has reason to believe that such property might contain hazardous
waste materials or otherwise might be contaminated; or
(xv) commit any act or fail to do any act which will cause a
breach of any agreement, contract or commitment and which might have a
material adverse effect on the business, financial condition or earnings of
the Company, the Bank or any other subsidiary of the Company;
(xvi) violate any law, statute, rule, governmental
regulation, or order, which violation might have a material adverse effect
on the business, financial condition or earnings of the Company, the Bank
or any other subsidiary of the Company; or
(xvii) purchase any real or personal property or make any
other capital expenditure where the amount paid or committed therefor is in
excess of $25,000.
(c) The Company and the Principal Shareholders shall promptly
notify MTBI in writing of the occurrence of any event known to them which
might be materially adverse to the business, operations, properties,
assets, or condition (financial or otherwise) of the Company, the Bank or
any other subsidiary of the Company.
Section 4.2 Examinations.
(a) The Company shall, and shall cause the Bank to, permit
MTBI's counsel, representatives, appraisers and accountants, at MTBI's cost
and expense, to have access to the Bank's and the Company's properties and
records, to conduct such financial or other examinations, analyses and
appraisals as MTBI may desire. Such examinations shall be conducted during
normal business hours in such a fashion so as not to unreasonably disrupt
usual business activity.
(b) The Company shall, and shall cause the Bank to, promptly
deliver to MTBI all such financial and other records, statements,
contracts, agreements, and reports as MTBI shall request, all of which
shall, upon delivery, be subject to the representations and warranties set
out in Sections 3.3.(e) and 3.1.(i) except as expressly otherwise agreed at
the time of delivery.
Section 4.3. Environmental Reports. The Company shall provide to
MTBI, as soon as reasonably practicable, but not later than 45 days after
the date hereof, a report of a phase one environmental investigation on all
real property owned by the Company, the Bank or any other subsidiary of the
Bank as of the date hereof and within ten days after the acquisition or
lease of any real property acquired or leased by the Company or any
subsidiary after the date hereof (other than space in retail and similar
establishments leased by the Company for automatic teller machines). If
required by such phase one investigation in MTBI's reasonable opinion, the
Company shall provide to MTBI a report of a phase two investigation on
properties requiring such additional study. As provided in Section
10.3.(d), MTBI may have the right to terminate this Agreement if the
results of such phase two investigation are not satisfactory.
Section 4.4. Dividends and Distributions. The Company will not, and
will not permit the Bank to, pay any dividend or make any other
distribution, whether in cash, stock or otherwise, on or in respect of its
stock, except with the prior written consent of MTBI.
Section 4.5. Shareholders' Meeting. The Principal Shareholders shall
cause the Company to call a special meeting of its Shareholders for the
purpose of voting on this Agreement and the
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Merger, and shall use their best efforts to cause this Agreement and the
Merger be approved at such meeting. Such meeting shall be held not later
than 30 days after the date on which the Registration Statement becomes
effective. Each Principal Shareholder shall vote all Company Shares held
of record by him or her (as indicated on the signature page hereof) at such
meeting in favor of the Merger, and further agrees to cause all Company
Shares which are under voting control by such Principal Shareholder to be
voted in favor of the Merger.
Section 4.6. Accounting and Reserve Policies.
(a) Notwithstanding that the Company believes that it has
established all reserves and taken all provisions for possible loan losses
required by GAAP and applicable laws, rules and regulations, the Company
recognizes that MTBI may have in effect loan, accrual and reserve policies
(including loan classifications and levels of reserves for possible loan
losses) which are different from those established by the Company. From
and after the date of this Agreement, the Company and MTBI shall consult
and cooperate with each other in order to conform the Company's loan,
accrual and reserve policies to those policies of MTBI.
(b) In addition, from and after the date of this Agreement, the
Company and MTBI shall consult and cooperate with each other in determining
appropriate accruals, reserves and charges to establish and take in respect
of appropriate charges and accounting adjustments, taking into account the
parties' business plans following consummation of the transaction
hereunder.
(c) The Company and MTBI shall consult and cooperate with each
other in determining the amount and timing for recognizing for financial
accounting purposes the expenses of the transaction hereunder and the
restructuring charges related to or to be incurred in connection therewith.
(d) At the request of MTBI, the Company shall establish and take
such reserves and accruals as MTBI shall request to conform the Company's
loan, accrual and reserve policies to MTBI policies, shall establish and
take such accruals, reserves and charges in order to implement such
policies in respect of write-off or write-down of various assets and other
appropriate accounting adjustments, and to recognize for financial
accounting purposes such expenses of the transaction hereunder, in each
case at such times as shall reasonably be determined by MTBI and as shall
be in accordance with GAAP and applicable regulatory and legal
requirements.
(e) The actions required under this Section are intended to
facilitate the implementation of the Merger in a manner which is consistent
with the financial reporting and other similar concerns of MTBI, and are
not otherwise intended to affect the financial terms of the Merger. Except
for matters which are to be taken into account in the determination of Net
Worth as contemplated by Section 1.8, no modifications referred to in this
Section shall affect the Book Value Per Share or the number of MTBI shares
to be issued in the Merger.
Section 4.7. Obligations of Principal Shareholders. Each of the
Principal Shareholders will duly and timely perform all of his or her
respective undertakings hereunder in accordance with the terms hereof and
will use his or her best efforts to cause the Company to perform all of its
undertakings hereunder in accordance with the terms hereof.
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ARTICLE 5.
REGULATORY APPROVAL
Subject to prompt receipt of any information required to be delivered
by the Principal Shareholders, as soon as shall be practicable following
the date of this Agreement, MTBI shall at its sole expense cause to be
filed with the Federal Reserve Bank of St. Louis ("FRB") and with the
Missouri Director of Finance appropriate applications for approval of the
Merger, as required by the rules and regulations of the Board of Governors
of the Federal Reserve System, the Bank Holding Company Act of 1956 and
Missouri law. MTBI also shall file such other notices and applications
with such other authorities as may be required by applicable law or
regulation. MTBI agrees to use its best efforts to cause the FRB, the
Missouri Director of Finance and any other governmental agency or authority
whose approval or acquiescence may be required to approve such notices and
applications in a timely manner so that the Closing may occur as soon as
practicable after August 31, 1996. The Company and the Principal
Shareholders agree to cooperate in the preparation and filing of such
applications.
ARTICLE 6.
CONDITIONS PRECEDENT TO THE PARTIES' OBLIGATIONS
Section 6.1. Conditions to MTBI's Obligations. In addition to such
other conditions provided in this Agreement, each obligation of MTBI and
Sub to be performed in connection with this Agreement shall be subject to
the satisfaction prior to or on the Closing Date (or such earlier date as
may be specified) of the following conditions, unless waived in writing by
MTBI:
(a) Representations and Warranties True as of the Closing Date.
The representations and warranties made by the Company and the Shareholders
in this Agreement shall be true and correct in all material respects on and
as of the Closing Date with the same effect as though such representations
and warranties had been made or given on and as of the Closing Date (except
where warranties expressly refer to another date), and MTBI shall have
received from the Presidents, Chairmen of the Board, and chief financial
officers of the Company and the Bank certificates to the effect that to the
best of their knowledge and belief after due inquiry, all such
representations and warranties are true and correct as of the Closing Date.
(b) Compliance With Agreement. The Company and each Principal
Shareholder shall have performed and complied with all of their obligations
and agreements hereunder which are to be performed or complied with by them
prior to or on the Closing Date.
(c) No Litigation. No suit, action or other proceeding shall be
threatened or pending before any court or governmental agency which, in the
opinion of MTBI or its counsel, may reasonably be expected to result in the
restraint, prohibition or the obtaining of damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby.
(d) Director and Shareholder Approval. The Merger shall have
been approved by the Board of Directors of the Bank and the Company, and by
the affirmative vote of Shareholders holding at least that number of the
outstanding shares of the Company as is required by law for such approval,
at the meeting to be held as provided in Section 4.5.
(e) Proceedings and Instruments Satisfactory. All proceedings,
corporate, judicial or other, to be held or taken in connection with the
transactions contemplated by this
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Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to MTBI and its counsel.
(f) Third Party Consents. All third party consents to the
transactions hereunder required under any instrument to which the Company,
the Bank or any of the Principal Shareholders are parties shall have been
obtained and delivered to MTBI.
(g) Restriction on Resales. The Company shall have obtained and
deliver to MTBI, at least 31 days prior to the Closing Date, signed
representations, in form reasonably acceptable to MTBI, of each Shareholder
who may reasonably be deemed an Affiliate of the Company, acknowledging the
restrictions on transfer of the MTBI Shares to be received by such
Shareholder as described in Section 1.3.(b) and agreeing to be bound by
such restrictions.
(h) Further Agreements and Documents. The Company, the Bank and
each Principal Shareholder shall have executed and delivered to MTBI all
agreements and documents required to be executed and delivered by such
party on or prior to the Closing Date.
(i) Dissenting Shareholders. Shareholders (if any) of the
Company who have objected to the Merger and taken the steps necessary to
exercise their dissenting stockholders' rights of appraisal shall hold in
the aggregate no more than 10% of the outstanding capital stock of the
Company.
(j) Net Worth At Closing. The Net Worth of the Bank as of the
last day of the month preceding the Closing Date shall be at least 6% of
the Bank's total assets as of such day.
(k) Accounting Treatment. MTBI shall have received confirmation
from its independent certified public accountants, in form satisfactory to
MTBI, to the effect that the Merger will qualify for pooling of interests
accounting treatment under Accounting Principles Board Opinion No. 16.
(l) Opinion of Company's Counsel. MTBI shall have received an
opinion of counsel of Swanson, Midgeley, Gangwere, Kitchin & McLarney,
L.L.C., or other counsel to the Company and Principal Shareholders who
shall be satisfactory to MTBI, in form and substance reasonably
satisfactory to MTBI and its counsel, and dated the Closing Date, to the
effect that:
(i) The Bank is duly organized and existing under the laws
of the United States of America and has the power and authority to engage
in business as a bank at its present location. The Company is a
corporation incorporated, existing and in good standing under the laws of
the state of Missouri and has the corporate power and authority to own the
outstanding shares of the Bank.
(ii) The Company has the corporate power and authority to
execute and deliver, and perform its obligations under, this Agreement.
(iii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company, has been duly
executed and delivered by the Company and by the Principal Shareholders,
and is a valid and binding obligation of the Company and the Principal
Shareholders, enforceable against each of them in accordance with its
terms.
(iv) The execution, delivery and performance of this
Agreement by the Company, and the consummation of the Merger by the Bank,
will not violate the governing documents of the Company or the Bank or any
agreement known to such
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counsel after due inquiry which is binding upon either the Bank or the
Company or the property of either of them.
(v) Except as may be specified by such counsel or set forth
on the Disclosure Schedule, such counsel knows of no litigation, proceeding
or governmental investigation pending or threatened against or relating to
the Bank or the Company, or any of their respective assets and businesses,
or the Company Shares.
(vi) The authorized and outstanding capital stock of the
Company is as specified in Section 3.1.(d)(ii) hereof, of which all such
outstanding shares are validly issued and outstanding, fully paid and
nonassessable; there are no other outstanding shares of capital stock of
the Company and the Company has not authorized the issuance of any other
shares of capital stock or options or rights of any kind to purchase
additional shares of capital stock of the Company.
In rendering the foregoing opinion, such counsel may rely, to the
extent such counsel deems such reliance necessary or appropriate, as to
matters of fact, upon certificates of government officials or of any
officer or officers of the Company and the Bank, copies of which shall be
expressly referred to in such opinion and shall accompany such opinion. In
addition, such counsel, in rendering such opinions, shall be permitted to
assume the authenticity of the Company's stock book and, if found in the
Company's minute book and otherwise proper in form and appearance, the
authenticity of the minutes of any directors' meetings and shareholders'
meetings.
(m) Resignation of Officers and Directors. All officers and
directors of the Company and the Bank, if any, which MTBI may request to
resign from their respective positions shall have resigned from such
positions.
(n) Directors' Shares. All directors' qualifying shares in the
Bank, if any, shall have been delivered to the Company or the Bank, in good
transfer form, with appropriate stock powers executed in blank, free and
clear of all liens, restrictions and encumbrances. Neither the Company nor
the Bank shall pay any consideration for such shares. If required by law,
such qualifying shares may be reissued prior to Closing in the names of
such persons as MTBI may specify.
(o) Stock Options. All outstanding stock options referred to in
Section 3.1.(d)(ii) above shall have been exercised at least 30 days prior
to the Closing Date or shall have been surrendered and cancelled. No other
stock options or similar rights relating to any class of stock of the
Company or the Bank shall have been issued between the date of this
Agreement and the Closing Date, or shall be outstanding on the Closing
Date.
(p) Termination of Benefit Plans. All employee benefit plans
applicable to employees of the Company and the Bank, which are referred to
in Section 3.1.(m), shall have been terminated by the Board of Directors of
the Company or the Bank, as applicable, under arrangements satisfactory to
MTBI.
Section 6.2. Conditions of Company's and Principal Shareholders'
Obligations. In addition to the other conditions provided for in this
Agreement, each obligation of the Company and the Principal Shareholders to
be performed in connection with this Agreement shall be subject to the
satisfaction prior to or on the Closing Date (or as to the Principal
Shareholders' obligation to vote as set forth in Section 4.5 hereof, as of
the date of the Company's Shareholders' meeting) of the following
conditions, unless waived in writing by the Shareholder Representative:
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(a) Representations and Warranties True as of the Closing Date.
The representations and warranties made by MTBI and Sub in this Agreement
shall be true and correct on the date of the Company's Shareholders'
meeting and as of the Closing Date with the same effect as though such
representations and warranties had been made or given then (except where
warranties expressly refer to another date), and the Company shall have
received a certificate from an executive officer of MTBI to the effect
that, to his best knowledge, all such representations and warranties are
true and correct on the date of the Company's Shareholders' meeting and as
of the Closing Date.
(b) Compliance with Agreement. MTBI shall have performed and
complied with all of its obligations and agreements hereunder which are to
be performed or complied with by it prior to or on the Closing Date.
(c) No Litigation. No suit, action or other proceeding shall be
threatened or pending before any court or governmental agency which in the
opinion of the Company or its counsel may reasonably be expected to result
in the restraint, prohibition or the obtaining of damages or other relief
in connection with this Agreement or the consummation of the transactions
contemplated hereby.
(d) Proceedings and Instruments Satisfactory. All proceedings,
corporate, judicial or other, to be held or taken by MTBI or Sub in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to the Company and its counsel. All third party consents to the
transactions hereunder required under any agreement or instrument to which
MTBI or Sub is a party, if any, shall have been obtained and delivered to
the Company.
(e) Further Agreements and Documents. MTBI shall have executed
and delivered to the Company all agreements and documents required to be
executed and delivered by MTBI on or before the Closing Date.
(f) Corporate Approval. The Merger shall have been approved by
the Boards of Directors of MTBI and Sub. MTBI hereby agrees to vote all of
the stock of Sub in favor of the merger.
Section 6.3. Mutual Conditions to Closing. The obligations of the
Company and Principal Shareholders, on the one hand, and MTBI and Sub, on
the other, shall be subject to satisfaction prior to or on the Closing Date
of the following conditions; provided, that a party shall not be entitled
to assert failure of a mutual condition if such party shall himself or
itself failed to perform consistent with such condition; and provided,
further, that a party entitled to assert failure of a mutual condition may
also waive such failure in writing:
(a) Regulatory Approval. The Board of Governors of the Federal
Reserve System and of the Missouri Director of Finance shall have approved
the Merger, and any other required governmental or regulatory approval or
acquiescence shall have been received, all in form and substance reasonably
satisfactory to MTBI and the Principal Shareholders and their respective
counsel.
(b) Registration Statement. The Registration Statement shall
have been declared to be effective by the Securities and Exchange
Commission, and all other federal and state regulatory approvals relating
to the submission of the proposed transaction to the stockholders of the
Company shall have been received.
(c) Opinion of MTBI's Counsel. MTBI and the Company shall have
received an opinion of The Stolar Partnership, dated the Closing Date, to
the effect that:
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(i) Each of MTBI and Sub is a corporation organized and
existing and in good standing under the laws of the State of Missouri.
(ii) Each of MTBI and Sub has the corporate power and
authority to execute and deliver, and perform its obligations under, this
Agreement.
(iii) This Agreement has been duly authorized by all
necessary corporate action on the part of MTBI and Sub, has been executed
and delivered by MTBI and Sub, and is the valid and binding obligation of
MTBI and Sub; and this Agreement is enforceable against Sub and MTBI, as
the case may be, in accordance with its terms.
(iv) The execution, delivery and performance of this
Agreement by MTBI do not violate the Articles of Incorporation or By-Laws
of MTBI, and, to such counsel's knowledge, will not violate any agreement
or instrument to which MTBI is a party or by which it or its property is
bound. The execution, delivery and performance of this Agreement by Sub
does not violate the Articles of Incorporation or By-Laws of Sub, and, to
such counsel's knowledge, will not violate any agreement or instrument to
which Sub is a party or by which it or its property is bound.
(v) Except as may be specified by such counsel, such
counsel knows of no litigation, proceeding or governmental investigation
pending or overtly threatened against or relating to MTBI or Sub or any of
their assets and businesses which has not been disclosed pursuant to
Section 3.3.(f) above but is required to be disclosed pursuant to such
Section.
(vi) Based solely on such counsel's review of the minute
books and stock books of MTBI and MTBI's filings with the Secretary of
State of Missouri, the issuance of the MTBI Shares to the Shareholders has
been duly authorized by all necessary corporate action on the part of MTBI.
The MTBI Shares have been duly issued in accordance with the Articles of
Incorporation and By-Laws of MTBI and with applicable law, and upon
delivery of such Shares to the Shareholders in accordance with this
Agreement, such Shares are or will be outstanding, fully-paid and non-
assessable shares of the common stock, par value $1.25 per share, of MTBI.
(vii) The Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code. Accordingly, (A) no gain or loss will be recognized by any Company
Shareholder who exchanges Company Shares solely for MTBI Shares (except for
cash received in lieu of fractional shares), (B) the aggregate basis of the
MTBI Shares received by any such Shareholder, for Federal income tax
purposes, will be the same as the aggregate basis of the Company Shares
surrendered by such Shareholder in the Merger (less any basis allocable to
a fractional share), and (C) the holding period of the MTBI Shares received
by any such Shareholder, for federal income tax purposes, will include the
holding period of the Company Shares surrendered by such Shareholder.
(viii) Each Shareholder who (A) at the time of the Merger is
not an Affiliate of the Company, and (B) after the Merger is not an
Affiliate of MTBI, may sell or otherwise dispose of any of the MTBI Shares
issued to such Shareholder hereunder at any time without registration under
the Securities Act.
In rendering the foregoing opinion, such counsel may rely, to the
extent such counsel deems such reliance necessary or appropriate, as to
matters of fact, upon certificates of government officials and of any
officer or officers of MTBI and Sub, which shall be expressly referred to
in such opinion and copies of which shall accompany such opinion.
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In addition, such counsel, in rendering such opinions, shall be permitted
to assume the authenticity of MTBI's stock book and, if found in MTBI's
minute book and otherwise proper in form and appearance, the authenticity
of the minutes of any directors' meetings and shareholders' meetings.
ARTICLE 7.
INDEMNIFICATION
Section 7.1. Indemnification.
(a) The Shareholders' Indemnities. Subject to the limitations
set forth below, each Shareholder shall indemnify and hold MTBI harmless
from and against all loss, liability, cost and expense (including
reasonable attorneys' fees, costs and expenses in contesting the same)
resulting from any misrepresentation or breach of warranty by the Company
or any of the Shareholders, or any failure by the Company or any of the
Shareholders to perform any covenant or agreement contained herein or made
pursuant hereto, and from any third party claim which, if proven, would
result in any such loss, liability, cost or expense. If the loss,
liability, cost or expense, if it had been known on or prior to the end of
the calendar month preceding the Closing Date, would have resulted in a
reduction in the Net Worth of the Company, the amount of indemnity due MTBI
shall be the amount of such loss, liability, cost or expense multiplied by
2.10.
(b) MTBI's Indemnities. Subject to the limitations set forth
below, MTBI and Sub shall indemnify and hold harmless the Shareholders from
and against all loss, liability, cost and expense (including reasonable
attorneys' fees, costs and expenses in contesting the same) resulting from
any misrepresentation or breach of warranty by MTBI or Sub or any failure
by MTBI or Sub to perform any covenant or agreement contained herein or
made pursuant hereto, and from any third party claim which, if proven,
would result in any such loss, liability, cost or expense.
Section 7.2. Limitations on Indemnity. Notwithstanding the
provisions set forth above, the obligations and liabilities of the
Shareholders arising under this Agreement or with respect thereto
(including, without limitation, any obligation to indemnify MTBI
hereunder), and the obligations and liabilities of MTBI arising under this
Agreement or with respect thereto (including, without limitation, any
obligation to indemnify the Shareholders hereunder), shall not apply
(a) Except as set forth below, unless and until the aggregate
amount of the claims shall exceed $50,000 in the aggregate, in which event,
the entire amount of such claim shall be subject to indemnification as
provided herein; and
(b) Except in respect of claims as to which the claiming party
has given notice to the other party(ies) (or the Shareholder
Representative, in the case of the Principal Shareholders) on or before the
earlier of (i) nine calendar months after Closing, or (ii) the filing by
MTBI of its first Quarterly Report on Form 10-Q or Annual Report on Form
10-K (whichever occurs first) which includes the results of operations of
MTBI for a period of at least 30 days following the Effective Date.
Further, MTBI shall not have the right to make any claim for indemnity
hereunder, except for breach of the warranties set forth in Section 3.1(a),
(c) or (l) hereof, for an amount in excess of the assets on deposit in the
Escrow being held by the Escrow Agent pursuant to the Escrow Agreement
described in Section 1.2(d) hereof. The warranties set forth in Section
3.1(a) and (c)(i) hereof are made by each Principal Shareholder or each
other Shareholder as to his
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individual status, and claims for breach thereof may be brought only
against the breaching party. MTBI's rights to indemnity for such breach
shall not be limited to the breaching party's portion of the Escrow. As to
claims of MTBI for breach of the warranties set forth in Section 3.1(c)(ii)
or (l) hereof, MTBI agrees that such claims shall be made against the
Escrow as long as any assets remain on deposit therein. The amount of any
such claim in excess of the assets then on deposit in the Escrow shall be
the joint and several liability of the Principal Shareholders only and no
further claim thereon may be made against other Shareholders.
Notwithstanding the limitation on claims set forth in Section 7.2(a) above,
MTBI may claim, subject to the provisions of this paragraph, the entire
amount of its loss or liability arising from a breach of the warranties set
forth in Section 3.1(a), (c) or (l) hereof.
Section 7.3. Claims Procedures.
(a) If MTBI becomes aware of a claim for which it intends to
seek indemnity hereunder, it shall so notify the Shareholder Representative
and the parties listed in Section 10.6(a) in writing and shall give the
Shareholder Representative (or other representative designated by a
majority in interest of the affected Shareholders) and the parties listed
in Section 10.6(a) an opportunity to defend the same, and shall provide
reasonable cooperation in such defense at the expense of the Shareholders
against which the claim is being asserted; provided, that the failure to do
so shall not affect the right of MTBI to indemnity hereunder except to the
extent that such failure shall increase the amount of the obligation of the
Principal Shareholders. If the Shareholder Representative or such other
representative fails, after notice from MTBI, to defend the same within a
reasonable time, MTBI shall have the right to assume the defense thereof
and to settle or otherwise resolve such claim. Unless the Shareholder
Representative or such other representative fails to assume such defense,
MTBI shall not settle or compromise any such claim without the consent of
the Shareholder Representative or such other representative, which shall
not unreasonably be withheld.
(b) If a Shareholder becomes aware of a claim for which such
Shareholder intends to seek indemnity hereunder, he or she shall so notify
MTBI in writing and shall give MTBI an opportunity to defend the same, and
shall provide reasonable cooperation to MTBI in such defense at MTBI's
expense; provided, that the failure to do so shall not affect the right of
such Shareholder to indemnity hereunder except to the extent that such
failure shall increase the amount of the obligation of MTBI. If MTBI
fails, after notice from the Shareholder, to defend the same within a
reasonable time, the Shareholder shall have the right to assume the defense
thereof and to settle or otherwise resolve such claim. Unless MTBI fails
to assume such defense, the Shareholder shall not settle or compromise any
such claim without the consent of MTBI, which shall not unreasonably be
withheld.
ARTICLE 8.
DEFINITIONS
For purposes of this Agreement the following terms shall have the
meanings specified below:
"Affiliate" means any Shareholder who (i) is an officer of the Company
or the Bank with policy-making authority concerning any material operation
or business of the Company or the Bank, (ii) is a director of the Company
or the Bank, (iii) has the ability, directly or indirectly, alone or as
part of a group, to vote 5% or more of any class of the outstanding voting
securities of the Company, or (iv) otherwise is an "affiliate" of the
Company within the meaning of Rule 405 promulgated under the Securities
Act. Unless and until MTBI is
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provided with evidence satisfactory to it that a Shareholder is not an
affiliate, MTBI shall be entitled to deem such Shareholder to be an
Affiliate.
"Bank" means First National Bank of Platte County, a Missouri banking
association which is a wholly owned subsidiary of the Company.
"Book Value Per Share" means, with respect to the Company Shares at
any date, the Net Worth of the Company at that date divided by the
aggregate number of outstanding Company Shares at that date.
"Closing" and "Closing Date" have the meanings given in Section 2.1.
"Code" means the Internal Revenue code of 1986, as amended.
"Company" means Northland Bancshares, Inc., a Missouri corporation,
which holds all of the outstanding shares of capital stock of the Bank.
"Company Shares" means the outstanding shares of common stock of the
Company.
"Confidential Information" has the meaning given in Section 9.1.
"Disclosure Schedule" means the Schedule, substantially in the form
required for Schedule 1 to this Agreement, which is described in
Section 3.1.
"Effective Date" means the date on which the Merger becomes effective.
"Environmental Laws" has the meaning given in Section 3.1.(r).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" means the escrow established pursuant to the Escrow Agreement
attached as Exhibit A.
"Escrow Agent" means Mark Twain Bank, Trust Division, St. Louis,
Missouri.
"Financial Statements" has the meaning given in Section 3.1(e).
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
"Material Agreement or Commitment" has the meaning given in
Section 3.1.(i).
"Merger" means the merger of the Company and the Sub which is provided
for in this Agreement.
"MTBI" means Mark Twain Bancshares, Inc., a Missouri corporation.
"MTBI Share Value" has the meaning given in Section 1.2.(a).
"MTBI Shares" means the shares of common stock, $1.25 per share of
MTBI, into which the Company shares are to be converted in the Merger.
"Net Worth" has the meaning given in Section 1.8.
"Permitted Liens" means (i) any lien, encumbrance, restriction or
other defects in title to any asset which is expressly listed on the
Disclosure Schedule, (ii) any zoning restrictions, easements, rights of
way, servitudes, licenses and other restrictions on the use of real
property or any interest therein, or minor encumbrances or irregularities
in title thereto, which do not, in the opinion of MTBI, materially impair
the use of such property in the operation of the Bank or the
merchantability or the value of such property or interest therein for the
purpose of the Bank's business or risk the loss or forfeiture of title
thereto, (iii) charge-back rights of a depository bank on instruments in
the course of collection, (iv) any applicable zoning or building
regulations or ordinances from time to time in effect,
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(v) any customary liens or claims imposed pursuant to any repurchase or
reverse repurchase agreement, or any servicing or participation agreement,
or securing the deposit of public funds, in each case in the ordinary
course of its business, to which the Bank is a party, and (vi) any other
liens incidental to the conduct of the Bank's business in the ordinary
course or the ownership of its property and assets which were not incurred
in connection with the borrowing of the money, or the obtaining or
extending of advances or credit, which are not the result of unpaid charges
or obligation, and which in each case do not individually or in the
aggregate materially impair the use or value of the particular property to
which they relate.
"Principal Shareholders" means those Shareholders identified as
Principal Shareholders on the signature page of this Agreement.
"Prospectus" means the prospectus constituting part of the
Registration Statement.
"Registration Statement" means the Registration Statement on Form S-4,
relating to the MTBI shares to be issued in the Merger, to be filed by MTBI
pursuant to Section 3.3.(h).
"Rule 145" means Rule 145 under the Securities Act, as in effect from
time to time.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Shareholder Representative" means the person designated as
representative of the Principal Shareholders pursuant to Section 10.14.
from time to time.
"Shareholders" means the holders of the outstanding share of capital
stock of the Company.
"Surviving Corporation" means Sub, as the Surviving Corporation in the
Merger.
"Sub" means Mark Twain Acquisition Corporation, a Missouri corporation
and a wholly owned subsidiary of MTBI.
"Subsidiary" means any corporation of which the majority of the
outstanding voting shares are held, directly or indirectly, by the Company.
ARTICLE 9.
CONFIDENTIALITY
Section 9.1. Definitions. As used in this Article, the term
"Representatives" shall include all directors, officers, employees, agents,
and financial, legal and other advisors of a specified person, all entities
affiliated with such person, and the directors, officers, employees,
agents, representatives, and financial, legal and other advisors of such
affiliated entities; and the term "Confidential Information" shall mean any
information, whether or not reduced to writing, used by or belonging or
relating to a specified person, except information which is or becomes
generally available to the public other than as a result of disclosure
hereunder.
Section 9.2. Confidentiality. No party shall use any Confidential
Information for any purpose other than to evaluate and negotiate the
proposed transaction. Each party shall, and shall cause his, her or its
Representatives to, preserve the confidentiality of the Confidential
Information relating to the other parties.
Section 9.3. No Public Disclosure. Except for any specific
communication or disclosure to which both MTBI and Shareholder
Representative have given their prior written consent or
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which may be required by law, including applicable securities laws, each
party agrees that, except as provided herein, prior to Closing he, she or
it shall not communicate or disclose to any other person, group or entity
(a) the fact that discussions of negotiations are taking place concerning
the proposed transaction or (b) any terms, conditions or other facts with
respect to the proposed transaction.
Section 9.4. Return of Confidential Information. If this Agreement
shall be terminated in accordance with its terms, each party shall return
to the other party all Confidential Information in his, her or its
possession or control.
Section 9.5. Survival of Covenants. Each party's obligations with
respect to Confidential Information shall survive any termination of this
Agreement and the transactions contemplated hereby. MTBI's obligations
under this Article shall not survive Closing.
Section 9.6. Notice of Breach; Enforcement. Each party shall
promptly provide the other party with notice of any actual or threatened
breach of any of the provisions of this Article or any unauthorized
communication, disclosure or use of any of the Confidential Information of
which it has actual knowledge. Each party acknowledges that a breach of
the provision of this Article may give rise to irreparable injury to the
other party for which damages may not be adequate compensation, and
consequently the aggrieved party shall be entitled, in addition to all
other remedies available at law or in equity, to injunctive and other
equitable relief to prevent a threatened or continued violation of this
Article.
ARTICLE 10.
MISCELLANEOUS
Section 10.1. Assignment. This Agreement and the rights hereunder
are not assignable unless such assignment is consented to in writing by all
parties hereto. This Agreement shall otherwise inure to the benefit of and
be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns, irrespective of the death,
disability or incapacity of any of the Principal Shareholders.
Section 10.2. Satisfaction of Conditions to Closing. Each of the
parties hereto shall be obligated to use its best efforts to cause the
conditions to the Closing which are applicable to it to be satisfied,
provided that no party shall be obligated to waive or compromise any of its
substantive rights in order to cause any such condition to be satisfied.
Section 10.3. Termination Rights. This Agreement shall be subject to
termination as follows:
(a) the Company and Principal Shareholders, on the one hand, and
MTBI, on the other hand, may terminate this agreement without liability if
the other shall violate in any material respect any of its representations,
warranties or other obligations hereunder, and such violation is not
remedied within ten days after written notice thereof to the other;
(b) any party hereto may terminate this Agreement if the Closing
has not taken place by October 31, 1996 (or December 31, 1996 if the sole
reason the Closing has not occurred is a delay in obtaining any required
federal or state regulatory approval), so long as the delay in Closing is
not caused by a failure by the party giving such notice, or its affiliate,
in performing its obligations hereunder;
(c) MTBI may terminate this Agreement without liability if (i)
any information provided to it on the Disclosure Schedule, or (ii) any
information or document provided together with the Disclosure Schedule
pursuant to this Agreement, or (iii) any information
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or document provided to it as a supplement or amendment to any information
previously provided to it on or in connection with the Disclosure Statement
shall not be reasonably satisfactory to MTBI; provided, that
(1) this right of termination shall not apply in respect of any
information which has been fully disclosed to MTBI in writing prior to
March 1, 1996;
(2) MTBI shall advise the Shareholder Representative of any
objection to any such information or document not later than ten business
days after receipt of the information, and shall be deemed to have accepted
such information if no such objection is made; and
(3) if MTBI shall so object to any such information or document,
the Shareholder Representative shall have the right to revise or remove the
information or document so submitted, in which event it shall not be deemed
to be a part of the Disclosure Schedule or otherwise modify the
representations of the Principal Shareholders set forth herein, and MTBI
shall not have the right to terminate this Agreement on the basis of the
information in question; or
For purposes of this Section 10.3.(c), MTBI shall be deemed to have
received information from the Shareholder Representative only upon actual
receipt of such information by Keith Miller or Peter Benoist at the main
offices of MTBI.
(d) If (i) MTBI shall have requested a phase two environmental
report pursuant to Section 4.3., (ii) MTBI shall have notified the Company
of its objection to the contents of such report within 15 days after
receipt thereof, (iii) the cost of remedial and corrective actions and
measures required by applicable law, or recommended or suggested by such
report or reports and prudent in light of serious life, health or safety
concerns exceeds, in the aggregate, One Hundred Fifty Thousand Dollars
($150,000) as estimated by an environmental expert retained for such
purpose by MTBI or (iv) the cost of such actions and measures cannot be
estimated by such expert to be Three Hundred Fifty Thousand Dollars
($350,000) or less with any reasonable degree of certainty, then MTBI shall
have the right to terminate this Agreement without liability.
(e) If any application for regulatory approval is finally denied
or disapproved by the regulatory authority, this Agreement shall thereupon
be deemed terminated and canceled. A request for additional information or
undertaking by MTBI as a condition for approval, shall not be deemed a
denial or disapproval so long as MTBI diligently provides the requested
information or undertaking. If an application is denied pending an appeal,
petition for review, or similar action on the part of MTBI (hereinafter
referred to as the appeal) then the application will be deemed denied
unless MTBI prepares and timely files such appeal and continues the
appellate process for purposes of obtaining the necessary approval.
(f) If the Company or any subsidiary becomes a party or subject
to any new or amended written agreement, memorandum of understanding, cease
and desist order, imposition of civil money penalties or other regulatory
enforcement action or proceeding with any federal or state agency charged
with the supervision or regulation of banks or bank holding companies after
the date of this Agreement, MTBI may terminate this Agreement without
liability in its sole discretion. Notice of termination for any of the
reasons set out above shall be in writing, stating the reason for such
action, and given in the manner provided in Section 10.6.
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(g) If MTBI determines that a downward adjustment pursuant to
Section 1.8 in the Net Worth of the Company or the Bank should exceed
$100,000, MTBI may terminate this Agreement without liability by giving
written notice to the Company and the Principal Shareholders. If MTBI
instead requests the Company to make such downward adjustment and MTBI and
the Company are unable to agree on the size of the downward adjustment,
then either MTBI or the Company may terminate this Agreement without
liability by giving written notice thereof to the other parties; provided,
however, that if the Company gives any such termination notice, such
termination shall not become effective unless MTBI shall fail to submit to
the Company, within five business days after the date of receipt by MTBI of
the Company's termination notice, a new written request for a downward
adjustment of $100,000 or less. No Shareholder shall have any right of
termination pursuant to this Section 10.3(g).
Section 10.4. Remedies. No party shall be liable for money or other
damages for failure to consummate the transaction contemplated in this
Agreement, unless such failure results from a failure by such party to
comply with its obligations hereunder. If the Company and Principal
Shareholders, on the one hand, or MTBI or Sub, on the other hand, fails or
refuses to consummate the transaction hereunder (other than by reason by
failure by the other party to satisfy its obligations set forth herein),
the other party shall be entitled to all remedies available at law or in
equity.
Section 10.5. Governing Law. This Agreement and all rights and
obligations of the parties shall be construed and interpreted under and
pursuant to the laws of the State of Missouri applicable to agreements made
and to be performed entirely within such state, including all matters of
enforcement, validity and performance.
Section 10.6. Notices. All notices requests, demands and other
communications hereunder shall be deemed to have been duly given if
delivered by hand, sent by facsimile transmission, or mailed by certified
mail or registered mail, return receipt requested, with postage prepaid,
addressed as follows:
(a) if to the Company or any Principal Shareholder:
Northland Bancshares, Inc.
7667 Northwest Prairie View Road
P.O. Box 14126
Kansas City, Missouri 64151
Attn: Mr. Leland M. Walker
Phone: (816) 746-2000
Facsimile No.: (816) 746-0484
with a copy to:
Edward M. Dolson, Esq.
Swanson, Midgeley, Gangwere, Kitchin &
McLarney, L.L.C.
1500 Commerce Trust Building
922 Walnut
Kansas City, Missouri 64106
Phone: (816) 842-6100
Facsimile No.: (816) 842-0013
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and with a copy to:
Mr. M. J. Swords and Mr. John T. Schott
Swords Associates, Inc. 6807 N.W. Cedar Bend
1600 Genesee Kansas City, MO 64152
Suite 828 Phone: (816) 891-1038
Kansas City, Missouri 64102 Facsimile No.: (816) 880-9916
Phone: (816) 283-3377
Facsimile No.: (816) 283-3366
or to such other person and place as the Company or Shareholder
Representative shall direct to MTBI in writing.
or
if to MTBI, to:
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, Missouri 63124
Attn: Mr. Peter Benoist
Executive Vice President
Phone: (314) 727-1000
Facsimile No.: (314) 889-0784
with a copy to:
Thomas E. Lowther, Esq.
The Stolar Partnership
911 Washington Avenue
St. Louis, Missouri 63101
Phone: (314) 231-2800
Facsimile No.: (314) 436-8400
or to such other place or person as MTBI shall direct to the Company in
writing.
Section 10.7. Headings. The headings contained in this Agreement are
inserted for convenience only and shall not be considered in interpreting
or construing any of the provisions contained herein.
Section 10.8. Fees and Expenses. Except as otherwise provided
herein, the parties hereto shall bear their own costs and expenses,
including attorneys' fees (except as provided in the next sentence),
incurred in connection herewith and with the transactions contemplated
hereby, whether or not the exchange of shares hereunder shall be
consummated or this Agreement subsequently shall be terminated. The fees
and expenses of the Company and/or Stockholders (including legal and
brokers' fees) shall be borne entirely by the Stockholders. As a matter of
convenience, MTBI will pay these fees and expenses, in cash, upon receipt
of payment directions from the Shareholder Representative, and shall be
reimbursed for such payments (the amounts of which are expected to be known
at Closing) by reducing the aggregate number of MTBI Shares to be issued in
the merger by that number of MTBI Shares as have a value, determined
pursuant to Section 1.2(a) hereof, equal to the total amount of such
payments.
Section 10.9. Entire Agreement. This Agreement, and the additional
agreements provided for herein and attached hereto as exhibits, constitute
the entire agreement between the parties hereto with respect to the
transactions contemplated herein and therein, and supersedes all prior
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<PAGE>
and contemporaneous agreements and undertakings of the parties pertaining
to the subject matter hereof.
Section 10.10. Waiver and Amendment. Any of the provisions of this
Agreement may be waived in writing at any time by the party or parties
which is or are entitled to the benefit of such provision. Any of the
provisions of this Agreement may be amended at any time by written
agreement of all the parties hereto.
Section 10.11. Separability. If any provision of this Agreement is
invalid, illegal or unenforceable, the balance of this Agreement shall
remain in full force and effect, so long as the remaining provisions are
sufficient to carry out the overall intent of the parties as expressed
herein.
Section 10.12. No Third Party Beneficiaries. Except to the extent
that Shareholders of the Company will become entitled to receive MTBI
Shares upon consummation of the Merger, this Agreement is entered into
solely for the benefit of the parties hereto and no person not a party
hereto shall have any rights hereunder.
Section 10.13. Counterparts and Binding Effect. This Agreement may
be executed in two or more counterparts, all of which shall be one
instrument. This Agreement shall not be binding upon MTBI unless, by the
close of business on May 14, 1996, all of the Principal Shareholders named
on the signature pages hereto have executed at least one such counterpart.
Section 10.14. Shareholder Representative. By the execution hereof
(or in the case of Shareholders who are not signatory parties hereto, by
surrendering Company Shares for MTBI Shares) each of the Shareholders
appoints John T. Schott (herein called the "Shareholder Representative"),
as his or her agent and attorney-in-fact to receive all notices and take
all actions and execute all waivers permitted or required by this
Agreement. By vote of a majority in interest the Principal Shareholders
may remove such agent and appoint a successor Shareholder Representative,
and the agent may resign at any time. Notices of resignation, removal or
appointment shall be given to all parties hereto. The Shareholder
Representative is hereby fully released from all liability for his actions
as such except with respect to his gross negligence or willful misconduct.
This appointment, being coupled with an interest, shall be irrevocable.
Section 10.15. Effect of Surrendering Shares. By surrendering
Company shares for MTBI Shares, each of the Shareholders who is not a
signatory party hereto (a) makes all of the representations and warranties
and agrees to observe all of the covenants made by the Shareholders herein,
and (b) agrees to be responsible for a pro rata portion of legal and
broker's fees and expenses, which shall be settled as provided in Section
10.8.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.
Mark Twain Bancshares, Inc.
By: /s/ PETER BENOIST
Title: Executive Vice Pres.
Mark Twain Acquisition Corp. II
By: /s/ PETER BENOIST
Title: President
Northland Bancshares, Inc.
By: /s/ LELAND M. WALKER
Title: President and CEO
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<PAGE>
This Agreement (in Section 10.14.) contains an irrevocable durable Power of
Attorney. The authority of the Shareholder Representative as Attorney-in-
Fact for each of the undersigned shall not terminate except as provided in
the Agreement, even if any of the undersigned Principal Shareholders become
disabled or incapacitated.
Principal Shareholders
Number of Percentage
Company Shares of Outst'g
Owned Company
Signature Of Record Shares
/s/ GERARD J. MOS III 3,487 0.59
Gerard J. Mos III
/s/ JOHN T. SCHOTT 61,205 10.44
John T. Schott
/s/ LOIS A. SCHOTT 30,021 JTRS 5.12
Lois A. Schott 29,764 individually 5.08
/s/ LELAND M. WALKER 25,725 4.39
Leland M. Walker
/s/ Z. B. EILEENE WALKER 1,050 0.18
Z. B. Eileene Walker
/s/ DALE G. RAPP 2,365 0.40
Dale G. Rapp
/s/ KAREN S. WOLTERS 619 0.11
Karen S. Wolters
/s/ WILLIAM E. JOHNSON 9,035 1.54
William E. Johnson
/s/ MARYANN JOHNSON 9,196 JTRS 1.57
Maryann Johnson
/s/ RICHARD H. MOS JR. 290 0.05
Richard H. Mos Jr.
/s/ DONEDA J. MOS 4,358 JTRS 0.74
Doneda J. Mos
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<PAGE>
Number of Percentage
Company Shares of Outst'g
Owned Company
Signature Of Record Shares
/s/ ROBERT C. BURNS DDS 24,895 4.25
Robert C. Burns DDS
/s/ PAUL E. BOSCH JR. 116 0.02
Paul E. Bosch Jr.
/s/ ALICE BOSCH 1,046 JTRS 0.18
Alice Bosch
/s/ RONALD D. HOFFMAN 115 0.02
Ronald D. Hoffman
/s/ MARGARET A. HOFFMAN 13,167 JTRS 2.25
Margaret A. Hoffman
/s/ RONALD E. SMITH 26,391 4.50
Ronald E. Smith
/s/ KENT D. MAYFIELD -0- -0-
Kent D. Mayfield
/s/ JUDY H. MAYFIELD 4,985 JTRS 0.85
Judy H. Mayfield
/s/ PATRICK D. KELLY -0- -0-
Patrick D. Kelly
/s/ JUDITH A. KELLY 11,622 JTRS 1.98
Judith A. Kelly
High Life Sales Company
By: /s/ GERARD J. MOS III, 41,725 7.12
President _______ _______
Totals 301,177 51.38%
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<PAGE>
SCHEDULE 1
Disclosure Schedule
The Disclosure Schedule shall provide the information called for under
Section 3.1 of the Agreement, which shall be organized under headings as
set forth below. Section references are to the corresponding
representations set forth in the Agreement:
3.1(b) Identification of governing documents of the Company and the
Bank.
3.1(d) Description of capital stock of the Bank and the Company.
3.1(e) Identification of Financial Statements.
3.1(g) Identification of events which have occurred since December
31, 1995.
3.1(i) Identification of Material Agreements for Commitments.
3.1(j) Identification of real property owned or leased and liens on
such property.
3.1(k) Description of tax proceedings and identification of tax
returns delivered to MTBI.
3.1(m) Identification of employee benefit plans.
3.1(n) Identification of investment securities.
3.1(o) Summary of litigation.
3.1(q) Identification of insurance.
3.1(r) Information concerning environmental matters.
3.1(t) Identification of regulatory proceedings.
3.1(w) Identification of affiliates of the Company.
Identification of additional information accompanying the Disclosure
Schedule.
<PAGE>
EXHIBIT B
Form of
ESCROW AGREEMENT
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
This Escrow Agreement is made and entered into as of this ____ day of
_____, 1996, by and among Mark Twain Bancshares, Inc. ("MTBI"), and John T.
Schott, as Shareholder Representative for Shareholders of the Company, all
of whom are named on Appendix 1 attached (collectively the "Depositing
Shareholders" and individually a "Depositing Shareholder"), and Mark Twain
Bank, Trust Division (the "Escrow Agent").
RECITALS:
A. Pursuant to a certain Plan and Agreement of Merger, dated as of
May __, 1996 (the "Merger Agreement"), MTBI, Mark Twain Acquisition Corp.
II ("Sub"), Northland Bancshares, Inc. (the "Company"), and the Depositing
Shareholders have agreed to the merger of the Company into Sub (the
"Merger") and the issuance of common stock of MTBI upon the Merger, which
Merger has become effective.
B. Pursuant to procedures set out in the Merger Agreement the
Depositing Shareholders have agreed to the escrow of certificates
representing MTBI Shares to assure the availability of indemnity to MTBI,
should any be required pursuant to the Merger Agreement.
C. MTBI and the Depositing Shareholders desire that the Escrow Agent
act as escrow agent and the Escrow Agent is willing to do so, all upon the
terms set forth in this Escrow Agreement.
D. Capitalized terms used in this Escrow Agreement which are not
defined herein shall have the meanings given them in the Merger Agreement
or that certain Agreement Respecting Adjustments among the parties dated as
of July ___, 1996 (the "Adjustment Agreement").
NOW, THEREFORE, for and in consideration of the premises and the
mutual promises and agreements hereinafter set forth, the parties agree as
follows:
1. Deposits in Escrow. MTBI hereby delivers and deposits with the
Escrow Agent, on behalf of the Depositing Shareholders, one or more
certificates representing, in the aggregate, the number of Escrowed Shares
which would otherwise have been received by such Depositing Shareholders in
the Merger (each such certificate, together with its accompanying stock
power herein called a "Certificate"), as specified on Appendix A.
2. Acknowledgment of Receipt. The Escrow Agent hereby acknowledges
receipt of the Certificates representing the Escrowed Shares in the amounts
indicated and agrees to act as escrow agent in accordance with the terms
hereof. The Escrowed Shares are to serve as a convenient and ready source
with which to indemnify MTBI, if indemnity should become payable pursuant
to Sections 7.1-7.3 of the Merger Agreement. The Escrow Agent shall
promptly set up an account for each Depositing Shareholder, recording the
amount initially credited to such Depositing Shareholder's account and all
subsequent transactions with respect to such account pursuant to this
Escrow Agreement.
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<PAGE>
3. Registration of Escrowed Shares/Receipt of Dividends. During the
period that the Escrowed Shares are in escrow, they will remain on the
books of MTBI in the name of the appropriate Depositing Shareholder and the
Depositing Shareholders will have all rights with respect thereto, except
the right to possession of the Certificates and the right to sell or to
grant any lien with respect to the Escrowed Shares. Without limiting the
generality of the foregoing, during such period the Depositing Shareholders
will be entitled to receive all dividends and other distributions
whatsoever with respect to the Escrowed Shares and the Depositing
Shareholders shall be entitled to vote such shares.
4. Disposition of Escrowed Shares. The Escrow Agent shall hold and
dispose of the Certificates subject to the terms and provisions of this
Escrow Agreement and the following:
(a) The Escrow Agent may pay or apply principal of the Escrowed
Shares only as and when directed in joint written instructions from MTBI
and the Shareholders' Representative.
(b) On or promptly after the filing by MTBI of its first
Quarterly Report on Form 10-Q or Annual Report on Form 10-K (whichever
occurs first) which includes the results of operations of MTBI for a period
of at least 30 days following the Effective Date of the merger, acting in
accordance with joint written instructions from MTBI and the Shareholders'
Representative, the Escrow Agent shall reserve from the Escrowed Shares any
amount stated in such instructions as needed to protect and secure MTBI in
respect of indemnifiable claims theretofore made but not disposed of and
escrowed Shares (hereinafter called the "Retained Escrow Shares") having a
value equal to the unpaid balance at risk of the Scheduled Loans as set
forth in Schedule I to the Adjustment Agreement, and shall distribute the
balance of the Escrowed Shares to the Depositing Shareholders as their
interest shall appear. Thereafter from time to time as claims (if any had
been made) are finally settled, compromised, arbitrated or litigated, the
Escrow Agent shall distribute to the Depositing Shareholders as their
interests shall appear such further numbers of Escrowed Shares as are
specified in joint written instructions from MTBI and the Shareholders'
Representative as no longer needed to secure MTBI against loss, provided
that so long as any such claims have not been finally disposed of, the
Escrow Agent shall not be required to make such subsequent distributions
more often than quarterly. MTBI and the Shareholders' Representative agree
to make joint written instructions to the Escrow Agent consistent with the
provisions of Sections 7.1-7.3 of the Merger Agreement.
(c) The Escrow Agent shall hold and dispose of the Retained
Escrowed Shares subject to the Adjustment Agreement as follows:
(i) In the event of a Net Loss with respect to the Scheduled
Loans, MTBI shall notify the Escrow Agent and the Shareholders
Representative of such Net Loss in writing setting forth the Net Loss in
reasonable detail and making a demand upon the Escrow Agent for the return
of such number of the Retained Escrowed Shares deposited by the
Shareholders having a value equal to the amount of the Net Loss of such
loans (the "Demanded Shares"), determined as provided in Section 4(d) of
the Adjustment Agreement. The Shareholders Representative, upon receiving
such notice, shall have fifteen calendar days from the sending of such
notice by MTBI to object to such release of the Demanded Shares. If the
Shareholders Representative shall not object in a timely
B - 2
<PAGE>
manner as above provided, the Escrow Agent shall deliver the Demanded
Shares to MTBI. In the event such Net Loss exceeds the value of the
Retained Escrowed Shares, determined as provided in paragraph 4(d) of the
Adjustment Agreement, the Escrow Agent shall return to MTBI of all Retained
Escrowed Shares.
(ii) In the event that the Net Loss of the Scheduled Loans is
less than the value of the Retained Escrowed Shares deposited by the
Shareholders, the Escrow Agent shall return to MTBI only such number of the
Retained Escrowed Shares deposited on behalf of any Shareholder as
represents such Shareholder's pro rata share of such Net Loss based on the
number of MTBI Shares deposited by each of the Shareholders.
(iii) In the event that the Scheduled Loans are repaid in
full, MTBI shall promptly provide the Escrow Agent with a signed statement
authorizing the release of the Retained Escrowed Shares and the delivery of
such released shares to the appropriate Shareholders. The Escrow Agent,
upon receipt of such signed authorization, shall immediately deliver and
distribute the Retained Escrowed Shares to the Shareholders pro rata as
provided in subparagraph (ii) above.
(iv) The Escrow Agent at any other such time that it receives
signed instructions from MTBI to release from escrow any of the Retained
Escrowed Shares with respect to the Scheduled Loans (the "Released Shares")
shall deliver the released Shares to the appropriate Shareholders. The
Escrow Agent shall continue to hold any remaining Retained Escrowed Shares
after distributing any such Released Shares, together with any redeposited
shares, with respect to the Scheduled Loans ("Remaining Retained Escrowed
Shares").
(v) In the event of a Net Loss with respect to the Scheduled
Loans, subsequent to any distribution of Released Shares, the Escrow Agent
shall return to MTBI only such number of the Remaining Retained Escrowed
Shares having a value equal to the amount of the Net Loss with respect to
such loans. MTBI shall not have any claim against either the Escrow Agent
or any Shareholder for any deficiency between the Net Loss with respect to
such loans and the value of the Remaining Retained Escrowed Shares,
notwithstanding that the original value of the Retained Escrowed Shares
might have been sufficient to compensate MTBI for such Net Loss.
(vi) In the event of any dispute regarding the valuation of
the Net Loss with respect to the Scheduled Loans and/or the valuation of
the Retained Escrowed Shares deposited with respect to such loans, the
Escrow Agent shall initially deliver to MTBI only such number of Retained
Escrowed Shares having a value equal to the Net Loss, using the
Shareholders Representative's good faith valuations of both the Retained
Escrowed Shares and the Net Loss. The Escrow Agent shall continue to hold
any undistributed Retained Escrowed Shares with respect to such loans until
the Shareholders Representative and MTBI agree on the proper valuations for
such shares and/or such Net Loss or until an independent appraiser selected
in accordance with paragraph 4(c) of the Adjustment Agreement establishes
such valuations. The Escrow Agent shall then determine, using such
subsequent valuations, the additional number of Retained Escrowed Shares,
if any, to be delivered to MTBI to fully settle the Net Loss with
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<PAGE>
respect to such loans (the "Additional Shares"). Promptly thereafter, the
Escrow Agent shall deliver the Additional Shares to MTBI and shall
immediately release and deliver to the appropriate Shareholders any
residual Retained Escrowed Shares.
(vii) Notwithstanding anything herein or in the Adjustment
Agreement to the contrary, in the event any of the Retained Escrowed Shares
are to be returned to MTBI pursuant to this paragraph 4, any Shareholder
shall have the right to deposit with the Escrow Agent cash in an amount
equal to the value of the Retained Escrowed Shares of such Shareholder
which would otherwise be returned to MTBI, which value shall be determined
in accordance with paragraph 4(d) of the Adjustment Agreement. In the
event any Shareholder so deposits such cash, in lieu of returning such
Retained Escrowed Shares to MTBI, the Escrow Agent shall deliver such cash
to MTBI and shall deliver such Retained Escrowed Shares to such
Shareholder.
5. Termination. The Escrow Agent shall be discharged and released of
any and all further obligations hereunder as to each particular Depositing
Shareholder at the earlier of:
(a) the delivery of all the Depositing Shareholder's Certificates
in accordance with the provisions of paragraph 4 hereof; or
(b) delivery of the Depositing Shareholder's Certificates is made
to court in any interpleader action and until as otherwise authorized by
final judgment or decree (and under the then applicable rules the period
for perfecting a timely appeal has expired).
6. Duties. The Escrow Agent shall have no obligation or liability
hereunder except as a depositary and shall be liable in its individual
capacity only in the case of its willful misconduct or gross negligence.
The duties as the Escrow Agent are only those specifically provided herein
and are ministerial in nature and not discretionary. Except as aforesaid,
Escrow Agent shall not be liable for any mistake of fact or error in
judgment, or for any acts or provisions of any kind taken in good faith and
believed by it to be authorized or within the rights or powers conferred by
this Escrow Agreement.
7. Limitation of Responsibility. The Escrow Agent shall not be
liable for default by any party hereto because of such party's failure to
perform, and shall have no responsibility to seek performance by any party;
nor shall it be liable for the lapse or barring of any rights under any
statutes of limitation in respect to any Certificates deposited.
8. Limitation of Liability. Except as specifically provided in
paragraph 6, the Escrow Agent shall not be liable in any respect to anyone
on account of the identity, authority or rights of persons executing or
delivering, or purporting to execute or delivery, any document or item, and
may, in performing its duties hereunder, rely absolutely and be fully
protected in acting upon any signature, item, document or other writing
believed by it in good faith to be authentic and signed by the proper party
or parties. The Escrow Agent may, as a condition to the disbursement of
property, require from the recipient a receipt therefor, and, upon final
distribution, require a release from any liability arising out of its
execution or performance of this Escrow Agreement. MTBI and Depositing
Shareholders pro rata (in accordance with the number of shares owned by
each) each agree to indemnify and hold the Escrow Agent harmless from and
against any and all costs, expenses (including reasonable attorneys' fees)
and losses incurred in connection with the
B - 4
<PAGE>
performance of its duties hereunder, except in the case of the Escrow
Agent's willful misconduct or gross negligence. The Escrow Agent, at its
option, may institute any interpleader action, suit or proceeding it deems
appropriate to determine judicially any dispute between MTBI and Depositing
Shareholder(s), which may arise hereunder.
9. Resolution of Disputes. In the event of any dispute hereunder,
the Escrow Agent may consult with counsel of its own choice and shall be
entitled to reimbursement for its expenses, including out-of-pocket
expenses, reasonable attorneys' and agents' fees, which costs shall be paid
by MTBI.
10. Resignation. The Escrow Agent may resign at any time by giving 30
days prior written notice to all parties hereto, but will continue to serve
until a successor is appointed. In the event of the resignation of the
Escrow Agent or in the event the Escrow Agent for any reason is unable to
serve or fails to continue to serve as agent hereunder, Depositing
Shareholders may in writing delivered to MTBI and the preceding Escrow
Agent appoint a successor escrow agent, which is acceptable to MTBI, as
long as such acceptance by MTBI is not unreasonably withheld. Any
successor escrow agent shall execute and deliver an instrument accepting
the appointment as escrow agent hereunder and thereupon will have the same
rights and duties as the original Escrow Agent and be governed by the terms
and conditions set forth in this Escrow Agreement.
11. Fees. For its services hereunder, the Escrow Agent shall be paid
an annual fee of $300. The Escrow Agent's fee shall be payable by MTBI
upon demand. The Escrow Agent shall be reimbursed upon demand, subject to
the provisions of Section 9 hereof, one half by MTBI and one half by the
Depositing Shareholders pro rata (in accordance with the number of shares
owned by each), for all out-of-pocket expenses, including reasonably
attorneys' and agents' fees.
12. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be deemed to have been duly given if
delivered to mailed by certified or registered mail, return receipt
requested, postage prepaid, as follows:
(a) if to any Depositing Shareholder, to:
Mr. John T. Schott
6807 N.W. Cedar Bend
Kansas City, Missouri 64152
Phone: (816) 891-1038
Facsimile No.: (816) 880-9916
with a copy to:
Swanson, Midgeley, Gangwere, Kitchin &
McLarney, L.L.C.
1500 Commerce Trust Building
922 Walnut
Kansas City, Missouri 64106
Attention: Edward M. Dolson, Esq.
Phone: (816) 842-6100
Facsmilie No.: (816) 842-0013
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<PAGE>
(b) if to MTBI, to:
Mark Twain Bancshares, Inc.
8820 Ladue Road
St. Louis, Missouri 63124
Attention: Mr. Peter Benoist
Executive Vice President
Phone: (314) 727-1000
Facsimile No.: (314) 889-0784
with a copy to:
The Stolar Partnership
911 Washington Avenue
St. Louis, Missouri 63101
Attention: Thomas E. Lowther, Esq.
Phone: (314) 231-2800
Facsimile No.: (314) 436-8400
(c) if to Escrow Agent, to:
Mark Twain Bank, Trust Division
8820 Ladue Road
St. Louis, Missouri 63124
Attention: Mr. Peter Benoist
Executive Vice President
Phone: (314) 727-1000
Facsimile No.: (314) 889-0784
or to such other person or address as any party may direct the other
parties in writing.
13. Miscellaneous.
(a) This Escrow Agreement may not be modified or amended except
in a writing signed by all parties hereto.
(b) This Escrow Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective legal representatives,
heirs, successors and assigns.
(c) This Escrow Agreement will be governed by and construed and
interpreted in accordance with the laws of the State of Missouri. The
invalidity or unenforceability of any of the provisions of this Escrow
Agreement shall not affect the validity or enforceability of the remaining
provisions hereof.
(d) Neither this Escrow Agreement, nor any of the rights, duties
or obligations of any party hereunder may be assigned or otherwise
delegated by said parties without prior written consent of all the parties
hereto, which consent shall not be unreasonably withheld.
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<PAGE>
(e) This Escrow Agreement may be executed in any number of
counterparts, and the counterparts taken together shall be deemed to form
one original instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be duly executed the day and year first above written.
Shareholder Representative Mark Twain Bancshares, Inc.
By: __________________________ By: ____________________________
John T. Scott Title: _________________________
Mark Twain Bank, Trust Division
By: ___________________________
Title: ________________________
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<PAGE>
APPENDIX 1
DEPOSITING SHAREHOLDERS
No. of
Name Escrowed Shares Signature
B - 8
<PAGE>
EXHIBIT C
Conformed Copy of
AGREEMENT RESPECTING ADJUSTMENTS
Dated July 22, 1996
<PAGE>
EXHIBIT C
AGREEMENT RESPECTING ADJUSTMENTS
THIS AGREEMENT (the "Adjustment Agreement") is made as of the 22nd day
of July, 1996, by and among MARK TWAIN BANCSHARES, INC. ("MTBI"), MARK
TWAIN ACQUISITION CORP. II ("Sub"), NORTHLAND BANCSHARES, INC. (the
"Company") and the shareholders of the Company (the "Shareholders").
RECITALS:
A. The parties hereto are parties to a Plan and Agreement of Merger,
dated May 7, 1996 (the "Merger Agreement"), providing for the merger of the
Company into Sub (the "Merger") and the issuance of common stock of MTBI
upon the Merger. Capitalized terms used in this Adjustment Agreement which
are not defined herein shall have the meanings given them in the Merger
Agreement.
B. Pursuant to Section 1.8 of the Merger Agreement, MTBI has
conducted examinations relating to the Company and the Bank and has
requested the Company to make certain adjustments to its consolidated net
worth.
C. The parties hereto desire to set forth their agreement as to (i)
the adjustments that will be made to the consolidated net worth of the
Company for purposes of Section 1.8 of the Merger Agreement, and (ii) the
escrow of MTBI Shares in lieu of additional adjustments to such
consolidated net worth.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. From and after the date hereof, the Company will cause the Bank to
maintain its allowance for loan losses at 1.50% of the Aggregate Amount of
Loans Outstanding. For purposes of this Adjustment Agreement, the
"Aggregate Amount of Loans Outstanding" shall mean the aggregate amount of
loans outstanding as reflected on the balance sheet of the Bank as of the
date of determination, gross of the allowance for loan losses, and reduced
by (i) any loans held for sale, and (ii) overdrafts.
2. Each of the Shareholders has agreed that at the Closing MTBI shall
withhold and deliver into escrow with Mark Twain Kansas City Bank, as
escrow agent (the "Escrow Agent"), on behalf of the Shareholders, pro rata,
certain MTBI Shares (the "Escrowed Shares") which would otherwise have been
received by such Shareholders in the Merger. A portion of these Escrowed
Shares will be attributed to specific loans as described below and will be
subject to the following provisions:
(a) Pursuant to Section 1.8 of the Merger Agreement, MTBI has
identified certain loans (the "Scheduled Loans"), the value of which it has
requested be written down on the books of the Bank. In lieu of such
action, the Shareholders have agreed that, on the date on which the
Escrowed Shares would otherwise have been distributed,
C - 1
<PAGE>
Escrowed Shares having a value (at the closing sale price of the common
stock of MTBI for the last business day preceding such date) equal to the
unpaid balance at risk (as set forth on Schedule I attached hereto) of the
Scheduled Loans on such date shall be retained in escrow (pro rata among
the Shareholders, based on their initial deposits of MTBI Shares) as a
reserve for the purpose of refunding to MTBI a portion of the MTBI Shares
received by them in the Merger in the event of a Net Loss with respect to
the Scheduled Loans as provided herein. Schedule I identifies the
Scheduled Loans, each of which shall be treated separately for purposes of
this Adjustment Agreement. In the event of a Net Loss with respect to a
Scheduled Loan, MTBI shall have the right to the return of Escrowed Shares
deposited by the Shareholders having a value equal to the amount of such
Net Loss. If all such Net Losses cumulatively exceed the value of the
Escrowed Shares with respect to such loans, determined as provided in
subparagraph (d) below, MTBI shall not have any claim against the
Shareholders for any such deficiency.
(b) Following the Closing Date, MTBI shall cause the Bank
diligently to attempt to collect the Scheduled Loans. In addition, MTBI
shall cause the Bank to consult with and keep the Shareholders advised of
the Bank's collection efforts with respect to the Scheduled Loans and to
consult with the Shareholders prior to taking any action which could result
in a Net Loss with respect to the Scheduled Loans. Upon request, MTBI
shall cause the Bank to sell any of the Scheduled Loans to one or more of
the Shareholders, or their designees, for a cash purchase price equal to
the unpaid principal amount thereof plus accrued interest.
(c) In the event a Scheduled Loan remains unpaid two years
following the Closing Date, MTBI and the Shareholders shall attempt to
agree on the value of such loans as of the date two years after the Closing
Date (the "Valuation Date"). In the event they are unable to agree on the
value of a Scheduled Loan within 45 days following the Valuation Date, then
that Scheduled Loan shall be valued by an independent appraiser as of the
Valuation Date. The valuation shall be performed by a firm of independent
certified public accountants agreed to by MTBI and the Shareholders. The
costs of the valuation shall be divided equally between MTBI and the
Shareholders. The portion of such costs to be paid by the Shareholders
shall be paid by them pro rata based on the Escrowed Shares initially
deposited by each of them, calculated as set forth in subsection (d) below.
(d) For purposes of this Adjustment Agreement, the Net Loss with
respect to a Scheduled Loan shall be an amount equal to the difference
between (i) the unpaid balance at risk of such loan as of the Valuation
Date, and (ii) the value of such loan determined as provided in
subparagraph (c) above, net of any income tax benefit realizable by the
Bank in connection with such loss. MTBI shall have the right to a return
of the Escrowed Shares deposited with respect to the Scheduled Loans having
a value equal to the amount of the Net Loss of such loans, with such
Escrowed Shares being valued at the closing sale price of the common stock
of MTBI for the last business day preceding the date of the return of such
Escrowed Shares. If the Net Loss with respect to the Scheduled Loans is
less than the value of the Escrowed
C - 2
<PAGE>
Shares deposited by the Shareholders with respect to such loans, each of
the Shareholders shall be obligated to MTBI only for his pro rata share of
such Net Loss based on the number of MTBI Shares deposited by the
Shareholders.
(e) One year following the Closing Date, and at such other
times, if any, as MTBI may deem to be appropriate, MTBI will review the
status and prospects for payment the Scheduled Loans to determine whether
MTBI is willing to release from escrow any of the Escrowed Shares deposited
with respect thereto. Promptly following the payment in full of the
Scheduled Loans, the Escrowed Shares will be released from escrow and
delivered to the Shareholders pro rata (based on the MTBI Shares initially
deposited by all Shareholders). In addition, if at any time the value of
the Escrowed Shares, valuing such shares for purposes of this subparagraph
(e) at the closing sale price of the common stock of MTBI for the last
business day preceding the date of valuation, exceeds 120% of the unpaid
balance at risk of the Scheduled Loans as of such date, reduced by the
amount of the special reserve against such loan, then such number of
Escrowed Shares having a value equal to the amount of such excess shall be
released from escrow (the "Released Shares") and delivered to the
Shareholders pro rata (based on the MTBI Shares initially deposited by all
Shareholders), provided that at the time of the release the Shareholders
enter into an agreement, satisfactory to MTBI, to return shares or other
collateral in the event that the value of the remaining Escrowed Shares
shall fall below 120% of the unpaid balance at risk of the Scheduled Loans,
provided, however, that the Shareholders shall not be required to re-
deposit more MTBI Shares than were released to them under this paragraph.
(f) If any Scheduled Loan is paid in full prior to any release of
Escrowed Shares under this Agreement (other than pursuant to this paragraph
(f)), MTBI shall release promptly that a number of Escrowed Shares which is
equal to (i) the total number of Escrowed Shares then attributed to all
Scheduled Loans multiplied by (ii) that Loan's Risk Proportion, provided,
however, that the number of Escrowed Shares remaining after any such
release may not have a value (determined as provided in paragraph (e)
above) less than the aggregate amount at risk of the unpaid Scheduled
Loans. For this purpose, the "Risk Proportion" of any Scheduled Loan at
any time is equal to the amount at risk of that Loan as provided in
Schedule I divided by the total amount at risk of all unpaid Scheduled
Loans as provided in Schedule I, rounded to four decimal places. If any
Scheduled Loan is paid in full after any release of Escrowed Shares under
this Agreement (other than pursuant to this paragraph (f)), MTBI shall
determine in good faith of the amount at risk of each Scheduled Loan
(including such paid Loan immediately prior to its payment but excluding
any previously paid Loan for which shares were released under this
paragraph) and, using such determinations, calculate the Risk Proportion of
such Loan and release an appropriate number of shares in accordance with,
and subject to the proviso contained in, the first sentence of this
paragraph. If MTBI has a basis for concern that an obligor of any such
Scheduled Loan might seek or face bankruptcy, such Loan shall not be deemed
paid in full until the applicable preference periods have expired.
C - 3
<PAGE>
(g) The parties agree that the Scheduled Loans, and any Net
Losses relating thereto, are not "claims" within the meaning of Section
7.2(a) of the Merger Agreement; accordingly, the provisions of Section
7.2(a) of the Merger Agreement, which provide an exception for the
Shareholders' indemnity obligations if claims aggregate less than $50,000,
shall not apply to, or be affected by, the Scheduled Loans or any Net
Losses relating thereto.
3. The form of Escrow Agreement to be executed and delivered at the
Closing is hereby amended as set out on Appendix A attached.
4. Subject to compliance by the Company with its obligations under
the Merger Agreement, MTBI shall request no other adjustments to the
consolidated net worth of the Company or any further write-down or
write-off of the value of any assets held by the Bank pursuant to Section
1.8 of the Merger Agreement with respect to events or circumstances
disclosed to MTBI on or before April 30, 1996.
5. This Adjustment Agreement shall otherwise inure to the benefit of
and be binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns, irrespective of the death,
disability or incapacity of any of the Shareholders.
6. This Adjustment Agreement shall be construed and interpreted under
the laws of the State of Missouri.
7. All notices and other communications hereunder shall be given to
the parties and in the manner specified in the Merger Agreement and shall
be effective at the time therein set out.
8. No waiver or amendment of any provision of this Adjustment
Agreement shall be effective unless in writing signed by the parties hereto
or, in the case of a waiver, by the party or parties intending to be bound.
9. This Adjustment Agreement may be executed in two or more
counterparts, all of which shall be one instrument.
C - 4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.
Mark Twain Bancshares, Inc.
By: /s/ PETER BENOIST
Title: Executive Vice President
Mark Twain Acquisition Corp. II
By: /s/ PETER BENOIST
Title: Vice President
Northland Bancshares, Inc.
By: /s/ LELAND WALKER
Title: President & CEO
/s/ WILLIAM E. JOHNSON
Shareholder Representative
C - 5
<PAGE>
<PAGE>
SCHEDULE I
Identification of Scheduled Loans
Customer Amount at Risk
------------- --------------------------
[Customer #1] $107,000
[Customer #2] $31,000
[Customer #3] $30,000 (if the SBA
guaranty is affirmed)
$200,000 (if the SBA
guaranty is not affirmed)
C - 6
<PAGE>
<PAGE>
APPENDIX A
Amend paragraph D of the recitals of the present draft Escrow
Agreement to add at the end thereof the phrase "or that certain Agreement
Respecting Adjustments among the parties dated as of July __, 1996 (the
"Adjustment Agreement")."
Amend Section 4(b) of the present draft Escrow Agreement by changing
the phrase in lines 5 through 7 which presently reads "shall reserve from
the Escrowed Shares any amount stated in such instructions as needed to
protect and secure MTBI in respect of indemnifiable claims theretofore made
but not disposed of," to add immediately thereafter the phrase "and
Escrowed Shares (hereinafter called the "Retained Escrowed Shares") having
a value equal to the unpaid balance at risk of the Scheduled Loans as set
forth in Schedule I to the Adjustment Agreement."
Text of New Section 4(c) to Escrow Agreement
(c) The Escrow Agent shall hold and dispose of the Retained Escrowed
Shares subject to the Adjustment Agreement as follows:
(i) In the event of a Net Loss with respect to the Scheduled
Loans, MTBI shall notify the Escrow Agent and the Shareholders
Representative of such Net Loss in writing setting forth the Net Loss in
reasonable detail and making a demand upon the Escrow Agent for the return
of such number of the Retained Escrowed Shares deposited by the
Shareholders having a value equal to the amount of the Net Loss of such
loans (the "Demanded Shares"), determined as provided in Section 4(d) of
the Adjustment Agreement. The Shareholders Representative, upon receiving
such notice, shall have fifteen calendar days from the sending of such
notice by MTBI to object to such release of the Demanded Shares. If the
Shareholders Representative shall not object in a timely manner as above
provided, the Escrow Agent shall deliver the Demanded Shares to MTBI. In
the event such Net Loss exceeds the value of the Retained Escrowed Shares,
determined as provided in paragraph 4(d) of the Adjustment Agreement, the
Escrow Agent shall return to MTBI all of Retained Escrowed Shares.
(ii) In the event that the Net Loss of the Scheduled Loans is
less than the value of the Retained Escrowed Shares deposited by the
Shareholders, the Escrow Agent shall return to MTBI only such number of the
Retained Escrowed Shares deposited on behalf of any Shareholder as
represents such Shareholder's pro rata share of such Net Loss based on the
number of MTBI Shares deposited by each of the Shareholders.
(iii) In the event that the Scheduled Loans are repaid in full,
MTBI shall promptly provide the Escrow Agent with a signed statement
authorizing the release of the Retained Escrowed Shares and the delivery of
such released shares to the appropriate Shareholders. The Escrow Agent,
upon receipt of such signed authorization, shall immediately deliver and
distribute the Retained Escrowed Shares to the Shareholders pro rata as
provided in subparagraph (ii) above. Further, MTBI agrees to notify Escrow
Agent upon payment of the full amount of any of the loans referenced in
Schedule I to the Adjustment Agreement and to instruct Escrow Agent to
release Retained Escrow Shares to the Shareholders, pro rata
C - 7
<PAGE>
based on their initial deposits of Escrowed Shares, to the extent and as
provided in paragraph 4(f) of the Adjustment Agreement.
(iv) The Escrow Agent at any other such time that it receives
signed instructions from MTBI to release from escrow any of the Retained
Escrowed Shares with respect to the Scheduled Loans (the "Released Shares")
shall deliver the Released Shares to the appropriate Shareholders. The
Escrow Agent shall continue to hold any remaining Retained Escrowed Shares
after distributing any such Released Shares, together with any redeposited
shares, with respect to the Scheduled Loans (the "Remaining Retained
Escrowed Shares").
(v) In the event of a Net Loss with respect to the Scheduled
Loans, subsequent to any distribution of Released Shares, the Escrow Agent
shall return to MTBI only such number of the Remaining Retained Escrowed
Shares having a value equal to the amount of the Net Loss with respect to
such loans. MTBI shall not have any claim against either the Escrow Agent
or any Shareholder for any deficiency between the Net Loss with respect to
such loans and the value of the Remaining Retained Escrowed Shares,
notwithstanding that the original value of the Retained Escrowed Shares
might have been sufficient to compensate MTBI for such Net Loss.
(vi) In the event of any dispute regarding the valuation of the
Net Loss with respect to the Scheduled Loans and/or the valuation of the
Retained Escrowed Shares deposited with respect to such loans, the Escrow
Agent shall initially deliver to MTBI only such number of Retained Escrowed
Shares having a value equal to the Net Loss, using the Shareholders
Representative's good faith valuations of both the Retained Escrowed Shares
and the Net Loss. The Escrow Agent shall continue to hold any
undistributed Retained Escrowed Shares with respect to such loans until the
Shareholders Representative and MTBI agree on the proper valuations for
such shares and/or such Net Loss or until an independent appraiser selected
in accordance with paragraph 4(c) of the Adjustment Agreement establishes
such valuations. The Escrow Agent shall then determine, using such
subsequent valuations, the additional number of Retained Escrowed Shares,
if any, to be delivered to MTBI to fully settle the Net Loss with respect
to such loans (the "Additional Shares"). Promptly thereafter, the Escrow
Agent shall deliver the Additional Shares to MTBI and shall immediately
release and deliver to the appropriate Shareholders any residual Retained
Escrowed Shares.
(vii) Notwithstanding anything herein or in the Adjustment
Agreement to the contrary, in the event any of the Retained Escrowed Shares
are to be returned to MTBI pursuant to this paragraph 4, any Shareholder
shall have the right to deposit with the Escrow Agent cash in an amount
equal to the value of the Retained Escrowed Shares of such Shareholder
which would otherwise be returned to MTBI, which value shall be determined
in accordance with paragraph 4(d) of the Adjustment Agreement. In the
event any Shareholder so deposits such cash, in lieu of returning such
Retained Escrowed Shares to MTBI, the Escrow Agent shall deliver such cash
to MTBI and shall deliver such Retained Escrowed Shares to such
Shareholder.
C - 8
<PAGE>
EXHIBIT D
SECTION 351.455, R.S.MO.,
OF
THE MISSOURI GENERAL AND BUSINESS CORPORATION LAW
<PAGE>
SECTION 351.455, R.S.MO.,
OF
THE MISSOURI GENERAL AND BUSINESS CORPORATION LAW
351.455. Shareholder who objects to merger any demand value of shares,
when
1. If a shareholder of a corporation which is a party to a merger
or consolidation shall file with such corporation, prior to or at the
meeting of shareholders at which the plan of merger or consolidation is
submitted to a vote, a written objection to such plan of merger or
consolidation, and shall not vote in favor thereof, and such shareholder,
within twenty days after the merger or consolidation is effected, shall
make written demand on the surviving or new corporation for payment of the
fair value of his shares as of the day prior to the date on which the vote
was taken approving the merger or consolidation, the surviving or new
corporation shall pay to such shareholder, upon surrender of his
certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned
by such dissenting shareholder. Any shareholder failing to make demand
within the twenty day period shall be conclusively presumed to have
consented to the merger or consolidation and shall be bound by the terms
thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between
the dissenting shareholder and the surviving or new corporation, payment
therefor shall be made within ninety days after the date on which such
merger or consolidation was effected, upon the surrender of his certificate
or certificates representing said shares. Upon payment of the agreed value
the dissenting shareholder shall cease to have any interest in such shares
or in the corporation.
3. If within such period of thirty days the shareholder and the
surviving or new corporation do not so agree, then the dissenting
shareholder may, within sixty days after the expiration of the thirty day
period, file a petition in any court of competent jurisdiction within the
county in which the registered office of the surviving or new corporation
is situated, asking for a finding and determination of the fair value of
such shares, and shall be entitled to judgment against the surviving or new
corporation for the amount of such fair value as of the day prior to the
date on which such vote was taken approving such merger or consolidation,
together with interest thereon to the date of such judgment. The judgment
shall be payable only upon and simultaneously with the surrender to the
surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the
surviving or new corporation. Such shares may be held and disposed of by
the surviving or new corporation as it may see fit. Unless the dissenting
shareholder shall file such petition within the time herein limited, such
shareholder and all persons claiming under him shall be conclusively
presumed to have approved and ratified the merger or consolidation, and
shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value
of his shares as herein provided shall cease if and when the corporation
shall abandon the merger or consolidation.
D-1
<PAGE>
EXHIBIT E
Northland Bancshares, Inc.
FURTHER INFORMATION REGARDING
NORTHLAND BANCSHARES, INC.
AND
CONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITORS' REPORTS
FOR NORTHLAND BANCSHARES, INC.
As and for the years ended December 31, 1995, 1994, and 1993
AND
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR NORTHLAND BANCSHARES, INC.
As of and for the six months ended June 30, 1996 and 1995
<PAGE>
FURTHER INFORMATION REGARDING
NORTHLAND BANCSHARES, INC.
Northland Bancshares, Inc. ("Northland") was incorporated under the
laws of the State of Missouri in 1985. Northland owns 100% of the
outstanding capital stock of First National Bank of Platte County (the
"Bank") and North American Credit Service, Inc. ("NACSI"). The principal
offices of Northland the Bank and NACSI are located at 7667 NW Prairie View
Road, Kansas City, Missouri 64151. The telephone number is (816) 746-2000.
The Bank also maintains a drive-in facility at 6510 NW Prairie View Road,
Kansas City, Missouri 64151, a branch at 5200 NW 64th Street, Kansas City,
Missouri 64151, and facilities at a major local grocery store and at the
Embassy Suites Hotel and a separate ATM pad location. These latter
facilities are all leased from third parties. The lessor on the motor bank
facility is Prairie Center Associates of which Kent Mayfield and Ronald
Smith, directors of Northland are Affiliates. See "Interest of Certain
Persons in the Merger" above. The grocery store facilities provide
depositors with personal services throughout the week and customers may
deposit and withdraw cash at the ATM locations at all times.
The Bank offers a wide range of commercial and retail banking services
from its locations in Platte County, Missouri. NACSI owns the building
which serves as Northland's headquarters and as a banking facility of the
Bank; NACSI leases the entire building to the Bank. NACSI has no other
business operations. Northland presently has no other subsidiaries,
engages in no other activities, and at this time, there are no plans
regarding any other activities. The activities in which Northland can
engage is limited by the Bank Holding Company Act of 1956, as amended.
Northland is subject to regulatory supervision by the Federal Reserve
Bank of Kansas City. The Bank is a commercial bank principally engaged in
the business of attracting deposits from the general public and using such
deposits, together with other funds, to originate loans to its commercial,
industrial, and individual customers for retention and servicing within its
own portfolio and for sale into the secondary mortgage market. Such loans
are generally secured by business equipment, inventory, accounts
receivable, real estate, personal property, marketable securities, or cash
deposits. Limited unsecured loans are made to borrowers of demonstrated
character who have strong liquid financial condition.
Northland has engaged the firm of Ernst & Young LLP to audit its
annual financial statements for at least the past five years.
Copies of Northland's audited consolidated financial statements for
the years ended December 31, 1995, 1994, and 1993, and its unaudited
consolidated financial statements for the six months ended June 30, 1996
and 1995, appear at the end of this Exhibit E.
E-1
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION REGARDING NORTHLAND
(Dollars in thousands, except per share data)
Six Mos. Ended
June 30 (unaudited) Years Ended December 31,
--------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Interest income, fully tax equivalent $2,630 $2,138 $4,614 $3,480 $2,798 $2,368 $2,189
Interest Expense 859 735 1,623 1,201 949 929 1,085
---------------------------------------------------------------------------
Net interest income 1,771 1,403 2,991 2,279 1,849 1,439 1,104
Provision for loan losses 94 81 87 95 126 213 80
---------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,677 1,322 2,904 2,184 1,723 1,226 1,024
Non-interest income 855 655 1,436 1,347 1,364 927 477
Non-interest expense 1,664 1,554 3,190 2,933 2,465 1,977 1,413
---------------------------------------------------------------------------
Income before income taxes 868 423 1,150 598 622 176 88
Applicable income taxes 327 172 432 196 231 55 18
---------------------------------------------------------------------------
Income before cumulative effect adjust-
ment and utilization of NOL carryfwd 541 251 718 402 391 121 70
Cumulative effect adjustment - - - - 111 - -
Utilization of NOL carryforward - - - - - 55 18
---------------------------------------------------------------------------
Net income $541 $251 $718 $402 $502 $176 $88
================================================================================================================
Per Share Data
Earnings before cumulative effect adjust-
ment and utilization of NOL $0.91 ** $0.42 * $1.21 * $0.80 ** $0.89 ** $0.35 ** $0.24 **
Earnings $0.91 $0.42 * $1.21 * $0.80 ** $1.14 ** $0.51 ** $0.30 **
Cash dividends declared - - - - - - -
Book Value $10.80 $9.45 * $10.80 * $8.50 ** $7.70 ** $6.56 ** $5.07 **
Balance Sheet Data
(Averages for the period)
Total assets $71,581 $61,734 $64,840 $58,456 $46,664 $35,655 $26,282
Earning assets 66,423 56,627 59,601 52,485 40,772 30,551 23,362
Loans 37,281 31,055 32,568 24,616 19,058 14,771 10,746
Total deposits 60,016 55,107 56,466 53,468 42,485 32,256 24,049
Shareholders' Equity 6,236 5,145 5,390 3,969 3,089 1,997 1,718
Balance Sheet Data (Period-End)
Total assets $71,810 $66,435 $72,273 $61,406 $53,987 $41,128 $28,664
Earning assets 66,518 61,087 66,438 56,229 48,373 35,084 25,932
Loans 38,405 31,982 34,961 28,896 19,622 16,836 11,766
Total deposits 61,471 57,452 60,927 55,333 49,391 37,243 26,527
Shareholders' Equity 6,463 5,502 5,991 4,933 3,390 2,889 1,497
Return On
Average total assets 1.52% 0.82% 1.11% 0.69% 1.08% 0.49% 0.33%
Average shareholders' equity 17.45% 9.84% 13.32% 10.13% 16.25% 8.81% 5.12%
Selected Ratios
Average shareholders' equity to:
Assets 8.71% 8.33% 8.31% 6.79% 6.62% 5.60% 6.54%
Loans 16.73% 16.57% 16.55% 16.12% 16.21% 13.52% 15.99%
Period-end shareholders' equity to:
Assets 9.00% 8.28% 8.29% 8.03% 6.28% 7.02% 5.22%
Loans 16.83% 17.20% 17.14% 17.07% 17.28% 17.16% 12.72%
================================================================================================================
* Data is restated to reflect a 10% pro-rata stock dividend issued in 1996.
** Data is restated to reflect 5% and 10% stock dividends issued in 1995 and 1996, respectively.
</TABLE>
E-2
<PAGE>
NORTHLAND'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Management's discussion and analysis of significant factors which have
affected the operations of Northland during the periods included in the
accompanying consolidated statements of operations, together with a
discussion of the liquidity and capital resources of Northland's
subsidiaries, is set forth below. Inasmuch as Northland's principal
business operation is its ownership of 100% of the outstanding shares of
the Bank, references to the business operations and financial results of
Northland's activities shall, except where specifically indicated, refer to
the business activities and financial results of the Bank.
Income Statement Analysis
Performance Summary
Northland opened the Bank for business on October 1, 1986 with limited
capital and the original goal was to grow as rapidly as possible in order
to take advantage of economies of scale. In 1995 the major focus changed
from growth to profitability.
Northland's consolidated after tax net income in 1995 was $718,000
compared to $402,000 in 1994 and $502,000 in 1993. Return on average
assets for 1995 was 1.11% compared to 0.69% and 1.08% for 1994 and 1993,
respectively. These results reflected a 13.32% return on average
shareholders' equity for 1995 compared to 10.13% for 1994 and 16.25% for
1993. In 1993 Northland utilized the remaining NOL carryforward of
$111,000 which was incurred during the start up of the Bank.
Average earning assets continued to grow during this period and were
$66.4 million in 1995, $56.2 million in 1994 and $48.4 million in 1993,
representing growth during the respective periods of 18.2%, 16.2% and
37.9%. Community involvement and aggressive business development efforts
in the growing Kansas City Northland area account for the growth in average
assets. In 1994 deposits were growing at a rate faster than its loans
resulting in more funds being allocated to investment securities and
because of a rising interest rate environment, maturities of investment
securities were kept short. Deposit interest rates were increasing and
this impacted the net interest margin in a negative manner. In 1995 a
significant portion of the Bank's investment portfolio matured and the
proceeds were reinvested in higher yielding securities. Also, the
continued growth in the loan portfolio helped to improve the profitability.
Net Interest Income
Net interest income, the difference between total interest income on
earning assets and total interest expense on liabilities is the Bank's
primary source of earnings. On a fully tax equivalent basis, net interest
income increased 28.5% in 1993, 23.3% in 1994 and 31.2% in 1995. The
majority of the increase in 1993 and 1994 resulted from the growth in loans
and investment securities. At the end of 1995 loans as a percentage of
deposits had increased to 59.5% from 51.6% at the end of 1994 and 42.3% at
the end of 1993. Almost 50% of the investment securities matured in the
first six months of 1995 and these funds were reinvested in securities with
significantly higher yields. Thus, in 1995 the increase in net interest
income resulted from the growth in the loan portfolio along with the
improved yield on loans plus the higher yield on investment securities.
The net margin for 1995 of 5.02% increased from 4.34% in 1994. The
composition of deposits has remained relatively constant over the past
several years with interest free demand deposits accounting for
approximately 30% of total deposits. While the costs associated with
maintaining the interest free demand deposit accounts are located in non-
interest expense, the growth of these interest free funds does have a
positive effect on the net interest margin.
E-3
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Average Balance Sheet and Net Interest Margin
(Dollars in Thousands)
Year Ended December 31, 1995 Year Ended December 31, 1994 Year Ended December 31, 1993
------------------------------- -------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) $33,052 $3,110 9.41% $25,136 $2,152 8.56% $20,031 $1,739 8.68%
Securities(2) 26,549 1,504 5.66% 27,349 1,328 4.86% 20,741 1,059 5.11%
------------------------------------------------------------------------------------------------
Total interest earning assets 59,601 4,614 7.74% 52,485 3,480 6.63% 40,772 2,798 6.86%
------------------------------------------------------------------------------------------------
Cash and due from banks 3,491 4,036 4,056
Other assets 2,214 2,319 2,113
Allowance for loan loss (466) (384) (277)
------- ------- -------
Total $64,840 $58,456 $46,664
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings and NOW $12,843 280 2.18% $12,682 281 2.22% $10,148 224 2.21%
Money Market 15,957 657 4.12% 15,527 493 3.18% 11,160 317 2.84%
Time deposits 10,120 542 5.36% 8,811 376 4.27% 8,396 354 4.22%
Borrowings 2,501 144 5.76% 739 51 6.90% 806 54 6.70%
------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 41,421 1,623 3.92% 37,759 1,201 3.18% 30,510 949 3.11%
------------------------------------------------------------------------------------------------
Non-interest bearing deposits 17,546 16,448 12,781
Other liabilities 483 280 284
Shareholders' equity 5,390 3,969 3,089
------- ------- -------
Total $64,840 $58,456 $46,664
======= ======= =======
Net interest income $2,991 $2,279 $1,849
======= ======= =======
Net interest margin 5.02% 4.34% 4.53%
======= ======= =======
============================================================================================================================
(1) Includes loans held for sale of $484, $520 and $973 for 1995, 1994 and 1993, respectively and non-accrual loans.
(2) Includes short-term investments.
E-4
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
RATE/VOLUME TABLE
(Dollars in Thousands)
1995 Compared to 1994 1994 Compared to 1993
------------------------------ -------------------------------
Total Total
Or Net Increase (Decrease) Or Net Increase (Decrease)
Increase Attributable To Increase Attributable to
(Decrease) Change in (1) (Decrease) Change in (1)
------------------------------ -------------------------------
Volume Rate Volume Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $958 $729 $229 $413 $437 $(24)
Securities 176 (40) 216 269 323 (54)
------------------------------ -------------------------------
Total interest earned on assets 1,134 689 445 682 760 (78)
------------------------------ -------------------------------
Interest Expense:
Interest bearing demand deposits (1) 4 (5) 57 56 1
Savings and money market deposits 164 14 150 176 135 41
Time deposits 166 61 105 22 18 4
Borrowings 93 103 (10) (3) (5) 2
------------------------------ -------------------------------
Total interest paid on liabilities 422 182 240 252 204 48
------------------------------ -------------------------------
Net interest income $712 $507 $205 $430 $556 $(126)
========================================================================================================
(1) For the purpose of this table, changes which are not due solely to volume or rate changes are allocated
to such categories based on the respective percentage changes in average balances and average rates.
</TABLE>
Non-Interest Income
In 1995 service charges were implemented on personal checking
accounts. While this caused a slight decline in overdraft service charges,
the overall effect was positive. This, coupled with the growth in
deposits, accounts for the increase in service charge income on deposit
accounts.
Interest rates were lower in 1993 than they had been for several years
which resulted in a large number of customers refinancing their home
mortgages which accounted for the large amount of mortgage banking fees
that year. As interest rates increased in 1994, the mortgage volume
declined and as interest rates declined in 1995, the mortgage volume began
increasing.
Merchant credit card services are priced at cost plus a mark-up which
insures that the product is profitable. Growth in the number of customers
account for this increase in this non-interest income. Interchange income
represents the discounts taken when customers use their credit cards or
debit cards to purchase goods and services. The increase in income for
this area is attributable to the gradual increased use of these products.
The other service charges and safe deposit income reflect increases
from normal growth in the use of these services. Federated management fees
reflect commissions earned by the Bank on funds that are placed with
Federated on an overnight basis which is part of the Bank's cash management
services. These commissions were down slightly in 1995 due to the
customers having smaller amounts of cash to manage.
E-5
<PAGE>
OTHER INCOME
(Dollars in Thousands)
- ---------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
Service charges on deposit accounts $824 $730 $666
Mortgage banking fees 259 289 429
Merchant and credit card income 185 154 100
Interchange income 47 33 28
Other service charges 46 43 39
Safe deposit income 24 21 16
Federated management fees 22 29 26
Security gains (losses) (28) - -
Other 57 48 60
- ---------------------------------------------------------------------------
Total other income $1,436 $1,347 $1,364
===========================================================================
Non-Interest Expenses
Personnel costs have increased over the past two years because of (1)
the increase in the number of Bank employees (2) increase in starting
salary levels resulting from inflationary pressures, (3) salary increases
for existing staff based on inflationary pressures, seniority and merit and
(4) the Bank's incentive compensation program for officers and other key
employees.
PERSONNEL COSTS
(Dollars in Thousands)
- ---------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
Salaries $1,262 $1,094 $971
Payroll taxes and employee benefits 217 214 160
- ---------------------------------------------------------------------------
Total personnel costs $1,479 $1,308 $1,131
===========================================================================
Merchant and credit card expenses reflect a gradual increase in volume
based on the normal expenses associated with more customers using the
credit card and debit card products.
Stationery and supplies, postage, travel and entertainment, legal and
professional fees, all reflect very modest fluctuations because of normal
operating costs and growth of the Company.
In 1995 the FDIC premiums were reduced. Because of this, the FDIC
insurance premiums were significantly lower in 1995.
Directors fees were increased in 1994 and one additional director was
elected in January of 1994. In 1995 there was only a minor adjustment in
fees paid to directors. The remaining non-interest expenses reflect normal
increases or fluctuations based on the growth of the Bank and the emphasis
being placed on a particular effort. For example, advertising and
marketing was significantly higher in 1993 due to the implementation of
image processing and the advertising for that product. But, by utilizing
image processing, the postage costs remained relatively constant for the
three year period even though the Bank grew approximately 35.8% during 1994
and 1995.
E-6
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
(Dollars in Thousands)
- ---------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
Merchant and credit card $161 $155 $97
Stationary and Supplies 115 105 83
Postage 83 83 85
Travel and entertainment 73 74 64
Legal and professional fees 72 81 51
FDIC premiums 63 110 85
Directors fees 50 47 24
Correspondent service charges 34 35 45
Telephone 30 28 23
Comptroller fees 28 27 22
Advertising and marketing 28 29 61
Courier and armored car 25 23 18
Credit and collection 21 30 25
Taxes other than income 20 17 22
Dues and subscriptions 20 19 20
Other insurance and bonds 17 16 13
Charitable contributions 17 11 6
Secondary marketing 4 12 13
Amortization of goodwill 3 3 3
Other 12 5 21
- ---------------------------------------------------------------------------
Total General and Administrative Expenses $876 $910 $781
===========================================================================
Balance Sheet
Investment Portfolio
The Bank's investment portfolio at December 31, 1995 consisted of
direct obligations of U.S. Government corporations and agencies (84%),
mortgage-backed securities (15%) and other securities (1%). Because the
Bank looks to the investment securities portfolio for liquidity to fund
loans and pay demand deposit withdrawals, it has not purchased tax-free
securities for the reason that tax-free securities may be more difficult to
liquidate in the amounts required.
INVESTMENT SECURITIES
(Dollars in Thousands)
December 31,
-------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------
U.S. Treasury securities and
Obligations of U.S. government
corporations and agencies $22,688 $20,082 $15,798
Mortgage-backed securities 4,027 4,676 5,815
Other securities 290 268 508
-------------------------------------------------------------------
Total $27,005 $25,026 $22,121
===================================================================
The following table summarizes at December 31, 1995, the carrying
values, yields, and maturity distributions of the investment portfolio (1)
(2):
E-7
<PAGE>
<TABLE>
<CAPTION>
INVESTMENTS YIELD TO MATURITY(1)(2)
(Dollars in Thousands)
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $5,627 5.01% $17,061 6.53% $- $- $- $-
Mortgage-backed securities - - 4,027 5.11% - - - -
Other securities - - - - - - 290 6.00%
- ----------------------------------------------------------------------------------------------------------------
Total $5,627 $21,088 $- $290
================================================================================================================
(1) Mortgage-backed securities have been presented based on the expected final maturity dates, rather than
the contractual maturity dates.
(2) The carrying value of investment securities at December 31, 1995, by expected maturity, are shown above.
The expected 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>
Loans
The emphasis for the loan portfolio has been one of quality since the
inception of the Bank. The loan portfolio has shown steady growth and for
a start up operation the charge-offs have been reasonably low. One charge-
off occurred in 1992 in the amount of $193,000 which was the only large
charge-off in the history of the Bank. In July 1992, the Bank implemented
a mortgage banking program which assisted in developing construction
lending. Construction lending and mortgage lending go hand-in-hand and
have been very effective products for banks in growing communities, such as
the Northland area. In 1994, the Bank became an SBA Certified Lender and a
lending officer was hired to focus all of her efforts on SBA lending.
While significant volume has not been achieved to date in the SBA loan
category, the product is needed in the Kansas City Northland area and the
volume is growing. The Bank most recently was awarded the Preferred Lender
Status with the SBA. At the end of 1995, 21% of loans were commercial
loans, 58% were real estate loans and 21% were installment loans.
LOANS
(Dollars in Thousands)
December 31,
- ---------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------
Commercial $ 7,451 $ 5,931 $ 4,547 $ 3,393 $ 3,298
Real estate 20,313 16,109 9,470 9,321 6,317
Installment 7,197 6,856 5,605 4,122 2,151
- ---------------------------------------------------------------------------
Total loans 34,9612 8,896 19,622 16,836 11,766
Allowance for loan losses 470 405 327 222 211
- ---------------------------------------------------------------------------
Net loans $34,491 $28,491 $19,295 $16,614 $11,555
===========================================================================
The amount of certain loans outstanding as of December 31, 1995 is
shown on the following table based on the time remaining to maturity.
Demand loans are reported in the one-year-or-less category. All other
loans are carried at contracted maturities. The Bank utilizes the Federal
Home Loan Bank of Des Moines to assist in its interest rate risk analysis
considerations. These interest rate risk analysis are reviewed in detail
at the end of each quarter to determine if rate sensitivity will effect the
Bank to any significant negative degree.
E-8
<PAGE>
LOAN MATURITY & SENSITIVITY TO CHANGES IN INTEREST RATES
(Dollars in Thousands)
One Year Over 1 year
or Less Through 5 years Over 5 years Total
- ---------------------- ------------------- -------------------- -------
Fixed Floating Fixed Floating
Rate Rate Rate Rate
- ---------------------- -------- --------- --------- --------- -------
Total Loans $16,440 $13,717 $2,863 $963 $978 $34,961
===========================================================================
The Bank reviews the adequacy of its loan loss reserve on a quarterly
basis with the Board of Directors. Variables including the history of loan
charge-offs, the loan delinquency rate, the internal loan review process,
the size of the portfolio as well as the overall level of industry and
market risk inherent to the portfolio are all factored into the reserve
calculation. Based upon this analysis, the loan loss reserve of $470,000
or 1.34% of loans at year end 1995 was deemed to be adequate. The Bank,
has committed to Mark Twain, however, to increase its loan loss reserve to
1.50% of loans by the end of the calendar month preceding the anticipated
closing. See "Description of the Transaction - Indemnity Obligations."
The following table summarizes the activity in the allowance for loan
losses for the periods indicated.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
December 31,
- ---------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------
Loans at year-end $34,961 $28,896 $19,622 $16,836 $11,766
=================================================
Average loans outstanding $32,568 $24,616 $19,058 $14,771 $10,746
=================================================
Allowance at beginning of year $405 $ 327 $222 $211 $147
Allowance of acquired company - - - 28 -
Loans charged off:
Commercial 14 - 16 219 1
Real estate 1 14 4 7 15
Installment 28 19 32 6 2
-------------------------------------------------
Total loans charged off 43 33 52 232 18
Recoveries:
Commercial 4 8 16 - -
Real estate - - - - -
Installment 17 8 15 2 2
-------------------------------------------------
Total recoveries 21 16 31 2 2
-------------------------------------------------
Net loans charged-off 22 17 21 230 16
Provisions for loan losses 87 95 126 213 80
-------------------------------------------------
Allowance at end of year $470 $405 $327 $222 $211
=================================================
Net charge-offs to average
loans 0.07% 0.07% 0.11% 1.56% 0.15%
Allowance to year-end loans 1.34% 1.40% 1.67% 1.32% 1.79%
===========================================================================
The following table summarizes the allowance for possible loan losses
by major categories of loans and percentage of loans in each allocated
category to total loans at the dates indicated.
E-9
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCES FOR LOAN LOSSES
(Dollars in Thousands)
December 31,
- ----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
Allowance % Allowance % Allowance % Allowance % Allowance %
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $204 21.3% $138 20.5% $ 73 23.2% $ 69 20.1% $40 28.0%
Real estate 46 58.1% 8 55.8% 4 48.3% 4 55.4% 4 3.7%
Installment 22 20.6% 25 23.7% 11 28.5% 11 24.5% 10 18.3%
Unallocated 198 - 234 - 239 - 138 - 157 -
- ----------------------------------------------------------------------------------------------
Total $470 $405 $327 $222 $211
==============================================================================================
</TABLE>
Risk Elements
It has always been the Bank's policy to maintain a quality loan
portfolio even at the expense of loan growth. In the early years the Bank
could not afford to take large risks because of its capital position;
consequently the loan portfolio grew slowly.
Management believes the percentage of allowance for loan losses in
relationship to all non-performing assets is good. The loans that are
delinquent 90 days or more are minimal.
<TABLE>
<CAPTION>
RISK ELEMENTS
(Dollars in Thousands)
December 31,
- ------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ - $ - $ 5 $ 16 $ 1
Restructured loans 114 52 41 3 4
Other real estate owned - - 55 110 122
-----------------------------------------------------
Total non-performing asset $114 $52 $101 $129 $127
-----------------------------------------------------
Percentage of non-performing
assets to loans plus other
real estate owned 0.33% 0.18% 0.51% 0.76% 1.07%
Loans contractually past due
ninety days or more $ 45 $ 108 $ 1 $ 14 $ 85
Percentage of non-performing assets
plus ninety days past due to loans
plus other real estate own 0.45% 0.55% 0.52% 0.84% 1.78%
Percentage of allowance to
non-performing loans 295.60% 253.13% 695.74% 672.73% 234.44%
Percentage of allowance to total
non-performing assets 412.28% 778.85% 323.76% 172.09% 166.14%
Percentage of allowance to risk
elements* 295.60% 253.13% 320.59% 155.24% 99.53%
Percentage of risk elements*
to total average assets 0.25% 0.27% 0.22% 0.40% 0.81%
=========================================================================================
* Risk elements include non-performing assets plus loans contractually past due ninety
days or more.
</TABLE>
Deposits
Total deposits continued to show reasonable growth in 1994 and 1995
while the composition of the deposits changed very little. The Bank
continues to have good balances in non-interest bearing demand deposits and
prefers to see the composition of the deposits remain consistent with
historical balances.
E-10
<PAGE>
<TABLE>
<CAPTION>
DEPOSITS
(Dollars in Thousands)
December 31,
- -----------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Balances
Non-interest bearing demand deposits............ $ 17,546 $ 16,448 $ 12,781
Savings and NOW................................. 12,843 12,682 10,148
Money Market.................................... 15,957 15,527 11,160
Time deposits (less than $100,000).............. 8,140 7,292 6,879
Time deposits ($100,000 or greater)............. 1,980 1,519 1,517
- ------------------------------------------------------------------------------------------
Total Average Deposits.......................... $ 56,466 $ 53,468 $ 42,485
- ------------------------------------------------------------------------------------------
Period End Balances
Non-interest bearing demand deposits............ $ 19,683 $ 17,622 $ 16,710
Savings and NOW................................. 13,197 13,374 11,446
Money Market.................................... 17,821 15,605 12,930
Time deposits (less than $100,000).............. 8,267 7,303 7,086
Time deposits ($100,000 or greater)............. 1,959 1,429 1,219
- ------------------------------------------------------------------------------------------
Total deposits.................................. $ 60,927 $ 55,333 $ 49,391
==========================================================================================
</TABLE>
The following table sets forth, by time remaining to maturity, time
deposits in amounts of $100,000 or greater as of December 31, 1995. The
Bank has never relied on time deposits of $100,000 or greater to fund its
operations.
TIME REMAINING TO MATURITY FOR JUMBO TIME DEPOSITS
(Dollars in Thousands)
---------------------------------------------------
Less than three months.................... $1,103
Three to twelve months.................... 506
More than twelve months................... 350
---------------------------------------------------
Total................................... $1,959
===================================================
Liquidity
Liquidity is the measure of a financial institution's ability to meet
unusual demands of its customers for funding of credit commitments and
withdrawal from demand deposit accounts. The Bank's liquidity at
December 31, 1995 was provided by its overnight investments of $2.5 million
and investment securities with maturities under 91 days or held as
available for sale of $26.7 million. These funds ($31.2 million) represent
43% of the Bank's total assets. The Bank has always maintained a high
liquidity position because of its growth, increasing loan demand and
management philosophy.
Effects of Inflation
Balance sheets of financial institutions typically contain assets and
liabilities that are monetary in nature, and therefore, differ greatly from
most commercial and industrial companies, which have significant
investments in premises, equipment, and inventory. During periods of
inflation, financial institutions that are in a net positive monetary
position will experience a decline in purchasing power, which has a
negative impact on growth. This necessitates an increase in equity capital
at higher-than-normal rates in order to maintain an appropriate equity-to-
asset ratio. Another significant effect on internal equity growth is Other
Expenses, which tend to rise during periods of inflation.
Capital
Northland's shareholder equity increased 21% in 1995 to $5,991,275 as
compared to $4,933,019 in 1994. Return on average equity rose from 10.13%
in 1994 to 13.32% in 1995. There is no established public
E-11
<PAGE>
trading market for the shares of Northland. When Northland was organized
in 1986, a private placement offering under Regulation D of the Securities
Act of 1933 was made and stock was sold to approximately 35 shareholders.
Since that time, additional private placement offerings were made in 1988,
1989, 1990, 1992, and 1994 in order to fund the need for capital. There
are now 128 shareholders of Northland. In 1992 NACSI was purchased for
issuance of Northland shares and a small amount of cash. NACSI owned the
building in which the Bank's principal office was and is located and a
small loan portfolio. Since its acquisition, all loans have been collected
and the cash dividended to Northland, which in turn injected it into the
Bank's capital. Northland has paid no cash dividends but split its stock 5
for 1 in 1994 and paid a five percent stock dividend in 1995 and a ten
percent stock dividend in the first quarter of 1996.
NORTHLAND'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Management's discussion and analysis of significant factors which have
affected operations during the periods included in the accompanying
unaudited interim condensed consolidated statements of operations, together
with a discussion of the liquidity and capital resources of Northland, is
set forth below. This discussion should be read in conjunction with
Northland's interim unaudited condensed consolidated financial statements
for the six months ended June 30, 1996 which are reproduced at the end of
this Exhibit E. For a discussion of Northland's financial condition and
results of operation last year, see "Northland's Management Discussion and
Analysis of Financial Condition" and "Results of Operations for the Year
Ended December 31, 1995" above.
Results of Operations
Net income for the first six months of 1996 was $541,000 in net
income, a 116% increase over the $251,000 of net income recorded for the
first six months of 1995. The primary reason for the increase in net
income was an increase of $368,000 in net interest income and $200,000 in
non-interest income while the provision for loan losses increased only
$13,000 and all other non-interest expenses increased only $110,000.
Average earning assets showed increases for the six months ended June
30, 1996 compared to the six months ended June 30, 1995 of $10 million.
Northland's net interest margin for the six month period ended June 30,
1996 was 5.38% compared to 5.00% for the same period in 1995.
While interest rates have risen during 1996, the Bank has seen an
increase in the gross margin it earned on average earning assets. Yields
on average earning assets were 7.99% for the six months ended June 30, 1996
compared to 7.61% for the same six months a year earlier, an increase of 38
basis points, while the cost of interest bearing liabilities increased only
3 basis points.
The importance placed on profitability in early 1995 is reflected in
the improved performance in 1996. The emphasis on lending continued to
increase the loan portfolio as a percentage of deposits to 62.5% at June
30, 1996 compared to 55.7% at June 30, 1995. With the normal growth in
earning assets, the improvement of its net interest margin along with
limiting the growth of non-interest expenses, the Bank's performance should
continue to improve.
E-12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST MARGIN (FIRST SIX MONTHS)
(Dollars in Thousands)
Six Month Period Ended June 30, 1996 Six Month Period Ended June 30, 1995
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1) $38,006 $1,793 9.51% $31,375 $1,449 9.31%
Securities(2) 28,417 837 5.95% 25,252 689 5.50%
---------------------------------------------------------------------------------------
Total interest earning
assets 66,423 2,630 7.99% 56,627 2,138 7.61%
---------------------------------------------------------------------------------------
Cash and due from banks 3,625 3,305
Other assets 2,060 2,250
Allowance for loan loss (527) (448)
-------- --------
Total $71,581 $61,734
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Savings and NOW $13,236 126 1.92% $13,012 143 2.22%
Money Market 17,588 346 3.97% 15,408 309 4.04%
Time deposits 10,056 272 5.45% 9,776 249 5.14%
Borrowings 4,668 115 4.97% 1,138 34 6.02%
---------------------------------------------------------------------------------------
Total interest bearing
liabilities 45,548 859 3.80% 39,334 735 3.77%
---------------------------------------------------------------------------------------
Non-interest bearing deposits 19,136 16,911
Other liabilities 611 344
Shareholders' equity 6,236 5,145
-------- --------
Total $71,581 $61,734
======== =======
Net interest income $1,771 $1,403
======== ========
Net interest margin 5.38% 5.00%
======== ========
================================================================================================================
(1) Includes loans held for sale of $725 and $320 for 1996 and 1995, respectively, and non-accrual loans.
(2) Includes short-term investments.
</TABLE>
E-13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND NET INTEREST MARGIN (SECOND QUARTER)
(Dollars in Thousands)
Three Month Period Ended June 30, 1996 Three Month Period Ended June 30, 1995
-------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1) $39,137 $920 9.43% $32,222 $755 9.40%
Securities(2) 28,243 417 5.92% 25,564 356 5.59%
---------------------------------------------------------------------------------------
Total interest earning
assets 67,380 1,337 7.96% 57,785 1,111 7.71%
---------------------------------------------------------------------------------------
Cash and due from banks 3,671 3,360
Other assets 2,057 2,225
Allowance for loan loss (550) (466)
-------- --------
Total $72,559 $62,905
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Savings and NOW $13,357 62 1.86% $12,918 71 2.20%
Money Market 17,588 172 3.92% 15,276 163 4.28%
Time deposits 9,965 134 5.39% 10,269 137 5.35%
Borrowings 5,022 62 4.95% 1,793 26 5.82%
---------------------------------------------------------------------------------------
Total interest bearing
liabilities 45,932 430 3.75% 40,256 397 3.96%
---------------------------------------------------------------------------------------
Non-interest bearing deposits 19,836 16,990
Other liabilities 480 396
Shareholders' equity 6,311 5,263
-------- --------
Total $72,559 $62,905
======== =======
Net interest income $ 907 $ 714
======== ========
Net interest margin 5.40% 4.96%
======== ========
================================================================================================================
(1) Includes loans held for sale of $760 and $386 for 1996 and 1995, respectively, and non-accrual loans.
(2) Includes short-term investments.
</TABLE>
RATE/VOLUME TABLE (FIRST SIX MONTHS)
(Dollars in Thousands)
1st 6 Mos. 1996 Compared to 1995
--------------------------------
Total
Or Net Increase (Decrease)
Increase Attributable To
(Decrease) Change in (1)
---------------------------------
Volume Rate
- ---------------------------------------------------------------------------
INTEREST INCOME:
Loans (1) $344 $312 $32
Securities 149 91 58
---------------------------------
Total interest earned on assets 493 403 90
---------------------------------
INTEREST EXPENSE:
Savings and NOW (17) 7 (24)
Money market deposits 37 54 (17)
Time deposits 23 7 16
Borrowings 81 99 (18)
---------------------------------
Total interest paid on liabilities 124 167 (43)
---------------------------------
Net interest income $369 $236 $133
===========================================================================
(1) For the purpose of this table, changes which are not due solely to
volume changes or rate changes are allocated to such categories based on
the respective percentage changes in average balances and average rates.
E-14
<PAGE>
<TABLE>
<CAPTION>
Rate/Volume Table (Second Quarter)
(Dollars in Thousands)
2nd Qtr. 1996 Compared to 1995
--------------------------------
Total
Or Net Increase (Decrease)
Increase Attributable To
(Decrease) Change in (1)
--------------------------------
Volume Rate
----------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans (1) $165 $163 $2
Securities 61 39 22
--------------------------------
Total interest earned on assets 226 201 25
--------------------------------
INTEREST EXPENSE:
Savings and NOW (9) 14 (23)
Money market deposits 9 76 (67)
Time deposits (3) (9) 6
Borrowings 36 62 (26)
--------------------------------
Total interest paid on
liabilities 33 143 (110)
--------------------------------
Net interest income $193 $58 $135
================================================================
(1) For the purpose of this table, changes which are not due solely to volume changes or
rate changes are allocated to such categories based on the respective percentage changes
in average balances and average rates.
</TABLE>
Non-Interest Income
Non-interest income for the first six months of 1996 increased by
$200,000 or 31% over the same period in 1995. The following table
summarizes the components of other income for those periods. The increase
in mortgage banking fees results from the increased volume in 1996 over
1995 due to the more favorable interest rates and building activity
occurring in the community. Other areas reflect normal growth in the
Bank's business. In 1995 securities were sold, losses taken and the
proceeds reinvested at significantly higher rates. The gain for 1996
represents a gain on a security that was called where the Bank had
purchased the security at a discount.
Other Income
(Dollars in Thousands)
Six Months Ended
June 30,
1996 1995
----------------------
Service charges on deposit accounts $40 $405
Mortgage banking fees 196 91
Merchant and credit card income 114 90
Interchange income 31 21
Other service charges 22 22
Safe deposit income 25 23
Federated management fees 12 11
Security gains (losses) 18 (26)
Other 32 18
----------------------
Total other income $855 $655
======================
E-15
<PAGE>
Non-Interest Expense
Personnel costs for the first six months of 1996 have increased by
$179,000 or 26%, compared to the same period in 1995. Personnel costs have
increased over the past two years because of (1) the increase in the number
of Bank employees, (2) increase in starting salary levels resulting from
inflationary pressures, (3) salary increases for existing staff based on
inflationary pressures, seniority and merit and (4) the Bank's incentive
compensation program for officers and other key employees. As the
profitability of the Bank has shown significant improvement in 1996,
additional incentive compensation has been accrued in accordance with the
plan for officers and key employees.
Personnel Costs
(Dollars in Thousands)
Six Months Ended
June 30,
1996 1995
--------------------
Salaries $762 $584
Payroll taxes and employee
benefits 113 112
--------------------
Total personnel costs $875 $696
====================
General and administrative expenses decreased by $56,000, or 12%, in
the first six months in 1996 compared to the same period in 1995. The
significant component of this category is the FDIC insurance premiums.
Because the premiums were reduced in late 1995, there is a significant
difference in the FDIC insurance premiums paid between the first six months
of 1996 versus 1995. Increases in these expenses are attributable to
normal growth in the Bank's business.
E-16
<PAGE>
General and Administrative Expenses
(Dollars in Thousands)
Six Months Ended
June 30,
1996 1995
-------------------
Merchant and credit card $ 99 $ 78
Stationary and supplies 47 52
Postage 42 44
Travel and entertainment 23 33
Legal and professional fees 31 26
FDIC premiums 1 61
Directors fees 29 25
Correspondent service charges 17 20
Telephone 14 14
Comptroller fees 15 14
Advertising and marketing 9 14
Courier and armored car 13 12
Credit and collection 11 9
Taxes other than income 10 8
Dues and subscriptions 9 10
Other insurance and bonds 8 7
Charitable contributions 7 5
Secondary marketing 5 3
Amortization of goodwill 1 2
Other 1 11
-------------------
Total General and
Administrative Expenses $392 $448
===================
Balance Sheet
Allowance for Loan Losses and Risk Elements
The Bank's provision for loan losses was $94,000 in the first six
months of 1996 compared to $81,000 in the first six months of 1995. At
June 30, 1996 the reserve totaled $561,000 compared to $470,000 at December
31, 1995. This represents 1.46% of total loans outstanding compared to
1.34% of total loans outstanding as of December 31, 1995. The Bank, has
committed to Mark Twain, however, to increase its loan loss reserve to
1.50% of loans by the end of the calendar month preceding the anticipated
Closing. See "Description of the Transaction - Indemnity Obligations."
E-17
<PAGE>
Risk Elements
(Dollars in Thousands)
June 30,
-----------------------------------------------------
1996 1995
-----------------------------------------------------
Non-accrual loans $150 $ -
Restructured loans 113 41
Other real estate owned - -
------------------------
Total non-performing assets $263 $41
------------------------
Percentage of non-performing
assets to loans plus other
real estate owned 0.68% 0.13%
Loans contractually past due
ninety days or more $70 $7
Percentage of non-performing
assets plus ninety days past
due to loans plus other
real estate owned 0.87% 0.15%
Percentage of allowance to
non-performing loans 168.47% 954.17%
Percentage of allowance to
total non-performing
assets 213.31% 1117.07%
Percentage of allowance to
risk elements* 168.47% 954.17%
Percentage of risk
elements* to total
average assets 0.47% 0.08%
=====================================================
* Risk elements include non-performing assets plus loans contractually past
due ninety days or more.
E-18
<PAGE>
Summary of Loan Loss Experience
(Dollars in Thousands)
Six Months Ended
June 30,
1996 1995
--------------------------------------------------------
Loans at period-end $38,405 $31,982
--------------------------
Average loans outstanding $37,281 $31,055
==========================
Allowance at beginning of
period $470 $405
Loans charged off:
Commercial 77 14
Real estate - -
Installment 2 18
--------------------------
Total loans charged off 79 32
Recoveries:
Commercial 70 -
Real estate - -
Installment 6 4
--------------------------
Total recoveries 76 4
--------------------------
Net loans charged-off 3 28
Provisions for loan losses 94 81
--------------------------
Allowance at end of period $561 $458
==========================
Net charge-offs to
average loans 0.01% 0.09%
Allowance to period-end loans 1.46% 1.43%
========================================================
Capital Resources
Shareholders equity of Northland was $6,462,683 or 9.0% of total
assets at June 30, 1996 compared to $5,501,752 or 8.28% of total assets at
June 30, 1995 and $5,991,275 or 8.3% of total assets at December 31, 1995.
E-19
<PAGE>
Consolidated Financial Statements
Northland Bancshares, Inc.
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Northland Bancshares, Inc.
Consolidated Financial Statements
Years ended December 31, 1995 and 1994
Contents
Report of Independent Auditors 1
Audited Financial Statements
Consolidated Statements of Financial Position 2
Consolidated Statements of Income 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors
Northland Bancshares, Inc.
We have audited the accompanying consolidated statements of financial position
of Northland Bancshares, Inc. as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Northland
Bancshares, Inc., at December 31, 1995 and 1994, and the consolidated results
of its operations and its cash flows for the years then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Ernst & Young LLP
Kansas City, Missouri
January 5, 1996
1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Financial Position
December 31
1995 1994
<S> <C> <C>
Assets
Cash and due from banks $ 4,134,707 $ 3,240,470
Federal funds sold 2,500,000 1,800,000
Interest-bearing deposits in other financial
institutions 14,573 94,853
Investment securities, held to maturity (fair value
of $18,804,644 in 1994) - 19,550,702
Investment securities available for sale
(fair value) 27,004,647 5,475,092
Loans held for sale 1,957,618 412,327
Loans receivable, less allowance for loan losses
of $470,077 in 1995 and $405,066 in 1994 34,491,238 28,490,683
Bank property and equipment, net of accumu-
lated depreciation and amortization 1,409,551 1,697,754
Accrued interest receivable 613,722 522,067
Other assets 146,559 122,434
Total assets $72,272,615 $61,406,382
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
December 31
1995 1994
<S> <C> <C>
Liabilities and shareholders' equity
Deposits:
Demand $19,683,039 $17,622,023
Savings and NOW 13,197,556 13,374,082
Money market 17,820,567 15,604,918
Time deposits over $100,000 1,959,202 1,428,980
Other time deposits 8,266,830 7,303,166
Total deposits 60,927,194 55,333,169
Securities sold under agreements to repurchase 3,823,000 -
Notes payable 101,463 717,426
Accrued interest payable 121,306 60,988
Other liabilities 1,308,377 361,780
Total liabilities 66,281,340 56,473,363
Shareholders' equity:
Common stock, $.20 par value; 1,000,000 shares
authorized; 529,000 and 502,559 shares issued
and outstanding, respectively 105,800 100,512
Capital in excess of par value 4,878,849 4,593,285
Retained earnings 849,041 408,513
Unrealized gain (loss) on available-for-sale
securities, net of tax 157,585 (169,291)
Total shareholders' equity 5,991,275 4,933,019
Total liabilities and shareholders' equity $72,272,615 $61,406,382
See accompanying notes.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Income
Year ended December 31
1995 1994
<S> <C> <C>
Interest income:
Interest and fees on loans $3,110,007 $2,152,274
Interest on investment securities 1,447,021 1,264,858
Interest on federal funds sold 54,591 60,690
Interest on interest-bearing deposits
in other financial institutions 2,076 2,324
Total interest income 4,613,695 3,480,146
Interest expense:
Interest on deposits:
Savings and NOW 279,977 281,212
Money market 657,208 492,697
Time deposits 542,068 376,658
Total interest on deposits 1,479,253 1,150,567
Interest on notes payable, federal funds
purchased, and securities sold under
agreements to repurchase 143,791 50,860
Total interest expense 1,623,044 1,201,427
Net interest income 2,990,651 2,278,719
Provision for loan losses (86,566) (94,829)
Net interest income after provision for
loan losses 2,904,085 2,183,890
Other income:
Service charges on deposit accounts 823,747 729,688
Income from mortgage banking operation 258,679 288,681
Other 353,901 329,014
Total other income 1,436,327 1,347,383
Other expenses:
Salaries 1,262,130 1,093,681
Employee benefits 217,391 213,812
Occupancy 260,454 263,311
Equipment 104,327 108,459
Data processing 338,446 229,493
Automated tellers 131,660 114,186
General and administrative 875,925 909,635
Total other expenses 3,190,333 2,932,577
Income before income taxes 1,150,079 598,696
Provision for income tax expense:
Current 438,154 181,471
Deferred (5,654) 15,073
Total income tax expense 432,500 196,544
Net income $ 717,579 $ 402,152
See accompanying notes.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Shareholders' Equity
Unrealized
Gain (Loss)
on
Capital in Available-
Common Excess of Retained For-Sale
Stock Par Value Earnings Securities Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 76,200 $3,307,832 $ 6,361 $ - $3,390,393
Adjustment to beginning balance
for change in accounting method,
net of income taxes of $4,180 - - - (6,644) (6,644)
Issuance of 1,337 shares of
common stock 267 13,103 - - 13,370
Issuance of 120,000 shares of
common stock 24,000 1,269,953 - - 1,293,953
Issuance of 222 shares of common
stock 45 2,397 - - 2,442
Change in unrealized loss on
available-for-sale securities,
net of income taxes of $102,337 - - - (162,647) (162,647)
Net income - - 402,152 - 402,152
Balance at December 31, 1994 100,512 4,593,285 408,513 (169,291) 4,933,019
Issuance of 1,280 shares of common
stock 255 13,825 - - 14,080
Issuance of 5% stock dividend,
25,161 shares 5,033 271,739 (276,772) - -
Cash dividend fractional share
of 5% stock dividend - - (279) - (279)
Change in unrealized gain (loss)
on available-for-sale securities,
net of income taxes - - - 326,876 326,876
Net income - - 717,579 - 717,579
Balance at December 31, 1995 $105,800 $4,878,849 $849,041 $157,585 $5,991,275
See accompanying notes.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994
<S> <C> <C>
Operating activities
Net income $ 717,579 $ 402,152
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 397,836 624,334
Provision for loan losses 86,566 94,829
Deferred income tax expense (benefit) (5,654) 15,073
Loss from the sale of real estate owned - 8,808
(Gain) loss on sale of available-for-sale securities 28,014 (469)
Origination of loans held for sale (25,083,970) (15,349,732)
Proceeds from sale of loans held for sale 23,538,679 15,481,406
Proceeds from the sale of real estate owned - 46,192
Changes in assets and liabilities:
Increase in accrued interest receivable (91,655) (178,483)
Decrease (increase) in other assets (24,125) 11,243
Increase in other liabilities 749,151 95,116
Increase in accrued interest payable 60,318 2,577
Total adjustments (344,840) 850,894
Net cash provided by operating activities 372,739 1,253,046
Investing activities
Proceeds from sales of available-for-sale investments 2,490,469 500,469
Proceeds from maturities and principal repayments of
available-for-sale investments 742,416 135,364
Purchases of available-for-sale investments (15,008,778) (1,018,906)
Proceeds from maturities and principal repayments of
held-to-maturity investments 10,253,622 5,463,578
Purchases of held-to-maturity investments - (8,544,728)
Net increase (decrease) in interest-bearing deposits
in other financial institutions 80,280 (9,110)
Net increase in loans receivable (6,065,566) (9,290,081)
Purchase of Bank property and equipment (85,808) (391,085)
Net cash used in investing activities (7,593,365) (13,154,499)
Financing activities
Net increase in deposits 5,594,025 5,942,370
Repayment of notes payable (615,963) (71,548)
Increase in securities sold under agreements
to repurchase 3,823,000 -
Net proceeds from issuance of common stock 13,801 1,309,765
Net cash provided by financing activities 8,814,863 7,180,587
Net increase (decrease) in cash and cash equivalents 1,594,237 (4,720,866)
Cash and cash equivalents at beginning of year 5,040,470 9,761,336
Cash and cash equivalents at end of year $ 6,634,707 $ 5,040,470
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1,562,726 $ 1,198,850
Cash paid during the year for income taxes $ 288,536 $ 138,720
See accompanying notes.
</TABLE>
6
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. Summary of Significant Accounting Policies
The accounting policies of Northland Bancshares, Inc. (the Company) and its
wholly-owned subsidiaries, First National Bank of Platte County (the Bank)
and North American Credit Service, Inc. (NACSI) conform to generally
accepted accounting principles and to general practices within the banking
industry. The Company's primary business is providing loan and deposit
services to customers within the Platte and Clay County area.
Principles of Consolidation
The consolidated financial statements include the accounts of Northland
Bancshares, Inc., First National Bank of Platte County and North American
Credit Service, Inc. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Investment Securities
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," as of January 1, 1994. The balance of stockholders'
equity on January 1, 1994, was decreased by $6,644 (which is net of $4,180
in deferred income taxes) to reflect the net unrealized holding loss on
securities classified as available-for-sale previously carried at amortized
cost.
Upon adoption of SFAS No. 115 at January 1, 1994, the Company reclassified
securities previously classified as held for investment of $5,101,468 to
the available-for-sale portfolio.
7
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
On November 15, 1995, the Financial Accounting Standards Board staff issued
a special report, A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities. In accordance with
provisions in the special report, the Company chose to reclassify
securities from held-to-maturity to available-for-sale. At the date of
transfer, the amortized cost of those securities was $9,564,630 and the
unrealized loss on those securities was $98,858, which is included in
shareholders' equity, net of taxes.
Securities Held-To-Maturity and Available-For-Sale
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are stated
at fair value, with the unrealized gains and losses, net of income taxes,
reported in a separate component of shareholders' equity. The Company does
not maintain a portfolio of investment securities for trading purposes.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. For securities purchased at a
premium for which a call provision exists, the premium is amortized to the
call date, rather than to maturity. Amortization and accretion are
included in interest income. The cost of securities sold is based on the
specific identification method.
Loans Held for Sale
Loans held for sale are carried at the lower of aggregate cost or market.
Interest on Loans
Interest on commercial, real estate and installment loans is accrued and
recognized as income based on the principal amount outstanding.
8
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
The accrual of interest income on all loans, except for residential real
estate loans and installment loans, is discontinued after principal or
interest payments are in default for a period of 90 days or more or when
information comes to management's attention which indicates that the
collectibility of principal and interest is in doubt. Residential real
estate and installment loans are placed on a nonaccrual status at such time
when certain factors indicate reasonable doubt as to the ultimate
collection of interest or principal. When interest accruals are
discontinued, all accrued and uncollected interest is charged against
current earnings. Once a loan is on a nonaccrual status, interest is
included in income only to the extent received in cash until such time as
the loan is brought current and the borrower demonstrates an ability to
make future payments of principal and interest. No loans were on
nonaccrual status at December 31, 1995 or 1994. The Bank had no troubled
debt restructurings during 1995 or 1994.
Allowance for Loan Losses
Beginning in 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Under the new standard, the 1995 allowance for credit losses related to
loans that are identified for evaluation in accordance with Statement 114
is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for credit losses related to
these loans was based on undiscounted cash flows or the fair value of the
collateral for collateral dependent loans. During 1995, the Company had no
impaired loans based on their determination of an impaired loan in
accordance with this statement.
The allowance for loan losses is a valuation reserve which has been
provided by charges to earnings in the form of provisions for loan losses
to maintain the balance at a level adequate to absorb potential losses in
the loan portfolio. Management's determination of the adequacy of the
allowance is based on a formal review of the quality of the loan portfolio,
past loan loss experience, examinations by regulatory authorities and
current economic conditions. This review is inherently subjective, as it
requires material estimates including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
9
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Fair Values of Financial Instruments
Effective January 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 107, "Disclosures About Fair
Value of Financial Instruments," which requires the Company to disclose
fair value information about financial instruments for which it is
practicable to estimate whether or not such fair values are reflected in
the consolidated statement of financial position.
The following methods and assumptions were used by the Company to estimate
the fair value of each class of financial instrument presented as of
December 31, 1995:
Cash and due from banks: The carrying amount reported in the consolidated
statement of financial position is a reasonable estimate of fair value.
Federal funds sold: The carrying amount reported in the consolidated
balance sheet approximates the fair value.
Interest-bearing deposits in other financial institutions: The carrying
amount reported in the consolidated balance sheet approximates the fair
value.
Investment securities: Fair values are based on quoted market prices,
where available. If quoted market prices were not available, fair values
were based on quoted market prices of comparable instruments.
Loans held for sale: The carrying amount reported in the consolidated
statement of financial position approximates the fair value.
Loans receivable: For variable-rate loans that reprice in accordance with
indices, carrying amounts reported in the statements of financial position
approximate those assets' fair values. The fair values for other fixed-
rate loans were estimated using discounted cash flow analyses that applied
interest rates currently being offered for loans with similar terms.
Accrued interest receivable: The carrying amount reported in the
consolidated statement of financial position is a reasonable estimate of
fair value.
10
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Deposit liabilities: For deposits with no defined maturities, demand
deposits, interest-bearing checking deposits, money market deposits, and
savings and NOW deposits, SFAS No. 107 defines fair value as the amount
payable on demand at the reporting date (i.e., their carrying amounts).
The carrying amounts for variable-rate certificates of deposit approximated
their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit were estimated using a discounted cash flow
calculation that applied interest rates currently being offered on
certificates with similar maturities.
Securities sold under agreements to repurchase: The carrying amount
reported in the consolidated statement of financial position is a
reasonable estimate of fair value.
Notes payable: The carrying amount reported in the consolidated statement
of financial position approximates the fair value as the note reprices on
an annual basis in accordance with indices.
Accrued interest payable: The carrying amount reported in the consolidated
statement of financial position is a reasonable estimate of fair value.
Standby letters of credit: The fair value 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.
The estimated fair values of the Company's financial instruments as of
December 31, 1995 are as follows:
Carrying Fair
Amount Value
Financial assets:
Cash and due from banks $ 4,134,707 $ 4,134,707
Federal funds sold 2,500,000 2,500,000
Interest-bearing deposits in
other financial institutions 14,573 14,573
Investment securities 27,004,647 27,004,628
Loans held for sale 1,957,618 1,957,618
Loans receivable 34,491,238 37,128,324
Accrued interest receivable 613,722 613,722
11
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Carrying Fair
Amount Value
Financial liabilities:
Demand $19,683,039 $19,683,039
Savings and NOW 13,197,556 13,197,556
Money market 17,820,567 17,820,567
Time deposits over $100,000 1,959,202 1,921,275
Other time deposits 8,266,830 8,267,231
Securities sold under
agreements to repurchase 3,823,000 3,823,000
Notes payable 101,461 101,463
Accrued interest payable 121,306 121,306
Bank Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Provisions for depreciation and amortization are computed
principally on the straight-line method over the estimated useful lives of
the assets. Amortization of leasehold improvements is computed on a
straight-line basis over the lesser of the assets' estimated useful lives
or the remaining lease term, including any renewal options. For income tax
purposes, depreciation and amortization are computed by using either the
straight-line or an accelerated method.
Real Estate Owned
Real estate owned, which represents real estate and other property acquired
through foreclosure or repossession, is initially recorded at estimated
fair value. Periodically, valuations are performed to ensure that such
property is carried at the lower of the new cost basis or fair value less
estimated costs to sell.
Goodwill
Goodwill recorded in connection with the purchase of NACSI in 1992 is being
amortized using the straight-line method over 10 years.
12
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes
Operating results for federal income tax purposes and book purposes differ
as a result of temporary differences. Such differences relate principally
to the use of accelerated depreciation methods for tax purposes, the
difference in financial and tax recognition of loan losses, and basis
differences in the cost of land.
Loan Fees
The Bank defers loan origination fees to the extent such fees materially
exceed initial direct originating costs. The current level of loan
origination fees charged net of related costs is not material to the
financial position and results of operations of the Bank and are recognized
as income in the period incurred.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold.
Presentation
Where necessary, the 1994 financial statement classifications have been
changed to conform to the 1995 presentations.
13
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
2. Investment Securities
The amortized cost (carrying value) and estimated fair value of held-to-
maturity securities at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
(Carrying
Value Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government corpo-
rations and agencies $15,726,844 $546 $453,086 $15,274,304
Mortgage-backed securities 3,823,858 - 293,518 3,530,340
$19,550,702 $546 $746,604 $18,804,644
The amortized cost and estimated fair value (carrying value) of available-for-sale securities at
December 31, 1995 and 1994 are as follows:
1995
(Carrying
Gross Gross Value)
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
Obligations of U.s. govern-
ment corporations and
agencies $22,347,224 $411,543 $71,4575 $22,687,310
Mortgage-backed securities 4,113,003 - 85,916 4,027,087
Equity securities 290,250 - - 290,250
$26,750,477 $411,543 $157,373 $27,004,647
</TABLE>
14
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
2. Investment Securities (continued)
<TABLE>
<CAPTION>
1994
(Carrying
Gross Gross Value)
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government corpo-
rations and agencies $4,509,092 $- $154,096 $4,354,996
Mortgage-backed securities 974,258 - 121,712 852,546
Equity securities 267,550 - - 267,550
$5,750,900 $- $275,808 $5,475,092
</TABLE>
During 1995, the Bank sold four available-for-sale securities which
resulted in a realized loss of $15,565. Proceeds of the sales were
$2,490,469. In addition, the Bank sold five held-to-maturity securities
which resulted in a realized loss of $12,449. These securities were sold
within 90 days of their respective maturities and were therefore considered
to have reached maturity. Proceeds of the sales were $5,002,344.
The Bank sold one available-for-sale security during 1994 which resulted in
a realized gain of $469. Proceeds of the sale were $500,469.
15
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
2. Investment Securities (continued)
The amortized cost and estimated fair value of held-to-maturity and
available-for-sale debt and equity securities at December 31, 1995 and 1994
by contractual maturity are shown below. Expected 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>
December 31, 1995
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Available-For-Sale
Due in one year or less $ 2,659,398 $ 2,640,605
Due in one year through five years 17,852,105 18,240,733
Due in five years through 10 year 1,835,721 1,805,972
22,347,224 22,687,310
Mortgage-backed securities 4,113,003 4,027,087
Equity securities 290,250 290,250
$26,750,477 $27,004,647
December 31, 1994
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Held-To-Maturity
Due in one year or less $ 6,250,689 $ 6,192,869
Due after one year through five years 6,538,216 6,226,561
Due in five years 2,937,939 2,854,874
15,726,844 15,274,304
Mortgage-backed securities 3,823,858 3,530,340
$19,550,702 $18,804,644
Available-For-Sale
Due in one year or less $ 1,500,000 $ 1,481,875
Due in one year through five years 3,009,092 2,873,121
4,509,092 4,354,996
Mortgage-backed securities 974,258 852,546
Equity securities 267,550 267,550
$ 5,750,900 $ 5,475,092
</TABLE>
16
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
2. Investment Securities (continued)
The market value of securities pledged to secure public funds and
repurchase agreements was approximately $12,118,643 and $2,413,655 at
December 31, 1995 and 1994, respectively.
3. Loans Receivable
A summary of loan categories at December 31, 1995 and 1994 is as follows:
1995 1994
Commercial $ 7,450,814 $ 5,930,626
Real estate 20,313,161 16,109,498
Installment 7,197,340 6,855,625
34,961,315 28,895,749
Allowance for loan losses (470,077) (405,066)
Net loans $34,491,238 $28,490,683
Included in the outstanding loans at December 31, 1995 and 1994 were loans
of $88,114 and $106,428, respectively, to directors and executive officers
of the Bank and their affiliated enterprises. Management believes such
loans were made in the ordinary course of business with the normal credit
terms, including interest rate and collateralization and do not represent
more than a normal risk of collection.
The Bank originates loans primarily in Platte and Clay Counties. There are
no concentrations of loans to a single borrower.
4. Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31,
1995 and 1994 are summarized below:
1995 1994
Balance at beginning of year $405,066 $326,932
Provision for loan losses 86,566 94,829
Recoveries on loans charged off 21,305 16,650
Loans charged off (42,860) (33,345)
Balance at end of year $470,077 $405,066
17
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
5. Bank Property and Equipment
Property and equipment at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
Estimated
Classification Useful Lives 1995 1994
<S> <C> <C>
Land $ 247,189 $ 247,189
Buildings 31.6 years 291,414 291,414
Leasehold improvements 5-9 years 584,937 555,150
Equipment 5-7 years 1,799,186 1,743,165
2,922,726 2,836,918
Less accumulated depreciation (1,513,175) (1,139,164)
Net property and equipment $1,409,551 $1,697,754
</TABLE>
6. Notes Payable
In 1993, NACSI issued a note payable to a bank in the amount of $300,000
(which has a balance of $101,463 at December 31, 1995), at a floating rate
of prime plus 1/2%, adjusted annually on July 1, which is secured by the
bank building at 7667 NW Prairie View Road. Payments of principal and
interest on the note, which matures January 1, 1997, are made monthly in
the amount of $4,000. The approximate amount of principal payable on this
note during each of the next two years at the current rate of 9.5% is as
follows:
1996 $39,619
1997 61,844
7. Interest on Investment Securities
Interest income on investment securities for the years ended December 31,
1995 and 1994 is summarized as follows:
1995 1994
U.S. government securities $ 100,675 $ 217,267
Federal agencies 1,106,550 731,855
Mortgage-backed securities 219,746 290,514
Other securities 20,050 25,222
$1,447,021 $1,264,858
18
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
8. Stock Split and Private Placement Stock Offering
On January 25, 1994, the shareholders of the Company approved a five-for-
one stock split which reduced the par value of common stock from $1.00 to
$.20.
On July 30, 1994, the Company completed a private placement stock offering
that resulted in 120,000 shares of the Company's common stock being sold to
investors at $11 per share. Net proceeds of the offering, after offering
costs of $26,047, amounted to $1,293,953.
9. Stock Options and Stock Dividend
On October 25, 1994, stock options were granted to four officers of the
Bank for a total of 10,500 shares of the Company's common stock. The
options were granted at a price of $11 per share, the deemed fair market
value of the Company's common stock on the date of the grant, and can be
exercised in equal annual installments over a five-year period. All
options granted become exercisable in the event of a change in control of
the Company. The stock options expire 10 years from the date of grant. As
of December 31, 1995 and 1994, no options outstanding had been exercised.
Including the stock options referred to above, the Company has reserved
25,000 shares of its unissued common stock for stock options.
On March 28, 1995, the Board of Directors granted a 5% stock dividend for
shareholders of record as of April 15,1995, with any fractional shares to
be paid in cash based on an offering price of $11 per share.
10. Commitments
At December 31, 1994, the Bank was obligated under various operating lease
obligations principally related to the use of land and building premises in
its banking operations.
In 1993, the Company renewed its five-year lease for the motor bank
facility which is owned by a partnership involving two directors of the
Company. Rental expense during 1995 and 1994 was $40,668 each year.
19
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
10. Commitments (continued)
Rental expense incurred in connection with all operating leases totaled
$91,230 and $96,056 for the years ended December 31, 1995 and 1994,
respectively. Future minimum rental payments for each remaining year in
the lease term are presented below:
1996 $ 92,268
1997 92,268
1998 50,189
1999 20,000
2000 8,333
$263,058
11. Income Taxes
Pursuant to SFAS No. 109, "Accounting for Income Taxes," deferred taxes are
based on the estimated future tax effects of temporary differences in the
recognition of income and expense for financial and tax reporting purposes.
Such differences relate principally to the use of accelerated depreciation
methods for tax purposes, basis differences in land and the difference in
financial and tax recognition of loan losses. The net deferred tax asset
(liability) consists of the following:
December 31
1995 1994
Gross assets $ 150,357 $239,491
Gross liabilities (289,374) (181,060)
Total deferred taxes $(139,017) $ 58,431
Gross deferred tax liabilities, at December 31, 1995 include $96,585
related to net unrealized gains on available-for-sale securities. At
December 31, 1994, deferred tax assets included $106,517 related to net
unrealized losses on available-for-sale securities.
For 1995, the amount of actual income tax expense exceeds the expense that
would result from applying federal statutory tax rates to pretax income due
principally to state taxes. For 1994, the amount of actual income tax
expense is less than the expense that would result from applying federal
statutory tax rates to pretax income due to miscellaneous differences which
are not expected to be recurring in nature.
20
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
12. Defined Contribution Plan
The Bank has a defined contribution employee benefit plan in which all
employees with at least 1,000 hours and one year of service to the Bank are
eligible to participate. Under the terms of the plan, the Bank provides a
contribution equal to one half of the employee's contribution up to 3 1/2%
of the employee's base salary, provided that the employee contributes at
least 2% of their base salary to the plan. For 1995 and 1994, the Bank
contributed $23,649 and $13,858, respectively, to the plan, including
administration fees.
13. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, banks enter into financial instruments
with off-balance-sheet risk to meet the financing needs of their customers.
Those instruments involve, to varying degrees, elements of credit, interest
rate or liquidity risk in excess of the amount recognized by the balance
sheet. For Northland Bancshares, Inc., its subsidiary bank and North
American Credit Service, Inc., this type of activity is limited to
commitments to extend credit.
The Bank's exposure to credit loss from nonperformance by the other party
to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
At December 31, 1995 and 1994, the Bank had $222,884 and $77,670,
respectively, in unused outstanding standby letters of credit.
At December 31, 1995, the Bank had outstanding commitments to originate
loans for approximately $2,800,000.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses that may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis.
21
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
14. Regulatory Matters
The Bank, as a national bank, is subject to the dividend restrictions set
forth by the Comptroller of the Currency. Under such restrictions, the
Bank may not, without the prior approval of the Comptroller of the
Currency, declare dividends in excess of the sum of the current year's
earnings plus the retained earnings from the prior two years. The Bank has
not declared a dividend since opening on October 1, 1986. The dividends as
of December 31, 1995, that the Bank could declare in 1996 (in addition to
their 1996 net profits), amounted to approximately $1,621,477. However,
the Bank is required to obtain permission from the Comptroller of the
Currency prior to declaring any dividends. The Bank is also required to
maintain minimum amounts of capital to total "risk weighted" assets, as
defined by the banking regulators. At December 31, 1995, the Bank is
required to have a minimum risk weighted capital ratio of 8.0%; such actual
ratio at that date was 13.4%. The Bank has agreed with the Federal Reserve
Bank to maintain a minimum primary capital ratio of 6.0%; such actual ratio
was 7.43% at December 31, 1995.
22
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
15. Parent-Company-Only Financial Statements
The parent-company-only statements of financial position for Northland
Bancshares, Inc., as of December 31, 1995 and 1994, and the related
statements of income and cash flows for the years then ended are as
follows:
<TABLE>
<CAPTION
Statements of Financial Position
December 31
1995 1994
<S> <C> <C>
Assets
Cash $ 306,572 $ 746,706
Interest-bearing deposits in other
financial institutions - 50,504
Investment in First National Bank of Platte
County, at equity in underlying net assets 5,327,436 4,289,456
Investment in North American Credit Service,
Inc., at equity in underlying net assets 357,267 333,855
Total assets $5,991,275 $5,420,521
Liabilities and shareholders' equity
Interest payable $ - $ 9,833
Notes payable - 460,000
Federal income taxes payable - 16,301
Miscellaneous accounts payable - 1,368
Shareholders' equity:
Common stock, $.20 par value; 1,000,000 shares
authorized; 529,000 and 502,559 shares issued
and outstanding, respectively 105,800 100,512
Capital in excess of par value 4,878,849 4,593,286
Retained earnings 849,041 408,512
Unrealized gain (loss) on available-for-sale
securities, net of tax 157,585 (169,291)
Total shareholders' equity 5,991,275 4,933,019
Total liabilities and shareholders' equity $5,991,275 $5,420,521
</TABLE>
23
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
15. Parent-Company-Only Financial Statements (continued)
Statements of Income
Year ended December 31
1995 1994
Income:
Interest on interest-bearing deposits
with other financial institutions $ 1,215 $ 1,140
Expenses:
Interest on notes payable 2,721 34,408
Legal and professional 14,090 8,857
Other 1,341 1,830
Total expenses 18,152 45,095
Loss before equity in undistributed
earnings of subsidiaries (16,937) (43,955)
Equity in undistributed earnings
of subsidiaries 734,516 446,107
Net income $717,579 $402,152
24
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Consolidated Financial Statements (continued)
15. Parent-Company-Only Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Cash Flows
Year ended December 31
1995 1994
<S> <C> <C>
Operating activities
Net income $717,579 $402,152
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in undistributed earnings of
subsidiaries (734,516) (446,107)
Increase (decrease) in miscellaneous
accounts payable (1,368) 1,368
Decrease in income taxes payable (16,301) (28,376)
Net cash used in operating activities (34,606) (70,963)
Investing activities
Net decrease in interest-bearing deposits
in other financial institutions 50,504 2,299
Capital contribution to subsidiary bank - (825,500)
Net cash provided by (used in)
investing activities 50,504 (823,201)
Financing activities
Net proceeds from issuance of common stock 13,801 1,309,765
Net increase (decrease) in interest payable (9,833) 9,292
Net decrease in notes payable (460,000) (40,000)
Net cash provided by (used in)
financing activities (456,032) 1,279,057
Net increase (decrease) in cash (440,134) 384,893
Cash at beginning of year 746,706 361,813
Cash at end of year $306,572 $746,706
Supplemental disclosure of cash flow information
Cash paid during the year for interest $12,554 $25,117
Cash paid during the year for income taxes $284,073 $134,699
</TABLE>
<PAGE>
<PAGE>
Financial Statements
Northland Bancshares, Inc.
Years ended December 31, 1994 and 1993
with Report of Independent Auditors
<PAGE>
Northland Bancshares, Inc.
Financial Statements
Years ended December 31, 1994 and 1993
Contents
Report of Independent Auditors 1
Audited Financial Statements
Consolidated Statements of Financial Position 2
Consolidated Statements of Income 4
Consolidated Statements of Shareholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Financial Statements 8
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors
Northland Bancshares, Inc.
We have audited the accompanying consolidated statements of financial
position of Northland Bancshares, Inc. as of December 31, 1994 and 1993,
and the related consolidated statements of income, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Northland
Bancshares, Inc., at December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 2, in 1994 the Company changed its method of
accounting for investment securities.
ERNST & YOUNG LLP
Ernst & Young LLP
Kansas City, Missouri
January 6, 1995
1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Financial Position
December 31
1994 1993
<S> <C> <C>
Assets
Cash and due from banks $ 3,240,470 $ 3,761,336
Federal funds sold 1,800,000 6,000,000
Interest-bearing deposits in other
financial institutions 94,853 85,743
Investment securities, held to maturity
(fair value of $19,072,167 in 1994 and
$22,190,145 in 1993) (Note 2) 19,818,252 22,121,397
Investment securities available for
sale (Note 2) 5,207,542 -
Loans held for sale 412,327 544,001
Loans receivable, less allowance for
loan losses of $405,066 in 1994 and
1994 and $326,932 in 1993
(Notes 3 and 4) 28,490,683 19,295,431
Bank property and equipment, net of
accumulated depreciation and
amortization (Note 5) 1,697,754 1,646,516
Accrued interest receivable 522,067 343,584
Other real estate owned - 55,000
Other assets 122,434 133,677
Total assets $61,406,382 $53,986,685
</TABLE>
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Liabilities and shareholders' equity
Deposits:
Demand $17,622,023 $16,710,239
Savings and NOW 13,374,082 11,446,340
Money market 15,604,918 12,929,520
Time deposits over $100,000 1,428,980 1,218,527
Other time deposits 7,303,166 7,086,173
Total deposits 55,333,169 49,390,799
Notes payable (Note 6) 717,426 788,974
Accrued interest payable 60,988 58,411
Other liabilities 361,780 358,108
Total liabilities 56,473,363 50,596,292
Shareholders' equity (Notes 8 and 14):
Common stock, $.20 par value; 1,000,000
shares authorized; 502,559 and 381,000
shares issued and outstanding, respectively 100,512 76,200
Capital in excess of par value 4,593,285 3,307,832
Retained earnings 408,513 6,361
Unrealized loss on available-for-sale
securities, net of tax (169,291) -
Total shareholders' equity 4,933,019 3,390,393
Total liabilities and shareholders' equity $61,406,382 $53,986,685
See accompanying notes.
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Income
Year ended December 31
1994 1993
<S> <C> <C>
Interest income:
Interest and fees on loans $2,152,274 $1,739,267
Interest on investment securities (Note 7) 1,264,858 997,625
Interest on federal funds sold 60,690 59,733
Interest on interest-bearing deposits in
other financial institutions 2,324 2,029
Total interest income 3,480,146 2,798,654
Interest expense:
Interest on deposits:
Savings and NOW 281,212 224,272
Money market 492,697 316,718
Time deposits 376,658 354,410
Total interest on deposits 1,150,567 895,400
Interest on notes payable 50,860 54,164
Total interest expense 1,201,427 949,564
Net interest income 2,278,719 1,849,090
Provision for loan losses (Note 4) 94,829 125,600
Net interest income after provision for
loan losses 2,183,890 1,723,490
Other income:
Service charges on deposit accounts 729,688 666,360
Income from mortgage banking operation 288,681 428,924
Other 329,014 269,081
Total other income 1,347,383 1,364,365
Other expenses:
Salaries 1,093,681 970,699
Employee benefits 213,812 160,216
Occupancy 263,311 242,337
Equipment 108,459 106,393
Data processing 229,493 116,852
Automated tellers 114,186 87,984
General and administrative 909,635 781,407
Total other expenses 2,932,577 2,465,888
Income before income taxes and cumulative
effect of change in accounting for
income taxes 598,696 621,967
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Income (continued)
Year ended December 31
1994 1993
<S> <C> <C>
Provision for income tax expense (Note 11):
Current $ 181,471 $ 116,438
Deferred 15,073 114,794
Total income tax expense 196,544 231,232
Income before cumulative effect of
accounting change 402,152 390,735
Cumulative effect of change in accounting
for income taxes (Note 11) - 110,981
Net income $ 402,152 $ 501,716
See accompanying notes.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Shareholders' Equity
Unrealized
Loss on
Capital Retained Available
Common Excess of Earnings For Sale
Stock Par Value (Deficit) Securities Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $76,200 $3,307,832 $(495,355) $ - $2,888,677
Net income - - 501,716 - 501,716
Balance at December 31, 1993 76,200 3,307,832 6,361 - 3,390,393
Adjustment to beginning
balance for change in
accounting method, net of
income taxes of $4,180 - - - (6,644) (6,644)
Issuance of 1,337 shares of
common stock 267 13,103 - - 13,370
Issuance of 120,000 shares of
common stock 24,000 1,269,953 - - 1,293,953
Change in unrealized loss on
available-for-sale securities,
net of income taxes of $102,337 - - - (162,746) (162,647)
Net Income - - 402,152 - 402,152
Balance at December 31, 1994 $100,512 $4,593,285 $408,513 $(169,291) $4,933,019
See accompanying notes.
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Northland Bancshares, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1994 1993
<S> <C> <C>
Operating activities
Net income $ 402,152 $ 501,716
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 624,334 440,315
Provision for loan losses 94,829 125,600
Deferred income taxes expense 15,073 114,794
Loss from the sale of real estate owned 8,808 5,110
Gain on sale of available-for-sale securities (469) -
Origination of loans held for sale (15,349,732) (20,152,650)
Proceeds from sale of loans held for sale 15,481,406 20,350,399
Proceeds from the sale of real estate owned 46,192 49,890
Changes in assets and liabilities:
Increase in accrued interest receivable (178,483) (11,297)
Decrease (increase) in other assets 11,243 (9,780)
Increase in other liabilities 95,116 142,058
Increase (decrease) in accrued interest payable 2,577 (8,605)
Total adjustments 850,894 1,045,834
Net cash provided by operating activities 1,253,046 1,547,550
Investing activities
Proceeds from sales of available-for-sale
investments 500,469 -
Proceeds from maturities and principal
repayments of available-for-sale investments 135,364 -
Purchases of available-for-sale investments (1,018,906) -
Proceeds from maturities and principal
repayments of held-to-maturity investments 5,463,578 9,003,181
Purchases of held-to-maturity investments (8,544,728) (16,262,204)
Net increase in interest-bearing deposits
in other financial institutions (9,110) (34,498)
Net increase in loans receivable (9,290,081) (2,806,828)
Purchase of Bank property and equipment (391,085) (372,162)
Net cash used in investing activities (13,154,499) (10,472,511)
Financing activities
Net increase in deposits 5,942,370 12,147,613
Repayment of notes payable (71,548) (38,451)
Net proceeds from issuance of common stock 1,309,765 -
Net cash provided by financing activities 7,180,587 12,109,162
Net increase (decrease) in cash and
cash equivalents (4,720,866) 3,184,201
Cash and cash equivalents at beginning
of year 9,761,336 6,577,135
Cash and cash equivalents at end of year $ 5,040,470 $ 9,761,336
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1,198,850 $ 958,170
Cash paid during the year for income taxes $ 138,720 $ 55,323
See accompanying notes.
</TABLE>
7
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Summary of Significant Accounting Policies
The accounting policies of Northland Bancshares, Inc. (the Company) and its
wholly-owned subsidiaries, First National Bank of Platte County (the Bank)
and North American Credit Service, Inc. (NACSI) conform to generally
accepted accounting principles and to general practices within the banking
industry.
Principles of Consolidation
The consolidated financial statements include the accounts of Northland
Bancshares, Inc., First National Bank of Platte County and North American
Credit Service, Inc. All significant intercompany accounts and
transactions have been eliminated.
Investment Securities
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," as of January 1, 1994. In accordance with SFAS No.
115, prior period financial statements have not been restated to reflect
the change in accounting principle. The balance of stockholders' equity on
January 1, 1994, was decreased by $6,644 (which is net of $4,180 in
deferred income taxes) to reflect the net unrealized holding loss on
securities classified as available-for-sale previously carried at amortized
cost.
Upon adoption of SFAS No. 115 at January 1, 1994, the Company reclassified
securities previously classified as held for investment of $5,101,468 to
the available-for-sale portfolio.
Prior to the adoption of SFAS No. 115, investment securities (i.e.,
securities which the Company had the ability and general intention to hold
for long-term purposes) were stated at amortized cost.
Securities Held-To-Maturity and Available-For-Sale
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
8
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Debt securities not classified as held-to-maturity or trading are
classified as available-for-sale. Available-for-sale securities are stated
at fair value, with the unrealized gains and losses, net of income taxes,
reported in a separate component of stockholders' equity. The Company does
not maintain a portfolio of investment securities for trading purposes.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. For securities purchased at a
premium for which a call provision exists, the premium is amortized to the
call date, rather than to maturity. Amortization and accretion are
included in interest income. The cost of securities sold is based on the
specific identification method.
Loans Held for Sale
Loans held for sale are carried at the lower of aggregate cost or market.
Interest on Loans
Interest on commercial, real estate and installment loans is accrued and
recognized as income based on the principal amount outstanding.
The accrual of interest income on all loans, except for residential real
estate loans and installment loans, is discontinued after principal or
interest payments are in default for a period of 90 days or more or when
information comes to management's attention which indicates that the
collectibility of principal and interest is in doubt. Residential real
estate and installment loans are placed on a nonaccrual status at such time
when certain factors indicate reasonable doubt as to the ultimate
collection of interest or principal. When interest accruals are
discontinued, all accrued and uncollected interest is charged against
current earnings. Once a loan is on a nonaccrual status, interest is
included in income only to the extent received in cash until such time as
the loan is brought current and the borrower demonstrates an ability to
make future payments of principal and interest. Nonaccrual loans amounted
to $5,251 at December 31, 1993. No loans were on nonaccrual status at
December 31, 1994. The Bank had no troubled debt restructurings during the
years ended December 31, 1994 and 1993.
9
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Allowance for Loan Losses
The allowance for loan losses is a valuation reserve which has been
provided by charges to earnings in the form of provisions for loan losses
to maintain the balance at a level adequate to absorb potential losses in
the loan portfolio. Management's determination of the adequacy of the
allowance is based on a formal review of the quality of the loan portfolio,
past loan loss experience, examinations by regulatory authorities and
current economic conditions.
Bank Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Provisions for depreciation and amortization are computed
principally on the straight-line method over the estimated useful lives of
the assets. Amortization of leasehold improvements is computed on a
straight-line basis over the lesser of the assets' estimated useful lives
or the remaining lease term, including any renewal options. For income tax
purposes, depreciation and amortization are computed by using either the
straight-line or an accelerated method.
Real Estate Owned
Real estate owned, which represents real estate and other property acquired
through foreclosure or repossession, is initially recorded at estimated
fair value. Periodically, valuations are performed to ensure that such
property is carried at the lower of the new cost basis or fair value less
estimated costs to sell.
Goodwill
Goodwill recorded in connection with the purchase of NACSI in 1992 is being
amortized using the straight-line method over 10 years.
Income Taxes
Operating results for federal income tax purposes and book purposes differ
as a result of temporary differences. Such differences relate principally
to the use of accelerated depreciation methods for tax purposes, the
difference in financial and tax recognition of loan losses, and basis
differences in the cost of land.
10
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Loan Fees
The Bank defers loan origination fees to the extent such fees exceed
initial direct originating costs. The current level of loan origination
fees charged and related costs are immaterial to the financial position and
results of operations of the Bank. Origination fees that exceed direct
costs on loans held for sale are deferred and recognized as income at the
time the loans are sold.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold.
Presentation
Where necessary, the 1993 financial statement classifications have been
changed to conform to the 1994 presentations.
2. Investment Securities
The amortized cost (carrying value) and fair value of held-to-maturity
securities at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
(Carrying
Value) Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporation
and agencies $15,726,844 $546 $543,086 $15,274,304
Mortgage-backed securities 3,823,858 - 293,518 3,530,340
Other investment securities 267,550 - 27 267,523
$19,818,252 $546 $746,631 $19,072,167
</TABLE>
11
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
2. Investment Securities (continued)
The amortized cost and fair value (carrying value) of available-for-sale
securities at December 31, 1994 are as follows:
The amortized cost (carrying value) and fair value of investment securities
at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1994
(Carrying
Gross Gross Value)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporation
and agencies $4,509,092 $ - $154,096 $3,354,996
Mortgage-backed securities 974,258 - 121,712 852,546
$5,483,350 $ - $275,808 $5,207,542
The amortized cost (carrying value) and fair value of investment securities at December
31, 1993 are as follows:
1993
(Carrying
Value) Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporation
and agencies $15,798,201 $89,725 $12,590 $15,875,336
Mortgage-backed securities 5,814,696 9,183 17,514 5,806,365
Other investment securities 508,500 - 56 508,444
$22,121,397 $90,908 $30,160 $22,190,145
</TABLE>
The Bank sold one available-for-sale security during 1994 which resulted in
a realized gain of $469. Proceeds of the sale were $500,469. No
securities were sold during 1993.
12
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
2. Investment Securities (continued)
The amortized cost and fair value of held-to-maturity and available-for-
sale debt securities at December 31, 1994 and 1993 by contractual maturity
are shown below. Expected 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>
December 31, 1994
Cost Fair Value
<S> <C> <C>
Held-To-Maturity
Due in one year or less $ 6,250,689 $ 6,192,869
Due in one year through five years 6,538,216 6,226,561
Due in five years through 10 years 3,205,489 3,122,397
15,994,394 15,541,827
Mortgage-backed securities 3,823,858 3,530,340
$19,818,252 $19,072,167
Cost Fair Value
Available-For-Sale
Due in one year or less $ 1,500,000 $ 1,481,875
Due in one year through five years 3,009,092 2,873,121
4,509,092 4,354,996
Mortgage-backed securities 974,258 852,546
$ 5,483,350 $ 5,207,542
December 31, 1993
Amortized Estimated
Cost Market Value
Held-To-Maturity
Due in one year or less $ 2,608,847 $ 2,646,299
Due after one year through five years 11,337,460 11,384,212
Due in five years 2,360,394 2,353,269
16,306,701 16,383,780
Mortgage-backed securities 5,814,696 5,806,365
$22,121,397 $22,190,145
</TABLE>
13
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
2. Investment Securities (continued)
The market value of securities pledged to secure public funds and
repurchase agreements was approximately $2,413,655 and $1,807,618 at
December 31, 1994 and 1993, respectively.
3. Loans Receivable
A summary of loan categories at December 31, 1994 and 1993 is as follows:
1994 1993
Commercial $ 5,930,626 $ 4,547,208
Real estate 16,109,498 9,469,873
Installment 6,855,625 5,605,282
28,895,749 19,622,363
Allowance for loan losses (405,066) (326,932)
Net loans $28,490,683 $19,295,431
Included in the outstanding loans at December 31, 1994 and 1993, were loans
of $106,428 and $54,270 to directors and executive officers of the Bank and
their affiliated enterprises. Management believes such loans were made in
the ordinary course of business with the normal credit terms, including
interest rate and collateralization and do not represent more than a normal
risk of collection.
The Bank originates loans primarily in Platte and Clay Counties. There are
no concentrations of loans to a single borrower.
4. Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31,
1994 and 1993 are summarized below:
1994 1993
Balance at beginning of year $326,932 $221,618
Provision for loan losses 94,829 125,600
Recoveries on loans charged off 16,650 31,477
Loans charged off (33,345) (51,763)
Balance at end of year $405,066 $326,932
14
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
5. Bank Property and Equipment
Property and equipment at December 31, 1994 and 1993 are summarized as
follows:
Estimated
Classification Useful Lives 1994 1993
Land $ 247,189 $ 247,189
Buildings 31.6 years 291,414 291,414
Leasehold improvements 5-9 years 555,150 534,164
Equipment 5-7 years 1,743,165 1,373,066
2,836,918 2,445,833
Less accumulated depreciation (1,139,164) (799,317)
Net property and equipment $1,697,754 $1,646,516
6. Notes Payable
The Company has issued a note payable to a bank in the amount of $460,000,
at a floating rate of prime which is secured by all outstanding shares of
stock of First National Bank of Platte County, and personal guarantees of
the outside directors of the Company. A payment of $100,000 is due on
March 25, 1995. Management intends to pay the note in full on January 25,
1995.
In June of 1993, NACSI issued a note payable to a bank in the amount of
$300,000 (which has a balance of $257,426 at December 31, 1994), at a
floating rate of prime plus 1/2%, adjusted annually on July 1, which is
secured by the building at 7667 NW Prairie View Road. Payments of
principal and interest on the note, which matures January_1, 1997, are made
monthly in the amount of $4,000. The approximate amount of principal
payable on this note during each of the next three years at the current
rate of 7.75% is as follows:
1995 $ 29,068
1996 31,402
1997 196,956
15
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
7. Interest on Investment Securities
Interest income on investment securities for the years ended December 31,
1994 and 1993 is summarized as follows:
1994 1993
U.S. government securities $ 217,267 $266,101
Federal agencies 731,855 597,587
Mortgage-backed securities 290,514 101,478
Other securities 25,222 32,459
$1,264,858 $997,625
8. Stock Split and Private Placement Stock Offering
On January 25, 1994, the shareholders of the Company approved a five-for-
one stock split which reduced the par value of common stock from $1.00 to
$.20.
On July 30, 1994, the Company completed a private placement stock offering
that resulted in 120,000 shares of the Company's common stock being sold to
investors at $11 per share. Net proceeds of the offering, after offering
costs of $26,047, amounted to $1,293,953. No private placement stock
offerings occurred in 1993.
9. Stock Options
On October 25, 1994, stock options were granted to four officers of the
Bank for a total of 10,500 shares of the Company's common stock. The
options were granted at a price of $11 per share, the deemed fair market
value of the Company's common stock on the date of the grant, and can be
exercised in equal annual installments over a five-year period. All
options granted become exercisable in the event of a change in control of
the Company. The stock options expire 10 years from the date of grant. As
of December 31, 1994, no options outstanding had been exercised.
Including the stock options referred to above, the Company has reserved
25,000 shares of its unissued common stock for stock options.
16
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
10. Commitments
At December 31, 1994, the Bank was obligated under various operating lease
obligations principally related to the use of land and building premises in
its banking operations.
In 1993, the Company renewed its five-year lease for the motor bank
facility which is owned by a partnership involving two directors of the
Company. Rental expense for 1994 and 1993 was $40,668 and $38,352,
respectively.
Rental expense incurred in connection with all operating leases totaled
$96,056 and $83,638 for the years ended December 31, 1994 and 1993,
respectively. Future minimum rental payments for each remaining year in the
lease term are presented below:
1995 $ 67,284
1996 44,268
1997 44,268
1998 13,856
$169,676
11. Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," as of
January 1, 1993. The cumulative effect of this change in accounting
principle amounted to $110,981 and is reported separately in the
consolidated statement of income.
Deferred taxes are based on the estimated future tax effects of temporary
differences in the recognition of income and expense for financial and tax
reporting purposes. Such differences relate principally to the use of
accelerated depreciation methods for tax purposes, basis differences in
land and the difference in financial and tax recognition of loan losses.
The net deferred tax asset (liability) consists of the following:
December 31, December 31,
1994 1993
Gross assets $239,491 $131,516
Gross liabilities (181,060) (164,529)
Total deferred taxes $ 58,431 $ (33,013)
17
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
11. Income Taxes (continued)
Gross deferred tax assets at December 31, 1994 include $106,517 related to
the adoption of SFAS No. 115. The Company did not record any valuation
allowances against deferred tax assets at December 31, 1994 or 1993.
Deferred tax expense of approximately $155,000 was recognized during 1993
due to the utilization of all remaining tax net operating loss
carryforwards. The Company also recognized a deferred tax benefit of
approximately $30,000 in 1993 due to an alternative minimum tax credit
carryforward which was utilized in full during 1994.
For 1994, the amount of actual income tax expense is less than the expense
that would result from applying federal statutory tax rates to pretax
income due to miscellaneous differences which are not expected to be
recurring in nature. For 1993, the amount of actual income tax expense
exceeds the expense that would result from applying federal statutory tax
rates to pretax income due principally to state taxes.
12. Defined Contribution Plan
The Bank has a defined contribution employee benefit plan in which all
employees with one year of service to the Bank are eligible to participate.
Under the terms of the plan, the Bank provides a contribution equal to one
half of the employee's contribution up to 2_1/2% of the employee's base
salary, provided that the employee contributes at least 2% of their base
salary to the plan. For 1994 and 1993, the Bank contributed $13,858 and
$10,576, respectively, to the plan, including administration fees.
13. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, banks enter into financial instruments
with off-balance-sheet risk to meet the financing needs of their customers.
Those instruments involve, to varying degrees, elements of credit, interest
rate or liquidity risk in excess of the amount recognized by the balance
sheet. For Northland Bancshares, Inc., its subsidiary bank and North
American Credit Service, Inc., this type of activity is limited to
commitments to extend credit.
18
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
13. Financial Instruments with Off-Balance-Sheet Risk (continued)
The Bank's exposure to credit loss from nonperformance by the other party
to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
At December 31, 1994 and 1993, the Bank had $77,670 and $65,222,
respectively, in unused outstanding standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses that may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis.
14. Regulatory Matters
The Bank, as a national bank, is subject to the dividend restrictions set
forth by the Comptroller of the Currency. Under such restrictions, the
Bank may not, without the prior approval of the Comptroller of the
Currency, declare dividends in excess of the sum of the current year's
earnings plus the retained earnings from the prior two years. The Bank has
not declared a dividend since opening on October_1, 1986. The dividends as
of December 31, 1994, that the Bank could declare in 1995 (in addition to
their 1995 net profits), amounted to approximately $830,113. However, the
Bank is required to obtain permission from the Comptroller of the Currency
prior to declaring any dividends. The Bank is also required to maintain
minimum amounts of capital to total "risk weighted" assets, as defined by
the banking regulators. At December 31, 1994, the Bank is required to have
a minimum risk weighted capital ratio of 8.0%; such actual ratio at that
date was 13.85%. The Bank has agreed with the Federal Reserve Bank to
maintain a minimum primary capital ratio of 6.0%; such actual ratio was
7.04% at December 31, 1994.
19
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
15. Parent Company Only Financial Statements
The parent company only statements of financial position for Northland
Bancshares, Inc., as of December 31, 1994 and 1993, and the related
statements of income and cash flows for the years then ended are as
follows:
<TABLE>
<CAPTION>
Statements of Financial Position
Year ended December 31
1994 1993
<S> <C> <C>
Assets
Cash $ 746,706 $ 361,813
Interest-bearing deposits in other
financial institutions 50,504 52,803
Investment in First National Bank of Platte
County, at equity in underlying net assets 4,289,456 3,191,756
Investment in North American Credit Service,
Inc., at equity in underlying net assets 333,855 329,240
Total assets $5,420,521 $3,935,612
Liabilities and shareholders' equity
Interest payable $ 9,833 $ 542
Notes payable (Note 6) 460,000 500,000
Federal income taxes payable 16,301 44,677
Miscellaneous accounts payable 1,368 -
Shareholders' equity:
Common stock, $.20 par value; 1,000,000 shares
authorized; 502,559 and 381,000 shares issued
and outstanding, respectively 100,512 76,200
Capital in excess of par value 4,593,286 3,307,832
Retained earnings 408,512 6,361
Unrealized loss on available-for-sale
securities, net of tax (169,291) -
Total shareholders' equity 4,933,019 3,390,393
Total liabilities and shareholders' equity $5,420,521 $3,935,612
</TABLE>
20
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
15. Parent Company Only Financial Statements (continued)
Statements of Income
Year ended December 31
1994 1993
Income:
Interest on interest-bearing deposits
with other financial institutions $ 1,140 $ 1,559
Expenses:
Interest on notes payable 34,408 32,499
Legal and professional 8,857 6,408
Other 1,830 55
Total expenses 45,095 38,962
Loss before equity in undistributed
earnings of subsidiaries (43,955) (37,403)
Equity in undistributed earnings
of subsidiaries 446,107 539,119
Net income $402,152 $501,716
21
<PAGE>
<PAGE>
Northland Bancshares, Inc.
Notes to Financial Statements (continued)
15. Parent Company Only Financial Statements (continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1994 1993
<S> <C> <C>
Operating activities:
Net Income $ 402,152 $ 501,716
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed earnings of subsidiaries (446,107) (539,119)
Increase in miscellaneous accounts payable 1,368 -
Increase (decrease) in income taxes payable (28,376) 44,677
Net cash provided by (used in) operating activities (70,963) 7,274
Investing activities
Net (increase) decrease in interest-bearing deposits
in other financial institutions 2,299 (1,558)
Capital contribution to subsidiary bank (825,500) (100,000)
Dividend of subsidiary - 400,000
Net cash provided by (used in) investing activities (823,201) 298,442
Financing activities
Net proceeds from issuance of common stock 1,309,765 -
Net increase in interest payable 9,292 89
Net decrease in notes payable (40,000) -
Net cash provided by financing activities 1,279,057 89
Net increase in cash 384,893 305,805
Cash at beginning of year 361,813 56,008
Cash at end of year $ 746,706 $ 361,813
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 25,117 $ 32,410
Cash paid during the year for income taxes $ 134,699 $ 55,000
</TABLE>
22
<PAGE>
<PAGE>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR NORTHLAND BANCSHARES, INC.
As of and for the six month periods ended June 30, 1996 and 1995
<PAGE>
<TABLE>
<CAPTION>
NORTHLAND BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30,
------------------------- December 31,
1996 1995 1995
- ------------------------------------------------------------------------------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,790,170 $ 3,601,157 $ 4,134,707
Federal funds sold 5,700,000 2,600,000 2,500,000
Interest-bearing deposits in other financial
institutions 13,040 79,121 14,573
Securities held to maturity - 15,222,720 -
Securities available for sale 21,266,452 10,169,392 27,004,647
Loans held for sale 1,133,465 1,033,800 1,957,618
Loans receivable 38,404,843 31,981,870 39,968,315
Less allowance for loan losses (560,552) (457,861) (477,077)
----------- ---------- -----------
Net Loans 37,844,291 31,524,009 34,491,238
Bank property & equipment, net of accumulated
depreciation & amortization 1,339,372 1,527,661 1,409,551
Accrued interest receivable 589,894 534,214 613,722
Other assets 132,944 143,302 146,559
- ---------------------------------------------------------------------------------- ----------- -----------
Total assets $71,809,628 $66,435,376 $72,272,615
- -----------------------------------------------------------------------=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $20,307,901 $18,082,618 $19,683,039
Savings and NOW 12,897,513 13,030,417 13,197,556
Money market 18,338,818 15,752,526 17,820,567
Time deposits $100,000 and over 1,755,623 2,450,116 1,959,202
Other time deposits 8,170,735 8,136,796 8,266,830
- ---------------------------------------------------------------------------------- ----------- -----------
Total deposits 61,470,590 57,452,473 60,927,194
- ---------------------------------------------------------------------------------- ----------- -----------
Securities sold under agreements to repurchase 3,593,000 2,783,000 3,823,000
Notes payable 81,927 228,283 101,463
Accrued interest payable 89,388 123,831 121,306
Other liabilities 112,040 346,037 1,308,377
- ---------------------------------------------------------------------------------- ----------- -----------
Total liabilities 65,346,945 60,933,624 66,281,340
- ---------------------------------------------------------------------------------- ----------- -----------
Shareholders' equity:
Common stock, $.20 par value; 1,000,000 shares
authorized; 598,471, 529,000 and 529,000 shares issued respectively 119,694 105,800 105,800
Capital in excess of par value 5,610,215 4,878,848 4,878,849
Accumulated earnings 804,062 382,061 849,041
Net unrealized gain (loss) on securities available for sale (71,288) 135,043 157,585
- ---------------------------------------------------------------------------------- ----------- -----------
Total shareholders' equity 6,462,683 5,501,752 5,991,275
- ---------------------------------------------------------------------------------- ----------- -----------
Total liabilities and shareholders' equity $71,809,628 $66,435,376 $72,272,615
- -----------------------------------------------------------------------=========== =========== ===========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NORTHLAND BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,792,766 $1,448,853 $ 920,212 $ 754,423
Interest on investment securities 735,242 659,250 350,277 336,747
Interest on federal funds sold 102,431 28,207 66,539 18,580
Interest on interest-bearing deposits
in other financial institutions 251 1,621 101 704
- ----------------------------------------------------------------------------------------------- ------------------------
Total interest income 2,630,690 2,137,931 1,337,129 1,110,454
- ----------------------------------------------------------------------------------------------- ------------------------
INTEREST EXPENSE
Interest on deposits:
Savings and NOW 126,464 142,920 62,980 71,214
Money markets 345,655 308,845 171,856 162,900
Time deposits 271,691 249,487 133,297 137,394
- ----------------------------------------------------------------------------------------------- ------------------------
Total interest on deposits 743,810 701,252 368,133 371,508
- ----------------------------------------------------------------------------------------------- ------------------------
Interest on notes payable, Fed Funds purchased, and
securities sold under agreements to repurchase 115,349 34,146 62,228 25,678
- ----------------------------------------------------------------------------------------------- ------------------------
Total interest expense 859,159 735,398 430,361 397,186
- ----------------------------------------------------------------------------------------------- ------------------------
Net interest income 1,771,531 1,402,533 906,768 713,268
Provision for loan loss (94,400) (81,000) (49,200) (40,500)
- ----------------------------------------------------------------------------------------------- ------------------------
Net interest income after provision for loan loss 1,677,131 1,321,533 857,568 672,768
- ----------------------------------------------------------------------------------------------- ------------------------
OTHER INCOME
Service charges on deposit accounts 405,152 405,336 200,612 215,620
Income from mortgage banking operation 196,196 90,621 100,068 52,082
Securities gains(loss) 18,131 (25,653) - (4,399)
Other 235,101 184,676 112,252 84,826
- ----------------------------------------------------------------------------------------------- ------------------------
Total other income 854,580 654,980 412,932 348,129
- ----------------------------------------------------------------------------------------------- ------------------------
OTHER EXPENSES
Salaries 761,751 583,567 388,564 298,790
Employee benefits 112,902 111,676 55,500 51,995
Occupancy 126,908 125,164 63,193 62,273
Equipment 45,976 56,968 22,291 28,562
Data processing 156,980 166,500 79,662 85,302
Automatic tellers 67,211 61,100 34,892 31,851
General/Administrative 392,296 448,540 196,280 234,862
- ----------------------------------------------------------------------------------------------- ------------------------
Total other expenses 1,664,024 1,553,515 840,382 793,635
- ----------------------------------------------------------------------------------------------- ------------------------
Net income before income taxes 867,687 422,998 430,118 227,262
Provision for income taxes 326,500 172,400 160,000 90,100
- ----------------------------------------------------------------------------------------------- ------------------------
Net income $ 541,187 $ 250,598 $ 270,118 $ 137,162
- ------------------------------------------------------------------------======================= ========================
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NORTHLAND BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 541,187 $ 250,598
Adjustments to reconcile net cash provided by operating activities:
Provision for loan losses 94,400 81,000
Depreciation and amortization 138,364 260,936
Net (increase) decrease in loans held for sale 824,153 (621,473)
(Gains) losses on securities transactions (18,131) 25,653
(Increase) decrease in interest receivable 23,828 (12,147)
Increase (decrease) in interest payable (31,918) 62,843
Other (969,915) (213,287)
- ----------------------------------------------------------------------------------------- ----------
Net cash provided (used) by operating activities 601,968 (165,877)
- ----------------------------------------------------------------------------------------- ----------
INVESTING ACTIVITIES
Net increase in loans (3,447,453) (3,114,326)
Net increase in premises and equipment (88,130) (24,846)
Proceeds from sale of available-for-sale investments - 2,490,469
Proceeds from maturities and prepayments of available-for-sale investments 5,378,590 52,873
Purchase of available-for-sale investments - (7,072,872)
Proceeds from maturities and prepayments of held-to-maturity investments - 4,566,652
Net decrease in interest-bearing deposits in other banks 1,533 15,732
- ----------------------------------------------------------------------------------------- ----------
Net cash provided (used) by investing activities 1,844,540 (3,086,318)
- ----------------------------------------------------------------------------------------- ----------
FINANCING ACTIVITIES
Net increase in deposits 543,396 2,119,304
Exercise of stock options 115,500 -
Increase (decrease) in securities sold under agreements to repurchase (230,000) 2,783,000
Repayment of notes payable (19,536) (489,143)
Other (405) (279)
- ----------------------------------------------------------------------------------------- ----------
Net cash provided by financing activities 408,955 4,412,882
- ----------------------------------------------------------------------------------------- ----------
Increase in cash and cash equivalents 2,855,463 1,160,687
Cash and cash equivalents at beginning of period 6,634,707 5,040,470
- ----------------------------------------------------------------------------------------- ----------
Cash and cash equivalents at end of period $9,490,170 $6,201,157
- -------------------------------------------------------------------------------========== ==========
</TABLE>
<PAGE>
<PAGE>
NORTHLAND BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Consolidated financial statements for the year ended December 31,
1995.
NOTE B--CASH FLOW
For purposes of the Statement of Cash Flows, the Company considers cash on
hand, amounts due from banks and federal funds sold as cash and cash
equivalents.
<PAGE>
<PAGE>
Northland Bancshares, Inc.
7667 NW Prairie View Road
Kansas City, Missouri 64151
PROXY
The undersigned shareholder of Northland Bancshares, Inc., Kansas City,
Missouri, hereby authorizes William E. Johnson and Leland M. Walker, or
either of them, with full power of substitution, to vote the shares of the
undersigned at the special shareholders' meeting to be held on September
10, 1996, and any adjournment thereof. The Board of Directors recommends a
vote FOR the Merger Agreement.
THIS PROXY WILL BE VOTED IN THE MANNER INDICATED BELOW. IF THIS PROXY IS
DATED AND SIGNED BUT NO VOTE IS INDICATED, THE SHARES WILL BE VOTED FOR THE
MERGER AGREEMENT.
1. Merger Agreement with Mark Twain Bancshares, Inc.
[__] FOR [__] AGAINST [__] ABSTAIN
2. In their discretion, the proxies named above are authorized to vote
upon other business that may properly come before the meeting.
This Proxy is executed on the _____ day of ___________, 1996.
__________________________________ __________________________________
Shareholders' Signature Shareholder's Signature
__________________________________ __________________________________
Shareholder's Name (Print) Shareholder's Name (Print)
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
[No items in Part II are amended, other than certain Exhibits as described
under Item 21.]
Item 21. Exhibits and Financial Statement Schedules.
Exhibits 23.1 and 23.2 are filed herewith for the first time. Exhibits 2.3
and 99.1 have been revised since the registration statement first was
filed, and are ref-filed herewith. Exhibits 2.1 and 2.2 have not been
revised since they were filed initially, but are re-filed herewith as part
of the prospectus.
Exhibits 23.1 and 23.2 are filed herewith for the first time. Exhibits 2.3
and 99.1 have been revised since the registration statement first was
filed, and are re-filed herewith as revised. The remaining exhibits have
not been revised; however, Exhibits 2.1 and 2.2 are re-filed herewith as
part of the prospectus.
Exh.
No. Description
2.1 Conformed Copy of Plan and Agreement of Merger dated May 7, 1996
(Included as Exhibit A to the Prospectus and Proxy Statement)
2.2 Form of Escrow Agreement
(Included as Exhibit B to the Prospectus and Proxy Statement)
2.3 Conformed Copy of Agreement Respecting Adjustments
(Included as Exhibit C to the Prospectus and Proxy Statement)
23.1 Consent of Ernst & Young LLP, independent auditors for the
Registrant
23.2 Consent of Ernst & Young LLP, independent auditors for the company
to be acquired
99.1 Form of Proxy (included with the prospectus in Part I)
The registrant is eligible to use Form S-3 for primary securities
offerings. In accordance with note 3 of the Exhibit Table set forth by
Item 601 of Regulation S-K, the registrant elects to provide information at
the level prescribed by Form S-3.
Page II-1
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of St.
Louis, State of Missouri, on August 5, 1996.
MARK TWAIN BANCSHARES, INC.
By: CARL A. WATTENBERG, JR.
Carl A. Wattenberg, Jr.
(Senior Vice President, General Counsel,
and Corporate Secretary)
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed below by the following persons in
the capacities and as of the dates indicated:
Signature Title Date
__________________ ______________________ _______________
JOHN P. DUBINSKY* President and Chief August 5, 1996
(John P. Dubinsky) Executive Officer
and Director (Principal
Executive Officer)
KEITH MILLER* Executive Vice President, August 5, 1996
(Keith Miller) Finance (Principal
Financial Officer)
KEVIN J. CODY* Vice President, Trea- August 5, 1996
(Kevin J. Cody) surer, and Assistant
Secretary (Principal
Accounting Officer)
ALVIN J. SITEMAN* Chairman of the August 5, 1996
(Alvin J. Siteman) Board and Director
ROBERT J. BAUDENDISTEL* Director August 5, 1996
(Robert J. Baudendistel)
PETER F. BENOIST* Director August 5, 1996
(Peter F. Benoist)
Page II-2
<PAGE>
<PAGE>
___________________ Director
(Robert A. Bernstein)
________________ Director
(Robert C. Butler)
JACK DEUTSCH* Director August 5, 1996
(Jack Deutsch)
HENRY J. GIVENS, JR.* Director August 5, 1996
(Henry J. Givens, Jr.)
B.D. HUNTER* Director August 5, 1996
(B.D. Hunter)
MICHAEL M. MCCARTHY* Director August 5, 1996
(Michael M. McCarthy)
JAMES J. MURPHY, JR.* Director August 5, 1996
(James J. Murphy, Jr.)
*By: CARL A. WATTENBERG, JR.
Carl A. Wattenberg, Jr.
Attorney-In-Fact
Page II-3
<PAGE>
<PAGE>
EXHIBIT INDEX
Exh.
No. Description
2.1 Conformed Copy of Plan and Agreement of Merger dated May 7, 1996
(Included as Exhibit A to the Prospectus and Proxy Statement)
2.2 Form of Escrow Agreement
(Included as Exhibit B to the Prospectus and Proxy Statement)
2.3 Conformed Copy of Agreement Respecting Adjustments
(Included as Exhibit C to the Prospectus and Proxy Statement)
23.1 Consent of Ernst & Young LLP, independent auditors for the
Registrant
23.2 Consent of Ernst & Young LLP, independent auditors for the company
to be acquired
99.1 Form of Proxy (included with the prospectus in Part I)
All Exhibits are filed electronically.
Page II-4
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated January 16, 1996, in
Amendment No. 1 to the Registration Statement (Form S-4 No.
333-08529) and related Prospectus of Mark Twain Bancshares, Inc.
for the registration of 367,874 shares of its common stock and to
the incorporation by reference therein of our report dated
January 16, 1996, with respect to the consolidated financial
statements of Mark Twain Bancshares, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1995, filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Ernst & Young LLP
St. Louis, Missouri
August 2, 1996
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" and to the use of our reports dated January 6, 1996 and
January 5, l995, with respect to the financial statements of
Northland Bancshares, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-4 Reg. No. 333-08529) and related
Prospectus of Mark Twain Bancshares, Inc. for the registration of
367,874 shares of its common stock.
Kansas City, Missouri ERNST & YOUNG LLP
August 2, l996 Ernst & Young LLP
