<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COMMERCE BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 6712 43-0889454
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1000 WALNUT
KANSAS CITY, MISSOURI 64106
(816) 234-2000
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
J. DANIEL STINNETT, ESQ.
VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
COMMERCE BANCSHARES, INC.
1000 WALNUT
KANSAS CITY, MISSOURI 64106
(816) 234-2350
FAX: (816) 234-2333
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DENNIS P. WILBERT, ESQ. MICHAEL W. LOCHMANN, ESQ.
BLACKWELL SANDERS MATHENY WEARY & CRAIG L. EVANS, ESQ.
LOMBARDI LLP STINSON, MAG & FIZZELL, P.C.
TWO PERSHING SQUARE 1201 WALNUT STREET
2300 MAIN, SUITE 1100 KANSAS CITY, MISSOURI 64106
KANSAS CITY, MISSOURI 64108 (816) 691-3208
(816) 983-8124 FAX: (816) 691-3495
FAX: (816) 983-8080
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this registration statement is declared
effective and all other conditions to the Merger and Exchange (as defined
herein) have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED PROPOSED
CLASS OF SECURITIES TO AMOUNT MAXIMUM MAXIMUM AMOUNT OF
BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT* OFFERING PRICE* FEE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$5.00 per share....... 504,000 shares $26.88 13,548,107 $4,106
</TABLE>
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- -------------------------------------------------------------------------------
*Pursuant to Rule 457(f)(2) under the Securities Act of 1933, and solely
for the purpose of calculating the registration fee, the proposed maximum
aggregate offering price represents the book value of the maximum amount of
(i) common stock, $6.00 par value per share of Pittsburg Bancshares, Inc.
and (ii) common stock, $6.00 par value per share, of City National Bank of
Pittsburg estimated as of September 30, 1997 to be outstanding immediately
prior to, and to be canceled in, the Merger and Exchange.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
January , 1998
Dear Pittsburg Bancshares, Inc. Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Pittsburg Bancshares, Inc. ("Pittsburg Bancshares") which will be held at
, on ,
, 1998, commencing at p.m., local time. At this
important meeting, holders of common stock of Pittsburg Bancshares will be
asked to consider and vote on a proposal relating to the sale of Pittsburg
Bancshares pursuant to the merger of CBI-Kansas, Inc., a wholly-owned
subsidiary of Commerce Bancshares, Inc., with and into Pittsburg Bancshares
(the "Merger"). Each share of Pittsburg Bancshares's common stock will be
converted into the right to receive shares of the common stock of Commerce
Bancshares, Inc.
Pittsburg Bancshares presently owns approximately 97% of the issued and
outstanding stock of City National Bank of Pittsburg (the "Bank"). Pursuant to
the merger agreement with Commerce Bancshares, Inc., Pittsburg Bancshares has
agreed to offer each other shareholder of the Bank the right to exchange their
shares of stock in the Bank for shares of common stock of Commerce Bancshares,
Inc. on the same basis as in the Merger (the "Exchange").
The Merger and Exchange are subject to certain required regulatory approvals
and other conditions and will be consummated shortly after the necessary
regulatory approvals are obtained and other conditions are satisfied or
waived. Under Kansas law, holders of common stock of Pittsburg Bancshares have
dissenters' rights of appraisal with respect to the Merger.
The enclosed Prospectus/Proxy Statement describes the terms of the Merger
and Exchange in more detail. You should review the Prospectus/Proxy Statement
carefully. Your board of directors has carefully reviewed and considered the
terms and conditions of the Merger and believes that it is fair and in the
best interests of Pittsburg Bancshares and its shareholders and unanimously
recommends that shareholders vote "for" the proposal.
A majority vote of all outstanding shares of Pittsburg Bancshares' common
stock is required to approve the Merger. To ensure your shares will be
represented at the meeting, whether or not you plan to attend, I urge you to
promptly sign, date and mail your proxy in the enclosed self-addressed
envelope, which requires no postage. You may cancel your proxy by attending
the meeting and voting in person.
Sincerely,
Wendell Wilkinson
President
<PAGE>
PITTSBURG BANCSHARES, INC.
To the Shareholders of Pittsburg Bancshares, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders of
Pittsburg Bancshares, Inc. ("Pittsburg Bancshares") will be held at
, on ,
1998, commencing at p.m., local time (the "Special Meeting"). At the
Special Meeting, shareholders will be asked to consider and vote upon the
following matter, which is more fully described in the accompanying
Prospectus/Proxy Statement:
A proposal to approve the Agreement and Plan of Reorganization, dated as
of October 29, 1997 (as amended, the "Acquisition Agreement"), by and among
Commerce Bancshares, Inc., CBI-Kansas, Inc. and Pittsburg Bancshares, Inc.
a copy of which is attached as Annex A to the accompanying Prospectus/Proxy
Statement.
Holders of Pittsburg Bancshares common stock of record at the close of
business on , 1998, will be entitled to notice of and to vote at
the Special Meeting or any adjournment or postponement thereof. Approval of
the Acquisition Agreement, which is a condition to the consummation of the
transactions contemplated by the Acquisition Agreement, requires the
affirmative vote of the holders of a majority of the outstanding shares of
Pittsburg Bancshares common stock. Pursuant to K.S.A. (S) 17-6712, Kansas law
provides that Pittsburg Bancshares' shareholders are entitled to dissenters'
rights.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ACQUISITION AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE ACQUISITION AGREEMENT.
By Order of the Board of Directors
President
Pittsburg, Kansas
, 1998
<PAGE>
January , 1998
Dear City National Bank of Pittsburg Shareholder:
I am pleased to report that the Board of Directors of Pittsburg Bancshares,
Inc. unanimously approved a merger agreement which, as amended, provides for
the acquisition of Pittsburg Bancshares, Inc. by Commerce Bancshares, Inc.
(the "Merger"). Under the terms of the proposed transaction, Pittsburg
Bancshares, Inc. is today offering to exchange shares of common stock of
Commerce Bancshares, Inc. (the "Exchange Offer") for all outstanding shares of
City National Bank of Pittsburg not owned by Pittsburg Bancshares, Inc. The
Exchange Offer is conditioned upon consummation of the Merger and will be at
the same exchange ratio as in the Merger.
The enclosed Prospectus/Proxy Statement describes the terms of the Merger
and Exchange Offer in more detail. You should review the Prospectus/Proxy
Statement carefully. Your board of directors has carefully reviewed and
considered the terms and conditions of the Exchange Offer and believes that it
is fair and in the best interests of the Bank and its shareholders and
unanimously recommends that shareholders accept the Exchange Offer and tender
their shares.
Accompanying this letter and the Prospectus/Proxy Statement, is the Offer to
Purchase and the related Letter of Transmittal, which together set forth the
terms and conditions of the Exchange Offer and provide instructions as to how
to tender your shares. These documents contain important information which you
should read carefully in making your decision with respect to tendering your
shares.
On behalf of the management and directors of City National Bank of
Pittsburg, we thank you for the support you have given to your bank over the
years.
Sincerely,
President
<PAGE>
PROSPECTUS OF
COMMERCE BANCSHARES, INC.
504,000 COMMON SHARES OF
$5.00 PAR VALUE
----------------
PROXY STATEMENT OF
PITTSBURG BANCSHARES, INC.
----------------
EXCHANGE OFFER TO SHAREHOLDERS OF
CITY NATIONAL BANK OF PITTSBURG
----------------
This Prospectus/Proxy Statement/Exchange Offer ("Prospectus") relates to the
issuance of up to 504,000 shares of $5.00 par value common stock (the
"Commerce Common Stock") of Commerce Bancshares, Inc. ("Commerce"), in
exchange for (i) shares of $6.00 par value common stock of Pittsburg
Bancshares, Inc. ("Pittsburg Bancshares") in the merger described herein,
pursuant to which CBI-Kansas, Inc. ("CBI"), a wholly-owned subsidiary of
Commerce, will be merged into Pittsburg Bancshares (the "Merger") and (ii)
shares of $6.00 par value common stock of City National Bank of Pittsburg
("Bank") pursuant to the exchange offer described herein ("Exchange").
This Prospectus is also a proxy statement furnished at the direction of the
Board of Directors of Pittsburg Bancshares in connection with the solicitation
of proxies from its shareholders to be voted at a special meeting of
shareholders of Pittsburg Bancshares to be held on , 1998,
and at any adjournment thereof, for the purpose of considering and voting upon
approval of the acquisition agreement described herein.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is , 1998,
and it is first being mailed on or about , 1998.
<PAGE>
AVAILABLE INFORMATION
Commerce is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission ("SEC"). Such reports, proxy statements and
other information can be inspected and copied at the offices of the SEC at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549; Room 1400, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding issuers who file electronically with the Commission. The address of
that site is http://www.sec.gov.
Commerce has filed a Registration Statement on Form S-4 with the SEC with
respect to the Commerce Common Stock to be issued in connection with the
Merger and Exchange. This Prospectus/Proxy Statement/Exchange Offer (the
"Prospectus") does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. The Registration Statement and any
amendments thereto, including exhibits filed as a part thereof, are available
at the SEC for inspection and copying as set forth above.
----------------
INCORPORATION BY REFERENCE
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of such documents relating to Commerce,
and the exhibits to such documents, are available without charge to each
person to whom a copy of this Prospectus has been delivered upon written or
oral request of any such person, from Commerce Bancshares, Inc., 1000 Walnut,
P.O. Box 13686, Kansas City, Missouri 64106, Attention: J. Daniel Stinnett,
Telephone Number: (816) 234-2350. In order to ensure timely delivery of the
documents, any request should be made by , 1998.
The following documents filed by Commerce with the SEC are hereby
incorporated by reference herein:
(a) Commerce's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(b) Commerce's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1997, June 30, 1997 and September 30, 1997.
(c) Commerce's Current Report on Form 8-K filed June 18, 1997.
(d) The description of the Commerce Common Stock set forth in the Form 8-
A Registration Statement as filed with the Commission on February 26, 1968,
as supplemented by the Form 8-A Registration Statement as filed with the
Commission on August 31, 1988 and as amended by Form 8-A12G/A as filed with
the Commission on June 10, 1996.
All documents subsequently filed by Commerce pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act shall be deemed to be incorporated by
reference into this Prospectus from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified, to constitute a part of this Prospectus.
----------------
No person is authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell, or
solicitation of an offer to purchase, the securities offered by this
prospectus, or the solicitation of a proxy, in any jurisdiction, to or from
any person to whom it is unlawful to make such offer, solicitation of an offer
or proxy solicitation in such jurisdiction. Neither the delivery of this
Prospectus nor any distribution of the securities pursuant to this Prospectus
shall, under any circumstances, create an implication that there has been no
change in the information set forth herein since the date of this Prospectus.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 2
INCORPORATION BY REFERENCE................................................. 2
SUMMARY.................................................................... 5
The Companies............................................................ 5
Pittsburg Bancshares Special Meeting..................................... 5
The Merger and Exchange.................................................. 6
Stock Certificates; Dividend Withholding................................. 6
Conditions to the Merger and Exchange.................................... 6
Recommendation of the Board of Directors; Interests of Certain Persons... 6
Dissenters' Rights of Appraisal.......................................... 7
Accounting Treatment..................................................... 7
Federal Income Tax Consequences.......................................... 7
Comparative Stock Prices................................................. 7
Comparative Per Share Data............................................... 8
Pro Forma and Selected Financial Data.................................... 9
THE COMPANIES.............................................................. 10
PITTSBURG BANCSHARES SPECIAL MEETING....................................... 10
Purpose of the Special Meeting........................................... 10
Solicitation and Revocation of Proxies................................... 10
Voting of Proxies, Persons Entitled to Vote, and Vote Required........... 11
THE MERGER AND EXCHANGE.................................................... 11
General.................................................................. 11
Conversion of Pittsburg Bancshares Stock................................. 11
Exchange of Bank Stock................................................... 11
Exchange of Pittsburg Bancshares Stock Certificates...................... 11
Exchange of Bank Stock Certificates...................................... 12
Fractional Shares........................................................ 12
Background of Negotiations............................................... 12
Reasons for the Merger and Exchange...................................... 14
Operations and Management After the Merger............................... 14
Conditions to the Merger................................................. 15
Conditions to the Exchange............................................... 15
Conduct of Business Pending the Merger and Exchange...................... 15
No Solicitation.......................................................... 15
Waiver and Amendment..................................................... 16
Possible Termination of the Merger....................................... 16
Effective Time........................................................... 16
Severance Agreement of Wendell Wilkinson................................. 16
Federal Securities Laws Consequences..................................... 16
Rights of Dissenting Shareholders........................................ 16
Transactions Between Commerce and Pittsburg Bancshares or the Bank....... 17
Accounting Treatment..................................................... 17
FEDERAL INCOME TAX CONSEQUENCES............................................ 18
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BENEFICIAL OWNERSHIP OF SECURITIES........................................ 18
Pittsburg Bancshares Stock Ownership.................................... 18
Bank Stock Ownership.................................................... 20
DIFFERENCES IN RIGHTS OF SHAREHOLDERS..................................... 20
General................................................................. 20
Number of Directors and Term............................................ 21
Removal of Directors.................................................... 21
Voting.................................................................. 21
Dividends and Liquidation Preference.................................... 21
Preemptive Rights....................................................... 21
Special Meetings........................................................ 21
Indemnification; Limitation of Liability................................ 22
Shareholder Inspection.................................................. 22
Amendment of Articles of Incorporations................................. 22
Amendment of Bylaws..................................................... 23
Notice of Shareholder Proposals; Nominations of Directors............... 23
Shareholders' Vote for Mergers.......................................... 23
Appraisal Rights........................................................ 24
Anti-takeover Statutes.................................................. 24
Preferred Share Purchase Rights Plan.................................... 25
SELECTED CONSOLIDATED FINANCIAL DATA OF PITTSBURG BANCSHARES.............. 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF PITTSBURG BANCSHARES........................ 27
LEGAL OPINION............................................................. 40
EXPERTS................................................................... 41
Independent Public Accountants for Commerce Bancshares, Inc............. 41
Independent Public Accountants for Pittsburg Bancshares, Inc............ 41
SHAREHOLDER PROPOSALS..................................................... 41
INDEX TO FINANCIAL STATEMENTS OF PITTSBURG BANCSHARES, INC. AND
SUBSIDIARY............................................................... F-1
EXHIBITS
Annex A--Copy of Acquisition Agreement
Annex B--Rights of Shareholders Dissenting from the Proposed Merger
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information in this
Prospectus/Proxy Statement/Exchange Offer (the "Prospectus"). This summary is
not intended to be complete and it is qualified in all respects by the
information appearing elsewhere in or incorporated by reference in this
Prospectus, the Annexes hereto and the documents referred to herein.
THE COMPANIES
Commerce Bancshares, Inc. ("Commerce") is a registered multi-bank holding
company which owns all of the outstanding capital stock (except directors'
qualifying shares) of two national banking associations located in Missouri,
one national banking association located in Illinois, two national banking
associations located in Kansas, a credit card bank in Omaha, Nebraska, a
mortgage banking company, a credit life insurance company, a small business
investment company, a property and casualty insurance agency and a company
primarily engaged in holding bank-related real property. The principal assets
of Commerce are represented by its banking subsidiaries. The business of
Commerce consists primarily of ownership, supervision and control of its
subsidiaries, including providing advice, counsel and specialized services in
various fields of financial and banking policy and operations. The total assets
of Commerce, on a consolidated basis as of September 30, 1997, were
approximately $10.0 billion and net income for the nine months ended September
30, 1997, was approximately $96.0 million. See "SUMMARY--Pro Forma and Selected
Financial Data". The principal executive offices of Commerce are at the
Commerce Bank Building, 1000 Walnut, Kansas City, Missouri 64106 (telephone
number (816) 234-2000).
Pittsburg Bancshares, Inc. ("Pittsburg Bancshares") is a registered bank
holding company headquartered in Pittsburg, Kansas. Pittsburg Bancshares owns
approximately 97% of the issued and outstanding common stock of City National
Bank of Pittsburg (the "Bank"), a national bank, located in Pittsburg, Kansas.
The total assets of Pittsburg Bancshares on a consolidated basis, as of
September 30, 1997, were approximately $119.3 million and net income for the
nine months ended September 30, 1997, was approximately $1.3 million. See
"SELECTED CONSOLIDATED FINANCIAL DATA OF PITTSBURG BANCSHARES". The principal
executive offices of Pittsburg Bancshares are at 100 S. Broadway, Pittsburg,
Kansas 66762 (telephone number (316) 231-8400).
CBI-Kansas, Inc. ("CBI") is a wholly-owned subsidiary of Commerce. Pursuant
to the Agreement and Plan of Reorganization among Commerce, Pittsburg
Bancshares and CBI dated October 29, 1997 (as amended, the "Acquisition
Agreement"), CBI will be merged into Pittsburg Bancshares.
PITTSBURG BANCSHARES SPECIAL MEETING
A special meeting of the shareholders of Pittsburg Bancshares will be held at
in Pittsburg, Kansas on , , 1998, at
p.m., local time (the "Pittsburg Bancshares Special Meeting"), for
the purpose of approving the Acquisition Agreement.
Only holders of record of Pittsburg Bancshares common stock, par value $6.00
per share ("Pittsburg Bancshares Stock") at the close of business on
, 1998, will be entitled to notice of and to vote at the
Pittsburg Bancshares Special Meeting. At the Pittsburg Bancshares Special
Meeting, each holder of Pittsburg Bancshares Stock will be entitled to one vote
for each share held, and the affirmative vote of a majority of the outstanding
shares of Pittsburg Bancshares Stock is required to approve the Acquisition
Agreement. Abstentions and failures to vote will have the same effect as votes
cast against approval of the Acquisition Agreement. On December 31, 1997,
directors and executive officers of Pittsburg Bancshares beneficially owned
approximately 41.7% of the outstanding shares of Pittsburg Bancshares Stock.
All directors of Pittsburg Bancshares owning Pittsburg Bancshares Stock have
indicated they intend to vote in favor of the Acquisition Agreement.
5
<PAGE>
THE MERGER AND EXCHANGE
Commerce, CBI and Pittsburg Bancshares have entered into the Acquisition
Agreement, a copy of which is attached hereto as Annex A and incorporated
herein by reference, pursuant to which CBI will be merged with and into
Pittsburg Bancshares, which will be the surviving corporation.
The Acquisition Agreement provides that each of the shares of Pittsburg
Bancshares Stock outstanding immediately prior to the Effective Time (as
defined in the Acquisition Agreement) of the Merger will be converted into 6.40
shares (the "Exchange Ratio") of Commerce common stock, par value $5.00 per
share ("Commerce Common Stock"); provided, however, if the actual Commerce
Stock Price (defined below) is $57.73 or less, then the Exchange Ratio will be
increased to 6.72.
The "Commerce Stock Price" means the average of the ten (10) closing sale
prices of Commerce Common Stock as reported by the NASDAQ Stock Market, Inc.
National Market System ("NASDAQ") on each of the ten (10) consecutive trading
days preceding the third trading day prior to the Closing Date.
The Acquisition Agreement also provides that Pittsburg Bancshares will offer
to each shareholder of the Bank the right to exchange each share of Bank common
stock, par value $6.00 per share ("Bank Stock") for 6.40 shares of Commerce
Common Stock; however, if the Commerce Stock Price is $57.73 or less, then the
exchange ratio shall be increased to 6.72 shares of Commerce Common Stock for
each share of Bank Stock.
Fractional shares of Commerce Common Stock will not be issued in connection
with the Merger and Exchange. Holders of Pittsburg Bancshares Stock or Bank
Stock otherwise entitled to a fractional share will be paid the value of the
fractional share in cash.
STOCK CERTIFICATES; DIVIDEND WITHHOLDING
Shareholders of Pittsburg Bancshares and the Bank, other than those Pittsburg
Bancshares shareholders who perfect their dissenters' rights of appraisal, must
surrender the certificates for their shares of Pittsburg Bancshares Stock or
Bank Stock to Commerce, and inform Commerce of their federal taxpayer
identification number, before receiving a certificate for the number of shares
of Commerce Common Stock to which such shareholders are entitled. Until a
Pittsburg Bancshares shareholder or Bank shareholder surrenders the
certificates for his Pittsburg Bancshares Stock or Bank Stock, as the case may
be, and informs Commerce of his or her federal taxpayer identification number,
Commerce may withhold the payment of any or all dividends which would otherwise
be payable to such shareholder as a shareholder of Commerce. See "THE MERGER
AND EXCHANGE--Exchange of Pittsburg Bancshares Stock Certificates; Exchange of
Bank Stock Certificates."
CONDITIONS TO THE MERGER AND EXCHANGE
The Merger and Exchange are subject to certain conditions, including approval
of the Acquisition Agreement by the shareholders of Pittsburg Bancshares and by
appropriate state and federal banking authorities. Applications will be filed
with appropriate federal banking authorities seeking their approval of the
Merger and Exchange. See "THE MERGER AND EXCHANGE--Conditions to the Merger;
Conditions to the Exchange."
RECOMMENDATION OF THE BOARD OF DIRECTORS; INTERESTS OF CERTAIN PERSONS
The Boards of Directors of each of Pittsburg Bancshares and the Bank believe
that the Merger and Exchange are in the best interests of Pittsburg Bancshares
and the Bank and their respective shareholders and unanimously recommend that
their respective shareholders vote FOR the approval of the Acquisition
Agreement or tender their shares in the Exchange, as the case may be.
6
<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL
Holders of Pittsburg Bancshares Stock who are opposed to the Merger have the
right to dissent from the Merger in accordance with Section 17-6712 of the
Kansas General Corporation Code ("KGCC") which provides that a shareholder
shall be entitled to receive the fair value of his or her shares as of the day
prior to the day on which the Merger is approved by the other shareholders if
such shareholder: (1) delivers a written demand for appraisal of such shares to
Pittsburg Bancshares prior to the vote on the Acquisition Agreement at the
Pittsburg Bancshares Special Meeting; (2) does not vote in favor of the Merger;
and (3) makes written demand for payment of the fair value of his or her shares
within twenty (20) days after receiving notice that the Merger became
effective. See "THE MERGER AND EXCHANGE--Rights of Dissenting Shareholders."
ACCOUNTING TREATMENT
The Merger and Exchange will be treated by Commerce as a pooling of interests
for accounting purposes.
FEDERAL INCOME TAX CONSEQUENCES
The Merger and Exchange are intended to qualify as reorganizations under
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"). Blackwell Sanders Matheny Weary & Lombardi LLP will deliver as a
condition of closing of the Merger and Exchange an opinion, based upon certain
customary assumptions and representations, to the effect that, for federal
income tax purposes, no gain or loss will be recognized by either the Pittsburg
Bancshares or Bank shareholders as a result of the Merger and Exchange to the
extent they receive Commerce Stock solely in exchange for their Pittsburg
Bancshares Stock or Bank Stock, as the case may be. With respect to Pittsburg
Bancshares Stock exchanged for cash as the result of the exercise of
dissenters' rights, the exchange will be treated as a sale, and normal
recognition and gain and loss treatment will apply. For a more complete
description of the federal income tax consequences, see "FEDERAL INCOME TAX
CONSEQUENCES."
COMPARATIVE STOCK PRICES
Shares of Commerce Common Stock are traded on the Nasdaq National Market
System ("NASDAQ"). The last sale price of Commerce Common Stock as reported on
NASDAQ on October 28, 1997 (the last trading day preceding the execution of the
Acquisition Agreement, which was also the date preceding the announcement of
the execution of the Acquisition Agreement), was $58.375. The last sale price
for Commerce Common Stock as reported by NASDAQ on , 1998 (the
most recent date for which it was practicable to obtain market price data prior
to the printing of this Prospectus), was $ .
As of December 31, 1997, there were 184 holders of record of Pittsburg
Bancshares Stock. There is no established public trading market for the shares
of Pittsburg Bancshares Stock and there has been limited trading of Pittsburg
Bancshares Stock. Management has reviewed available records of purchases and
sales of Pittsburg Bancshares Stock and since January 1, 1995 there have been
19 sales of Pittsburg Bancshares Stock at prices ranging from $85 to $200 per
share.
As of December 31, 1997, there were 13 holders of record of Bank Stock. There
is no established public trading market for the shares of Bank Stock and there
has been limited trading of Bank Stock. Management has reviewed available
records of purchases and sales of Bank Stock and since January 1, 1995 there
has been only one sale of Bank Stock for which cash consideration was paid at
the price of $100.
7
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth per share data of Commerce, Pittsburg
Bancshares and the Bank on both an historical basis and on a pro forma basis
for Pittsburg Bancshares and the Bank. This table should be read in conjunction
with the historical consolidated financial statements and notes thereto for
Commerce incorporated herein by reference, and for Pittsburg Bancshares
contained herein. Pro forma combined and equivalent pro forma per share data
reflect the combined results of Commerce, Pittsburg Bancshares and the Bank
presented as though they were one company for all periods shown. Pro forma and
equivalent pro forma cash dividends paid per share reflect Commerce's cash
dividends paid in the periods indicated. The pro forma amounts do not include
any adjustments for estimated operating efficiencies or revenue enhancements
resulting from the Merger and Exchange.
The following pro forma and equivalent pro forma information is based on the
estimated exchange ratio of 6.40 shares of Commerce Common Stock for each share
of Pittsburg Bancshares Stock and Bank Stock. The actual exchange ratio depends
on the Commerce Common Stock price at closing. See "THE MERGER AND EXCHANGE--
Conversion of Pittsburg Bancshares Stock; --Conversion of Bank Stock."
<TABLE>
<CAPTION>
EQUIVALENT PRO
HISTORICAL FORMA
----------------------------- -------------------
CITY PRO CITY
PITTSBURG NATIONAL FORMA PITTSBURG NATIONAL
COMMERCE* BANCSHARES BANK COMMERCE BANCSHARES BANK
--------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income per common
equivalent share:
Twelve months ended:
December 31, 1996...... $ 2.96 $ 21.53 $ 21.44 $ 2.96 $ 18.98 $ 18.98
December 31, 1995...... 2.58 20.88 20.85 2.59 16.58 16.58
December 31, 1994...... 2.47 18.11 18.16 2.47 15.79 15.79
Nine months ended:
September 30, 1997..... 2.43 17.61 17.65 2.43 15.58 15.58
September 30, 1996..... 2.15 15.91 15.86 2.16 13.82 13.82
Cash Dividends paid per
share:
Twelve months ended:
December 31, 1996...... $ 0.69 $ 5.90 $ 6.20 $ 0.69 $ 4.39 $ 4.39
December 31, 1995...... 0.62 5.27 5.60 0.62 3.96 3.96
December 31, 1994...... 0.54 5.10 5.40 0.54 3.47 3.47
Nine months ended:
September 30, 1997..... 0.59 8.75 8.90 0.59 3.78 3.78
September 30, 1996..... 0.51 5.90 6.20 0.51 3.29 3.29
Book value per common
share at:
December 31, 1996...... $23.55 $174.82 $173.02 $23.60 $151.01 $151.01
December 31, 1995...... 21.84 160.21 158.80 21.88 140.02 140.02
December 31, 1994...... 18.74 140.92 140.04 18.78 120.18 120.18
September 30, 1997..... 24.98 187.69 185.87 25.03 160.19 160.19
September 30, 1996..... 22.55 171.49 169.90 22.60 144.65 144.65
</TABLE>
- --------
* Commerce information has been restated for a 5% stock dividend paid in
December 1997.
8
<PAGE>
PRO FORMA AND SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
(UNAUDITED)
The following table presents for Commerce, Pittsburg Bancshares and the Bank,
on an historical basis, selected consolidated financial data and unaudited pro
forma combined amounts reflecting the Merger and Exchange. The pro forma
amounts assume the Merger and Exchange had been effective during the periods
presented. Pro forma per share amounts assume an exchange ratio of 6.40 shares
of Commerce Common Stock for each share of Pittsburg Bancshares Stock and Bank
Stock. The actual exchange ratio depends on the Commerce Common Stock price at
closing. See "THE MERGER AND EXCHANGE--Conversion of Pittsburg Bancshares
Stock; --Conversion of Bank Stock."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
---------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income and
other income:
Commerce*.............. $ 423,424 $ 386,863 $ 524,905 $ 488,895 $ 435,645 $ 405,947 $ 356,316
Pittsburg Bancshares,
Inc................... 3,962 3,579 4,842 4,636 4,277 4,172 4,110
City National Bank of
Pittsburg............. 3,962 3,579 4,842 4,636 4,277 4,172 4,110
Pro Forma.............. $ 427,386 $ 390,442 $ 529,747 $ 493,531 $ 439,922 $ 410,119 $ 360,426
Net income:
Commerce*.............. $ 95,954 $ 87,056 $ 119,512 $ 107,640 $ 96,111 $ 86,894 $ 71,655
Pittsburg Bancshares,
Inc................... 1,271 1,150 1,556 1,506 1,299 1,270 1,267
City National Bank of
Pittsburg............. 1,324 1,189 1,608 1,564 1,362 1,333 1,327
Pro Forma.............. $ 97,265 $ 88,242 $ 121,117 $ 109,193 $ 97,463 $ 88,217 $ 72,975
Net income per common
and common equivalent
share:
Commerce*.............. $ 2.43 $ 2.15 $ 2.96 $ 2.58 $ 2.47 $ 2.26 $ 2.01
Pittsburg Bancshares,
Inc................... 17.61 15.91 21.53 20.88 18.11 17.61 17.57
City National Bank of
Pittsburg............. 17.65 15.86 21.44 20.85 18.16 17.78 17.69
Pro Forma.............. $ 2.43 $ 2.16 $ 2.96 $ 2.59 $ 2.47 $ 2.26 $ 2.02
Historical dividends
paid per common share:
Commerce*.............. $ 0.59 $ 0.51 $ 0.69 $ 0.62 $ 0.54 $ 0.50 $ 0.46
Pittsburg Bancshares,
Inc................... 8.75 5.90 5.90 5.27 5.10 4.90 4.72
City National Bank of
Pittsburg............. 8.90 6.20 6.20 5.60 5.40 5.20 5.00
Pro Forma.............. $ 0.59 $ 0.51 $ 0.69 $ 0.62 $ 0.54 $ 0.50 $ 0.46
Total assets (end of
period):
Commerce*.............. $10,014,247 $9,414,109 $9,698,186 $9,573,951 $8,035,574 $8,047,413 $7,541,613
Pittsburg Bancshares,
Inc................... 119,307 113,040 114,526 108,150 101,706 98,493 96,048
City National Bank of
Pittsburg............. 119,307 113,040 114,526 108,150 101,703 98,484 96,033
Pro Forma.............. $10,133,554 $9,527,149 $9,812,712 $9,682,101 $8,137,280 $8,145,906 $7,637,661
Long-term borrowings
(end of period):
Commerce*.............. $ 10,200 $ 14,233 $ 14,120 $ 14,562 $ 6,487 $ 6,894 $ 7,267
Pittsburg Bancshares,
Inc................... -- -- -- -- -- 10 23
City National Bank of
Pittsburg............. -- -- -- -- -- -- --
Pro Forma.............. $ 10,200 $ 14,233 $ 14,120 $ 14,562 $ 6,487 $ 6,904 $ 7,290
Total stockholders'
equity (end of period):
Commerce*.............. $ 973,677 $ 888,936 $ 924,271 $ 883,783 $ 728,198 $ 712,620 $ 603,718
Pittsburg Bancshares,
Inc................... 13,548 12,384 12,625 11,577 10,113 9,360 8,438
City National Bank of
Pittsburg............. 13,941 12,743 12,976 11,910 10,503 9,727 8,791
Pro Forma.............. $ 987,643 $ 901,702 $ 937,287 $ 895,717 $ 738,626 $ 722,369 $ 612,508
Book value per common
share (end of period):
Commerce*.............. $ 24.98 $ 22.55 $ 23.55 $ 21.84 $ 18.74 $ 17.55 $ 15.59
Pittsburg Bancshares,
Inc................... 187.69 171.49 174.82 160.21 140.92 130.43 117.56
City National Bank of
Pittsburg............. 185.87 169.90 173.02 158.80 140.04 129.69 117.21
Pro Forma.............. $ 25.03 $ 22.60 $ 23.60 $ 21.88 $ 18.78 $ 18.47 $ 16.74
</TABLE>
- --------
*Commerce information has been restated for a 5% stock dividend paid in
December 1997.
9
<PAGE>
THE COMPANIES
Commerce Bancshares, Inc., ("Commerce") is a registered multi-bank holding
company which owns all of the outstanding capital stock (except directors'
qualifying shares) of two national banking associations located in Missouri,
one national banking association located in Illinois, two national banking
associations located in Kansas, a credit card bank in Omaha, Nebraska, a
mortgage banking company, a credit life insurance company, a small business
investment company, a property and casualty insurance agency and a company
primarily engaged in holding bank-related real property. The principal assets
of Commerce are represented by its banking subsidiaries. The business of
Commerce consists primarily of ownership, supervision and control of its
subsidiaries, including providing advice, counsel and specialized services in
various fields of financial and banking policy and operations. The total
assets of Commerce, on a consolidated basis as of September 30, 1997, were
approximately $10.0 billion and net income for the nine months ended September
30, 1997, was approximately $96.0 million. See "INCORPORATION BY REFERENCE"
and "SUMMARY--Pro Forma and Selected Financial Data". The principal executive
offices of Commerce are at the Commerce Bank Building, 1000 Walnut, Kansas
City, Missouri 64106 (telephone number (816) 234-2000).
Pittsburg Bancshares, Inc. ("Pittsburg Bancshares") is a registered bank
holding company headquartered in Pittsburg, Kansas. Pittsburg Bancshares owns
approximately 97% of the issued and outstanding common stock of City National
Bank of Pittsburg (the "Bank"), a national bank, located in Pittsburg, Kansas.
The total assets of Pittsburg Bancshares on a consolidated basis, as of
September 30, 1997, were approximately $119.3 million and net income for the
nine months ended September 30, 1997, was approximately $1.3 million. See
"INDEX TO FINANCIAL STATEMENTS OF PITTSBURG BANCSHARES, INC." and "SELECTED
CONSOLIDATED FINANCIAL DATA OF PITTSBURG BANCSHARES". The principal executive
offices of Pittsburg Bancshares are at 100 S. Broadway, Pittsburg, Kansas
66762 (telephone number (316) 231-8400).
CBI-Kansas, Inc. ("CBI") is a wholly-owned subsidiary of Commerce. Pursuant
to the Acquisition Agreement, CBI will be merged into Pittsburg Bancshares.
PITTSBURG BANCSHARES SPECIAL MEETING
PURPOSE OF THE SPECIAL MEETING
The purpose of the Pittsburg Bancshares Special Meeting is to consider and
vote upon a proposal to approve the Acquisition Agreement which provides,
among other things, for the merger of CBI with and into Pittsburg Bancshares
and in which Pittsburg Bancshares will be the surviving corporation but the
Articles of Incorporation, Bylaws, directors and officers of CBI will become
the Articles of Incorporation, Bylaws, directors and officers of Pittsburg
Bancshares (the "Merger"). Shareholders of Pittsburg Bancshares will receive
shares of Commerce Common Stock in the Merger.
SOLICITATION AND REVOCATION OF PROXIES
This Prospectus is being furnished to the shareholders of Pittsburg
Bancshares in connection with the solicitation of proxies by the Board of
Directors of Pittsburg Bancshares for use at the Pittsburg Bancshares Special
Meeting to be held at a.m., local time, on , 1998,
at and at any adjournment or adjournments
thereof. Any proxy given does not affect the right to vote in person at the
Pittsburg Bancshares Special Meeting and may be revoked at any time before it
is exercised; there is no formal method required for revocation.
The cost of solicitation of proxies for the Pittsburg Bancshares Special
Meeting will be borne by Commerce. In addition to solicitation by mail,
Pittsburg Bancshares may cause proxies to be solicited personally or by
telephone or telegram by Pittsburg Bancshares' regular employees.
10
<PAGE>
VOTING OF PROXIES, PERSONS ENTITLED TO VOTE, AND VOTE REQUIRED
All shares represented by a proxy given pursuant to this solicitation will
be voted as specified thereon at the Pittsburg Bancshares Special Meeting. If
no specification is given, such shares will be voted in favor of the proposal
to approve the Acquisition Agreement. The Board of Directors of Pittsburg
Bancshares is not aware of any other business to be presented at the Pittsburg
Bancshares Special Meeting. Should any such other business be presented at the
Pittsburg Bancshares Special Meeting, the person or persons named in the proxy
will vote the same in accordance with their judgment.
The affirmative vote of the holders of at least a majority of the
outstanding shares of Pittsburg Bancshares Stock is required to approve the
Acquisition Agreement. Only holders of Pittsburg Bancshares Stock of record as
of the close of business on , 1998, are entitled to vote at
the Pittsburg Bancshares Special Meeting. At the close of business on that
date, 72,737.5 shares of Pittsburg Bancshares Stock were outstanding. Holders
of shares of Pittsburg Bancshares Stock are entitled to one vote for each
share held on the record date.
THE MERGER AND EXCHANGE
GENERAL
The Acquisition Agreement and certain related matters are summarized below.
This summary does not purport to be a complete statement of the terms and
conditions of the Merger and Exchange and is qualified in its entirety by
reference to the Acquisition Agreement which is attached as Annex A to this
Prospectus and is incorporated herein by reference.
At the Effective Time, CBI will merge with and into Pittsburg Bancshares,
the separate corporate existence of CBI will cease and Pittsburg Bancshares
will survive and continue to exist as a wholly-owned subsidiary of Commerce;
however, the Articles of Incorporation, Bylaws, directors and officers of CBI
will become the Articles of Incorporation, Bylaws, directors and officers of
the surviving corporation.
CONVERSION OF PITTSBURG BANCSHARES STOCK
At the Effective Time, automatically by virtue of the Merger and without any
action on the part of any party or shareholder, each share of Pittsburg
Bancshares Stock (excluding (i) shares held by Pittsburg Bancshares or
Commerce or any of its subsidiaries, in each case other than in a fiduciary
capacity and (ii) any shares with respect to which dissenters' rights are
being exercised) issued and outstanding immediately prior to the Effective
Time will be converted into 6.40 shares of Commerce Common Stock; provided,
however, if the actual Commerce Stock Price (defined below) is $57.73 or less,
then the Exchange Ratio shall be increased to 6.72.
The "Commerce Stock Price" means the average of the ten (10) closing sale
prices of Commerce Common Stock as reported by NASDAQ on each of the ten (10)
consecutive trading days preceding the third trading day prior to the closing
date.
EXCHANGE OF BANK STOCK
At the Effective Time, each share of Bank Stock tendered will be exchanged
for 6.40 shares of Commerce Common Stock; provided, however, that if the
actual Commerce Stock Price is $57.73 or less, then the exchange ratio will be
increased to 6.72 shares of Commerce Common Stock for each share of Bank
Stock.
EXCHANGE OF PITTSBURG BANCSHARES STOCK CERTIFICATES
At the Effective Time certificates evidencing shares of Pittsburg Bancshares
Stock which are to be exchanged for shares of Commerce Common Stock will be
deemed for all corporate purposes, other than the
11
<PAGE>
payment of dividends and other distributions on such stock, to evidence
ownership of such shares of Commerce Common Stock. As soon as practicable
after the Effective Time, Commerce or its agent, as the Exchange Agent, will
send a notice and transmittal form to each record holder of certificates for
Pittsburg Bancshares Stock advising such holder of the procedures for
surrendering Pittsburg Bancshares certificates to Commerce or its agent in
exchange for a certificate for the number of whole shares of Commerce Common
Stock and a check for the cash amount (if any) to which such holder is
entitled. The shares of Commerce Common Stock will be deemed to have been
issued at the Effective Time. Promptly following the surrender of the
Pittsburg Bancshares certificates, Commerce or its agent will deliver to the
surrendering Pittsburg Bancshares shareholders certificates evidencing whole
shares of Commerce Common Stock and a check for the cash amount of any
fractional interest, all in accordance with the notice and transmittal form.
See "--Fractional Shares". Holders of Pittsburg Bancshares Stock will be
entitled to dividends, without interest, which may be declared and payable to
holders of record of Commerce Common Stock after the Effective Time; provided,
however, that any such dividends will be remitted to each Pittsburg Bancshares
shareholder entitled thereto, without interest, at the time that such
certificates representing shares of Pittsburg Bancshares Stock are surrendered
for exchange, subject to any applicable abandoned property, escheat or similar
law.
EXCHANGE OF BANK STOCK CERTIFICATES
Accompanying this Prospectus, Pittsburg Bancshares is sending a notice and
transmittal form to each record holder of Bank Stock advising such holder of
the procedures for tendering Bank Stock certificates in exchange for a
certificate for the number of whole shares of Commerce Common Stock and a
check for the cash amount (if any) to which such holder is entitled relating
to fractional shares. The shares of Commerce Common Stock will be deemed to
have been issued at the Effective Time. Promptly following the Effective Time,
Commerce or its agent will deliver to the tendering Bank shareholders
certificates evidencing whole shares of Commerce Common Stock and a check for
the cash amount of any fractional interest, all in accordance with the notice
and transmittal form. See "--Fractional Shares". The Exchange offer will
remain open until the Effective Time, at which time the Exchange offer will
expire and Bank stockholders who have not tendered their shares will forfeit
the right to accept the Exchange offer. In the event the Acquisition Agreement
is terminated Bank Stock which has been tendered will be returned to the
respective Bank shareholder.
FRACTIONAL SHARES
Neither certificates nor scrip representing fractional shares of Commerce
Common Stock will be issued, but in lieu thereof, each holder of shares of
Pittsburg Bancshares Stock or Bank Stock who would otherwise have been
entitled to a fraction of a share of Commerce Common Stock will be paid the
cash value of such fraction determined by multiplying such fraction by the
Commerce Stock Price.
BACKGROUND OF NEGOTIATIONS
Pittsburg Bancshares has owned more than 95% of the Bank since July 31,
1990. Prior to that time, the three largest shareholders of Pittsburg
Bancshares, Wendell L. Wilkinson, Roberta A. McNay and the J. Doyle Shultz
Trust were the three largest shareholders of the Bank.
In recent years, management has periodically received inquiries or
expressions of interest with respect to a possible acquisition of the Bank;
however, neither Pittsburg Bancshares nor the Bank engaged any finder or
broker. With the exception of the following, such inquiries did not result in
serious discussions or in the exchange of confidential information.
In late 1996, Pittsburg Bancshares management participated in discussions
with Community First Bancshares, located in Fargo, North Dakota, regarding a
possible business combination. In connection with such discussions, certain
financial information was provided with respect to Pittsburg Bancshares and
the Bank. A letter was received regarding a proposed acquisition suggesting a
price in the $17 million to $19 million range, but the parties did not proceed
to negotiate any terms or a structure for the acquisition.
12
<PAGE>
In February 1997, Pittsburg Bancshares management received a letter from
Commerce proposing the acquisition of Pittsburg Bancshares for consideration
valued at approximately $20,500,000. After initial discussions, that proposal
was rejected by Pittsburg Bancshares in March 1997.
During the spring of 1997, management of Commerce renewed discussions about
its possible acquisition of Pittsburg Bancshares. On June 10, 1997, Commerce
submitted a term sheet for the proposed transaction. The term sheet proposed
the acquisition of Pittsburg Bancshares for Commerce Stock valued at
approximately $22,500,000. The term sheet provided for a floating exchange
ratio of $4.00 on either side of the then-recent average trading range of
$45.00 per share of Commerce Stock and walk-away options of $10.00 on either
side of such $45.00 figure.
In June 1997, Pittsburg Bancshares engaged GRA, Thompson, White & Co., P.C.
("GRA, Thompson, White") to perform an appraisal of the market value of
Pittsburg Bancshares. GRA, Thompson, White is an accounting and consulting
firm that provides accounting, audit, tax, regulatory, and consulting
services. The firm has been involved in merger and acquisition consultation
for community banks throughout its 20-year history (including monitoring bank
prices within the marketplace) and specializes in providing professional
services to banking institutions in the Midwest. Pittsburg Bancshares was
aware of several regional firms that provide valuation services for financial
institutions and selected GRA, Thompson, White based upon its reputation.
Pittsburg Bancshares and the Bank have had no prior relationship with GRA,
Thompson, White or its affiliates or representatives and none are
contemplated.
Pittsburg Bancshares management requested that the appraisal be performed on
a majority basis. No instructions were given to GRA, Thompson, White nor were
any limitations imposed on the scope of its investigation. Using information
prepared by the Bank's management, GRA, Thompson, White employed several
valuation approaches to value the Bank. These included: (i) the Adjusted Book
Value/Cost Approach, which involves considering the book value of underlying
assets less stated liabilities to arrive at the book value of stockholders'
equity; (ii) the Guideline Company Approach, which produces estimates of value
by comparing the subject company with comparable public and private companies
using various financial relationships such as price-to-earnings and price-to-
book values; and (iii) the Income Approach, which produces an estimate of
value by capitalizing or discounting the entity's earning capacity at a rate
reflective of the return required of a prudent investor. These approaches
yielded six different values for the Bank. GRA, Thompson, White assigned a
weight to the various approaches relative to the approach that a prudent
investor would be likely to utilize in valuing the investment. This resulted
in a concluded majority value of the Bank as of May 31, 1997 of approximately
$25,133,000. Based upon such concluded value of the Bank, the percentage of
the Bank Stock held by Pittsburg Bancshares and the other assets and
liabilities of Pittsburg Bancshares, GRA, Thompson, White included in its
written valuation report that the total value of Pittsburg Bancshares on a
majority basis as of May 31, 1997 was approximately $24,416,000.
After receipt of the valuation report, Pittsburg Bancshares began active
negotiation of the price, terms and structure of the transaction with
Commerce. The Board of Directors of Pittsburg Bancshares discussed the status
of such negotiations at a meeting on July 8, 1997. During these negotiations,
management of Pittsburg Bancshares decided that it would probably be in the
best interests of its shareholders to negotiate for a fixed exchange ratio
rather than a fixed price payable in stock, because it would allow the
shareholders to receive the benefits of any increase in market value of the
Commerce Stock that they would receive in the acquisition. On July 16, 1997,
Pittsburg Bancshares sent a letter to Commerce in response to the term sheet
submitted by Commerce. The letter proposed a fixed exchange ratio of 7.30
shares of Commerce Stock for each share of Pittsburg Bancshares Stock and each
minority-owned share of Bank Stock outstanding, which would result in a total
price of approximately $25,750,000. The Board of Directors of Pittsburg
Bancshares discussed the status of the negotiations with Commerce at a meeting
on August 12, 1997. A letter of intent was drafted and was approved by the
Board of Directors of Pittsburg Bancshares at its meeting held on September 9,
1997. A representative of Stinson, Mag & Fizzell, P.C. (outside legal counsel
for Pittsburg Bancshares and the Bank) was present at the meeting and a
representative of Commerce gave a presentation at the meeting. The letter of
intent was entered into as of September 12, 1997.
13
<PAGE>
Following the execution of such letter of intent, Commerce commenced its due
diligence investigation of Pittsburg Bancshares and the Bank and the parties
commenced negotiation of the Acquisition Agreement. The Pittsburg Bancshares
Board of Directors approved a form of the Acquisition Agreement at a meeting
held on October 14, 1997. The Commerce Board of Directors approved a form of
the Acquisition Agreement at a meeting held on October 3, 1997. The
Acquisition Agreement was executed on October 29, 1997.
The Acquisition Agreement initially provided that the Exchange Ratio was
6.72 shares (7.194666 shares if the Commerce Stock Price was less than
$44.144) of Commerce Common Stock for each share of Pittsburg Bancshares Stock
and Bank Stock. The Acquisition Agreement also contained a condition precedent
to Commerce's obligations to consummate the Merger and the Exchange that the
Commerce Stock Price not be greater than $60.625. If the Commerce Stock Price
determined prior to the Closing Date were greater than $60.625, then, unless
the condition were waived by Commerce, Commerce would have the legal right not
to consummate the Merger and the Exchange. The closing price of the Commerce
Common Stock was $53.75 on the day before the letter of intent was entered
into and $58.375 on the day before the Acquisition Agreement was entered into.
Following the execution of the Acquisition Agreement, the market price of the
Commerce Common Stock increased substantially above $60.625. Management of
Commerce and Pittsburg Bancshares had several informal discussions during
November and and early December 1997 about the rising price of the Commerce
Stock.
On December 17, 1997, Commerce advised Pittsburg Bancshares that the closing
price of the Commerce Common Stock on that date was approximately $69 per
share and that Commerce was unwilling to consummate the Merger and Exchange at
that price but Commerce was willing to complete the transaction if the
Exchange Ratio was revised downward. Based upon the generally strong
performance of regional bank stocks, the recent price increase of the Commerce
Common Stock and favorable analysts' reports concerning Commerce and the value
of the Commerce Common Stock, management of Pittsburg Bancshares and the Bank
believed that it was not likely (barring an overall market decline) that the
price of the Commerce Common Stock would decline below the $60.625 price
level. The management of Pittsburg Bancshares and the Bank also believed that
it would be in the best interests of their respective shareholders to reach an
agreement with Commerce which would preserve as much of the increased market
value of Commerce Common Stock as possible and eliminate the option of
Commerce not to consummate the Merger and the Exchange because of past or any
future price increases. Accordingly, representatives of Commerce, CBI-Kansas
and Pittsburg Bancshares negotiated an amendment to the Acquisition Agreement.
On December 23, 1997, the boards of directors of Pittsburg Bancshares and the
Bank approved the amendment to the Acquisition Agreement. On December 24,
1997, Commerce, CBI-Kansas and Pittsburg Bancshares executed the amendment
providing for the current Exchange Ratio of 6.40 shares (6.72 shares if the
Commerce Stock Price is $57.73 or less) and eliminating any closing conditions
based upon changes in the Commerce Stock Price.
The amendment also prohibited the Bank from paying any dividends or making
any distributions other than (i) a cash dividend in the amount of $3.70 per
share (that was paid on January 2, 1998), (ii) cash dividends in amounts
sufficient to cover reasonable out-of-pocket fees and expenses incurred by
Pittsburg Bancshares in connection with the consummation of the Merger and the
Exchange and (iii) if the Merger and the Exchange are not consummated in time
to permit the shareholders of Pittsburg Bancshares and the Bank to receive any
cash dividends declared and payable on the Commerce Common Stock on or after
January 1, 1998 with respect to the shares of Commerce Common Stock which they
will receive pursuant to the amended Acquisition Agreement, then the Bank may
declare and pay a cash dividend in an aggregate amount equal to the amount of
such dividends. The amendment reduced the Bank's ability to pay cash dividends
(and, consequently, Pittsburg Bancshares' ability to pay cash dividends) prior
to the effective time of the Merger.
As a result of the amendment, if the market price of the Commerce Common
Stock remains in its recent trading range or increases further, then the
shareholders of Pittsburg Bancshares and the Bank will share in a portion of
the previous price increases and all future price increases, and Commerce will
not have an option not to consummate the Merger or the Exchange as a result of
such price increases.
14
<PAGE>
REASONS FOR THE MERGER AND EXCHANGE
Pittsburg Bancshares and the Bank. The Pittsburg Bancshares and the Bank
Boards of Directors believe that the terms of the Acquisition Agreement are
fair to, and in the best interests of, Pittsburg Bancshares, the Bank and their
shareholders. In considering the terms and conditions of the Acquisition
Agreement, the Pittsburg Bancshares and the Bank Boards considered a number of
factors. They did not assign any relative or specific weights to the factors
considered. The material factors considered were:
The Financial Terms and Structure of the Merger and Exchange. The
Pittsburg Bancshares and the Bank Boards of Directors are of the view that,
based on historical and anticipated trading ranges for Commerce Common
Stock, the value of the consideration to be received by Pittsburg
Bancshares and Bank shareholders represents a fair multiple of Pittsburg
Bancshares' and the Bank's per share book value and earnings. The Boards of
Directors also considered that, based on their belief that Commerce would
continue to pay cash and stock dividends at its current rate, the Merger
and Exchange would result in a substantial increase in dividend income and
stock price appreciation to their respective shareholders, although there
can be no assurance that current dividends are indicative of future
dividends or that current stock price appreciation is indicative of future
performance. See "COMMERCE STOCK, PITTSBURG BANCSHARES STOCK AND BANK STOCK
COMPARATIVE PER SHARE PRICES AND DIVIDENDS." Additionally, the Boards of
Directors recognized that the shares of Commerce Common Stock were listed
for trading on the NASDAQ National Market System and provided a liquid
investment as compared to shares of Pittsburg Bancshares Stock and Bank
Stock. The Pittsburg Bancshares and the Bank Boards of Directors also
considered that the Merger and Exchange would each qualify as tax-free
reorganizations under the Code. See "FEDERAL INCOME TAX CONSEQUENCES."
The Non-Financial Terms of the Merger and Exchange. The Pittsburg
Bancshares and the Bank Boards of Directors considered the social and
economic effect on the employees, depositors and customers of, and others
dealing with, the Bank and on the communities in which the Bank is located
or operates. They concluded that because of its favorable position among
its peer group of national and regional financial institutions in terms of
profitability, capital adequacy and asset quality, its large menu of
banking and banking related products, strong management, acquisition
experience and history of operating acquired banking locations as community
banks, Commerce would be an excellent successor to the existing Bank
owners.
Commerce. In approving the Acquisition Agreement, management of Commerce
considered the price, financial condition of the Bank, projected synergies
which Commerce anticipates will result from the Merger and Exchange and the
compatibility of the businesses of the two banking organizations.
THE PITTSBURG BANCSHARES BOARD OF DIRECTORS RECOMMENDS THAT PITTSBURG
BANCSHARES SHAREHOLDERS VOTE FOR APPROVAL OF THE ACQUISITION AGREEMENT.
THE BANK BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF THE BANK ACCEPT
THE EXCHANGE OFFER.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
At the Effective Time, the Articles of Incorporation and By-Laws of CBI as in
effect immediately prior to the Effective Time will become the Articles of
Incorporation and By-Laws of the Pittsburg Bancshares from and after the
Effective Time until amended as provided by law and the officers and directors
of CBI will become the officers and directors of the Pittsburg Bancshares from
and after the Effective Time. It is expected that existing Bank management will
be supplemented with personnel from Commerce who will assist in bringing new
methods and systems to the Bank. Commerce also expects to enhance the net
interest margin and non-interest income of the Bank by expanding the products
and services offered.
Commerce operates in a somewhat centralized manner and, as a result, will
analyze the Bank's operations for potential efficiencies. Commerce anticipates
achieving operating cost savings through the proposed
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<PAGE>
consolidation and the elimination of redundant costs. While there can be no
assurances that operating cost savings will be realized or in what fiscal
period the savings will actually be recorded, plans are currently being
developed to realize operating cost savings. It is expected that the annualized
level of operating cost savings achieved will be realized unevenly throughout
the period of consolidation, with the majority of any savings realized in the
latter part of the period. The extent to which the operating cost savings will
be achieved depends, among other things, on the regulatory environment and
economic conditions, and may be affected by unanticipated changes in business
activities, inflation and operating costs.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the fulfillment of certain
conditions set forth in the Acquisition Agreement, including the following:
(a) Approval of the Acquisition Agreement by the holders of a majority of
all the outstanding shares of Pittsburg Bancshares Stock;
(b) The accuracy of representations of Commerce, CBI and Pittsburg
Bancshares made in the Acquisition Agreement and the performance of their
respective obligations thereunder;
(c) The absence of a material adverse event since October 29, 1997,
affecting the financial condition, properties, assets, liabilities, rights,
business or prospects of either Commerce or Pittsburg Bancshares;
(d) The receipt by Commerce and Pittsburg Bancshares of an opinion from
Blackwell Sanders Matheny Weary & Lombardi LLP relating to certain tax
matters;
(e) The receipt by Commerce of an opinion from Stinson, Mag & Fizzell,
P.C. as to certain corporate matters regarding Pittsburg Bancshares and the
Bank;
(f) The receipt of necessary regulatory approvals; and
(g) A minimum amount of capital and minimum loan loss reserve of the
Bank.
CONDITIONS TO THE EXCHANGE
The Exchange offer is subject to the fulfillment of certain conditions set
forth in the Acquisition Agreement, including the following:
(a) Consummation of the Merger;
(b) The receipt by Pittsburg Bancshares, the Bank and its shareholders of
an opinion from Blackwell Sanders Matheny Weary & Lombardi LLP relating to
certain tax matters.
CONDUCT OF BUSINESS PENDING THE MERGER AND EXCHANGE
Pursuant to the Acquisition Agreement, Pittsburg Bancshares has agreed to
carry on its business and cause the Bank to carry on its business in the usual,
regular and ordinary course in substantially the same manner as conducted prior
to the execution of the Acquisition Agreement.
NO SOLICITATION
The Acquisition Agreement provides that neither Pittsburg Bancshares nor the
Bank will solicit or encourage or, subject to the fiduciary duties of their
directors as advised by counsel, hold discussions or negotiations with, or
provide information to, any person in connection with any proposal from any
person relating to the acquisition of all or a substantial portion of the
business, assets or stock of Pittsburg Bancshares or the Bank. Pittsburg
Bancshares and the Bank are required to promptly advise Commerce of their
receipt of, and the substance of, any such proposal or inquiry.
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<PAGE>
WAIVER AND AMENDMENT
Prior to or at the Effective Time, any provision of the Acquisition
Agreement, including, without limitation, the conditions to consummation of the
Merger, may be (i) waived, to the extent permitted under law, in writing by the
party which is entitled to the benefits thereof; or (ii) amended at any time by
written agreement of the parties, whether before or after approval of the
Acquisition Agreement by the shareholders of Pittsburg Bancshares; provided,
however, that after any such approval, no such amendment or modification shall
alter the amount or change the form of the consideration or alter or change any
of the terms of the Acquisition Agreement if such alteration or change would
adversely affect the holders of Pittsburg Bancshares Stock. It is anticipated
that a condition to consummate the Merger would be waived only in those
circumstances where the Board of Directors of Commerce, CBI or Pittsburg
Bancshares, as the case may be, deems such waiver to be in the best interests
of such company and its shareholders.
POSSIBLE TERMINATION OF THE MERGER
The Acquisition Agreement may be terminated by either party if the
consummation of the Merger has not occurred by April 30, 1998.
EFFECTIVE TIME
It is presently anticipated that the effective time of the Merger will occur
in the first quarter of 1998, but no assurance can be given to that effect.
SEVERANCE AGREEMENT OF WENDELL WILKINSON
Wendell Wilkinson, the President of Pittsburg Bancshares, and Commerce have
entered into a severance agreement pursuant to which, upon consummation of the
Merger, Mr. Wilkinson will be the Pittsburg Community Bank President of
Commerce, receive a salary of $124,500, a minimum bonus of $20,000, receive
options to purchase Commerce Common Stock and participate in employee benefit
plans of Commerce. The agreement has a two year term.
FEDERAL SECURITIES LAWS CONSEQUENCES
The shares of Commerce to be issued pursuant to the Merger and Exchange have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"). The provisions of Rule 145 under the Securities Act allow such shares to
be sold without restriction by shareholders of Pittsburg Bancshares and the
Bank who are not deemed to be "affiliates" (as that term is defined in the
rules under the Securities Act) of Pittsburg Bancshares or the Bank and who do
not become affiliates of Commerce. The shares of Commerce to be issued to
affiliates of Pittsburg Bancshares or the Bank may be resold only pursuant to
an effective registration statement, pursuant to Rule 145 under the Securities
Act, or in transactions otherwise exempt from registration under the Securities
Act. Commerce will not be obligated and does not intend to register its shares
under the Securities Act for resale by shareholders who are affiliates.
RIGHTS OF DISSENTING SHAREHOLDERS
In order to have dissenters' rights, a holder of Pittsburg Bancshares Stock
must not vote his or her shares in favor of the Acquisition Agreement or
deliver an unmarked, but signed proxy. If the Merger is approved, holders of
shares of Pittsburg Bancshares Stock will possess the right to seek appraisal
of their shares pursuant to Section 17-6712 of the KGCC ("Section 17-6712").
THE FOLLOWING IS A SUMMARY OF THE PROVISIONS OF SECTION 17-6712 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH SECTION, A COPY
OF WHICH IS ATTACHED TO THIS PROSPECTUS AS ANNEX B. THE FAILURE TO COMPLY WITH
THE PROVISIONS OF SECTION 17-6712 MAY RESULT IN A TERMINATION OR LOSS OF
APPRAISAL RIGHTS THEREUNDER.
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<PAGE>
A holder of record of shares of Pittsburg Bancshares Stock who elects to
exercise appraisal rights under Section 17-6712 must deliver a written
objection to the Acquisition Agreement to Pittsburg Bancshares prior to the
vote on the Acquisition Agreement by the holders of Pittsburg Bancshares Stock
at the Pittsburg Bancshares Special Meeting to be held on , 1998.
Any such objection should be sent to Pittsburg Bancshares at Box 326,
Pittsburg, Kansas 66762, Attention: Mark Werner.
Within 10 days after the Effective Date, Pittsburg Bancshares, as the
surviving corporation in the Merger, will give written notice to each former
holder of shares of Pittsburg Bancshares Stock who has complied with the
written notice requirement that the Merger has become effective and that
dissenters' rights are available for any or all of such holder's shares in
connection therewith. Within 20 days after the date of the mailing of the
notice, such holder must demand in writing to Pittsburg Bancshares the payment
of the fair value of such holder's shares of Pittsburg Bancshares Stock. Any
such demand should be sent to Pittsburg Bancshares c/o Commerce Bancshares,
Inc., 1000 Walnut, Kansas City, Missouri 64106, Attention: J. Daniel Stinnett.
Within 30 days after the expiration of the 20 day period, Pittsburg Bancshares
shall pay to such holder the value of such holder's shares, exclusive of any
element of value arising from the expectation or accomplishment of the Merger
and Exchange.
If Pittsburg Bancshares and a dissenting shareholder fail to agree upon the
fair value of the Pittsburg Bancshares Shares, within four months after the
Effective Time of the Merger, but not thereafter, either Pittsburg Bancshares
or any shareholder entitled to dissenters' rights under Section 17-6712 may
file a petition in the District Court of Kansas demanding a determination of
the value of the stock of all shareholders entitled to appraisal. Inasmuch as
Pittsburg Bancshares has no obligation to file such a petition, the failure of
a shareholder to do so within the period specified could nullify such
shareholder's previous written demand for appraisal.
If a petition for appraisal described above is timely filed by a
shareholder, Pittsburg Bancshares is obligated to provide the shareholder with
a verified list of all shareholders who have demanded appraisal. After notice
to such shareholders, the court is empowered to conduct a hearing upon the
petition, to determine those shareholders entitled to appraisal and to
determine the "fair value" of the shares held by them as of the date on which
the Merger is consummated, which under the KGCC would be determined exclusive
of any element of value arising from accomplishment or expectation of the
Merger and Exchange.
When the "fair value" is so determined, the court will direct the payment by
Pittsburg Bancshares of such value, with interest thereon if the court so
determines, to the shareholders entitled to receive the same, upon surrender
to Pittsburg Bancshares by such shareholders of the certificates representing
their shares of Pittsburg Bancshares Stock to Pittsburg Bancshares at the
address specified above. Upon application of Pittsburg Bancshares or any
shareholder entitled to participate in the appraisal proceeding, the court may
in its discretion permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of those
other shareholders entitled to an appraisal who have complied with the above
conditions.
TRANSACTIONS BETWEEN COMMERCE AND PITTSBURG BANCSHARES OR THE BANK
No shares of Pittsburg Bancshares Stock or Bank Stock are presently owned by
Commerce or by any of its subsidiaries or principals, or by trustees for the
benefit of Commerce or any of its subsidiaries, shareholders or employees as a
class or by an escrow arrangement instituted by Commerce.
ACCOUNTING TREATMENT
It is intended that the Merger and Exchange will qualify as a pooling of
interests for accounting and financial reporting purposes. Under this method
of accounting, the consolidated assets and liabilities of Pittsburg Bancshares
and the Bank will be carried forward to the consolidated financial statements
of Commerce at their recorded amounts and the consolidated net income of
Pittsburg Bancshares and the Bank, if material, will be included in the net
income of Commerce. A Representative of Baird Kurtz & Dobson is not expected
to be present at the Pittsburg Bancshares Special Meeting.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the provisions of the Code, the
applicable regulations thereunder, judicial authority, current administrative
rulings and practice as of the date hereof and the opinion to be provided by
Blackwell Sanders Matheny Weary & Lombardi LLP ("BSMWL"). The opinion of BSMWL
will be based upon certain assumptions and representations by the management of
each of Pittsburg Bancshares and Commerce and by certain holders of the
outstanding Pittsburg Bancshares Stock. A ruling from the Internal Revenue
Service concerning the tax consequences of the Merger and Exchange will not be
requested. The following discussion does not address the federal income tax
consequences to special classes of taxpayers including, without limitation,
foreign corporations, tax exempt entities and persons who acquired their
Pittsburg Bancshares Stock or Bank Stock pursuant to the exercise of an
employee option or otherwise as compensation.
In the opinion of BSMWL, the Merger will constitute a reorganization within
the meaning of Code Sections 368(a)(1)(A) and 368(a)(2)(E). The Exchange will
constitute a reorganization within the meaning of Code Section 368(a)(1)(B).
Consequently:
1. Shareholders of Pittsburg Bancshares and shareholders of the Bank will
not recognize gain or loss upon the receipt of Commerce Common Stock in
exchange for their shares of Pittsburg Bancshares Stock and Bank Stock.
2. The basis of Commerce Common Stock received by shareholders of
Pittsburg Bancshares and the Bank in the Merger and Exchange will equal the
basis of their stock exchanged.
3. The holding period of Commerce Common Stock received by shareholders
of Pittsburg Bancshares and the Bank in the Merger and Exchange will
include the holding period of their stock exchanged.
4. Cash paid to holders of shares of Pittsburg Bancshares who dissent
from the Merger and cash paid to holders of shares of Pittsburg Bancshares
or the Bank in lieu of fractional shares will be treated as proceeds of
sales on which gain or loss will be recognized.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. EACH PITTSBURG BANCSHARES AND BANK SHAREHOLDER SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
AND EXCHANGE TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE AND LOCAL AND OTHER TAX LAWS.
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BENEFICIAL OWNERSHIP OF SECURITIES
PITTSBURG BANCSHARES STOCK OWNERSHIP
The following table sets forth certain information as of December 31, 1997,
relating to the beneficial ownership of Pittsburg Bancshares Common Stock by
(a) each person known to Pittsburg Bancshares to be the beneficial owner of 5%
or more of the outstanding Pittsburg Bancshares Stock, (b) each director and
executive officer of Pittsburg Bancshares, and (c) all directors and executive
officers as a group. Except as otherwise indicated, each person indicated
below has sole voting and investment power with respect to the shares of
Pittsburg Bancshares Common Stock reported as beneficially owned by such
person.
<TABLE>
<CAPTION>
PERCENTAGE
OF
NAME OF DIRECTOR OR EXECUTIVE OFFICER OR NUMBER OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNERSHIP(1)
---------------------------------------- ----------- ------------
<S> <C> <C>
Wendell L. Wilkinson (2)........................ 15,541.9832 21.4%
1002 S. College
Pittsburg, Kansas 66762
Roberta A. McNay (3)............................ 10,268.7923 14.1%
1217 Bitner Drive
Pittsburg, Kansas 66762
John Doyle Shultz Trust (4)..................... 6,045.5040 8.3%
P.O. Box 326
Pittsburg, Kansas 66762
Charles L. Farabi (5)........................... 1,209.1008 1.7%
Vernon L. Plattner (6).......................... 957.2048 1.3%
Byron A. Deill (7).............................. 765.7637 1.1%
James L. Belew (8).............................. 582.3835 *
George E. Pitzer (9)............................ 579.3608 *
Harvey R. Dean (10)............................. 230.7367 *
Judith A. Westhoff (11)......................... 151.1376 *
Ronald L. Rhodes (12)........................... 52.3944 *
Thomas W. Bryant (13)........................... 15.1138 *
All directors and executive officers as a group
(11 persons)................................... 30,353.9716 41.7%
</TABLE>
- --------
*Less than one percent
(1) At the close of business on December 15, 1997, there were 72,737.5 shares
of Pittsburg Bancshares Stock outstanding.
(2) Wendell L. Wilkinson is Chairman of the Board, President and a director
of Pittsburg Bancshares. Includes 13.0986 shares held by Mr. Wilkinson's
wife, Lynda S. Wilkinson. Mrs. Wilkinson has voting and investment power
of such shares, and Mr. Wilkinson disclaims beneficial ownership of his
wife's shares.
(3) Roberta A. McNay is Vice President and a director of Pittsburg
Bancshares. All 10,268.7923 shares are held by Roberta A. McNay as
trustee of the Roberta A. McNay Trust under trust agreement dated January
4, 1991. Mrs. McNay has voting and investment power with respect to such
shares.
(4) The Bank is successor trustee of the John Doyle Shultz Trust under trust
agreement dated May 29, 1987. The Bank has investment power with respect
to such shares. Although such shares are counted for purposes of
determining whether a quorum is present at Pittsburg Bancshares
shareholders' meetings, the Bank does not vote such shares.
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(5) Charles L. Farabi is a director of Pittsburg Bancshares. Includes 403.0336
shares held by Mr. Farabi jointly with his wife, Paula Farabi. Mr. Farabi
has shared voting and investment power with respect to such shares.
(6) Vernon L. Plattner is a director of Pittsburg Bancshares. Includes 15.1138
shares held by Vernon L. Plattner as trustee of the Vernon L. Plattner
Trust under trust agreement dated December 30, 1986. Mr. Plattner has
voting and investment power of such shares. Also includes 790.9534 shares
held by Vernon L. Plattner as trustee of the Betty N. Plattner "B" Trust
under trust agreement dated December 30, 1986. Mr. Plattner has voting and
investment power of such shares. Also includes 151.1376 shares held by
Emma Jean "Jeanne" Plattner as trustee of the Jeanne Plattner Revocable
Living Trust dated October 27, 1994. Emma Jean Plattner is the wife of
Vernon L. Plattner. Mr. Plattner disclaims beneficial ownership of such
shares.
(7) Byron A. Deill is a director of Pittsburg Bancshares. Includes 100.7584
shares held by Mary Lou Deill, wife of Byron A. Deill. Mrs. Deill has
voting and investment power of such shares, and Mr. Deill disclaims
beneficial ownership of his wife's shares. Also includes 229.7291 shares
held by Broadway Lumber Co., Inc. Mr. Deill is the President and principal
shareholder of such company and has voting and investment power with
respect to such shares. Also includes 173.3044 shares held by Deill
Construction Co., Inc. Mr. Deill is the President and principal
shareholder of such company and has voting and investment power with
respect to such shares.
(8) James L. Belew is a director of Pittsburg Bancshares. All shares are held
by James L. Belew as trustee of the James L. Belew Trust under trust
agreement dated September 27, 1990. Mr. Belew has voting and investment
power with respect to such shares.
(9) George E. Pitzer is a director of Pittsburg Bancshares. Includes 478.6024
shares held by Mr. Pitzer's wife, Billie R. Pitzer. Mrs. Pitzer has voting
and investment power of such shares, and Mr. Pitzer disclaims beneficial
ownership of his wife's shares.
(10)Harvey R. Dean is a director of Pittsburg Bancshares. All shares are held
by Mr. Dean jointly with his wife, Sharon K. Dean. Mr. Dean has shared
voting and investment power with respect to such shares.
(11)Judith A. Westhoff is Secretary and a director of Pittsburg Bancshares. All
shares are held by Mrs. Westhoff jointly with her husband, Julian Westhoff.
Mrs. Westhoff has shared voting and investment power with respect to such
shares.
(12)Ronald L. Rhodes is a director of Pittsburg Bancshares. All shares are held
by Mr. Rhodes jointly with his wife, Barbara T. Rhodes. Mr. Rhodes has
shared voting and investment power with respect to such shares.
(13)Thomas W. Bryant is a director of Pittsburg Bancshares. All shares are held
by Mr. Bryant jointly with his wife, Koeta K. Bryant. Mr. Bryant has shared
voting and investment power with respect to such shares.
BANK STOCK OWNERSHIP
As of December 31, 1997, Pittsburg Bancshares owned 97% of the Bank Stock, no
other person was known to the Bank to be the beneficial owner of more than five
percent of the outstanding Bank Stock and no director or executive officer of
the Bank was known to own shares of Bank Stock.
DIFFERENCES IN RIGHTS OF SHAREHOLDERS
GENERAL
Pittsburg Bancshares is incorporated in the State of Kansas, the Bank is
organized under the laws of the United States and Commerce is incorporated in
the State of Missouri. Pittsburg Bancshares shareholders, whose rights are
currently governed by Kansas law (including the KGCC), the Pittsburg Bancshares
Articles of Incorporation and Pittsburg Bancshares Bylaws, and the Bank
shareholders, whose rights are currently governed by Kansas law, the National
Bank Act, the Bank Articles of Association and the Bank Bylaws, will, upon
consummation of the Merger and Exchange, become shareholders of Commerce. After
such time, their rights will then be governed by Missouri law, including the
Missouri General and Business Corporation Law (the "MGBCL"), the Commerce
Articles of Incorporation and the Commerce Bylaws.
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<PAGE>
Material differences that may affect the rights and interests of shareholders
of Pittsburg Bancshares and the Bank and Commerce are set forth below. This
summary is not intended to be an exhaustive description of the provisions
discussed. It is qualified in its entirety by reference to the National Bank
Act, KGCC, MGBCL, the Pittsburg Bancshares Articles of Incorporation, the Bank
Articles of Association, the Pittsburg Bancshares Bylaws, the Bank Bylaws, the
Commerce Articles of Incorporation and the Commerce Bylaws.
NUMBER OF DIRECTORS AND TERM
The Bank Articles of Association and the Pittsburg Bancshares Bylaws provide
that the number of directors of each corporation shall be between five and
twenty-five, each of whom shall serve a term of one year. Under the Commerce
Bylaws, the Commerce Board consists of twelve directors; however the Commerce
Board has the authority to increase or decrease (but not below 3) the exact
number of directors. Currently, the Commerce Board consists of fifteen
directors.
The Commerce Bylaws provide that directors are elected to a three year term.
The Commerce Articles of Incorporation and the Commerce Bylaws provide for a
staggered Board of Directors comprised of three classes as nearly equal in size
as practicable. Each class holds office until the third annual meeting for
election of directors following the election of such class.
REMOVAL OF DIRECTORS
The Pittsburg Bancshares Bylaws provide directors may be removed, with or
without cause, at a meeting of the shareholders by a majority vote of the
shares then entitled to vote. Neither the Bank Articles of Association nor the
Bank Bylaws specifically provide for the removal of directors, thus Bank
directors are removable according to the provisions of the KGCC. Under the KGCC
directors may be removed by shareholders with or without cause by a majority
vote of the shareholders. The Commerce Articles of Incorporation provide that
the entire Board of Directors may only be removed by an 80% majority of the
shares then entitled to vote for the election of directors.
VOTING
Pittsburg Bancshares, Bank and Commerce shareholders do not have cumulative
voting rights in connection with the election of directors and each outstanding
share of each of the corporations stock is entitled to one vote on each matter
submitted to shareholder vote.
The Pittsburg Bancshares and Bank Bylaws state that unless required otherwise
by law, issues brought before a meeting of shareholders will be decided by a
vote of the holders of a majority of the shares represented and entitled to
vote. The Commerce Bylaws (except with respect to the election of directors who
are elected by a plurality) contain a similar provision. Special voting
provisions apply in the case of a merger or change in control. See "--
Shareholders' Vote for Mergers; Anti-takeover Statutes."
DIVIDENDS AND LIQUIDATION PREFERENCE
Holders of shares of Commerce Common Stock, Pittsburg Bancshares Stock and
Bank Stock are entitled to dividends when and if declared by the Boards of
Directors of their respective corporations; upon liquidation, such holders are
entitled to share pro rata in the assets of their respective corporations
remaining after payments to creditors and any preferred shareholders.
PREEMPTIVE RIGHTS
Holders of Bank Stock have preemptive rights to new issues of Bank Stock.
Holders of Pittsburg Bancshares Stock and Commerce Common Stock do not have
preemptive rights.
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<PAGE>
SPECIAL MEETINGS
The Pittsburg Bancshares Bylaws provide that the Chairman of the Board, the
President, the Secretary, the Board of Directors and shareholders owning at
least one-fifth of the Pittsburg Bancshares Stock entitled to vote at any such
meeting may each call special shareholder meetings. Special shareholder
meetings of the Bank may be called by any three or more shareholders owning in
the aggregate at least 10% of the Bank Stock or by the Bank's Board of
Directors. The Commerce Bylaws provide that special meetings of the Commerce
shareholders may only be called by its Chairman of the Board, its President or
a majority of the Commerce Board.
INDEMNIFICATION; LIMITATION OF LIABILITY
The MGBCL and the KGCC permit indemnification of officers, directors and
others on substantially similar terms. A corporation may indemnify any person
made or threatened to be made a party to any legal proceeding, including any
suit by or in the name of the corporation, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation in any capacity with respect to
another enterprise, against expenses and other amounts reasonably incurred by
him in connection with such legal proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation, and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. The foregoing
notwithstanding, no indemnification may be made in respect to any claim brought
by or in the name of the corporation as to which such person is adjudged to be
liable to the corporation unless and only to the extent that a proper court
determines that in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses that the court
deems proper. These indemnification rights are not exclusive of any other
rights to which the person seeking indemnification is entitled and do not limit
a corporation's right to provide further indemnification.
The Bank Articles of Association provide rights of indemnification generally
as set forth in the KGCC described above. The Pittsburg Bancshares Bylaws
provide rights of indemnification generally as set forth in the KGCC described
above, except that the right of indemnification is limited to directors and
officers. The Commerce Bylaws provide rights of indemnification generally as
set forth in the MGBCL described above, except that the right of
indemnification is limited to directors and officers.
SHAREHOLDER INSPECTION
Under the KGCC, any shareholder may inspect the corporation's stock ledger,
shareholder list and other books and records for any proper purpose. A "proper
purpose" is defined as a purpose reasonably related to such person's interest
as a shareholder. The KGCC specifically provides that a shareholder may appoint
an agent for the purpose of examining the stock ledger, list of shareholders or
other books and records of the corporation. A shareholder may apply to the
Kansas district court to compel inspection in the event the shareholder's
request to examine the books and records is refused. In general, the
corporation has the burden of proving an improper purpose where that
shareholder requests to examine only the shareholder ledger or the shareholder
list, and in all other circumstances. the shareholder has the burden of proving
a proper purpose. The right of shareholders to inspect under the KGCC is
generally similar to that of shareholders under the MGBCL. Neither the MGBCL
nor Missouri case law, however, provides specific guidance as to whether a
shareholder may appoint an agent for the purpose of examining books and records
or the extent to which a shareholder must have a "proper purpose." Accordingly,
in comparison with the KGCC, in a given situation, a Missouri shareholder may
be provided with less guidance as to the scope of its ability to inspect the
books and records of the corporation.
AMENDMENT OF ARTICLES OF INCORPORATIONS
Under the KGCC, the Pittsburg Bancshares Articles of Incorporation and the
Bank Articles of Association may be amended upon a resolution of the Pittsburg
Bancshares or the Bank Board, as the case may be, proposing the amendment and
its submission to their respective shareholders for their approval by the
majority of the shares of Pittsburg Bancshares Stock or Bank Stock entitled to
vote. Pursuant to KGCC, any amendment that would
23
<PAGE>
adversely affect the rights of holders of Pittsburg Bancshares Stock or Bank
Stock requires the approval of a majority of the holders of such class of
stock.
The Commerce Articles of Incorporation provide that provisions of the
Commerce Articles of Incorporation dealing with the number, term, and removal
of directors, and certain business combinations may not be repealed or amended
without the affirmative vote of holders of at least three-fourths of the
outstanding shares of voting stock. The Commerce shareholders may otherwise
amend, alter, change or repeal any provision of the Commerce Articles of
Incorporation as the MGBCL, which is identical to the KGCC in this respect,
provides.
AMENDMENT OF BYLAWS
The shareholders of Pittsburg Bancshares and the Bank may make, alter, amend
or repeal their respective bylaws by a majority vote of the shares entitled to
vote thereon. The Directors of Pittsburg Bancshares and the Bank may make,
alter and amend their Bylaws. However, the Pittsburg Bancshares Board of
Directors may not amend, repeal, or alter provisions which the shareholders of
Pittsburg Bancshares expressly prohibited the Board of Directors from amending,
repealing or altering at the time of the Shareholders enactment of any such
provision. The Commerce Articles of Incorporation authorize the Commerce Board
to make, alter and repeal bylaws, subject to the rights of shareholders at any
regular or special meeting to alter or repeal bylaws made by the Commerce
Board.
NOTICE OF SHAREHOLDER PROPOSALS; NOMINATIONS OF DIRECTORS
The Pittsburg Bancshares and the Bank Bylaws contain special requirements for
providing advance notice if any shareholder intends to nominate a director not
a member of current management. In such a case, the shareholders must provide
written notice to the respective corporation's President and to the Comptroller
of Currency, Washington D.C., not less than fourteen nor more than fifty days
prior to any shareholders meeting. However, if less than twenty-days notice of
the meeting is given to shareholders, notice to the above must be given within
seven days of the mailing of the notice of the meeting. Shareholders are
required to provide a description of the qualifications and business or
professional experience of each proposed nominee. Generally, they must disclose
the information about him or her that is required by the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder, to be
disclosed in the proxy materials for the meeting involved as if he or she were
a nominee of the corporation for election as one of its directors.
The Commerce Bylaws provide that any shareholder who intends to bring a
matter before the annual meeting of shareholders must deliver written notice of
such shareholder's intent to the Secretary of Commerce. Such notice must be
received by the Secretary not later than the later sixty days nor more than
ninety days in advance of such meeting.
Such written notice must set forth (i) a brief description of the proposal
and the reasons for it (ii) the name and address of the shareholder, (iii) the
class and number of shares of capital stock of Commerce which are beneficially
owned by the shareholder, (iv) any arrangement between such shareholder and any
other person in connection with the proposal and any material interest of the
shareholder in the proposed business described in the notice, (v) a
representation that such shareholder will appear in person or proxy at the
annual meeting and (vi) if such business is a nomination for director, each
nomination sought to be made, together with a description of the qualifications
and business or professional experience of each proposed nominee and disclosing
the information about him or her that is required by the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder, to be
disclosed in the proxy materials for the meeting involved as if he or she were
a nominee of the corporation for election as one of its directors.
SHAREHOLDERS' VOTE FOR MERGERS
In the area of mergers and/or other corporate reorganizations, the KGCC
differs from the MGBCL in a number of respects. A corporation incorporated
under the KGCC must obtain the affirmative vote of the holders
24
<PAGE>
of a majority of the outstanding shares of the corporation entitled to vote
thereon to approve a merger with another corporation, the sale of substantially
all of the corporation's assets or the voluntary dissolution of the
corporation. In the same situations, the MGBCL requires the approval of persons
holding at least two-thirds of the outstanding shares entitled to vote thereon.
The KGCC does not require a shareholder vote of the surviving corporation in
a merger if (i) the merger agreement does not amend the existing articles of
incorporation, (ii) each outstanding share of the surviving corporation before
the merger is unchanged, and (iii) the number of shares to be issued in the
merger does not exceed 20% of the shares outstanding immediately prior to such
issuance. The MGBCL has no such exception.
Neither the MGBCL nor the KGCC requires a vote of a corporation's
shareholders if such corporation is merged with and into a parent corporation
that owns 90% or more of such corporation's stock.
APPRAISAL RIGHTS
Both the KGCC and the MGBCL provide appraisal rights to shareholders entitled
to vote in merger transactions (except as indicated below). The MGBCL also
provides such rights in a sale of assets, unless pursuant to a voluntary
dissolution of the corporation, whereas the KGCC does not. The KGCC does not
recognize dissenters' rights of appraisal in a merger or consolidation if the
dissenting shares of the corporation are listed on a national securities
exchange, designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
held of record by more than 2,000 shareholders, or if the corporation is the
surviving corporation and no vote of its shareholders is required, subject to
certain exceptions.
ANTI-TAKEOVER STATUTES
The MGBCL and KGCC contain certain provisions which may be deemed to have an
anti-takeover effect.
The KGCC contains a "Control Share Acquisition Statute" which provides that
an "Acquiring Person" who, after any acquisition of shares of a publicly traded
corporation, has the voting power, when added to all shares of the same
corporation previously owned or controlled by the Acquiring Person, to exercise
or direct the exercise of (i) 20% or more but less than 33 1/3%, (ii) 33 1/3%
or more but less than a majority, or (iii) a majority of the voting power of
outstanding stock of such corporation, must obtain shareholder approval for the
purchase of the "Control Shares." If approval is not given, the Acquiring
Person's shares lose the right to vote. The statute prohibits an Acquiring
Person from voting its shares unless certain disclosure requirements are met
and the retention or restoration of voting rights is approved by both (i) a
majority of the outstanding voting stock, and (ii) a majority of the
outstanding voting stock after exclusion of Interested Shares. "Interested
Shares" are defined as shares owned by the Acquiring Person, by directors who
are also employees, and by officers of the corporation. Shareholders are given
dissenters' rights with respect to the vote on Control Share Acquisitions and
may demand payment of the fair value of their shares.
A number of acquisitions of shares are deemed not to constitute Control Share
Acquisitions, including good faith gifts, transfers pursuant to wills,
purchases pursuant to an issuance by the corporation, merger involving the
corporation which satisfy the other requirements of the KGCC, transactions with
a person who owned a majority of the voting power of the corporation within the
prior year, or purchases from a person who has previously satisfied the
provisions of the Control Share Acquisition Statute so long as the transaction
does not result in the purchasing party having voting power after the purchase
in a percentage range (such ranges are as set forth in the immediately
preceding paragraph) beyond the range for which the selling party previously
satisfied the provisions of the statute. Additionally, a corporation may exempt
itself from application of the statute by inserting a provision in its articles
of incorporation or bylaws expressly electing not to be covered by the statute.
The Pittsburg Bancshares Articles of Incorporation and the Bank Articles of
Association and the Pittsburg Bancshares Bylaws and the Bank Bylaws do not "opt
out" of the Control Share Acquisition Statute. Because the Bank does not have
more than one hundred shareholders, the provisions of the Control Share
Acquisition Statute are presently inapplicable to it.
25
<PAGE>
The MGBCL contains a control share acquisition statute similar to that
contained in the KGCC; however, the Commerce Bylaws "opt out" of its
provisions.
The MGBCL also contains a business combination statute that protects domestic
corporations from unsolicited take-overs by prohibiting certain transactions.
The statute restricts certain "Business Combinations" between a corporation and
an "Interested Shareholder" and its "Affiliates" and "Associates" (as defined
therein). A "Business Combination" includes a merger or consolidation, certain
sales, leases, exchanges, mortgages, transfers, pledges and similar
dispositions of corporate assets or stock and any reclassifications,
recapitalization and reorganizations that increase the proportionate voting
power of the Interested Shareholder. An "Interested Shareholder" includes any
person or entity which beneficially owns or controls 20% or more of the
outstanding voting shares of the corporation. Pursuant to the Missouri business
combination statute, a Missouri corporation may at no time engage in a Business
Combination with an Interested Shareholder other than (i) a Business
Combination approved by the board of directors prior to the date on which the
Interested Shareholder acquired such status; (ii) a Business Combination
approved by the holders of a majority of the outstanding voting stock
beneficially owned by the Interested Shareholder or its Affiliates or
Associates at a meeting called no earlier than five years after the date on
which the Interested Shareholder acquired such status; or (iii) a Business
Combination that satisfies certain detailed fairness and procedural
requirements. Notwithstanding the foregoing, unless the board of directors of
the corporation approved such Business Combination prior to the date on which
the Interested Shareholder acquired such status, no such Business Combination
may be engaged in for a period of five years after such date.
The MGBCL exempts from its business combination provisions: (i) corporations
not having a class of voting stock registered under Section 12 of the Exchange
Act; (ii) corporations which adopt provisions in their original articles of
incorporation or, under certain circumstances, adopt amendments to their bylaws
expressly electing not to be covered by the statute; and (iii) certain
circumstances in which a shareholder inadvertently becomes an Interested
Shareholder. The Commerce Articles and Commerce Bylaws do not "opt out" of the
Missouri business combination statute.
The KGCC contains a business combination statute similar to that contained in
the MGBCL. Like the Missouri business combination statute, the Kansas business
combination statute generally prohibits a domestic corporation from engaging in
mergers or other business combinations with any person who is the beneficial
owner of 15% or more of the outstanding voting stock of the corporation (an
"Interested Shareholder"). The prohibition can be avoided if, prior to the date
on which the shareholder becomes an Interested Shareholder, the Board of
Directors of the Kansas corporation approves either the business combination or
the transaction which resulted in the shareholder becoming an Interested
Shareholder. The MGBCL imposes a longer prohibition period on transactions with
Interested Shareholders than the three-year prohibition provided for under the
KGCC, thereby potentially increasing the period during which an unsolicited
takeover may be frustrated. In addition, the KGCC, unlike its Missouri
counterpart, does not apply if the Interested Shareholder obtains at least 85%
of the corporation's voting stock upon consummation of the transaction which
resulted in the shareholder's becoming an Interested Shareholder. Thus, a
person acquiring at least 85% of the corporation's voting stock could
circumvent the defensive provisions of the KGCC. The Bank Articles of
Association and Bylaws and the Pittsburg Bancshares Articles of Incorporation
and Bylaws do not "opt out" of the Kansas business combination statute;
however, because there is no public market for the securities of either
Pittsburg Bancshares or the Bank, the provisions of the business combination
statute are presently inapplicable to them.
PREFERRED SHARE PURCHASE RIGHTS PLAN
As described in the Form 8-A12G/A Registration Statement filed by Commerce
with the SEC on June 10, 1996 and incorporated herein by reference, Commerce
Common Stock has attached rights to acquire shares of preferred stock in
response to certain takeover proposals. Neither Pittsburg Bancshares nor the
Bank have a rights plan.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF PITTSBURG BANCSHARES
The following table sets forth certain historical financial data with
respect to Pittsburg Bancshares on a consolidated basis. The financial data as
of September 30, 1997 and December 31, 1995, 1994, 1993 and 1992 and the years
ended December 31, 1995, 1994, 1993 and 1992 and for the nine month periods
ended September 30, 1997 and 1996 is unaudited, however it reflects all normal
recurring adjustments which are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for such interim periods. The results for the interim periods
presented herein are not necessarily indicative of results to be expected for
any other period or for the entire fiscal year. The information contained in
this table should be read in conjunction with Pittsburg Bancshares' historical
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------------------------
1997 1996 1995 1994 1993 1992
------------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
STATEMENT OF CONDITION
INFORMATION:
Total assets.......... $119,307 $114,526 $108,150 $101,706 $98,493 $96,048
Loans, net of
allowance for loan
losses............... 54,548 50,448 49,335 45,551 40,523 31,830
Investment securities. 52,448 52,553 50,825 46,619 49,077 55,834
Total deposits........ 103,164 96,508 92,461 90,541 87,956 86,290
Short-term borrowings. 1,318 4,118 2,832 0 0 0
Stockholders' equity.. 13,548 12,625 11,577 10,113 9,360 8,438
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS
ENDED AT OR FOR THE
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- --------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATION
INFORMATION:
Interest income....... $6,239 $5,806 $7,831 $7,525 $6,357 $6,226 $6,803
Interest expense...... 2,932 2,754 $3,704 3,473 2,631 2,580 3,245
Net interest income... 3,307 3,052 4,127 4,052 3,726 3,646 3,558
Provision for loan
losses............... 79 68 90 100 90 128 170
Net interest income
after provision for
loan losses.......... 3,228 2,984 4,037 3,952 3,636 3,518 3,388
Noninterest income.... 655 528 715 584 551 526 553
Noninterest expense... 1,941 1,824 2,484 2,427 2,250 2,137 1,998
Provision for income
taxes................ 630 502 664 555 585 586 625
Net income............ 1,271 1,150 1,556 1,506 1,299 1,270 1,267
PER SHARE DATA
Earnings per common
share................ $17.61 $15.91 $21.53 $20.88 $18.11 $17.61 $17.57
Cash dividends
declared per common
share................ 5.70 2.96 6.00 5.58 5.20 5.00 5.15
Book value per common
share................ 187.69 171.49 174.82 160.21 140.92 130.43 117.56
Dividend payout ratio. 32.4% 18.6% 27.9% 26.7% 28.7% 28.4% 29.3%
Weighted average
number of common
shares outstanding... 72,204 72,250 72,243 72,162 71,762 71,771 71,857
FINANCIAL RATIOS
Return on average
assets (1)........... 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.4%
Return on average
shareholders' equity
(1).................. 13.0% 12.8% 12.9% 13.9% 13.4% 14.3% 15.8%
Average equity to
average assets....... 11.2% 10.8% 11.3% 10.9% 9.7% 9.2% 8.5%
Earnings to fixed
charges.............. 164.9% 160.0% 159.9% 159.4% 171.6% 171.9% 158.3%
Net interest margin... 3.05% 2.97% 3.99% 4.11% 4.03% 4.05% 4.14%
Net interest spread... 2.44% 2.33% 3.32% 3.43% 3.53% 3.96% 3.58%
</TABLE>
- --------
(1) Interim ratios have been annualized for purposes of comparability with
year-end data.
(2) The ratio of earnings to fixed charges is computed by dividing the sum of
income before taxes and fixed charges by the sum of fixed charges. Fixed
charges represent interest expense and payment of debt.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF PITTSBURG BANCSHARES
The following discussion of financial condition and results of operations
should be read in conjunction with the consolidated financial statements of
Pittsburg Bancshares and the related notes. As used in the following
discussion, the term "Company" refers to Pittsburg Bancshares and its
subsidiary on a consolidated basis; the term "Bank" refers to City National
Bank of Pittsburg; and the term "Pittsburg Bancshares" refers to Pittsburg
Bancshares, Inc. on a parent company only basis.
RESULTS OF OPERATIONS
GENERAL
The Company's net earnings for 1996 increased $50,000, or 3.3%, as compared
to 1995, primarily as a result of increases in net interest income and
noninterest income of $75,000 and $131,000, respectively, which was partially
offset by increases in the provision for income taxes and noninterest expense
of $109,000 and $56,000, respectively. Net earnings for 1995 increased
$207,000, or 15.9%, as compared to 1994, primarily as a result of an increase
in net interest income of $326,000, which was partially offset by an increase
in noninterest expense of $177,000. Net earnings for the nine months ended
September 30, 1997 increased $121,000, or 10.5%, as compared to the same period
in 1996, primarily as a result of increases in net interest income and
noninterest income of $255,000 and $128,000, respectively, which was partially
offset by increases in the provision for income taxes and noninterest expense
of $128,000 and $117,000, respectively.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Company, is the
difference between interest income earned on loans and other earning assets,
and interest paid on deposits and other interest bearing liabilities. Earning
assets include loans, investment securities and federal funds sold. Interest
bearing liabilities include interest-bearing deposits (NOW accounts, MMDA,
savings and others), time deposits, federal funds purchased and securities sold
under agreements to repurchase.
The following table sets forth the Company's average balance of assets,
liabilities and stockholders' equity as well as the amount of interest income
or interest expense and the average rate for each category of interest earning
assets and interest bearing liabilities. Included in the average balances are
non-accruing loans. Loan fees are included in interest income. Average balances
are computed on a daily basis.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1996 1995
------------------------- -------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE AND FEES RATE(4) BALANCE AND FEES RATE(4)
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks(1)................. $ 3,622 $ 3,595
Federal funds sold........ 1,990 $ 106 5.31% 2,963 $ 167 5.63%
Taxable investment
securities............... 40,216 2,524 6.23 37,006 2,365 6.39
Non-taxable investment
securities............... 11,627 601 5.17 10,923 590 5.40
Loans, net(2)............. 49,557 4,600 9.28 47,698 4,403 9.23
-------- ------ -------- ------
Total interest earnings
assets................. 103,390 7,831 7.57% 98,590 7,525 7.63%
Bank premises and
equipment................. 2,308 2,114
Other assets............... 1,747 2,878
-------- --------
Total assets............ $111,067 $107,177
======== ========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1996 1995
------------------------- -------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE AND FEES RATE(4) BALANCE AND FEES RATE(4)
-------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Non-interest bearing
deposits................. $ 10,688 $ 11,205
Interest bearing
deposits................. 31,354 $ 801 2.55% 30,962 $ 827 2.67%
Time deposits............. 52,422 2,725 5.20% 50,026 2,551 5.10%
Federal funds purchased
and securities sold
under agreements to
repurchase............... 3,389 178 5.25 1,650 95 5.76
-------- ------ -------- ------
Total interest bearing
liabilities............ 87,165 3,704 4.25 82,638 3,473 4.20
------ ------
Other liabilities......... 713 1,694
Stockholders' equity...... 12,501 11,640
-------- --------
Total liabilities and
stockholders' equity... $111,067 $107,177
======== ========
NET INTEREST INCOME, NET
INTEREST SPREAD........... $4,127 3.32% $4,052 3.43%
NET INTEREST YIELD(3)...... 3.99% 4.11%
</TABLE>
- --------
(1) Includes non-interest bearing balances, cash and cash items.
(2) Loans, net of loan losses.
(3) Net interest yield is net interest earnings divided by total interest-
earning assets, with net interest earnings equal to the difference between
total interest earned and total interest paid.
(4) Annualized.
The effect of changes in average balance and rate from the corresponding
prior period on interest income, interest expense and net interest income for
the years ended December 31, 1996 is set forth below. The effect of a change in
average balance has been determined by applying the average rate for the
earlier period to the change in the average balance for the later period, as
compared with the earlier period. The effect of a change in the average rate
has been determined by applying the average balance for the earlier period to
the change in the average rate for the later period, as compared with the
earlier period. The variances attributable to simultaneous balance and rate
changes have been allocated in proportion to the relationship of the dollar
amount of change in each category.
<TABLE>
<CAPTION>
1996 COMPARED WITH 1995
-------------------------------
INCREASE (DECREASE)
DUE TO A CHANGE IN
----------------------
AVERAGE AVERAGE
BALANCE RATE TOTAL
--------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Federal funds sold....................... $ (52) $ (9) $(61)
Taxable investment securities............ 200 (41) 159
Non-taxable investment securities........ 36 (26) 10
Loans, net............................... $ 172 25 197
--------- --------- ----
Total interest income.................... $ 356 $ (51) $305
--------- --------- ----
Interest paid on:
Interest-bearing deposits (NOW accounts,
MMDA, savings and other)................ $ 12 $ (37) $(25)
Time deposits............................ 121 52 173
Federal funds purchased and securities
sold under agreements to repurchase..... 100 (18) 82
--------- --------- ----
Total interest expense................... $ 233 $ (03) $230
--------- --------- ----
Change in net interest income.............. $ 123 $ (48) $ 75
========= ========= ====
Percent decrease in net interest income
over the prior period..................... 1.85%
</TABLE>
29
<PAGE>
Interest Income. Total interest income increased $305,000, or 4.1%, in 1996
compared to 1995. Contributing to this increase was a $197,000, or 4.4%
increase in interest income from loans and a $108,000, or 3.4%, increase in
interest income from investment securities and other interest earning assets.
These increases are primarily attributable to higher average balances as a
result of loan growth and purchases of investment securities.
Total interest income increased $1,168,000, or 18.4%, in 1995 compared to
1994. Contributing to this substantial increase was a $796,000, or 22.1%,
increase in interest income on loans and a $372,000, or 13.5%, increase in
interest income on investment securities and other interest earning assets. The
increase in interest income was the result of higher average balances due to
loan growth and purchases of investment securities as well as an increase in
interest rates.
Total interest income increased $433,000, or 7.5%, for the first nine months
of 1997 compared to the same period of 1996. Contributing to this increase was
a $326,000, or 9.5%, increase in interest income on loans, which was the result
of higher average balances due to loan growth combined with a slight increase
in interest rates.
Interest Expense. Total interest expense increased by $230,000, or 6.6%, in
1996 compared to 1995. This increase is primarily attributable to a $148,000,
or 4.4%, increase in interest expense on deposits paid by the Bank and an
$82,000, or 86.3%, increase in interest expense on federal funds purchased and
securities sold under agreements to repurchase. Interest expense increased
primarily due to higher average balances in interest bearing deposits and other
borrowings. As a result of these changes and the changes in interest income in
1996, net interest margin increased $75,000, or 1.8%, in 1996 compared to 1995.
Total interest expense increased $842,000, or 32.0%, in 1995 compared to
1994. Such increase is primarily due to a $763,000, or 29.2%, increase in
interest expense on deposits paid by the Bank and a $79,000, or 493.8%,
increase in interest expense on federal funds purchased and securities sold
under agreements to repurchase. Interest expense increased due to higher
average balances in interest bearing deposits and other borrowings and an
increase in interest rates. As a result of the changes described above, the net
interest margin increased $326,000, or 8.8%, in 1995.
Total interest expense increased by $178,000, or 6.5%, for the first nine
months of 1997 compared with the same period in 1996. Such increase is
primarily attributed to a $226,000, or 8.6%, increase in interest expense on
deposits paid by the Bank to its depositors. This increase in interest expense
was offset by a $48,000, or 34.5%, decrease in interest expense paid by the
Bank on federal funds purchased and securities sold under agreements to
repurchase. Interest expense on deposits increased primarily due to higher
average balances in interest bearing deposits. As a result of the changes
described above, the net interest margin increased by $255,000, or 8.4%, for
the first nine months of 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents management's determination of the
amount necessary to be charged against the current period's earnings, in order
to maintain the allowance for loan losses at a level which is considered
adequate, in relation to the estimated risk inherent in the loan portfolio. See
"--Financial Condition--Allowance for Loan Losses." The provision for loan
losses was $90,000 in 1996 compared to $100,000 in 1995, and $79,000 for the
first nine months of 1997 compared to $68,000 for the same period in 1996.
Actual net loan charge-offs (recoveries) for 1996, 1995 and the first nine
months of 1997 were $20,000, $(5,000) and $5,000, respectively, or .04%, (.01)%
and .01% (annualized) of average total loans.
30
<PAGE>
The following table presents an analysis of the Company's loss experience
for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period................ $ 751 $ 646
Charge-offs:
Real estate loans: construction............. -0- -0-
Real estate loans: mortgage................. -0- -0-
Installment loans........................... 25 15
Commercial loans and other.................. 2 2
Recoveries:
Real estate loans: construction............. -0- -0-
Real estate loans: mortgage................. -0- -0-
Installment loans........................... 6 9
Commercial loans and other ................. 1 13
Net provision for loan losses............... 90 100
Additional provision for loan losses........ -0- -0-
Additions charged to operations............. -0- -0-
----------- -----------
Balance at end of period...................... $ 821 $ 751
=========== ===========
Ratio of net charge-offs during the period to
average net loans outstanding during the
period....................................... .04% (.01)%
</TABLE>
The following table presents a breakdown of the allowance for loan losses
for the period indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995
----------------------- -----------------------
PERCENT OF LOANS PERCENT OF LOANS
IN EACH CATEGORY IN EACH CATEGORY
AMOUNT TO TOTAL LOANS AMOUNT TO TOTAL LOANS
------ ---------------- ------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at end of Period
Applicable to:
Real estate loans:
construction......... $ 9 3% $-0- 3%
Real estate loans:
mortgage............. 218 70% 212 65%
Installment loans..... 78 16% 81 17%
Commercial loans and
other................ 204 11% 247 15%
Unallocated allowance. 312 N/A 211 N/A
---- ---- ---- ----
Total............... $821 100% $751 100%
==== ==== ==== ====
</TABLE>
The following table presents an analysis of the activity in the foreclosed
assets held for sale account for the period indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period................ $ -0- $22
Foreclosures during the year.................. 46 84
Writedowns during the year.................... (1) (3)
Proceeds from sales........................... (39) (98)
Gain (loss) on sales (net).................... -0- (5)
------------ -----------
Balance at end of period...................... 6 0
============ ===========
Ratio of foreclosed assets to loans
outstanding.................................. .01% 0%
</TABLE>
31
<PAGE>
At January 1, 1995, the Company had one foreclosed property held in Other
Real Estate Owned ("OREO") which was a residential property with a book value
of $22,000. During 1995, the Company had no foreclosures, and sold one
residential property held in OREO. The remaining activity in this account
represents repossessions.
During 1996, the Company had two foreclosures and sold two residential
properties. As of December 31, 1996, the Company had no properties held in
OREO. The remaining activity and balance in this account represents
repossessions.
NONINTEREST INCOME
Noninterest income increased $131,000, or 22.4%, in 1996 compared to 1995.
This increase is primarily attributable to (i) an increase in income from
fiduciary activities of $18,000, (ii) an increase in commission income of
$64,000 from increased sales in the investment services provided to customers,
and (iii) an increase in service charges on deposit accounts of $24,000.
Noninterest income increased $33,000, or 5.9%, in 1995 compared to 1994. This
increase is primarily attributable to (i) an increase in service charges on
deposit accounts of $29,000, (ii) an increase of $26,000 from realized gains on
available for-sale securities and (iii) partial offsets by a decrease in income
from fiduciary activities of $7,000, and a decrease of $23,000 in credit card
fees.
Noninterest income increased by $128,000, or 24.2%, for the first nine months
of 1997 compared to the same period of 1996. This increase is primarily
attributable to (i) an increase in income from fiduciary activities of $34,000
due to a one-time fee related to an estate and (ii) an increase in commissions
from growth of investment services provided to customers of $57,000.
NONINTEREST EXPENSE
Noninterest expense increased $56,000, or 2.3%, in 1996 compared to 1995.
This increase was primarily attributable to (i) an increase in employee expense
of $103,000 due to the opening of a new branch location, (ii) an increase in
net occupancy expense of $105,000 due to such opening (iii) a decrease in the
deposit insurance premium expense of $101,000, (iv) a decrease in data
processing expenses of $47,000 due to a change in service bureaus and (v) a
decrease in contributions of $49,000.
Noninterest expense increased $177,000, or 7.9%, in 1995 compared to 1994.
Such increase was primarily attributable to (i) an increase in employee expense
of $134,000, (ii) an increase in examinations and dues expense of $33,000,
(iii) a decrease in the deposit insurance premium expense of $93,000 and (iv)
an increase in contributions of $78,000.
Noninterest expense increased by $117,000, or 6.4%, for the first nine months
of 1997 compared with the same period of 1996 primarily due to (i) an increase
in employee expense of $56,000 and (ii) an increase of $26,000 in expenses
related to investment services provided to customers.
INCOME TAX EXPENSE
The Company recognized income tax expense of $664,000, $555,000, $585,000,
$630,000 and $502,000 for 1996, 1995, 1994, and the first nine months of 1997
and 1996, respectively. The effective tax rates such periods were 29.3%, 26.3%,
30.2%, 32.5% and 29.7%, respectively.
FINANCIAL CONDITION
LOAN PORTFOLIO ANALYSIS
Total net loans (after allowance for loan losses) on December 31, 1996
increased $1,114,000, or 2.3%, compared to December 31, 1995, $3,784,000, or
8.3%, on December 31, 1995 compared to December 31, 1994, and $4,505,000, or
9.0%, on September 30, 1997 compared to September 30, 1996.
32
<PAGE>
The following table presents the amount of loans outstanding at the dates
indicated, according to loan category:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans: construction.......................... $ 1,426 $ 1,209
Real estate loans: mortgage.............................. 35,733 32,561
Installment loans........................................ 8,340 8,572
Commercial loans and other............................... 5,770 7,744
------- -------
Total................................................ $51,269 $50,086
======= =======
</TABLE>
Real estate construction loans consist primarily of residential and
commercial construction loans for properties located in Pittsburg, Kansas and
surrounding communities. These loans aggregated approximately $1,091,000 and
$726,000 at September 30, 1997 and 1996, respectively. The increase in this
category of loans in 1997 is the result of continued market growth. The Company
has experienced relatively few charge-offs related to this category of loans
during the past two years.
Real estate mortgage loans, including 1-4 family and multi-family loans, are
collateralized by residential properties that are principally located in
Pittsburg, Kansas and surrounding communities. These loans aggregated
approximately $26,004,000 and $23,177,000 at September 30, 1997 and 1996,
respectively. The Company has experienced relatively few charge-offs related to
this category of loans during the past two years.
Real estate-non-farm, non-residential loans are secured by commercial
properties principally located in Pittsburg, Kansas and surrounding
communities. These loans aggregated approximately $13,752,000 and $11,309,000
at September 30, 1997 and 1996, respectively. The Company has experienced
relatively few charge-offs related to this category of loans during the past
two years.
Commercial and industrial loans are comprised primarily of loans to customers
in the Pittsburg, Kansas trade area and are diversified from an industry and
customer standpoint, which helps to minimize risk. Consistent with management's
emphasis on relationship banking, most borrowing customers also maintain
deposit accounts and utilize other banking service. Management believes the
inherent risks of commercial and industrial loans to be relatively low, given
the diversity of the portfolio and collateral margins.
The consumer loan portfolio consists of both secured and unsecured loans to
individuals for various personal reasons such as automobile financing, home
improvements, education and recreational purposes. New charge-offs of consumer
loans have been relatively low for the past several years. Management believes
the inherent risks associated with these loans to be relatively low and that
net charge-offs on these loans will continue to be below industry averages, due
to sufficient collateral margins and the diversity of the portfolio.
The following table presents the maturities of certain loan categories at
December 31, 1996.
<TABLE>
<CAPTION>
WITHIN
ONE 1-5 OVER 5
YEAR YEARS YEARS TOTAL
------- ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate loans: construction........... $ 1,426 $ 0 $ 0 $ 1,426
Real estate loans: mortgage............... 18,396 13,120 4,217 35,733
Installment loans......................... 3,362 3,922 1,056 8,340
Commercial loans and other................ 4,778 787 205 5,770
------- ------- ------ -------
Total loans........................... $27,962 $17,829 $5,478 $51,269
======= ======= ====== =======
</TABLE>
33
<PAGE>
The table below presents the interest rate sensitivity at December 31, 1996,
on loans due after one year in the following categories.
<TABLE>
<CAPTION>
FIXED ADJUSTABLE
INTEREST INTEREST
RATES RATES
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans: construction....................... $ 0 $ 0
Real estate loans: mortgage........................... 9,434 7,903
Installment loans..................................... 4,664 314
Commercial loans and other ........................... 480 512
------- ------
Total loans....................................... $14,578 $8,729
======= ======
</TABLE>
The Company's loan portfolio is varied, with no undue concentration in any
single industry, although most of the loans in the Company's portfolio have
been made to borrowers in the Pittsburg, Kansas area.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review of
all loans on which full collectibility may not be reasonably assured, considers
among other matters, the estimated fair value of the underlying collateral,
economic conditions, historical loan loss experience, and other factors that
warrant recognition in providing for an adequate loan loss allowance. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of foreclosed assets held for sale. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Management has established an allowance for loan losses which reduces the
total loans outstanding by an estimate of potential loan losses, plus an excess
margin for potential future uncertainties. Loans deemed uncollectible are
charged against and reduce the allowance. Provisions for loan losses are
expensed against current income. The provision replenishes the allowance for
loan losses and maintains the allowance at acceptable levels based upon the
judgment of management. The allowance for loan losses is based upon current
economic conditions, risks in the loan portfolio, historical loan loss
experience and other factors which, in management's opinion, deserve current
recognition. See "--Results of Operations--Provision for Loan Losses."
RISK ELEMENTS OF LOAN PORTFOLIO
Management reviews the Company's loan portfolio continuously for problem
loans. During the ordinary course of business, management becomes aware of
borrowers that may not be able to meet contractual requirements of loan
agreements. Such loans are placed under close supervision, with consideration
given to placing the loan on a nonaccrual status. Management then determines
the need for additions to the allowance for loan loss or, if appropriate,
partial or full charge-off. Those loans on which management does not expect to
collect interest in the normal course of business, or which are 90 days or more
past due as to principal or interest, are generally placed on nonaccrual
status. After a loan is placed on nonaccrual status, interest income is
recognized only on a cash basis so long as management is satisfied there is not
impairment of the book value of the loan. The loan is returned to accrual
status only when the borrower has brought all past due principal and interest
payments current, and in the opinion of management, the borrower has
demonstrated the ability to make future payments of principal and interest as
scheduled.
34
<PAGE>
The following table presents the amount of non-performing loans outstanding
at the dates indicated, by category:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans......................................... $ 45 $ 29
Loans 90 days past due and still accruing................ 86 75
Restructured loans....................................... 0 0
------- -------
Total non-performing loans........................... $ 131 $ 104
======= =======
</TABLE>
It is the Bank's stated policy that when a loan becomes over 90 days
delinquent, it is automatically placed on nonaccrual status. In addition, other
loans showing a high apparent risk and potential for deterioration in financial
strength or collateral value may be placed on a nonaccrual status.
As of December 31, 1996, the gross interest income on loans recorded for the
year then ended was $4,600,000. The amount of interest income on the above-
referenced loans accounted for in nonaccrual status that would have been
recorded during such year if such loans had been current in accordance with
their terms was $13,000, and in such case the gross interest income on loans
would have been $4,613,000.
As of December 31, 1995, the gross interest income on loans recorded for the
year then ended was $4,403,000. The amount of interest income on the above-
referenced loans accounted for in nonaccrual status that would have been
recorded during such year if such loans had been current in accordance with
their terms was $9,000, and in such case the gross interest income on loans
would have been $4,412,000.
The following table presents the book value of certain loans excluded from
the previous table but classified by the Bank, as of December 31, 1996, as
potential problem loans.
<TABLE>
<CAPTION>
BOOK VALUE
--------------
(IN THOUSANDS)
<S> <C>
Installment loans.......................................... $ 22
Real estate loans: construction............................ -0-
Real estate loans: mortgage................................ -0-
Commercial loans and other................................. 357
----
Total loans............................................ $379
====
</TABLE>
INVESTMENT SECURITIES PORTFOLIO ANALYSIS
The Company invests a portion of its available funds in short-term and
longer-term instruments, including federal funds sold and investment
securities. Investment securities include obligations of the U.S. Government or
its agencies, obligations of state and political subdivisions and debt
securities.
Federal funds sold are used primarily for daily cash management purposes. The
Company's investment securities portfolio is utilized to collateralize certain
of the Bank's line of credit and public and fiduciary deposits. It also
provides liquidity through proceeds from scheduled maturities. The majority of
the Company's investment securities carry fixed interest rates, and at December
31, 1996 and September 30, 1997, the Company's investment portfolio reflected a
net unrealized gain of approximately $239,000 and $383,000, respectively.
35
<PAGE>
The following table presents the Company's investments in certain securities
accounted for as held to maturity ("HTM") or as available for sale ("AFS") on
the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
BOOK VALUE
(IN THOUSANDS)
<S> <C> <C>
U.S. Government, HTM...................................... $ -0- $ 300
U.S. Government, AFS...................................... 6,945 5,694
U.S. Agencies, HTM........................................ 9,856 12,098
U.S. Agencies, AFS........................................ 11,578 10,223
Mortgage Backed Bonds, HTM................................ 4,815 2,669
Mortgage Backed Bonds, AFS................................ 8,133 6,317
Municipal Securities, HTM................................. 10,351 12,216
Municipal Securities, AFS................................. -0- -0-
Corporates................................................ 804 1,126
------- -------
Total Securities...................................... $52,482 $50,643
Federal Funds Sold.................................... 2,375 -0-
------- -------
Total Investments..................................... $54,857 $50,643
======= =======
</TABLE>
The following table sets forth the amounts by book value and weighted average
yields, as of December 31, 1996, of each category of investment listed in the
preceding table maturing during certain time periods.
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------
AFTER ONE AFTER TWO AFTER FIVE
YEAR BUT YEARS BUT YEARS BUT
WITHIN ONE WITHIN TWO WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS YEARS TOTAL
------------ ------------ ------------ ------------ ------------ -------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Government......... $ -0- -0-% $ -0- -0-% $-0- -0-% $ -0- -0-% $ -0- -0-% $-0- -0-%
U.S. Agencies........... 5,551 5.81 1,921 6.01 1,812 7.0 572 5.85 -0- -0- 9,856 6.08
Mortgaged Backed Bonds.. 361 6.85 131 8.2 1,231 6.2 604 7.17 2,488 6.13 4,815 6.41
Municipal Securities.... 1,834 4.45 880 5.41 3,216 5.49 3,616 5.23 805 5.13 10,351 5.17
Corporates.............. -0- -0- -0- -0-- 365 5.69 -0- -0- 439 6.27 804 6.00
------- -----
$25,826 5.77%
======= =====
AVAILABLE FOR SALE:
U.S. Government......... $2,897 5.77% $2,993 5.72% $1,055 6.36% $ -0- -0-% $ -0- -0-% $ 6,945 5.87%
U.S. Agencies........... 2,250 5.80 2,105 6.10 5,164 7.07 2,059 5.76 -0- -0- 11,578 6.40
Mortgaged Backed Bonds.. 277 7.0 -0- -0- 1,981 6.37 1,999 6.47 3,876 6.99 8,133 6.71
Municipal Securities.... -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0-
------- -----
$26,656 6.36%
======= =====
</TABLE>
On December 31, 1996, the Company had no investments in the debt securities
of any issuer (excluding U.S. Government and U.S. Agencies and corporations)
with a book value of more than ten percent (10%) of the Company's shareholders'
equity.
DEPOSITS
The Bank's deposit base is its primary source of funds. The Bank offers a
broad range of deposit products, including noninterest bearing demand deposits,
NOW accounts, savings deposits, individual retirement accounts and certificates
of deposit. Total deposits increased $4,046,000, or 4.4% at December 31, 1996,
compared to December 31, 1995; $1,920,000, or 2.1% at December 31, 1995,
compared to December 31, 1994; and $6,790,000, or 7.0% at September 30, 1997,
compared to September 30, 1996.
36
<PAGE>
At December 31, 1996, 11.6% of total deposits were in noninterest bearing
demand accounts, 34.1% in savings and interest bearing demand accounts and
54.3% in certificates of deposit.
The following table presents the average balances of and the average rate
paid on certain deposit categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995
------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE(1) RATE BALANCE(1) RATE
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest bearing:
MMDA & Business Accounts.......... $11,954 2.99% $12,816 2.96%
Interest bearing:
NOW Accounts...................... 13,139 2.10 12,271 2.35
Savings Deposits.................. 6,261 2.64 5,875 2.70
IRA............................... 4,353 5.26 3,917 5.03
CDS under $100,000................ 36,077 5.19 35,916 5.11
CDS over $100,000................. 11,992 5.21 10,193 5.13
------- -------
Total average deposits.......... $83,776 $80,988
======= =======
</TABLE>
- --------
(1) Averages are computed on a daily basis.
The following table presents the amount outstanding as of December 31, 1996,
of certain deposits in excess of $100,000 and the maturities thereof.
<TABLE>
<CAPTION>
MATURING IN
-----------------------------
3 3 TO OVER
MONTHS 12 12
OR LESS MONTHS MONTHS TOTAL
------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Type of Deposit:
Certificates of Deposit................... $ 7,065 $5,133 $2,251 $14,449
Other Deposits............................ 10,651 -0- -0- 10,651
------- ------ ------ -------
Total................................... $17,716 $5,133 $2,251 $25,100
======= ====== ====== =======
</TABLE>
SHORT-TERM BORROWINGS
Short-term borrowings consist mainly of federal funds purchased and
securities sold under agreements to repurchase. These amounted to $4,118,000 at
December 31, 1996, and $2,832,000 at December 31, 1995. The average yield on
short-term borrowings was 5.25% and 5.76% during 1996 and 1995, respectively.
The majority of these investments have terms ranging from one to 33 days. The
maximum amounts of short-term borrowings outstanding at any month end during
1996 and 1995 were $5,264,000 and $2,832,000, respectively. Information
regarding the levels of short-term borrowings for 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995
-------------------- --------------------
FEDERAL FEDERAL
FUNDS SECURITIES FUNDS SECURITIES
PURCHASED SOLD PURCHASED SOLD
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at end of period....... $ 0 $4,118 $250 $2,582
Maximum outstanding during the
period at any month end....... $2,900 $4,462 $250 $2,582
Average interest rate end of
period........................ 5.80% 5.65% 6.25% 5.61%
Average outstanding during
period........................ $ 206 $3,183 $ 8 $1,642
Average interest rate for the
period........................ 5.86% 5.18% 5.67% 5.78%
</TABLE>
37
<PAGE>
The average amount outstanding was computed from daily averages and the
average interest rates for the period were computed by dividing the respective
interest expense by the average balance outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is managed by the Company through the composition of its
assets and liabilities in an effort to meet efficiently the borrowing needs and
withdrawal requirements of its customers. Cash and cash equivalents include
cash, due from banks and federal funds sold. The primary sources of the
Company's liquidity are cash and cash equivalents and investment securities
with short term maturities. The Company believes its process of asset/liability
management allows adequate reaction time for trends in the marketplace as they
occur, minimizing the negative impact of such trends on the net interest
margin.
As of September 30, 1997, the Company had cash and cash equivalents of
$8,172,000 and investment securities maturing in less than one year of
$9,888,000. These amounts represent approximately 15.1% of the Company's total
assets at September 30, 1997 and provide the Company with sufficient resources
to handle unforeseen deposit outflows and loan requirements.
The Company's cash and cash equivalents increased $813,000 during the nine
month period ended September 30, 1997. Net cash provided by operating
activities aggregated $1,676,000. Net cash used in investing activities for
this period approximated $4,111,000, primarily as a result of net loan
originations. Net cash provided by financing activities approximated $3,248,000
for this time period primarily as a result of increased deposits of $6,657,000
and a decrease of $2,800,000 in short-term borrowings.
INTEREST RATE SENSITIVITY
Asset and liability management encompasses both interest rate risk and
liquidity management. The Company's net interest margin can be vulnerable to
wide fluctuations arising from a change in the general level of interest rates
which may affect the yield on interest earning assets differently than the cost
of the interest bearing liabilities. The Company monitors its asset and
liability mix in an effort to maintain a consistent earnings performance
through control of interest rate risk.
Below is the "static gap" table for the Company as of December 31, 1996. This
is just one of several tools which may be used to measure and manage interest
rate sensitivity. Earning assets and interest bearing liabilities are presented
below within selected time intervals based on their repricing and maturity
characteristics. In this view, the sensitivity position is perfectly matched
when an equal amount of assets and liabilities reprice during any given period.
Excess assets or liabilities repricing in a given time period result in the
"Interest Sensitivity Gap" shown at the bottom of the table. A positive gap
indicates more assets than liabilities will reprice in that time period, while
a negative gap indicates more liabilities than assets will reprice.
The table indicates the Company is liability sensitive in the three months or
less period and the after three months through twelve months period and is
asset sensitive in all other periods. This means that during the three months
or less period and after three months through twelve months period, interest
bearing liabilities are repricing faster than earning assets, thereby improving
net interest income when rates are declining and reducing net interest income
when rates are rising. While the "static gap" is a widely used measure of
interest sensitivity, it is not, in management's opinion, the only indicator of
the Company's sensitivity position.
38
<PAGE>
The following table indicates as of December 31, 1996 the time period in
which interest earning assets and interest bearing liabilities are scheduled
to mature or reprice in accordance with their contractual terms.
<TABLE>
<CAPTION>
AFTER AFTER
THREE THREE ONE
MONTHS THROUGH THROUGH AFTER
OR TWELVE FIVE FIVE
LESS MONTHS YEARS YEARS TOTAL
-------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Federal Funds Sold.......... $ 2,375 $ -0- $ -0- $ -0- $ 2,375
Taxable Investment
Securities................. 5,782 5,926 18,959 11,535 42,202
Non-taxable Investment
Securities................. 500 1,334 4,096 4,421 10,351
Loans, Net.................. 13,733 13,408 17,827 5,480 50,448
Other Assets................ 0 100 200 0 300
-------- -------- ------- ------- --------
Total Assets............ $ 22,390 $ 20,768 $41,082 $21,436 $105,676
======== ======== ======= ======= ========
LIABILITIES:
Interest-bearing Deposits
(NOW, MMDA, Savings and
Other)..................... $ 32,900 $ -0- $ -0- $ -0- $ 32,900
Time Deposits............... 14,586 22,242 15,584 29 52,441
Securities sold under
Agreements to repurchase... 4,118 -0- -0- -0- 4,118
Long-term Debt.............. -0- -0- -0- -0- -0-
Other Liabilities and
Stockholders' Equity....... -0- -0- -0- -0- -0-
-------- -------- ------- ------- --------
Total Liabilities....... $ 51,604 $ 22,242 $15,584 $ 29 $ 89,459
======== ======== ======= ======= ========
Sensitivity gap............. $(29,214) $ (1,474) $25,498 $21,407 $ 16,217
Gap as a percentage of
assets..................... (27.64)% (1.39)% 24.12% 20.25% 15.34%
Cumulative sensitivity gap.. $(29,214) $(30,688) $(5,190) $16,217 $ -0-
Cumulative gap as a
percentage of assets ...... (27.64)% (29.03)% (4.90)% 15.34% -0-%
Cumulative sensitivity
ratio...................... (.43)% (.58)% .94% 1.18% 1.18%
</TABLE>
An interest sensitivity table is not a complete picture of the possible
effect of interest rate changes on net interest income. First, changes in the
general level of interest rates will not affect all categories of assets and
liabilities equally or simultaneously. Second, the table represents a one-day
position; variations occur daily as the Company adjusts its interest
sensitivity throughout the year. Third, the repricing distribution of interest
sensitive assets may not be indicative of the liquidity of those assets.
Finally, since this table is based on contractual maturities, it does not
include required principal payments or estimates of early principal payments
on residential mortgages, installment loans and investment securities.
CAPITAL ADEQUACY
Stockholders' equity represented 11.4% of total assets at September 30,
1997. Risk-based capital and leverage ratios of the Bank exceeded minimum
requirements of regulatory banking authorities.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted Statement
No. 125, (FAS 125), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". FAS 125, which is effective for
transactions that occur after December 31, 1997, imposes new rules for
determining when transfers of financial assets are accounted for as sales
versus when transfers are accounted for as borrowings. Management believes
that FAS 125 should have no significant impact on the Company's consolidated
financial statements.
39
<PAGE>
The FASB recently adopted Statement of Financial Accounting Standards
("SFAS") 128, "Earnings Per Share." This statement replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. The
statement also requires dual presentation of basic and diluted earnings per
shares by entities with complex capital structures and requires a
reconciliation of the numerators and denominators between the two calculations.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Management has not determined the
impact, if any, that adopting SFAS 128 will have on the Company's financial
statements.
The FASB recently adopted SFAS 129, "Disclosure of Information about Capital
Structure." This statement establishes standards for disclosing information
about capital structure, including pertinent rights and privileges of various
securities outstanding. SFAS 129 is effective for financial statements issued
for periods ending after December 15, 1997. The adoption of SFAS 129 is not
expected to have a material impact on the Company's financial statements.
The FASB recently adopted SFAS 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. It does not
address issues of recognition or measurement. SFAS is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 130 is not
expected to have a material impact on the Company's financial statements.
The FASB recently adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in both annual financial statements and interim financial reports
issued to shareholders. The statement also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements issued for periods beginning
after December 15, 1997. The adoption of SFAS 131 is not expected to have a
material impact on the Company's financial statements.
EFFECT OF ECONOMIC CONDITIONS
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles, which required the measurement of
financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The assets and liabilities of the Company are primarily
monetary and interest rates have a greater impact on the Company's performance
than does the effect of inflation. The local economy of the Southeast Kansas
area has experienced growth over the last several years. The area has a good
mix of retail, agricultural related and industrial business.
40
<PAGE>
COMMERCE STOCK, PITTSBURG BANCSHARES STOCK AND
BANK STOCK COMPARATIVE PER SHARE PRICES AND DIVIDENDS
Shares of Commerce common stock are traded on the Nasdaq National Market
System. As of December 15, 1997, there were 184 holders of record of Pittsburg
Bancshares Stock. There is no established public trading market for the shares
of Pittsburg Bancshares Stock and there have been a limited number of
transactions involving Pittsburg Bancshares Stock. Based upon management's
review of its stock transfer records, there were 19 sales of Pittsburg
Bancshares Stock between January 1, 1995 and December 31, 1997.
The following table sets forth the high and low sales prices for Pittsburg
Bancshares Stock and Commerce Stock, and cash dividends paid thereon during the
periods indicated:
<TABLE>
<CAPTION>
PITTSBURG BANCSHARES COMMERCE STOCK
------------------------ ----------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ------- -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter................. $ 85.00 $ 85.00 $2.65 $26.56 $23.32 $0.155
Second Quarter................ * * $0.00 $27.86 $26.13 $0.155
Third Quarter................. $100.00 $100.00 $2.65 $34.45 $26.13 $0.155
Fourth Quarter................ * * $0.00 $34.69 $32.18 $0.155
1996
First Quarter(1).............. $100.00 $100.00 $2.95 $34.81 $31.52 $0.172
Second Quarter................ * * $0.00 $33.45 $30.95 $0.172
Third Quarter(1).............. $100.00 $100.00 $2.95 $36.73 $30.16 $0.172
Fourth Quarter................ * * $0.00 $47.14 $35.03 $0.172
1997
First Quarter................. $125.00 $125.00 $3.05 $48.10 $42.26 $0.195
Second Quarter................ $200.00 $140.00 $0.00 $45.95 $40.00 $0.195
Third Quarter................. * * $5.70 $57.02 $42.86 $0.195
Fourth Quarter................ * * $0.00 $70.25 $53.69 $0.195
</TABLE>
- --------
*There were no known sales during such period.
(1) There was one known sale of Pittsburg Bancshares Stock in each of the first
quarter of 1996 and the third quarter of 1996 for which the sale price is
not known.
As of December 31, 1997, there were 13 holders of record of Bank Stock. There
is no established public trading market for the shares of Bank Stock and there
have been a very limited number of transactions involving Bank Stock. Based
upon management's review of its stock transfer records, there were four sales,
transfers or exchanges of Bank Stock for Pittsburg Bancshares between January
1, 1995 and December 31, 1997. One sale occurred in April 1995 for which the
cash consideration was $100 per share. Two transfers occurred in August 1995
and one in October 1997, however, no cash consideration was received in such
transfers.
The last sale price for Commerce Common Stock as reported by NASDAQ on
, 1998 (the most recent date for which it was practicable to
obtain market price data prior to the printing of this Prospectus), was
$ .
LEGAL OPINION
The legality of the Commerce Common Stock offered hereby will be passed upon
by Blackwell Sanders Matheny Weary & Lombardi LLP.
41
<PAGE>
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS FOR COMMERCE BANCSHARES, INC.
The consolidated financial statements of Commerce and subsidiaries as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 incorporated by reference in the Annual Report on Form
10-K, which are incorporated by reference in this Registration Statement, have
been incorporated herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, and upon the authority of said firm
as experts in auditing and accounting.
INDEPENDENT PUBLIC ACCOUNTANTS FOR PITTSBURG BANCSHARES, INC.
The consolidated financial statements of Pittsburg Bancshares and the Bank as
of and for the year ended December 31, 1996, have been included herein in
reliance upon the report of Baird Kurtz & Dobson, independent certified public
accountants, such report given upon the authority of said firm as experts in
auditing and accounting.
SHAREHOLDER PROPOSALS
If the Merger and Exchange are consummated, shareholders of Pittsburg
Bancshares and the Bank will become shareholders of Commerce at the Effective
Time. Commerce shareholders may submit to Commerce proposals for formal
consideration at the annual meetings of Commerce's shareholders and inclusion
in Commerce's proxy statements for such meetings. The deadline for all such
proposals to be considered for inclusion in Commerce's Proxy Statement and
proxy for the 1998 annual meeting was November 1997.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF PITTSBURG BANCSHARES, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
Independent Accountants' Report............................................ F-2
Consolidated Balance Sheets September 30, 1997 and December 31, 1996 and
1995...................................................................... F-3
Consolidated Statements of Income.......................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Pittsburg Bancshares, Inc.
Pittsburg, Kansas
We have audited the accompanying consolidated balance sheet of PITTSBURG
BANCSHARES, INC. as of December 31, 1996, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PITTSBURG
BANCSHARES, INC. as of December 31, 1996, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
BAIRD, KURTZ & DOBSON
Joplin, Missouri
November 25, 1997
F-2
<PAGE>
PITTSBURG BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER --------------------------
ASSETS 30, 1997 1996 1995
------ ------------ ---- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash and due from banks.............. $ 4,761,521 $ 4,871,690 $ 3,798,880
Interest-bearing deposits in other
financial institutions.............. 160,815 112,733 132,970
Federal funds sold................... 3,250,000 2,375,000 --
------------ ------------ ------------
Cash and cash equivalents.......... 8,172,336 7,359,423 3,931,850
Interest-bearing certificates of
deposit in other financial
institutions........................ 300,000 300,000 300,000
Available-for-sale securities........ 30,716,464 26,726,508 22,417,189
Held-to-maturity securities.......... 21,731,744 25,826,298 28,408,201
Loans, net of allowance for loan
losses.............................. 54,547,848 50,448,322 49,334,649
Premises and equipment............... 2,265,011 2,299,058 2,156,090
Interest receivable.................. 1,032,480 1,003,545 1,026,739
Other................................ 541,307 562,686 575,479
------------ ------------ ------------
Total Assets..................... $119,307,190 $114,525,840 $108,150,197
============ ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
LIABILITIES
Deposits
Non-interest bearing demand
deposits.......................... $ 12,068,921 $ 11,166,435 $ 10,880,881
Interest bearing demand deposits... 27,165,491 26,776,968 24,092,561
Savings deposits................... 6,250,051 6,123,521 6,126,073
Certificates of deposit, $100,000
and over.......................... 16,024,332 14,448,709 13,779,237
Certificates of deposit, other..... 41,655,596 37,991,940 37,582,407
------------ ------------ ------------
Total Deposits................... 103,164,391 96,507,573 92,461,159
Federal funds purchased and
securities sold under agreements to
repurchase.......................... 1,317,586 4,117,667 2,832,161
Accrued interest and other
liabilities......................... 666,784 729,574 734,174
Deferred income taxes................ 192,218 155,101 188,971
------------ ------------ ------------
Total Liabilities................ 105,340,979 101,509,915 96,216,465
------------ ------------ ------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY.......................... 418,104 391,001 356,672
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $6 par value; 500,000
shares authorized; 72,582.5 shares
issued............................ 435,495 435,495 435,495
Additional paid-in capital......... 6,239,637 6,239,637 6,239,637
Retained earnings.................. 6,796,368 5,936,480 4,814,216
Unrealized appreciation on
available-for-sale securities, net
of income taxes of $68,836 at
September 30, 1997, and $26,960
and $69,773 at December 31, 1996
and 1995, respectively............ 111,319 43,599 112,829
Treasury stock, at cost--397.5
shares at September 30, 1997, and
367.5 shares and 320.5 shares at
December 31, 1996 and 1995,
respectively...................... (34,712) (30,287) (25,117)
------------ ------------ ------------
Total Stockholders' Equity....... 13,548,107 12,624,924 11,577,060
------------ ------------ ------------
Total Liabilities and
Stockholders' Equity............ $119,307,190 $114,525,840 $108,150,197
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
PITTSBURG BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------------------
1997 1996 1996 1995 1994
----------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans.................. $3,749,325 $3,423,509 $4,600,486 $4,403,342 $3,607,473
Investment
securities--taxable... 2,022,426 1,857,404 2,523,601 2,364,940 2,163,999
Investment
securities--
nontaxable............ 393,367 462,793 600,787 590,143 535,588
Federal funds sold..... 73,975 62,172 105,779 166,943 50,120
---------- ---------- ---------- ---------- ----------
Total Interest
Income.............. 6,239,093 5,805,878 7,830,653 7,525,368 6,357,180
---------- ---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits............... 2,841,477 2,615,480 3,526,149 3,377,882 2,615,136
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 90,783 138,718 177,582 95,355 16,187
---------- ---------- ---------- ---------- ----------
Total Interest
Expense............. 2,932,260 2,754,198 3,703,731 3,473,237 2,631,323
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME..... 3,306,833 3,051,680 4,126,922 4,052,131 3,725,857
PROVISION FOR LOAN
LOSSES................. 79,000 67,500 90,000 100,000 90,000
---------- ---------- ---------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES............ 3,227,833 2,984,180 4,036,922 3,952,131 3,635,857
---------- ---------- ---------- ---------- ----------
NONINTEREST INCOME
Income from fiduciary
activities............ 139,188 104,710 138,372 119,878 126,974
Service charges on
deposit accounts...... 243,289 247,504 395,764 371,351 342,066
Net realized gains
(losses) on
available-for-sale
securities............ -- -- -- 4,600 (21,726)
Commissions............ 102,912 45,791 69,907 5,434 --
Other income........... 169,805 129,589 110,599 82,676 103,991
---------- ---------- ---------- ---------- ----------
Total Noninterest
Income.............. 655,194 527,594 714,642 583,939 551,305
---------- ---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee
benefits.............. 1,073,940 1,018,383 1,374,347 1,271,821 1,137,901
Data processing........ 81,755 78,183 104,464 151,371 151,742
Net occupancy expense.. 227,906 232,550 303,707 198,308 221,337
Marketing.............. 76,174 75,134 100,123 115,258 86,288
Examinations and dues.. 86,282 80,867 108,266 110,165 77,651
Deposit insurance
premium............... 9,080 1,500 2,000 103,245 196,379
Contributions.......... 20,753 25,430 64,771 113,309 35,789
Other operating
expenses.............. 365,529 312,405 425,956 363,695 342,873
---------- ---------- ---------- ---------- ----------
Total Noninterest
Expenses............ 1,941,419 1,824,452 2,483,634 2,427,172 2,249,960
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES.................. 1,941,608 1,687,322 2,267,930 2,108,898 1,937,202
PROVISION FOR INCOME
TAXES.................. 630,240 501,553 663,625 555,134 584,716
---------- ---------- ---------- ---------- ----------
INCOME BEFORE MINORITY
INTEREST............... 1,311,368 1,185,769 1,604,305 1,553,764 1,352,486
MINORITY INTEREST....... (40,025) (35,954) (48,612) (47,275) (52,987)
---------- ---------- ---------- ---------- ----------
NET INCOME.............. $1,271,343 $1,149,815 $1,555,693 $1,506,489 $1,299,499
========== ========== ========== ========== ==========
EARNINGS PER COMMON
SHARE.................. $ 17.61 $ 15.91 $ 21.53 $ 20.88 $ 18.11
========== ========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
PITTSBURG BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL ON AVAILABLE-
COMMON PAID-IN RETAINED FOR-SALE TREASURY
STOCK CAPITAL EARNINGS SECURITIES, NET STOCK TOTAL
-------- ---------- ---------- --------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994
(UNAUDITED)............ $432,495 $6,167,608 $2,784,736 $ -- $(24,989) $ 9,359,850
Net income (unaudited). -- -- 1,299,499 -- -- 1,299,499
Cash dividend
declared--$5.20 per
share (unaudited)..... -- -- (373,166) -- -- (373,166)
Change in unrealized
depreciation on
available-for-sale
securities, net of
income taxes of
$107,314 (unaudited).. -- -- -- (173,540) -- (173,540)
Treasury stock
purchased (unaudited). -- -- -- -- (128) (128)
-------- ---------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31,
1994 (UNAUDITED)....... 432,495 6,167,608 3,711,069 (173,540) (25,117) 10,112,515
Net income (unaudited). -- -- 1,506,489 -- -- 1,506,489
Cash dividends
declared--$5.58 per
share (unaudited)..... -- -- (403,342) -- -- (403,342)
Issuance of common
stock (unaudited)..... 3,000 72,029 -- -- -- 75,029
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of
$177,086 (unaudited).. -- -- -- 286,369 -- 286,369
-------- ---------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31,
1995 (UNAUDITED)....... 435,495 6,239,637 4,814,216 112,829 (25,117) 11,577,060
Net income............. -- -- 1,555,693 -- -- 1,555,693
Cash dividends
declared--$6.00 per
share................. -- -- (433,429) -- -- (433,429)
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of
$42,811............... -- -- -- (69,230) -- (69,230)
Treasury stock
purchased............. -- -- -- -- (5,170) (5,170)
-------- ---------- ---------- -------- -------- -----------
BALANCE, DECEMBER 31,
1996................... 435,495 6,239,637 5,936,480 43,599 (30,287) 12,624,924
Net income (unaudited). -- -- 1,271,343 -- -- 1,271,343
Cash dividends
declared--$5.70 per
share (unaudited)..... -- -- (411,455) -- -- (411,455)
Change in unrealized
appreciation on
available-for-sale
securities, net of
income taxes of
$41,877 (unaudited)... -- -- -- 67,720 -- 67,720
Treasury stock
purchased (unaudited). -- -- -- -- (4,425) (4,425)
-------- ---------- ---------- -------- -------- -----------
BALANCE, SEPTEMBER 30,
1997 (UNAUDITED)....... $435,495 $6,239,637 $6,796,368 $111,319 $(34,712) $13,548,107
======== ========== ========== ======== ======== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
PITTSBURG BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- -------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income.............. $ 1,271,343 $1,149,815 $ 1,555,693 $ 1,506,489 $ 1,299,499
Items not requiring
(providing) cash
Depreciation and
amortization......... 108,590 123,532 180,919 115,572 143,260
Amortization of
premiums and
discounts on
securities........... 53,682 28,447 38,928 101,103 262,200
Net realized (gains)
losses on available-
for-sale securities.. -- -- (4,600) 21,726
Deferred income taxes. (4,760) 10,553 8,941 (29,900) 25,217
Provision for loan
losses............... 79,000 67,500 90,000 100,000 90,000
Changes in:
Interest receivable. (28,935) 48,867 23,194 (75,251) (24,869)
Other assets........ 11,897 21,939 4,353 (95,677) (358,938)
Income taxes
payable/refundable. 33,826 36,162 11,043 (66,122) --
Accrued interest and
other liabilities.. 151,141 34,123 (11,683) 180,976 (86,424)
----------- ---------- ----------- ----------- -----------
Net cash provided
by operating
activities........ 1,675,784 1,520,938 1,901,388 1,732,590 1,371,671
----------- ---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Net increase in
interest-bearing
certificates of
deposit in other
financial
institutions........... -- -- -- (300,000) --
Net originations of
loans.................. (4,223,343) (789,684) (1,225,871) (3,941,919) (5,136,921)
Purchase of premises
and equipment.......... (74,543) (305,935) (320,887) (405,679) (121,681)
Proceeds from sale of
foreclosed assets...... 26,798 9,395 16,595 79,973 --
Proceeds from sales of
available-for-sale
securities............. -- -- -- -- 1,076,179
Proceeds from
maturities of
available-for-sale
securities............. 7,134,665 6,212,805 8,690,257 3,847,442 1,338,273
Purchases of available-
for-sale securities.... (11,035,751) (9,093,262) (13,130,261) (6,643,765) (6,095,016)
Proceeds from
maturities of held-to-
maturity securities.... 9,415,504 9,686,998 13,101,332 9,742,088 20,403,421
Purchases of held-to-
maturity securities.... (5,353,905) (7,952,639) (10,539,713) (10,785,465) (14,828,531)
----------- ---------- ----------- ----------- -----------
Net cash used in
investing
activities........ (4,110,575) (2,232,322) (3,408,548) (8,407,325) (3,364,276)
----------- ---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease)
in demand deposits and
savings deposits....... 1,417,539 2,947,549 2,967,409 (1,208,730) (36,622)
Net increase in
certificates of
deposit................ 5,239,279 965,861 1,079,005 3,128,753 2,621,973
Net increase (decrease)
in federal funds
purchased and
securities sold under
agreements to
repurchase............. (2,800,081) 386,124 1,285,506 2,832,161 --
Dividends paid.......... (631,711) (426,346) (426,346) (380,338) (365,994)
Issuance of common
stock.................. -- -- -- 75,029 --
Treasury stock
purchased.............. (4,425) (5,170) (5,170) -- (128)
Net change in minority
interest in
consolidated
subsidiary............. 27,103 28,927 34,329 (58,072) 36,941
----------- ---------- ----------- ----------- -----------
Net cash provided
by financing
activities........ 3,247,704 3,896,945 4,934,733 4,388,803 2,256,170
----------- ---------- ----------- ----------- -----------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............. 812,913 3,185,561 3,427,573 (2,285,932) 263,565
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............... 7,359,423 3,931,850 3,931,850 6,217,782 5,954,217
----------- ---------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD.................. $ 8,172,336 $7,117,411 $ 7,359,423 $ 3,931,850 $ 6,217,782
=========== ========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994 (UNAUDITED)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Pittsburg Bancshares, Inc. ("PBI" or the "Company") operates as a one bank
holding company. PBI's business primarily consists of the business of City
National Bank of Pittsburg (the "Bank"), which is primarily engaged in
providing a full range of banking services to individual and corporate
customers through its facilities in Southeast Kansas. The Bank is subject to
competition from other financial institutions. The Company and the Bank are
also subject to the regulation of certain federal agencies and undergo
periodic examinations by those regulatory authorities.
Pittsburg Bancshares, Inc. owned 96.98% of the Bank's outstanding capital
stock at September 30, 1997 and December 31, 1996 and 1995.
The consolidated financial statements as of September 30, 1997 and December
31, 1995 and for the periods ended September 30, 1997 and 1996 and December
31, 1995 and 1994 are unaudited, but in the opinion of management, include all
adjustments, consisting only of normal, recurring items, necessary for fair
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses
and the valuation of foreclosed assets held for sale, management obtains
independent appraisals for significant properties.
Management believes that the allowance for losses on loans and the valuation
of foreclosed assets held for sale are adequate. While management uses
available information to recognize losses on loans and foreclosed assets held
for sale, change in economic conditions may necessitate revision of these
estimates in future years. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowances for losses on loans and valuation of foreclosed assets held for
sale. Such agencies may require the Bank to recognize additional losses based
on their judgments of information available to them at the time of their
examination.
Principles of Consolidation
The consolidated financial statements include the accounts of the Pittsburg
Bancshares, Inc. and its subsidiary, City National Bank of Pittsburg.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
F-7
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Various items within the accompanying financial statements for previous
years have been reclassified to provide more comparative information. These
reclassifications had no effect on net earnings.
Cash Equivalents
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At September 30, 1997 and
December 31, 1996, cash equivalents consisted primarily of federal funds sold.
The Company had no cash equivalents at December 31, 1995.
Investments in Debt Securities
Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future, are
carried at fair value. Realized gains and losses, based on the amortized cost
of the specific security, are included in noninterest income. Unrealized gains
and losses are recorded, net of related income tax effects, in stockholders'
equity. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.
Held-to-maturity securities, which include any security for which the
Company has the positive intent and ability to hold until maturity, are
carried at historical cost adjusted for amortization of premiums and accretion
of discounts. Premiums and discounts are amortized and accreted, respectively,
to interest income using the level-yield method over the period to maturity.
Interest on investments in debt securities is included in income when
earned.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding
principal adjusted for any charge-offs, the allowance for loan losses and any
deferred fees or costs on originated loans and unamortized premiums or
discounts on purchased loans.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is
maintained at a level considered adequate to provide for potential loan
losses, based on management's evaluation of the loan portfolio, as well as on
prevailing and anticipated economic conditions and historical losses by loan
category. General allowances have been established, based upon the
aforementioned factors, and allocated to the individual loan categories.
Allowances are accrued on specific loans evaluated for impairment for which
the basis of each loan, including accrued interest, exceeds the discounted
amount of expected future collections of interest and principal or,
alternatively, the fair value of loan collateral.
A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is
discontinued, and interest accrued and unpaid is removed, at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans
only upon receipt, and only after all principal amounts are current according
to the terms of the contract.
F-8
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets.
Foreclosed Assets Held for Sale
Assets acquired by foreclosure or in settlement of debt and held for sale
are valued at fair value as of the date of foreclosure and a related valuation
allowance is provided for estimated costs to sell the assets. Management
evaluates foreclosed assets held for sale periodically and increases the
valuation allowance for any subsequent declines in estimated fair value.
Changes in the valuation allowance are charged or credited to noninterest
expenses.
Fee Income
Loan origination fees, net of direct origination costs, are recognized as
income using the level-yield method over the term of the loans.
Income Taxes
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.
Trust Department Assets
Property held by the Bank in a fiduciary or agency capacity for its
customers is not included in the balance sheet as such items are not assets of
the Bank.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during each period less the weighted average number of shares of
treasury stock. There were no common stock equivalents during any of the
periods. Weighted average shares outstanding were 72,204 and 72,250 at
September 30, 1997 and 1996, and 72,243, 72,162 and 71,762 at December 31,
1996, 1995 and 1994, respectively.
Advertising
The Company expenses advertising costs as they are incurred.
Impact of Future Accounting Pronouncements
The Financial Accounting Standards Board recently adopted Statement No. 125,
(FAS 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". FAS 125, which as amended is effective for
transactions that occur after December 31, 1997, imposes new rules for
determining when transfers of financial assets are accounted for as sales
versus when transfers are accounted for as borrowings. Management believes
that FAS 125 will not have a material impact on the Companys financial
statements.
The Financial Accounting Standards Board (FASB) recently adopted Statement
of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share". This
statement replaces the presentation of primary earnings
F-9
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
per share with a presentation of basic earnings per share. The statement also
requires dual presentation of basic and diluted earnings per shares by
entities with complex capital structures and requires a reconciliation of the
numerators and denominators between the two calculations. SFAS 128 is
effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Management has not determined the impact,
if any, of adopting SFAS 128 on the Company's financial statements.
The FASB recently adopted SFAS 129, "Disclosure of Information about Capital
Structure". This statement establishes standards for disclosing information
about capital structure, including pertinent rights and privileges of various
securities outstanding. SFAS 129 is effective for financial statements issued
for periods ending after December 15, 1997. The adoption of SFAS 129 is not
expected to have a material impact on the Company's financial statements.
The FASB recently adopted SFAS 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. It does not
address issues of recognition or measurement. SFAS is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 130 is not
expected to have a material impact on the Company's financial statements.
The FASB recently adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement establishes standards for
the way that public business enterprises report information about operating
segments in both annual financial statements and interim financial reports
issued to shareholders. The statement also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for financial statements issued for periods beginning
after December 15, 1997. The adoption of SFAS 131 is not expected to have a
material impact on the Company's financial statements.
NOTE 2: INVESTMENTS IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury................. $ 8,492,866 $ 34,439 $(1,071) $ 8,526,234
U. S. Government agencies...... 12,372,373 88,835 (6,279) 12,454,929
Mortgage-backed securities..... 9,671,070 64,231 -- 9,735,301
----------- -------- ------- -----------
$30,536,309 $187,505 $(7,350) $30,716,464
=========== ======== ======= ===========
</TABLE>
The amortized cost and approximate fair value of available-for-sale
securities at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury................. $ 6,945,515 $ 22,374 $ (7,310) $ 6,960,579
U. S. Government agencies...... 11,577,908 74,622 (32,252) 11,620,278
Mortgage-backed securities..... 8,132,526 61,913 (48,788) 8,145,651
----------- -------- -------- -----------
$26,655,949 $158,909 $(88,350) $26,726,508
=========== ======== ======== ===========
</TABLE>
F-10
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and approximate fair value of available-for-sale
securities at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury................. $ 5,694,395 $ 43,681 $ (3,576) $ 5,734,500
U. S. Government agencies...... 10,223,119 106,594 (25,175) 10,304,538
Mortgage-backed securities..... 6,317,073 76,340 (15,262) 6,378,151
----------- -------- -------- -----------
$22,234,587 $226,615 $(44,013) $22,417,189
=========== ======== ======== ===========
</TABLE>
Maturities of available-for-sale securities are:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------- -----------------------
AMORTIZED APPROXIMATE AMORTIZED APPROXIMATE
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
One year or less............ $ 6,328,342 $ 6,340,173 $ 5,146,982 $ 5,161,642
After one through five
years...................... 13,618,054 13,721,040 11,817,584 11,872,359
After five through ten
years...................... 918,843 919,950 1,558,857 1,546,856
Mortgage-backed securities
not due on a single
maturity date.............. 9,671,070 9,735,301 8,132,526 8,145,651
----------- ----------- ----------- -----------
$30,536,309 $30,716,464 $26,655,949 $26,726,508
=========== =========== =========== ===========
</TABLE>
The amortized cost and approximate fair value of held-to-maturity securities
at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Government agencies..... $ 5,876,505 $ 42,975 $ (1,391) $ 5,918,089
Mortgage-backed securities.... 5,137,695 17,818 -- 5,155,513
State and political
subdivisions................. 9,852,211 181,234 (37,063) 9,996,382
Other......................... 865,333 213 (355) 865,191
----------- -------- -------- -----------
$21,731,744 $242,240 $(38,809) $21,935,175
=========== ======== ======== ===========
</TABLE>
The amortized cost and approximate fair value of held-to-maturity securities
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Government agencies..... $ 9,856,135 $ 50,468 $(14,127) $ 9,892,476
Mortgage-backed securities.... 4,815,168 25,111 (18,995) 4,821,284
State and political
subdivisions................. 10,351,140 176,315 (50,072) 10,477,383
Other......................... 803,855 368 (916) 803,307
----------- -------- -------- -----------
$25,826,298 $252,262 $(84,110) $25,994,450
=========== ======== ======== ===========
</TABLE>
F-11
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and approximate fair value of held-to-maturity securities
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U. S. Treasury................ $ 299,980 $ 0 $ 355 $ 299,625
U. S. Government agencies..... 12,097,890 104,916 36,072 12,166,734
Mortgage-backed securities.... 2,668,657 16,209 2,470 2,682,396
State and political
subdivisions.................. 12,216,002 243,911 34,985 12,424,928
Other......................... 1,125,672 1,325 1,130 1,125,867
----------- -------- ------- -----------
$28,408,201 $366,361 $75,012 $28,699,550
=========== ======== ======= ===========
</TABLE>
Maturities of held-to-maturity securities are:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------- -----------------------
AMORTIZED APPROXIMATE AMORTIZED APPROXIMATE
COST FAIR VALUE COST FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
One year or less............ $ 3,547,660 $ 3,556,012 $ 7,384,852 $ 7,394,873
After one through five
years...................... 8,136,778 8,264,168 8,193,985 8,313,483
After five through ten
years...................... 3,588,457 3,653,145 4,187,692 4,234,382
After ten years............. 1,321,154 1,306,337 1,244,601 1,230,428
Mortgage-backed securities
not due on a single
maturity date.............. 5,137,695 5,155,513 4,815,168 4,821,284
----------- ----------- ----------- -----------
$21,731,744 $21,935,175 $25,826,298 $25,994,450
=========== =========== =========== ===========
</TABLE>
The book value and approximate fair value of securities pledged as
collateral to secure public and trust deposits and for other purposes amounted
to $17,632,174 and $17,770,781 at September 30, 1997; $17,696,895 and
$17,814,711 at December 31, 1996 and $17,693,223 and $17,891,676 at December
31, 1995, respectively.
There were no proceeds from sales of investments in debt securities for the
nine months ended September 30, 1997 and 1996 and the year ended December 31,
1996. Proceeds from bonds called or the sales of investments in debt
securities for the years ended December 31, 1995 and 1994 were $119,600 and
$1,076,179, respectively. Gross gains on these transactions were $4,600 and $0
for the years ended December 31, 1995 and 1994, respectively. Gross losses on
these transactions were $0 and $21,726 for the years ended December 31, 1995
and 1994, respectively.
The book value and approximate fair value of securities sold under
agreements to repurchase amounted to $3,749,401 and $3,775,423 at September
30, 1997; $5,357,346 and $5,380,663 at December 31, 1996 and $3,116,226 and
$3,155,937 at December 31, 1995, respectively.
As of December 13, 1995, the Bank redesignated held-to-maturity securities
with an aggregate amortized cost of $7,712,000 and net unrealized gains of
$27,000 to the available-for-sale portfolio. The redesignation was prompted by
the announcement by the Financial Accounting Standards Board to allow a one-
time redesignation and reflected management's revised expectations of
liquidity needs.
F-12
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at the following dates are as follows:
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31,
30, -----------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Real estate loans....................... $41,205,596 $37,159,100 $33,770,202
Commercial and industrial loans......... 6,301,100 5,314,200 7,099,001
Installment loans and other............. 7,936,000 8,796,100 9,216,661
----------- ----------- -----------
Total............................... 55,442,696 51,269,400 50,085,864
Less:
Unearned interest..................... -- 54 350
Allowance for loan losses............. 894,848 821,024 750,865
----------- ----------- -----------
Net loans........................... $54,547,848 $50,448,322 $49,334,649
=========== =========== ===========
</TABLE>
A summary of the transactions in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------ ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................... $821,024 $750,865 $750,865 $646,275 $556,381
Provision charged to
operating expenses....... 79,000 67,500 90,000 100,000 90,000
Loans charged off......... (35,324) (9,496) (27,673) (17,115) (9,863)
Recoveries................ 30,148 6,259 7,832 21,705 9,757
-------- -------- -------- -------- --------
Balance, end of period.... $894,848 $815,128 $821,024 $750,865 $646,275
======== ======== ======== ======== ========
</TABLE>
Impaired loans totaled $408,000, $959,000 and $531,000 at September 30, 1997
and December 31, 1996 and 1995, respectively. An allowance for loan losses of
$68,000, $345,000 and $112,000 relates to these impaired loans at September
30, 1997 and December 31, 1996 and 1995, respectively.
Interest of $32,000, $62,000, $82,000 and $53,000 was recognized on average
impaired loans of $404,000, $750,000, $745,000 and $320,000 for the nine
months ended September 30, 1997 and 1996 and the years ended December 31, 1996
and 1995, respectively. Interest of $30,000, $61,000, $81,000 and $45,000 was
recognized on impaired loans on a cash basis during the nine months ended
September 30, 1997 and 1996 and the years ended December 31, 1996 and 1995,
respectively.
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Land.................................... $ 431,921 $ 431,921 $ 432,821
Buildings and improvements.............. 2,249,802 2,231,383 2,106,823
Bank equipment.......................... 1,093,526 1,043,476 1,087,967
---------- ---------- ----------
3,775,249 3,706,780 3,627,611
Less accumulated depreciation........... 1,510,238 1,407,722 1,471,521
---------- ---------- ----------
$2,265,011 $2,299,058 $2,156,090
========== ========== ==========
</TABLE>
F-13
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: INCOME TAXES
The provision (credit) for income taxes consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------ ---------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Taxes currently payable...... $635,000 $491,000 $654,684 $585,034 $559,499
Deferred income taxes........ (4,760) 10,553 8,941 (29,900) 25,217
-------- -------- -------- -------- --------
$630,240 $501,553 $663,625 $555,134 $584,716
======== ======== ======== ======== ========
</TABLE>
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets are:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1997 1996 1995
------------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses............. $ 296,785 $ 272,195 $ 237,806
--------- --------- ---------
Deferred tax liabilities:
Accumulated depreciation.............. (329,111) (320,677) (305,485)
Available-for-sale securities......... (68,836) (26,960) (69,773)
Other................................. (91,056) (79,659) (51,519)
--------- --------- ---------
(489,003) (427,296) (426,777)
--------- --------- ---------
Net deferred tax liability.............. $(192,218) $(155,101) $(188,971)
========= ========= =========
</TABLE>
A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Computed at the
statutory rate (34%)... $660,148 $573,689 $ 771,096 $ 717,025 $ 658,649
Increase (decrease) in
taxes resulting from:
Tax-exempt municipal
interest............. (115,939) (138,331) (179,919) (177,029) (162,109)
State bank tax........ 81,962 65,505 87,548 63,489 84,895
Other, net............ 4,069 690 (15,100) (48,351) 3,281
--------- --------- --------- --------- ---------
Actual tax provision.... $ 630,240 $ 501,553 $ 663,625 $ 555,134 $ 584,716
========= ========= ========= ========= =========
</TABLE>
Deferred income taxes related to the change in unrealized appreciation
(depreciation) on available-for-sale securities, shown in stockholders equity
were $41,877, $(76,917), $42,811, $177,086 and $(107,314) for the nine months
ended September 30, 1997 and 1996, and the years ended December 31, 1996, 1995
and 1994, respectively.
NOTE 6: REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct and material effect on
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's
F-14
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital to average assets (as
defined). Management believes that, as of September 30, 1997 and December 31,
1996, that the Bank meets all capital adequacy requirements to which it is
subject.
As of September 30, 1997 and December 31, 1996, the most recent notification
from the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
----------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30,
1997:
Total Capital......... $14,639,000 22.6% $5,180,000 ^ 8.0% $6,474,000 ^ 10.0%
(to Risk Weighted
Assets)
Tier I Capital........ $13,829,000 21.4% $2,590,000 ^ 4.0% $3,885,000 ^ 6.0%
(to Risk Weighted
Assets)
Tier I Capital........ $13,829,000 11.7% $4,710,000 ^ 4.0% $5,887,000 ^ 5.0%
(to Average Assets)
As of December 31, 1996:
Total Capital......... $13,648,000 23.8% $4,570,000 ^ 8.0% $5,712,000 ^ 10.0%
(to Risk Weighted
Assets)
Tier I Capital........ $12,933,000 22.6% $2,285,000 ^ 4.0% $3,427,000 ^ 6.0%
(to Risk Weighted
Assets)
Tier I Capital........ $12,933,000 11.4% $4,540,000 ^ 4.0% $5,675,000 ^ 5.0%
(to Average Assets)
</TABLE>
NOTE 7: TRANSACTIONS WITH RELATED PARTIES
As of September 30, 1997 and December 31, 1996 and 1995, the Bank had loans
outstanding to employees, officers, directors, principal stockholders and
companies with which the Bank's officers or directors are affiliated. Loans
outstanding to these individuals are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------
1997 1996 1995
------------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of the period........ $1,399,000 $2,695,000 $1,837,000
New loans, including existing loans
outstanding to new directors........... 2,971,588 235,990 1,390,401
Repayments.............................. 216,122 1,531,990 532,401
---------- ---------- ----------
Balance, end of the period.............. $4,154,466 $1,399,000 $2,695,000
========== ========== ==========
</TABLE>
F-15
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons.
Further, in management's opinion, these loans did not involve more than normal
risk of collectibility or present other unfavorable features.
NOTE 8: PROFIT-SHARING PLAN
Substantially all full-time employees of the Bank are covered by a profit-
sharing plan. Contributions to the plan are to be made at the discretion of
the Board of Directors. Amounts charged to expense were $72,900, $69,300,
$88,000, $87,000 and $75,000 for the nine months ended September 30, 1997 and
1996 and the years ended December 31, 1996 and 1995 and 1994, respectively.
NOTE 9: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------- --------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Noncash Investing and
Financing Activities
Dividends declared not
paid................. $ 0 $ 0 $ 220,256 $ 213,173 $ 190,169
Sale and financing of
foreclosed assets.... $ 0 $ 23,561 $ 23,561 $ 26,146 $ 14,553
Real estate acquired
in settlement of
loans................ $ 44,817 $ 37,067 $ 45,759 $ 84,387 $ 33,762
Additional Cash Payment
Information
Interest paid......... $2,959,225 $2,746,749 $3,540,680 $3,314,865 $2,584,196
Income taxes paid..... $ 596,419 $ 465,391 $ 643,641 $ 659,624 $ 690,655
</TABLE>
NOTE 10: RESTRICTIONS ON RETAINED EARNINGS
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At September 30, 1997, and
December 31, 1996 and 1995, approximately $3,153,000, $3,206,000 and
$3,044,000, respectively, of retained earnings were available for dividend
declaration without prior regulatory approval.
NOTE 11: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and Cash Equivalents and Interest-Bearing Deposits in Other Financial
Institutions
For these short-term instruments, the carrying amount approximates fair
value.
Available-For-Sale Securities
Fair values for available-for-sale securities, which also are the amounts
recognized in the balance sheet, equal quoted market prices, if available. If
quoted market prices are not available, fair values are estimated based on
quoted market prices of similar securities.
F-16
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Held-To-Maturity Securities
Fair values for held-to-maturity securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are
estimated based on quoted market prices of similar securities.
Loans
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with
similar characteristics were aggregated for purposes of the calculations. The
carrying amount of accrued interest approximates its fair value.
Deposits
The fair value of demand deposits and savings deposits is the amount payable
on demand at the reporting date (i.e., their carrying amount). The fair value
of certificates of deposit is estimated using a discounted cash flow
calculation that applies the rates currently offered for deposits of similar
remaining maturities. The carrying amount of accrued interest payable
approximates its fair value.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Commitments to Extend Credit, Letters of Credit and Lines of Credit
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of
the agreements and the present credit worthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit and lines of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle
the obligations with the counterparties at the reporting date.
F-17
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents estimated fair values of the Company's
financial instruments. The fair values of certain of these instruments were
calculated by discounting expected cash flows, which method involves
significant judgments by management and uncertainties. Fair value is the
estimated amount at which financial assets or liabilities could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. Because no market exists for certain of these financial
instruments and because management does not intend to sell these financial
instruments, the Bank does not know whether the fair values shown below
represent values at which the respective financial instruments could be sold
individually or in the aggregate.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- --------------------- ---------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents.......... $8,172,336 $8,172,336 $7,359,423 $7,359,423 $3,931,850 $3,931,850
Interest-bearing
deposits in other
financial
institutions......... 300,000 300,000 300,000 300,000 300,000 300,000
Available-for-sale
securities........... 30,716,464 30,716,464 26,726,508 26,726,508 22,417,189 22,417,189
Held-to-maturity
securities........... 21,731,744 21,935,175 25,826,298 25,994,450 28,408,201 28,699,550
Interest receivable... 1,032,480 1,032,480 1,003,545 1,003,545 1,026,739 1,026,739
Loans, net of
allowance for loan
losses............... 54,547,848 54,631,000 50,448,322 50,299,000 49,334,649 49,379,000
Financial liabilities:
Noninterest bearing
demand deposits...... 12,068,921 12,068,921 11,166,435 11,166,435 10,880,881 10,880,881
Interest bearing
demand deposits and
savings deposits..... 33,415,542 33,415,542 32,900,489 32,900,489 30,218,634 30,218,634
Certificates of
deposit.............. 57,679,928 58,369,000 52,440,649 52,572,000 51,361,644 51,736,000
Federal funds
purchased and
securities sold under
agreement to
repurchase........... 1,317,586 1,317,586 4,117,667 4,117,667 2,832,161 2,832,161
Accrued interest
payable 389,127 389,127 316,092 316,092 330,623 330,623
Unrecognized financial
instruments:
Commitments to extend
credit............... -- -- -- -- -- --
Letters of credit..... -- -- -- -- -- --
</TABLE>
F-18
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: COMMITMENTS AND CREDIT RISK
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the lending contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments may
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's credit
worthiness is evaluated on a case-by-case basis. The amount of collateral
obtained, if deemed necessary, upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable; inventory; property, plant and equipment;
commercial real estate and residential real estate.
At September 30, 1997 and December 31, 1996 and 1995, outstanding
commitments to originate loans aggregated approximately $112,000, $244,000 and
$377,000, respectively. The commitments extend over varying periods of time
with the majority being disbursed or expiring within one year. Loan
commitments are all at fixed rates of interest.
Letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
Total outstanding letters of credit amounted to $50,000, $65,000 and $84,000
at September 30, 1997 and December 31, 1996 and 1995, respectively, with terms
ranging from one to thirty-six months.
Lines of credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines of credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary,
upon extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable;
inventory; property, plant and equipment; commercial real estate and
residential real estate. The same credit policies are used in granting lines
of credit as those for on-balance-sheet instruments.
At September 30, 1997 and December 31, 1996 and 1995, unused lines of credit
for commercial borrowers aggregated approximately $6,973,000, $4,487,000 and
$2,815,000, respectively.
At December 31, 1996, the Bank had committed to purchase investment
securities with a par value of $200,000 and cost of $199,000 within 15 days of
year end.
NOTE 13: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations. Estimates related to the allowance for loan losses are
reflected in the footnote regarding loans.
NOTE 14: PARENT COMPANY FINANCIAL INFORMATION
The financial statements of Pittsburg Bancshares, Inc. (Parent) reflect its
investment in City National Bank of Pittsburg (Bank) and its equity in the
Banks distributed and undistributed net assets. The Parent has no other
significant assets, liabilities or operating activities. At September 30,
1997, and December 31, 1996 and 1995,
F-19
<PAGE>
PITTSBURG BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the equity in undistributed earnings of the Bank was $13,519,083, $12,584,006
and $11,550,080, respectively. The Bank distributed dividends to the Parent of
$647,319, $450,942, $450,942, $404,082 and $389,246 during the nine months
ended September 30, 1997 and 1996 and the years ended December 31, 1996, 1995,
and 1994, respectively. The Bank may distribute dividends without regulatory
approval from September 30, 1997 and December 31, 1996 and 1995 undistributed
earnings, subject to maintenance of minimum capital requirements.
NOTE 15: MERGER AGREEMENT
On October 29, 1997, management of the Company, as authorized by the Board
of Directors of Pittsburg Bancshares, Inc., signed a merger agreement with
Commerce Bancshares, Inc., a Missouri based multi-bank holding company with
approximately $10 billion in total assets. The agreement formulates a
transaction whereby all of the outstanding stock of Pittsburg Bancshares, Inc.
would be exchanged for shares of Commerce Bancshares, Inc. The merger is
subject to regulatory and shareholder approval and, if approved, is
anticipated to occur in early 1998.
F-20
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF
REORGANIZATION AMONG
COMMERCE BANCSHARES, INC.
PITTSBURG BANCSHARES, INC.
AND
CBI-KANSAS, INC.
DATED OCTOBER 29, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
ARTICLE I--THE MERGER..................................................... 1
1.1. The Merger........................................................ 1
1.2. Effective Time of Merger.......................................... 1
1.3. The Articles of Incorporation..................................... 1
1.4. Effect of Merger.................................................. 1
1.5. Further Assurances................................................ 2
ARTICLE II--CONVERSION OF SHARES.......................................... 2
2.1. Effect of Merger on Sub Stock..................................... 2
2.2. Conversion of the Company Shares in the Merger.................... 2
2.3. Exchange of Certificates.......................................... 2
2.4. Closing of the Company Transfer Books............................. 3
2.5. Dividends......................................................... 3
2.6. Shareholders' Approval............................................ 3
2.7. Dissenting Shares................................................. 3
2.8. Exchange Offer for Bank Shares.................................... 3
2.9. Adjustment for Stock Splits, Stock Dividends, Combinations and
Reclassifications................................................. 4
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF COMMERCE AND SUB........... 4
3.1. Organization and Authority........................................ 4
3.2. Valid and Binding Agreement; No Violation......................... 5
3.3. Capital Stock of Commerce......................................... 5
3.4. Financial Statements.............................................. 5
3.5. SEC Reports....................................................... 5
3.6. Status of Commerce Common Stock to be Issued...................... 5
3.7. Governmental Regulation........................................... 5
3.8. Litigation........................................................ 6
3.9. Taxes............................................................. 6
3.10.Defaults.......................................................... 6
3.11.Information Supplied.............................................. 6
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF COMPANY..................... 6
4.1. Organization and Good Standing.................................... 6
4.2. Authority......................................................... 7
4.3. Shareholder Approval.............................................. 7
4.4. No Violations..................................................... 7
4.5. Consents.......................................................... 7
4.6. Capitalization.................................................... 7
4.7. Government Regulation............................................. 8
4.8. Financial Statements.............................................. 8
4.9. Legal Proceedings................................................. 8
4.10.Title to Assets................................................... 8
4.11.Undisclosed Liabilities........................................... 9
4.12.Taxes............................................................. 9
4.13.Contracts......................................................... 9
4.14.Regulatory Reports; Examinations.................................. 10
4.15.Conduct........................................................... 10
4.16.Compliance with ERISA............................................. 10
4.17.Information Supplied.............................................. 11
4.18.Defaults.......................................................... 11
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
4.19.Insurance.......................................................... 11
4.20.Absence of Adverse Agreements...................................... 11
4.21.Internal Controls and Records...................................... 12
4.22.Loans.............................................................. 12
4.23.Environmental Laws................................................. 12
4.24.Broker's Fees...................................................... 13
4.25.Labor Matters...................................................... 13
4.26.Full Disclosure.................................................... 14
ARTICLE V--COVENANTS OF COMPANY............................................ 14
5.1. Affirmative Covenants of the Company............................... 14
5.2. Negative Covenants of the Company.................................. 14
5.3. Inspection......................................................... 16
5.4. Financial Statements and Call Reports.............................. 16
5.5. Right to Attend Meetings........................................... 16
5.6. Data Processing.................................................... 16
5.7. No Solicitation.................................................... 16
5.8. Retirement Plans................................................... 16
ARTICLE VI--COVENANTS OF COMMERCE AND SUB.................................. 17
6.1. Regulatory Approvals............................................... 17
6.2. Information........................................................ 17
6.3. Tax-Free Reorganization Treatment.................................. 17
6.4. Employee Benefits.................................................. 17
ARTICLE VII--CONDITIONS PRECEDENT TO COMMERCE'S OBLIGATIONS................ 17
7.1. Representations, Warranties and Covenants.......................... 17
7.2. Material Actions, Debts or Defaults................................ 17
7.3. Adverse Changes.................................................... 17
7.4. Regulatory Authority Approval...................................... 18
7.5. Litigation......................................................... 18
7.6. Financial Measures................................................. 18
7.7. Approval by Shareholders........................................... 18
7.8. Tax Representations................................................ 18
7.9. Sales of Shares.................................................... 18
7.10.Dissenting Shareholders............................................ 18
7.11.Federal Tax Opinion................................................ 18
7.12.Opinion of Counsel................................................. 18
7.13.Market Price of Commerce Common Stock.............................. 18
ARTICLE VIII--CONDITIONS PRECEDENT TO OBLIGATION OF COMPANY................ 19
8.1. Representations, Warranties and Covenants.......................... 19
8.2. Regulatory Authority Approval...................................... 19
8.3. Litigation......................................................... 19
8.4. Approval by Shareholders........................................... 19
8.5. Federal Tax Opinion................................................ 19
8.6. Adverse Changes.................................................... 19
8.8. Market Price of Commerce Stock..................................... 19
8.9. Cash Dividend...................................................... 19
ARTICLE IX--TERMINATION OF AGREEMENT....................................... 19
9.1. Basis for Termination.............................................. 19
9.2. Effect of Termination.............................................. 20
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
9.3. Amendment.......................................................... 20
9.4. Extension; Waiver.................................................. 20
ARTICLE X--SECURITIES LAWS MATTERS......................................... 20
10.1. Registration Statement and Proxy Statement......................... 20
10.2. State Securities Laws.............................................. 21
10.3. Affiliates......................................................... 21
10.4. Publication of Combined Financial Results.......................... 21
10.5. Indemnification.................................................... 21
ARTICLE XI--MISCELLANEOUS.................................................. 21
11.1. Brokers and Finders................................................ 21
11.2. Parties in Interest................................................ 22
11.3. Entire Agreement, Amendments, Waiver............................... 22
11.4. Notices............................................................ 22
11.5. Law Governing...................................................... 23
11.6. Further Acts....................................................... 23
11.7. Confidential Treatment............................................. 23
11.8. Press Release...................................................... 23
11.9. Litigation Expenses................................................ 23
11.10.Adjustments per Section 2.9........................................ 23
</TABLE>
A-iii
<PAGE>
INDEX OF DEFINITIONS
<TABLE>
<CAPTION>
TERM SECTION
- ---- ---------------
<S> <C>
Agreement....................................................... Intro paragraph
Bank............................................................ 4.1(b)
Bank Stock...................................................... 4.6
Closing Date.................................................... 1.2
Code............................................................ 4.16
Commerce........................................................ Intro paragraph
Commerce Common Stock........................................... 2.2(a)
Commerce's Counsel.............................................. 7.11
Company......................................................... Intro paragraph
Company Common Stock............................................ 2.2(a)
Company Dissenting Shares....................................... 2.7
Effective Time.................................................. 1.2
Environmental Liability......................................... 4.23(b)
ERISA........................................................... 4.16
Exchange Agent.................................................. 2.3(a)
Financial Statements............................................ 4.8
GAAP............................................................ 5.2(k)
Governmental Entity............................................. 4.14
Hazardous Materials............................................. 4.23(b)
IRS............................................................. 4.12
KGCC............................................................ 1.2
Material Adverse Effect......................................... 4.12
Merger.......................................................... Recitals
NMS............................................................. 2.2
Preferred Stock................................................. 3.3
Plans........................................................... 4.16
Proxy Statement................................................. 10.1
Registration Statement.......................................... 10.1
Securities Act.................................................. 3.6
SEC............................................................. 3.5
Sub............................................................. Intro paragraph
Sub Common Stock................................................ 2.1
Tax............................................................. 4.12
Taxes........................................................... 4.12
Tax Returns..................................................... 4.12
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement"), dated as of the
29th day of October, 1997, is made by and between Commerce Bancshares, Inc., a
Missouri corporation ("Commerce"), CBI-Kansas, Inc., a Kansas corporation
("Sub"), and Pittsburg Bancshares, Inc., a Kansas corporation ("Company").
WITNESSETH:
Whereas, the Boards of Directors of Commerce, Sub and Company have approved
and deem it advisable and in the best interests of their respective companies
and shareholders that Commerce and Company become affiliated through the
merger of Company with and into Sub in the manner hereinafter set forth (the
"Merger"); and
Whereas, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
Now, Therefore, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as hereinafter defined), Sub shall be merged
with and into Company and the separate existence and corporate organization of
Sub shall thereupon cease and Sub and Company shall thereupon be a single
corporation. Company shall be the surviving corporation in the Merger and the
separate corporate existence of Company shall continue unaffected and
unimpaired by the Merger.
1.2. Effective Time of Merger. On the Closing Date (as hereinafter defined),
the proper officers of Company and Sub shall execute and acknowledge
appropriate certificates of merger that shall be filed with the Kansas
Secretary of State on the first business day following the Closing Date, all
in accordance with the Kansas General Corporation Code (the "KGCC"). The
Merger shall become effective on the first day of the first calendar month
following the Closing Date (the "Effective Time"). The closing shall be on a
day (the "Closing Date") occurring not less than two (2) and not more than
four (4) business days before the Effective Time and not later than thirty
(30) days after the date on which the last of any condition precedent
contained herein is waived or is fulfilled, as specified in a notice delivered
by Commerce to Company not less than three (3) business days prior to such
Closing Date, or on such other date as Company, Commerce and Sub shall
mutually agree. The closing shall be at 10:00 a.m. at Commerce Bank, N.A.,
1000 Walnut, Kansas City, Missouri or at such other time and place as Company,
Commerce and Sub shall mutually agree.
1.3. The Articles of Incorporation. The Articles of Incorporation and By-
Laws of Sub as in effect immediately prior to the Effective Time shall become
the Articles of Incorporation and By-Laws of the surviving corporation from
and after the Effective Time until amended as provided by law and the officers
and directors of Sub shall become the officers and directors of the surviving
corporation from and after the Effective Time.
1.4. Effect of Merger. Subject to Kansas law, at the Effective Time (a)
Company shall possess all assets and property of every description, and every
interest therein, wherever located, and the rights, privileges, immunities,
powers, franchises, and authority, of a public as well as of a private nature,
of Sub and all obligations belonging to or due each of Company and Sub shall
be vested in Company without further act or deed; (b) title to any real estate
or any interest therein vested in Sub shall not revert or in any way be
impaired by reason of the Merger; (c) all rights of creditors and all liens on
any property of the Sub shall be preserved unimpaired; (d) Company
A-1
<PAGE>
shall be liable for all the obligations of Sub, and any claim existing, or
action or proceeding pending, by or against either of Company or Sub, may be
prosecuted to judgment with the right of appeal, as if the Merger had not
taken place; and (e) the name of Company shall be changed to that of Sub.
1.5. Further Assurances. If at any time after the Effective Time, Company
shall consider it advisable that any further conveyances, agreements,
documents, instruments or assurances of law or any other actions or things are
necessary or desirable to vest, perfect, confirm, or record in Company the
title to any property, rights, privileges, powers, or franchises of Sub, the
Board of Directors and officers of Company shall, and will be authorized to,
execute and deliver in the name and on behalf of Sub or otherwise, any and all
proper conveyances, agreements, documents, instruments, and assurances of law
and do all things necessary or proper to vest, perfect, or confirm title to
such property, rights, privileges, powers and franchises in Company, and
otherwise to carry out the provisions of this Agreement.
ARTICLE II
CONVERSION OF SHARES
2.1. Effect of Merger on Sub Stock. At the Effective Time of the Merger,
each share of common stock, $1.00 par value per share, of Sub ("Sub Common
Stock") issued and outstanding immediately prior to the Effective Time shall
be converted into one share of common stock, $6.00 par value per share, of
Company.
2.2. Conversion of the Company Shares in the Merger. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder
thereof:
(a) Each outstanding share of common stock, $6.00 par value per share, of
the Company ("Company Common Stock"), of which 72,737.50 shares are issued
and outstanding (but excepting Company Dissenting Shares, as defined below,
and excepting shares of Company Common Stock held by Commerce or Sub or any
subsidiary of the Company or Commerce, other than as a trustee, fiduciary,
nominee or in a similar capacity), shall be converted into 6.40 shares (the
"Exchange Ratio") of common stock, $5.00 par value per share, of Commerce
("Commerce Common Stock").
(b) If the actual Commerce Stock Price is $46.625 or less, then (i) the
Exchange Ratio shall be increased to 6.811796 (the "Adjusted Exchange
Ratio") or, at Commerce's option, (ii) the Exchange Ratio shall remain at
6.40 and a cash payment equal to $19.20 per share of Company Common Stock
shall be made.
(c) Each share of Company Common Stock that is either authorized but
unissued or held in the treasury of the Company, if any, or held by
Commerce or Sub or any subsidiary of the Company or Commerce (other than as
a trustee, fiduciary, nominee or in a similar capacity) shall be canceled
and retired and shall cease to exist from and after the Effective Time, and
no cash, securities or other consideration shall be delivered in exchange
therefor.
For purposes of this Agreement, the "Commerce Stock Price" shall be the
average of the ten (10) closing sale prices of Commerce Common Stock as
reported by the National Association of Securities Dealers Automated Quotation
National Market System ("NMS") on each of the ten (10) consecutive trading
days preceding the third trading day prior to the Closing Date.
2.3. Exchange of Certificates. (a) Commerce, on behalf of Sub, shall make
available to Commerce Bank, N.A., which is hereby designated as exchange agent
(the "Exchange Agent"), at and after the Effective Time, such number of shares
of Commerce Common Stock as shall be issuable to the holders of Company Common
Stock in accordance with Section 2.2 hereof. As soon as practicable after
Closing Date, Commerce on behalf of the Exchange Agent shall mail to each
holder of record of a certificate that immediately prior to the Closing Date
represented outstanding shares of Company Common Stock (i) a form letter of
transmittal and (ii) instructions for effecting the surrender of certificates
of Company Common Stock for exchange into certificates of Commerce Common
Stock.
A-2
<PAGE>
(b) Notwithstanding any other provision herein, no fractional shares of
Commerce Common Stock and no certificates or script therefor or other evidence
of ownership thereof will be issued. All fractional shares of Commerce Common
Stock to which a holder of Company Common Stock would otherwise be entitled
under Section 2.2 hereof shall be aggregated. If a fractional share results
from such aggregation, such shareholder shall be entitled, after the Effective
Time and upon the surrender of such shareholder's certificate or certificates
representing shares of Company Common Stock, to receive from the Exchange
Agent an amount in cash in lieu of such fractional share equal to the product
of such fraction and the Commerce Stock Price. Commerce, on behalf of Sub,
shall make available to the Exchange Agent, as required from time to time, any
cash necessary for this purpose.
2.4. Closing of the Company Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company
Common Stock shall thereafter be made.
2.5. Dividends. No dividends or other distributions that are declared after
the Effective Time with respect to Commerce Common Stock payable to holders of
record thereof after the Effective Time shall be paid to the shareholders of
Company entitled to receive certificates representing Commerce Common Stock
until such shareholders surrender their certificates representing Company
Common Stock. Upon such surrender, there shall be paid to the shareholder in
whose name the certificates representing such Commerce Common Stock shall be
issued any dividends which shall have become payable with respect to such
Commerce Common Stock between the Effective Time and the time of such
surrender, without interest. After such surrender there shall also be paid to
the shareholder in whose name the certificates representing such Commerce
Common Stock shall be issued any dividend on such Commerce Common Stock that
shall have (a) a record date subsequent to the Effective Time and prior to
such surrender and (b) a payment date after such surrender, and such payment
shall be made on such payment date. In no event shall the shareholders
entitled to receive such dividends be entitled to receive interest on such
dividends.
2.6. Shareholders' Approval. Company agrees to submit this Agreement and the
transactions contemplated hereby to its shareholders for approval to the
extent required and as provided by law and the Articles of Incorporation and
By-Laws of Company and in accordance with Section 10.1 hereof. A shareholders'
meeting of Company shall be held and Company shall use its reasonable best
efforts to take all steps as shall be required for said meeting to be held as
soon as reasonably practicable after the effective date of the Registration
Statement (as defined in Section 10.1 hereof). Company and its Board of
Directors shall recommend that the shareholders of Company approve this
Agreement and the transactions contemplated hereby and shall use their
reasonable best efforts to secure such approval.
2.7. Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, to the extent appraisal rights are available to the
Company's shareholders pursuant to the KGCC, any shares of Company Common
Stock held by a person who objects to the Merger, whose shares of Company
Common Stock were not voted in favor of the Merger and who complies with all
of the provisions of the KGCC concerning the rights of such person to dissent
from the Merger and to require appraisal of such person's shares of Company
Common Stock and who has not withdrawn such objection or waived such rights
prior to the Closing Date ("Company Dissenting Shares") shall not be converted
pursuant to Section 2.2 but shall become the right to receive such
consideration as may be determined to be due to the holder of such Company
Dissenting Shares pursuant to the KGCC, including, if applicable, any costs
determined to be payable by the Sub to the holders of the Company Dissenting
Shares pursuant to an order of the district court in accordance with the KGCC.
2.8. Exchange Offer for Bank Shares. (a) Subject to the conditions set forth
in this Section 2.8, Company agrees to make an offer to exchange shares of
Commerce Common Stock in an amount equal to the Exchange Ratio (or, if the
Adjusted Exchange Ratio is used in the Merger, then in an amount equal to the
Adjusted Exchange Ratio) for each of the 2,262.50 issued and outstanding
shares of Bank Stock that are not held by the Company (the "Exchange Offer");
provided, however, that for the purpose of the Exchange Offer only, the
definition of Adjusted Exchange Ratio (if applicable) shall be deemed to
exclude clause (ii) of Section 2.2(b)
A-3
<PAGE>
hereof, and only Commerce Common Stock shall be issued in the exchange.
Consummation of the Exchange Offer shall be conditioned upon the Closing of
the Merger and the closing of the Exchange Offer shall not be completed until
after the Effective Time of the Merger. After the Effective Time of the Merger
(at which time Commerce will become the sole stockholder of the Company),
Commerce agrees to cause the Company to complete the Exchange Offer as set
forth herein.
(b) Commerce agrees to make available sufficient shares of Commerce Common
Stock at the Effective Time to consummate the Exchange Offer. All shares of
Commerce Common Stock to be issued in the Exchange Offer shall be registered
under the Securities Act and shall be covered by the Registration Statement
referred to in Section 10.1 hereof. Company shall make the Exchange Offer as
soon as reasonably practicable following the effective date of the
Registration Statement.
(c) Commerce covenants and agrees to prepare and file, at its sole cost and
expense, on behalf of itself and Company, all documents, agreements,
registration statements, notices and filings required under federal and state
securities and Blue Sky laws required to effect the Exchange Offer. Out-of-
pocket expenses incurred by Company at the request of Commerce in connection
with the Exchange Offer shall be for the account of Commerce and shall be
reimbursed by Commerce.
(d) Company agrees to cooperate with Commerce in the preparation of all
documents, agreements, registration statements, notices and filings, and to
take all acts and actions reasonably required by Commerce, that are required
to effect the Exchange Offer. Company further agrees to use its best efforts
to cause the Bank's board of directors to recommend that the stockholders of
the Bank accept the Exchange Offer.
(e) The Exchange Offer shall qualify as a reorganization within the meaning
of Section 368(a)(1)(B) of the Code. It shall be a condition precedent to the
closing of the Exchange Offer that the Company shall have received, at
Commerce's expense, an opinion of Commerce's counsel, addressed to the
Company, the Bank and the tendering minority stockholders of the Bank, and in
form and substance reasonably satisfactory to the Company and to Company's
counsel, dated as of the closing date of the Exchange Offer, to the effect
that the Exchange Offer is a tax-free reorganization under Section
368(a)(1)(B) of the Code and no gain or loss will be reorganized by the
tendering minority stockholders of the Bank to the extent they receive
Commerce Common Stock solely in exchange for shares of Bank Stock.
2.9. Adjustment for Stock Splits, Stock Dividends, Combinations and
Reclassifications. If Commerce (i) pays a dividend in shares of Commerce
Common Stock, (ii) subdivides the outstanding shares of Commerce Common Stock,
(iii) combines the outstanding shares of Commerce Common Stock or (iv) issues
by reclassification of the shares of Commerce Common Stock any other shares of
Commerce or any other corporation, and the record date for any such action
occurs after the date of this Agreement and prior to the Effective Time, then
the Exchange Ratio, calculation of the Adjusted Exchange Ratio (including the
cash payment per share amount) and, if there is a division of Commerce Stock
into two or more separately traded securities, the Commerce Stock Price, shall
be adjusted as appropriate to account for such actions consistent with the
methodology set forth in paragraph 1(d) of the letter of intent, dated
September 12, 1997, between Commerce and the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMMERCE AND SUB
Commerce and Sub, jointly and severally, hereby represent and warrant as
follows:
3.1. Organization and Authority. (a) Commerce is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Missouri and is a duly registered bank holding company under the provisions
of the Bank Holding Company Act of 1956, as amended. Commerce has the
corporate power to enter into and perform this Agreement and the execution,
delivery and performance of this Agreement by Commerce
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and the consummation by Commerce of the transactions contemplated hereby have
been duly authorized by the Board of Directors of Commerce with no approval
thereof by the shareholders of Commerce being required to approve this
Agreement.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Kansas. Sub has the corporate power to
enter into and perform this Agreement and the execution, delivery and
performance of this Agreement by Sub and the consummation by Sub of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and by Commerce as the sole shareholder of Sub.
3.2. Valid and Binding Agreement; No Violation. This Agreement constitutes a
valid and binding agreement of Commerce and Sub enforceable in accordance with
its terms and neither the execution and delivery of this Agreement nor the
consummation by Commerce or Sub of the transactions contemplated hereby
violates or conflicts with the Articles of Incorporation or By-Laws of
Commerce or Sub or any agreement, law, regulation, order, judgment or other
restriction of any kind to which Commerce or Sub is a party or by which either
of them is bound.
3.3. Capital Stock of Commerce. As of September 30, 1997, the authorized
capital stock of Commerce consisted of (a) 80,000,000 shares of common stock,
$5.00 par value, of which 37,125,005 shares were issued and outstanding, and
(b) 2,000,000 shares of preferred shares, $1.00 par value ("Preferred Stock"),
of which no shares were issued and outstanding. Holders of Commerce Common
Stock do not have any preemptive rights with respect to the issuance of
additional authorized shares of Commerce Common Stock.
3.4. Financial Statements. The consolidated balance sheets of Commerce as of
December 31, 1996 and December 31, 1995, the consolidated statements of
earnings for the years ended December 31, 1996 and December 31, 1995, and all
related schedules and notes to the foregoing, all of which have been delivered
to Company, have been certified by KPMG Peat Marwick LLP, independent
certified public accountants. All of the foregoing financial statements have
been prepared in accordance with generally accepted accounting principles and
practices which were applied on a consistent basis, are correct and complete
and fairly and accurately present the financial position, results of operation
and changes of financial position of Commerce as of their respective dates and
for the periods indicated. Commerce has no material liabilities or obligations
of a type which would be included in a balance sheet prepared in accordance
with generally accepted accounting principles whether related to tax or non-
tax matters, accrued or contingent, due or not yet due, liquidated or
unliquidated, or otherwise, except as and to the extent disclosed or reflected
in the balance sheet of Commerce as of December 31, 1996, or incurred since
December 31, 1996, in the ordinary course of business. From December 31, 1996
until the date hereof, there has been no material adverse change in the
financial condition, properties, assets, liabilities, rights or business of
Commerce, or in the relationship of Commerce with respect to its employees,
creditors, suppliers, distributors, customers or others with whom it has
business relationships.
3.5. SEC Reports. Commerce's Report on Form 10-K for year ended December 31,
1996, filed with the Securities and Exchange Commission ("SEC") and all
subsequent reports and proxy statements filed by Commerce thereafter pursuant
to Section 13(a) or 14(a) of the Securities Exchange Act of 1934 do not and
will not contain a misstatement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading as of the time the document was filed. Since the filing of such
Report on Form 10-K, no other report, proxy statement, or other document has
been required to be filed by Commerce pursuant to Section 13(a) or 14(a) of
the Securities Exchange Act of 1934 which has not been filed with the SEC and
delivered to Company. Commerce has delivered to Company the following
documents: Form 10-K for Fiscal Year Ended December 31, 1996; the Annual
Report to Shareholders for such year; and a copy of the Proxy Statement for
the 1997 Annual Meeting of Shareholders of Commerce; and copies of Commerce's
reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997.
3.6. Status of Commerce Common Stock to be Issued. The shares of Commerce
Common Stock into which the Company Common Stock or the Bank Common Stock is
to be exchanged or converted pursuant to this Agreement will be, when
delivered as specified in this Agreement, validly authorized and issued, fully
paid and
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non-assessable, and registered pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or any successor federal statute
and the rules and regulations promulgated thereunder, all as the same shall be
in effect at the time (the "Securities Act").
3.7. Governmental Regulation. Commerce and its subsidiaries hold all
material licenses, certificates, permits, franchises and rights from all
appropriate federal, state or other public authorities necessary for the
lawful conduct of their respective businesses and ownership of their
respective properties. Commerce and its subsidiaries have complied in all
material respects with all federal, state and local statutes, regulations,
ordinances or rules applicable to the ownership of their respective properties
or for the conduct of their respective businesses.
3.8. Litigation. There are no actions, suits, claims, demands or other
proceedings or investigations (either judicial or administrative) pending or,
to the knowledge of Commerce, threatened against or affecting the properties,
assets, rights or business of Commerce or its subsidiaries or the right to
carry on or conduct their respective businesses, nor are there any grounds
therefor, which would in the aggregate materially and adversely affect the
business, operations, properties or financial condition of Commerce and its
subsidiaries or which will or could prevent or materially impair the
transactions contemplated by this Agreement.
3.9. Taxes. Commerce and its subsidiaries have filed with the appropriate
governmental agencies all federal, state and local tax and information returns
and tax reports due in respect of any of their business or properties in a
timely fashion and have paid all amounts due shown on such returns, except
where the failure to make such filing or make such payment, individually or in
the aggregate, would not materially and adversely affect the business,
operations, properties or financial condition of Commerce and its
subsidiaries.
3.10. Defaults. Neither Commerce nor any of its subsidiaries is in material
breach or material default under any agreement or commitment to which Commerce
or any of its subsidiaries is a party, or under any loan agreement, note,
security agreement, guarantee or other document pursuant to or in connection
with Commerce's or any of its subsidiaries' extension of credit; and there has
not occurred any event which, after the giving of notice, the lapse of time or
otherwise, would constitute any such default under, or result in any such
breach of, any such agreement, commitment or extension of credit.
3.11. Information Supplied. None of the information supplied or to be
supplied by Commerce and Sub for inclusion or incorporation by reference in
(a) the Registration Statement (as defined in Section 10.1.) will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (b) the Proxy
Statement (as defined in Section 10.1) will, at the date of mailing to
stockholders and at the times of the meetings of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading, other than information supplied by
Company, (c) the Exchange Offer materials will, at the date of mailing to the
minority stockholders of the Bank and at the time the Exchange Offer is
consummated, contain any untrue statement of a material fat or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, other than information supplied by Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to each of Commerce and Sub as
follows:
4.1. Organization and Good Standing. (a) Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Kansas with the corporate power and authority to own its properties and
conduct its business as it is now being conducted and is duly registered as a
bank holding company under
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the Bank Holding Company Act of 1956, as amended. The conduct of Company's
business and the ownership of its properties do not require Company to qualify
as a foreign corporation in any jurisdiction except where the failure to be so
qualified individually or in the aggregate would not materially and adversely
affect the business, operations, properties or financial condition of Company
and its subsidiary.
(b) Company has one subsidiary, City National Bank of Pittsburg ("Bank"),
which is a national banking association duly organized, validly existing and
in good standing under the laws of the United States with the corporate power
and authority to carry on its business as it is now being conducted. Bank is
duly qualified to do business in each jurisdiction in which it owns or leases
real property or in which the conduct of its business requires such
qualification except where the failure to be so qualified individually or in
the aggregate would not materially and adversely affect the business,
operations, properties or financial condition of Company and Bank.
4.2. Authority. Company has all requisite corporate power and authority to
enter into this Agreement, and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement, and the consummation of
the transactions contemplated hereby, have been duly authorized by all
necessary corporate action on the part of Company. This Agreement has been
duly executed and delivered by Company, and assuming due execution and
delivery by Commerce and Sub, constitutes a valid and binding obligation of
Company, enforceable in accordance with its terms subject to applicable
conservatorship, receivership, bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity (including without limitation
specific performance), whether applied in a court of law or a court of equity.
4.3. Shareholder Approval. The Board of Directors of Company has directed
that this Agreement and the transactions contemplated hereby be submitted to
the Company's shareholders for approval at a meeting of such shareholders and,
except for adoption of this Agreement by the requisite vote of the Company's
shareholders, no other shareholder action is necessary to approve this
Agreement and to consummate the transactions contemplated hereby. The Board of
Directors will recommend that the shareholders approve this Agreement and the
transactions contemplated hereby subject to their fiduciary duties and will
exempt the transaction from any applicable state takeover statutes. The
approval of the majority of the outstanding shares of Company Common Stock
entitled to vote is required for approval of this Agreement and to consummate
the transactions contemplated hereby.
4.4. No Violations. Subject to approval by the appropriate regulatory
agencies, the execution, delivery and performance of this Agreement by Company
do not, and the consummation of the transactions contemplated hereby will not,
constitute (i) a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Company or any subsidiary or to which
Company or any subsidiary (or any of their respective properties) is subject,
(ii) a breach or violation of, or a default under, the articles of
incorporation, charter or bylaws of Company or any subsidiary of Company or
(iii) a breach or violation of, or a default under (or an event which with due
notice or lapse of time or both would constitute a default under), or result
in the termination of, accelerate the performance required by, or result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of Company under any of the terms,
conditions or provisions of any note, bond, indenture, deed of trust, loan
agreement or other agreement, instrument or obligation to which the Company is
a party, or to which any of its respective properties or assets may be bound
or affected.
4.5. Consents. Except for the approvals of the appropriate regulatory
agencies and such filings and registrations as are required under federal and
state securities and Blue Sky laws, no filing or registration with, or
authorization, consent or approval of, any public body or authority is
necessary for the consummation by Company of the Merger or the other
transactions contemplated by this Agreement.
4.6. Capitalization. Company has authorized capital stock consisting of
500,000 shares of common stock, par value $6.00 per share, of which 72,737.5
shares are issued and outstanding. All of the issued and outstanding
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shares of Company Common Stock are validly issued, fully paid and non-
assessable. There are no outstanding warrants, options, subscriptions,
contracts, rights or other agreements or commitments obligating Company to
issue or sell any additional shares of Company Common Stock nor are there
outstanding any securities, debts, obligations or rights which are convertible
into or exchangeable for shares of Company Common Stock. The authorized
capital stock of Bank consists of 75,000 shares of common stock, $6.00 par
value per share ("Bank Stock"), of which 75,000 shares have been duly and
validly authorized and issued, and of which 72,737.5 Bank shares are owned
directly by Company free and clear of all liens, encumbrances, equities or
claims. There are no outstanding warrants, options, subscriptions, contracts,
rights or other arrangements or commitments obligating Company or Bank to
issue or sell any additional shares of Bank's capital stock nor are there
outstanding any securities, debts, obligations or rights which are convertible
into or exchangeable for shares of capital stock or any other equity security
of Bank.
4.7. Government Regulation. Company and Bank hold all material licenses,
certificates, permits, franchises and rights from all appropriate federal,
state or other public authorities necessary for the lawful conduct of their
respective businesses and ownership of their respective properties. Except as
disclosed herein or in Schedules attached hereto, Company and Bank have
substantially complied with all material federal, state and local statutes,
regulations, ordinances or rules applicable to the ownership of their
respective properties or the conduct of their respective businesses.
4.8. Financial Statements. The consolidated balance sheet of Company as of
December 31, 1996, the consolidated statements of earnings for the year ended
December 31, 1996, the balance sheet of Bank as of December 31, 1995 and the
statement of earnings of Bank for the year ended December 31, 1995 and all
related schedules and notes to the foregoing, all of which have been delivered
or made available to Commerce, have been certified by Baird, Kurtz & Dobson,
independent certified public accountants and Company has also furnished to
Commerce consolidated balance sheets of Company as of September 30, 1997 and
the consolidated statements of earnings for the nine-month period ending
September 30, 1997 (collectively referred to as "Company Financial
Statements"). All of the foregoing financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied,
and present fairly in all material respects the financial position, results of
operation and changes of financial position of Company as of their respective
dates and for the periods indicated. Company has no material liabilities or
obligations of a type which would be included in a balance sheet prepared in
accordance with generally accepted accounting principles whether related to
tax or non-tax matters, accrued or contingent, due or not yet due, liquidated
or unliquidated, or otherwise, except as and to the extent disclosed or
reflected in the balance sheet of Company as of December 31, 1996, or incurred
since December 31, 1996, in the ordinary course of business. From December 31,
1996 until the date hereof, there has been no material adverse change in the
financial condition, properties, assets, liabilities, rights or business of
Company or Bank, or in the relationship of Company or Bank with respect to its
employees, creditors, suppliers, distributors, customers or others with whom
it has business relationships.
4.9. Legal Proceedings. Except as set forth on Schedule 4.9 there are as of
the date hereof no actions, suits, claims, demands or other proceedings or
investigations, either judicial or administrative, pending or, to the
knowledge of Company, threatened against or affecting the properties, assets,
rights or business of Company or Bank or the right to carry on or conduct
their respective businesses, nor are there to the knowledge of Company any
grounds therefor, which, if adversely determined, would in the aggregate
materially adversely affect the business, operations, properties or financial
condition of Company or Bank. There are as of the date hereof no actions,
suits, claims, demands or other proceedings or investigations, either judicial
or administrative, pending or, to the knowledge of Company, threatened which
will or could prevent or interfere with the consummation of the transactions
contemplated by this Agreement.
4.10. Title to Assets. Except as set forth on Schedule 4.10 hereto, except
for securities pledged to secure public funds deposits or subject to customer
repurchase agreements entered into in the ordinary course of business, and
leased property discussed below, Company and Bank have good and marketable
title to and possession of all of their respective real and personal
properties and assets, in each case free and clear of any
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liens, restrictions, encumbrances, rights, title and interests of others,
except for other real estate owned and except as reflected on their respective
financial statements and except for the lien of current taxes, covenants and
restrictions of record, and other minor imperfections of title not affecting
marketability, which liens, covenants, restrictions and imperfections do not
materially affect the value of such property and do not interfere with the use
made of such property by Company and the Bank. The real and personal
properties and assets held under lease by Company and Bank are held by them
under valid, subsisting and enforceable leases with such exceptions as do not
interfere with the use made of such properties and assets by Company and Bank.
4.11. Undisclosed Liabilities. Except as disclosed in Schedule 4.11 hereto
or in Schedules attached hereto, as of the date hereof, Company and Bank have
no debt, liability or obligation (whether accrued, contingent, absolute or
otherwise) known to either which would be included in a corporate balance
sheet or the notes thereto prepared in accordance with generally accepted
accounting principles that is not reflected or reserved against in the
Financial Statements or was not incurred in the ordinary course of their
business.
4.12. Taxes. The Company and Bank have timely filed all Tax Returns (as
defined below) required to be filed by them, and the Company and Bank have
timely paid and discharged all Taxes (as defined below) due in connection with
or with respect to the filing of such Tax Returns and have timely paid all
other Taxes as are due, except such as are being contested in good faith by
appropriate proceedings and with respect to which the Company is maintaining
reserves adequate for their payment. To the best knowledge of the Company, the
liability for Taxes set forth on each such Tax Return adequately reflects the
Taxes required to be reflected on such Tax Return. For purposes of this
Agreement, "Tax" or "Taxes" shall mean taxes, charges, fees, levies, and other
governmental assessments and impositions of any kind, payable to any federal,
state, local or foreign governmental entity or taxing authority or agency,
including, without limitation, (a) income, franchise, profits, gross receipts,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability,
employment, social security, workers compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, (b) custom duties, imposts, charges, levies
or other similar assessments of any kind, and (c) interest, penalties and
additions to tax imposed with respect thereto, and "Tax Returns" shall mean
returns, reports, and information statements with respect to Taxes required to
be filed with the United States Internal Revenue Service (the "IRS") or any
other governmental entity or taxing authority or agency, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
Neither the IRS nor any other governmental entity or taxing authority or
agency is now asserting, either through audits, administrative proceedings,
court proceedings or otherwise, or, to the best of Company's knowledge,
threatening to assert against Company or Bank any deficiency or claim for
additional Taxes. Neither the Company nor Bank has granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. Except as disclosed on Schedule 4.12, there are no tax
liens on any assets (excluding OREO properties) of the Company or Bank.
Neither the Company nor Bank has received a ruling or entered into an
agreement with the IRS or any other governmental entity or taxing authority or
agency that would have a Material Adverse Effect (as defined below) on the
Company or Bank, taken as a whole, after the Effective Time. For purposes of
this Agreement, "Material Adverse Effect" with respect to the Company or Bank
means an effect that: (1) is materially adverse to the business, financial
condition, results of operations or prospects of the Company or Bank taken as
a whole; (2) significantly and adversely affects the ability of the Company or
Bank to consummate the transactions contemplated by this Agreement by the
Closing Date or to perform their material obligations under this Agreement; or
(3) enables any persons to prevent the consummation by the Closing Date of the
transactions contemplated by this Agreement. The accruals and reserves for
taxes reflected in the Company's balance sheets included in the Financial
Statements are adequate to cover all Taxes accruable by the Company and the
Bank on a consolidated basis through the date thereof (including Taxes being
contested) in accordance with generally accepted accounting principles. Except
as may be set forth in Schedule 4.12 attached hereto, no agreements relating
to allocating or sharing of Taxes exist between the Company and Bank.
4.13. Contracts. Except as set forth on Schedule 4.13 or any other Schedule
attached hereto, neither Company nor Bank is party to or bound by any:
(a) employment contract;
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(b) bonus, deferred compensation, savings, profit sharing, severance pay,
pension or retirement plan or arrangement;
(c) material lease or license with respect to any property, real or
personal, whether Company or Bank is landlord or tenant, licensor or
licensee, involving a liability or obligation of Company or Bank as obligor
in excess of $5,000 on an annual basis;
(d) agreement, contract or indenture relating to the borrowing of money
by Company or any subsidiary, excluding deposit obligations, obligations
under certificates of deposit, letters of credit, items in the process of
collection, commitments to loan or discount, endorsements made for
collection and guarantees made in the ordinary course of business;
(e) agreement with any present or former officer, director or shareholder
of Company or Bank; or
(f) other contract, agreement or other commitment which is material to
the business, operations, property, prospects or assets or to the
condition, financial or otherwise, of Company or Bank or which involves a
payment by Company or Bank of more than $5,000 in one year.
4.14. Regulatory Reports; Examinations. Company and Bank have timely filed
all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, with any governmental or
regulatory authority, agency, court, commission or other entity ("Governmental
Entity") and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Governmental Entity
in the regular course of the business of Company, no Governmental Entity has
initiated any proceeding or, to the best knowledge of Company, investigation
into the business or operations of Company or Bank. To the best knowledge of
Company there is no unresolved material violation, criticism, or exception by
any Governmental Entity with respect to any report or written statement
relating to any examinations of Company or Bank. Company has made available to
Commerce all reports of examination conducted by any Governmental Entity with
respect to Company and/or Bank during the preceding ten (10) years.
4.15. Conduct. From December 31, 1996 until the date hereof and except as
set forth in Schedule 4.15 attached hereto or any other Schedule attached
hereto:
(a) There has been no material adverse change in the financial condition
of, or in the properties, assets, liabilities, rights or business, taken as
a whole, of Company or Bank or in the relationship of Company or Bank with
respect to their employees, creditors, suppliers, distributors, customers
or others with whom they have business relationships.
(b) The business affairs of Company and Bank have been conducted and
carried on only in their ordinary and regular course of business, and
Company and Bank have not, except as otherwise disclosed to Commerce,
incurred or become subject to any liabilities or obligations other than
those incurred in their ordinary course of business, those incurred
pursuant to existing contracts disclosed pursuant to Section 4.13 and those
incurred pursuant to commitments permitted hereby.
(c) There have been no dividends or other distributions declared, set
aside or paid in respect of Company Common Stock, nor has any action with
respect to Company Common Stock proscribed under Section 5.2(e) of this
Agreement occurred or been taken.
(d) Company and Bank have not entered into any employment contract with
any director, officer or salaried employee, paid any or made any accrual or
arrangement for payment of bonuses or special compensation of any kind or
any severance or termination pay to any of their officers, employees or
directors, increased the rate of compensation, if any, or instituted or
made any material increase in any officer's, employee's or director's
welfare, retirement or similar plan or arrangement, other than annual and
merit increases made in accordance with past practices and procedures.
4.16. Compliance with ERISA. Except for the plans listed on Schedule 4.16
(collectively, the "Plans") neither Company nor Bank has established,
maintained or contributed at anytime during the five-year period
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ending on the date hereof to any employee benefit plan (as defined in Sections
3(3) or 3(37) of the Employment Retirement Income Security Act of 1974
("ERISA")) or any other plan with respect to which any governmental filings
are required. A true and accurate copy of each of the Plans, any related trust
agreements and each of the amendments thereto has been provided to Commerce
together with (i) all determination letters received in respect of any
qualified plans, and (ii) all required reports and supporting schedules filed
with any government agency in respect of the Plans for the three most recent
years ending on the date hereof. To Company's knowledge as sponsor of the
Plans, the Plans and each fiduciary (as defined in Section 3(21) of ERISA) of
the Plans are in compliance in all material respects with all applicable
requirements (including nondiscrimination requirements in effect as of the
date hereof) of the Internal Revenue Code of 1986 ("Code"), including, but not
limited to, Sections 79, 105, 106, 125, 401, 501, and 4975 of the Code. For
purposes of this Section 4.16, noncompliance with the Code or ERISA is
material if such noncompliance could have a Material Adverse Effect on the
condition of one or more of the Plans or of Company or Bank, either as of the
Effective Time or upon discovery of the noncompliance. To Company's knowledge
as sponsor of the Plans, all required contributions to the Plans through the
date hereof have been made. To Company's knowledge as sponsor of the Plans,
Company and Bank (each with respect to the Plans), as well as the Plans, have
no material current or threatened liability of any kind to any person,
including but not limited to any government agency, as of the date hereof,
other than for the payment of benefits in the ordinary course.
4.17. Information Supplied. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in (i) the
Registration Statement will, at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Proxy Statement will, at the date of mailing to
stockholders and at the times of the meetings of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading, other than information supplied by
Commerce or Sub.
4.18. Defaults. Except as set forth in Schedule 4.18 hereto, as of the date
hereof, neither the Company nor Bank is in material breach or material default
known to either under any agreement or commitment to which the Company or Bank
is a party, or under any loan agreement, note, security agreement, guarantee
or other document pursuant to or in connection with the Company's or Bank's
extension of credit; and to their knowledge there has not occurred any event
which, after the giving of notice, the lapse of time or otherwise, would
constitute any such default under, or result in any such breach of, any such
agreement, commitment or extension of credit.
4.19. Insurance. Complete and correct copies of all material policies of
fire, product or other liability, workers' compensation and other similar
forms of insurance owned or held by Company and Bank have been delivered to
Commerce. Subject to expirations and renewals of insurance policies in the
ordinary course of business, all such policies are in full force and effect,
all premiums with respect thereto covering all periods up to and including the
date as of which this representation is being made have been paid (other than
retrospective premiums which may be payable with respect to workers'
compensation insurance policies), and no notice of cancellation or termination
has been received with respect to any such policy. Such policies are valid and
enforceable policies, and will not be terminated by Company or Bank prior to
the Effective Time. To the best knowledge of Company, the insurance policies
to which Company or Bank are parties are sufficient for compliance with all
material requirements of law and all material agreements to which Company or
Bank are parties and will be maintained by Company and Bank until the
Effective Time. Neither Company nor Bank has been refused any insurance with
respect to any material assets or operations, nor has coverage been limited in
any respect material to their operations by any insurance carrier to which
they have applied for any such insurance or with which they have carried
insurance during the last five (5) years.
4.20. Absence of Adverse Agreements. Neither the Company nor Bank is a party
to any agreement or instrument or any judgment, order or decree or any rule or
regulation of any court or other governmental agency
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or authority which materially and adversely affects or is reasonably likely to
result in a Material Adverse Effect on the financial condition, results or
operations, assets, business or prospects of the Company or Bank, taken as a
whole.
4.21. Internal Controls and Records. The Company and Bank maintain books of
account which accurately and validly reflect, in all material respects, all
loans, mortgages, collateral and other business transactions and maintain
accounting controls sufficient to ensure that all such transactions are (a) in
all material respects, executed in accordance with its management's general or
specific authorization, and (b) recorded in conformity with generally accepted
accounting principles. Company has furnished to Commerce all of Company's and
Bank's written internal policies and procedures which are identified on
Schedule 4.21.
4.22. Loans. Except as disclosed on Schedule 4.22 attached hereto, (a) the
Bank is not a party to any written or oral loan agreement, note or borrowing
arrangement which has been classified as "substandard," "doubtful," "loss,"
"other loans especially mentioned" or any comparable classifications by the
Company or Bank or banking regulators; (b) neither the Company or Bank is a
party to any written or oral loan agreement, note, or borrowing arrangement,
including any loan guaranty, with any director or executive officer of the
Company or Bank, or any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing; (c) to the
Company's knowledge neither the Company nor Bank is a party to any written or
oral loan agreement, note or borrowing arrangement in violation of any law,
regulation or rule of any governmental authority and which violation is
reasonably likely to result in a Material Adverse Effect on the Company or
Bank, taken as a whole.
4.23. Environmental Laws. (a) Compliance with Environmental and Safety Laws.
Except as set forth on Schedule 4.23, to the best knowledge of Company (i) the
operations and Properties (as hereinafter defined) of Company and Bank comply
with all applicable past and present federal, state and local environmental
statutes and regulations; (ii) none of the operations of Company or Bank is
subject to any judicial or administrative proceedings alleging the violation
of any federal, state or local environmental health or safety statute or
regulation nor is it the subject of any claim alleging damages to health or
property pursuant to which Company or Bank may be liable; (iii) none of the
operations or Properties of Company or Bank is the subject of any federal,
state or local investigation evaluating whether any remedial action is needed
to respond to a release or threatened release of any hazardous or toxic waste,
substance or constituent, or any other substance from whatever source (past or
present; onsite or offsite) into the environment, nor has Company or Bank been
directed to conduct such investigation, formally or informally, by any
governmental agency, nor has it agreed with any governmental agency or private
person to conduct any such investigation; (iv) neither Company nor Bank has
filed any notice under any federal, state or local law indicating past or
present treatment, storage or disposal of a hazardous waste or reporting a
spill or release of a hazardous or toxic waste, substance, or constituent, or
any other substance into the environment; (v) the operations and Properties of
Company and Bank have obtained and currently maintain and comply with, all
environmental permits and compliance plans required to own and operate
Properties; (vi) Company and Bank perform all environmental and safety
training required to own and operate the Properties and maintain proper
records of such; (vii) Company and Bank properly handle and dispose of all
regulated and Hazardous Materials (as herein defined) either onsite or
offsite; (viii) neither Company nor Bank has ever been notified by either a
federal, state or local governmental authority, or a private party that
Company or Bank is a potentially responsible party ("PRP") for remedial costs
spent addressing the release, or threat of a release, of a hazardous substance
into the environment pursuant to the Comprehensive Environmental Response,
Compensation or Liability Act, 42 U.S.C. (S)(S) 9601, et seq. or any
corresponding state law; (ix) neither Company nor Bank has received a CERCLA
(S) 104(e) information request from the U.S. Environmental Protection Agency
("USEPA") or a corresponding information request from any state or local
environmental regulator; and (x) the Company or Bank operations, and
Properties, procedures and designs conform to the statutory or regulatory
requirements of any environmental or safety law.
(b) Hazardous Materials. As used herein, "Hazardous Materials" shall mean
any flammables, explosives, radioactive materials, hazardous wastes, solid
wastes, friable asbestos, or any material containing asbestos, toxic
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substances or related materials, including, without limitation, substances now
defined as hazardous substances, hazardous materials pollutants, contaminants,
or toxic substances in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, the Hazardous Materials Transport Act,
the Resource Conservation and Recovery Act, any so-called "Superfund" or
"Superlien" law, the Clean Water Act, as amended, the Safe Drinking Water Act,
as amended, the Toxic Substance Control Act, or any other applicable federal,
state or local law, code, rule, regulation or ordinance presently in effect.
"Hazardous Materials" shall also include polychlorinated biphenols (PCBs),
petroleum and petroleum products (including crude and fraction thereof),
mercury, and lead-based paint.
(c) Environmental Audit. Commerce may obtain at its option and expense on or
prior to 120 days following the date hereof an environmental audit
("Environmental Audit") of all the properties and assets of Company and Bank
classified as other real estate owned or real property owned or leased by
Company or Bank, but excluding all loans not in default and all collateral for
such loans (the "Properties"). A copy of any report or audit generated shall
be provided to Company at the time such report or audit is received by
Commerce. The consultant who will perform the Environmental Audit shall be
selected by Commere and shall be reasonably satisfactory to Company. The
Environmental Audit shall conform to the standards for Phase I environmental
assessments issued by the American Society for Testing and Materials ("ASTM").
Should an environmental condition be discovered in the Phase I process that
Commerce decides, in its discretion, to investigate, then Commerce shall
perform, or have performed an ASTM Phase II environmental assessment to
determine whether Hazardous Materials exist (i) on or under any of the
Properties; (ii) on or under any other property or in any natural resources
which originated on, under or from the Properties either prior to or during
Company's or Bank's ownership thereof. The Environmental Audit must be
performed to the reasonable satisfaction of Commerce.
In the event the Environmental Audit discloses the existence of any
liability ("Environmental Liability") (either absolute or potential) for
damages, penalties, fines, charges, interest, judgments, remedial action,
public or private, arising directly or indirectly in whole or in part out of
(w) noncompliance with any environmental law, (x) the presence of Hazardous
Materials on, under or from the Properties, or (y) any activity carried on or
undertaken on or off the Properties either prior to or after the date hereof
whether by Company, Bank or any predecessor in title to any of the Properties
or any employees, agents, affiliates, contractors or subcontractors of
Company, Bank or of any such predecessors in title, or any third person in
connection with the use, handling, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any Hazardous Materials at
any time located or present on, under or from the Properties, which liability
exists against Company or Bank or affects in any way the Properties or
Company's or Bank's rights or business or the right to carry on or conduct
their respective businesses, Commerce shall notify Company of such
Environmental Liability. If Company does not choose to remediate the condition
leading to such Environmental Liability and to otherwise fully protect
Commerce from such Environmental Liability on terms and conditions and at a
cost acceptable to Commerce within thirty (30) days after receipt by Company
of a copy of any report or audit as provided, Commerce shall have the right to
terminate this Agreement under Article IX hereof, thereby relieving Company,
Commerce and Sub of all their obligations hereunder, including the obligation
to cause or engage in the Merger.
4.24. Broker's Fees. Neither the Company nor Bank nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement.
4.25. Labor Matters. (a) To the best knowledge of Company, Company and Bank
are in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and are not engaged in any unfair labor practice; (b) there is no unfair labor
practice complaint against Company or Bank pending before the National Labor
Relations Board; (c) there is no labor strike, dispute, slowdown,
representation campaign or work stoppage actually pending or threatened
against or affecting Company or Bank; (d) no grievance or arbitration
proceeding arising out of or under collective bargaining agreements is pending
and no claim therefor has been asserted against Company or Bank; and (e)
neither Company nor Bank is experiencing any material work stoppage.
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4.26. Full Disclosure. No statement contained in any document, certificate,
or other writing furnished or to be furnished by or at the direction of
Company to Commerce in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
shall omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE V
COVENANTS OF COMPANY
5.1. Affirmative Covenants of the Company. Unless the prior written consent
of Commerce shall have been obtained, and which consent will be given or
denied within 10 business days of receipt of written request for such consent,
and except as otherwise expressly contemplated herein, the Company shall and
shall cause Bank to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and assets and
maintain its rights and franchises; and (c) take no action which would (1)
materially adversely affect the ability of any party to obtain any consents
required for the transactions contemplated hereby (2) prevent the transactions
contemplated hereby, including the Merger, from qualifying for pooling-of-
interests accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Code, or (3) materially adversely affect the ability of
any party to perform its covenants and agreements under this Agreement.
5.2. Negative Covenants of the Company. Except as specifically permitted by
this Agreement, from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, the Company covenants and
agrees that it will not do or agree to commit to do, or permit Bank to do or
agree to commit to do, any of the following without the prior written consent
of Commerce, which consent shall not be unreasonably withheld and which
consent will be given or denied within 10 business days of receipt of written
request for such consent:
(a) make any single loan (or series of loans to the same or related
entities or persons) or any commitment to loan (or series of commitments to
the same or related entities or persons) which would be graded "OAEM" under
Bank's rating system or in an amount greater than $250,000 other than
renewals of existing loans or commitments to loan;
(b) purchase or invest in any securities other than U.S. government
obligations or other securities backed by the full faith and credit of the
United States having a maturity of not more than three years from the date
of purchase;
(c) amend or adopt any employee benefit plan, or grant any increase in
the rates of pay of their employees or any increase in the compensation
payable or to become payable, if any, to any director, officer, employee or
agent thereof, or contribute to any pension plan or otherwise increase in
any amount the benefits or compensation of any such directors, officers or
employees of Company or Bank under any pension plan or other contract or
commitment; provided, however, that notwithstanding the foregoing, Company
and Bank may (i) continue to accrue profit sharing expenses and may make a
profit sharing contribution to the existing profit sharing plan with
respect to (A) the fiscal year ending December 31, 1997, in an amount not
greater than 11% of aggregate employee salaries for such fiscal year and
(B) with respect to each month of fiscal year 1998 occurring prior to the
Effective Time of the Merger, in an amount consistent with past monthly
accruals for such expenses, (ii) consistent with its past practices, grant
annual and merit salary increases to Bank officers effective December 1,
1997, which increases in the aggregate shall not exceed 5% of the aggregate
annual salary expenses for Bank officers in effect immediately prior to
such date, and (iii) consistent with past practices, pay discretionary
merit-based, year-end bonuses to officers and employees with respect to the
fiscal year ending December 31, 1997, in an aggregate amount not greater
than $35,000.00.
(d) make any capital expenditure or enter into any material contract or
commitment (except loan commitments as permitted in Subparagraph (a) of
this Section 5.1.) involving an obligation or commitment
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in excess of $5,000 or engage in any transaction not in their usual and
ordinary course of business and consistent with past practices; provided,
however, that notwithstanding the foregoing, Bank may make capital
expenditures for the remodeling projects described on Schedule 5.2(d)
attached hereto but shall not exceed the expenditure limits set forth in
such schedule (and Commerce expressly agrees that such expenditures shall
be accounted for as capital expenses not maintenance expenses) and may
consummate the other pending transactions listed on Schedule 5.2(d).
(e) declare or pay any dividend or make any other distribution in respect
of any capital stock of Company except for cash dividends consistent with
past practices and a special dividend prior to the Effective Time of the
Merger, which dividends in the aggregate shall not exceed Company's
earnings from July 31, 1997 to the last day of the month preceding the
Effective Time of the Merger.
(f) split, combine or reclassify any shares of its capital stock or,
directly or indirectly, redeem, purchase or otherwise acquire any share of
the capital stock of the Company or Bank;
(g) amend the Articles of Incorporation or By-Laws of Company or the
Articles of Association or By-Laws of Bank or make any change in the number
of authorized, issued or outstanding capital stock of Company or Bank;
(h) acquire or purchase any assets of or make any investment in any
financial institution other than the purchase of loans or participations
therein in the ordinary course of business, but subject to Section 5.1(a);
(i) enter into any new line of business;
(j) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire any assets, which would be material, individually or
in the aggregate, to the Company, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructuring in the ordinary course of business consistent with prudent
banking practices;
(k) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VII not being satisfied,
or in a violation of any provision of this Agreement except, in every case,
as may be required by applicable law;
(l) change its methods of accounting in effect at the date hereof, except
as required by changes in generally accepted accounting principals ("GAAP")
or regulatory accounting principles as concurred to by the Company's
independent auditors;
(m) other than activities in the ordinary course of business consistent
with prior practice, sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(n) file any application to relocate or terminate the operations of any
banking office;
(o) make any equity investment or commitment to make such an investment
in real estate or in any real estate development project, other than in
connection with foreclosures, settlements in lieu of foreclosure or
troubled loan or debt restructuring in the ordinary course of business
consistent with prudent banking practices;
(p) create, renew, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any material contract, agreement or
lease for goods, services or office space to which the Company or Bank is a
party or by which the Company or Bank or their respective properties is
bound;
(q) make any loan or other extension of credit, or commit to make any
such loan or extension of credit, to any director or officer of the Company
or Bank without giving Commerce five days' notice in advance of the
Company's or Bank's approval of such loan or extension of credit or
commitment relating thereto; or
(r) make any adjustments to Bank's loan loss reserve account except for
increases to such account and appropriate charge-offs and recoveries
following its normal historical practices; or
(s) agree to do any of the foregoing.
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5.3. Inspection. Between the date hereof and the Closing Date and upon
reasonable notice, Commerce and its authorized representatives shall be
permitted full access during regular business hours to all properties, books,
records, contracts and documents of Company and Bank. The Company shall
furnish to Commerce and its authorized representative all information with
respect to the affairs of Company and Bank as Commerce may reasonably request.
5.4. Financial Statements and Call Reports. From and after the date hereof,
Company shall deliver to Commerce monthly reports of condition and income
statements of Company and Bank and shall deliver to Commerce copies of the
call reports for Bank as filed with any regulatory agency promptly after such
filing.
5.5. Right to Attend Meetings. Company and Bank shall allow a representative
of Commerce to attend as an observer all meetings of the Board of Directors of
Company and, all meetings of the committees of each such board, including,
without limitation, the audit and executive committees thereof and any other
meetings of Company or Bank officials at which policy is being made. Company
and Bank shall give reasonable notice to Commerce of any such meeting and, if
known, the agenda for or business to be discussed at such meeting. Company and
Bank shall provide to Commerce all information provided to the directors on
all such boards and committees in connection with all such meetings or
otherwise provided to the directors and shall provide any other financial
reports or other analyses prepared for senior management of Company or Bank.
5.6. Data Processing. Company shall cooperate with Commerce in taking those
planning actions necessary to be in a position to convert its data processing
procedures and formats to procedures and formats used by Commerce as of the
Effective Time. Commerce shall provide such assistance and consultation as
Company may reasonably require in such planning process.
5.7. No Solicitation. Neither Company nor Bank nor any affiliates or
associates of Company or Bank acting for or on behalf or Company or Bank
shall, directly or indirectly, make, encourage, facilitate, solicit, assist or
initiate any inquiry or proposal, or participate in any negotiations with, or,
subject to the provisos to this sentence, provide any information to, any
corporation, partnership, agent, attorney, financial adviser, person, or other
entity or group (other than (a) Commerce, Sub, an affiliate or associate of
Commerce or Sub or an officer, employee or other authorized representative of
Commerce, Sub or such affiliate or associate or (b) the Company's counsel,
accountants and financial adviser solely for use in connection with the
transactions contemplated hereby) relating to any (i) liquidation,
dissolution, recapitalization, merger or consolidation of the Company or Bank,
(ii) outside the ordinary course of business, sale of a significant amount of
assets of the Company or Bank, (iii) purchase or sale of shares of capital
stock of the Company or Bank or (iv) any similar transactions involving
Company or Bank, other than the transactions contemplated by this Agreement;
provided, however, that the Company may provide information at the request of
a third party if the Board of Directors of the Company determines, in good
faith, that the exercise of its fiduciary duties to the Company's shareholders
under applicable law, as advised in writing by outside counsel reasonably
acceptable to Commerce and Sub, requires it to take such action, and, provided
further, that Company may not, in any event, provide to such third party any
information which it has not provided to Commerce and Sub. Company shall
immediately cease and cause to be terminated any and all such contacts and
negotiations with respect to any such transaction. Company shall immediately
inform Commerce and Sub of any inquiry, proposal or request for information
(including the terms thereof and the person making such inquiry) which it may
receive in respect of such a transaction.
5.8. Retirement Plans. Company shall, prior to the Effective Time, adopt any
and all resolutions that are necessary or appropriate to (i) cease
contributions to the Company's defined contribution retirement plans ("Company
Retirement Plans") as of the day before the Effective Time; (ii) terminate the
Company Retirement Plans and fully vest all participant account balances in
such plans as of the day before the Effective Time; and (iii) provide for
distribution of the assets of such plans following receipt of a favorable
determination letter from the Internal Revenue Service with respect to the
termination and the distribution of the assets of such plans. Commerce agrees
to cooperate with Company in fulfilling this covenant.
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ARTICLE VI
COVENANTS OF COMMERCE AND SUB
6.1. Regulatory Approvals. Subject to the terms and conditions of this
Agreement, Commerce and Sub agree to use their reasonable best efforts to
secure as expeditiously as practicable all the necessary approvals, regulatory
or otherwise, needed to consummate the transactions contemplated herein.
Commerce and Sub shall provide to Company's counsel a copy of all applications
for such approvals and shall keep such counsel or the Company advised of the
status of the regulatory review process.
6.2. Information. Commerce and Sub shall provide such information and answer
such inquiries as the Company may reasonably request or make concerning the
subject matter of the representations and warranties of Commerce and Sub
herein.
6.3. Tax-Free Reorganization Treatment. Neither Commerce nor Sub shall
intentionally take or cause to be taken any action, whether before or after
the Effective Time, which would disqualify the Merger or the Exchange as a
tax-free "reorganization" within the meaning of Section 368(a) of the Code.
6.4. Employee Benefits. Employees of Company or Bank shall be eligible to
participate in all Commerce employee welfare benefit plans in accordance with
their terms, and for such purpose all service of such employees with the
Company and Bank shall be counted as service with Commerce. Continuous
coverage under the Company or Bank health plan through the Effective Time
shall count as coverage under the Commerce health plan.
ARTICLE VII
CONDITIONS PRECEDENT TO COMMERCE'S OBLIGATIONS
The obligations of Commerce and Sub to consummate the transactions hereunder
shall be subject to the satisfaction on or before the Closing Date of all of
the following conditions, except such conditions as Commerce or Sub may waive
in writing:
7.1. Representations, Warranties and Covenants. All representations and
warranties of Company contained in this Agreement shall be true in all
material respects on and as of the Closing Date, except for changes permitted
by or contemplated by this Agreement and except to the extent that any such
representation or warranty is made solely as of a specified date. Company
shall have performed all agreements and covenants in all material respects
required by this Agreement to be performed on or prior to the Closing Date.
7.2. Material Actions, Debts or Defaults. On the Closing Date, there shall
not be: (i) except as set forth on Schedule 4.9 or as otherwise disclosed to
Commerce prior to the date hereof, any actions, suits, claims, demands or
other proceedings or investigations, either judicial or administrative,
pending or, to the knowledge of Company or Bank, threatened against or
affecting the properties, assets, rights or business of Company or Bank or the
right to carry on or conduct their respective businesses; (ii) any debt,
liability or obligation of Company or Bank known to either (whether accrued,
contingent, absolute or otherwise) required to be reflected in a corporate
balance sheet or the notes thereto that is not reflected or reserved against
in their respective financial statements or was not incurred in ordinary
course of their respective businesses; or (iii) any material breach or
material default of Company or Bank known to either under any agreement or
commitment to which either is a party, or under any loan agreement, note,
security agreement, guarantee or other document pursuant to or in connection
with the Company's or Bank's extension of credit; any of the foregoing of
which would have a Material Adverse Effect upon the financial condition of, or
upon the properties, assets, liabilities, rights or business, taken as a
whole, of Company or Bank.
7.3. Adverse Changes. From the date hereof to the Closing Date, there will
have been no material adverse change in the financial condition of, or in the
properties, assets, liabilities, rights or business, taken as a whole, of
Company or Bank, and taking into account for this purpose the proceeds of any
applicable insurance.
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7.4. Regulatory Authority Approval. Orders, consents and approvals in form
and substance reasonably satisfactory to Commerce shall have been entered by
or obtained from the appropriate regulatory authorities authorizing
consummation of the transactions contemplated hereby pursuant to the
provisions of the Bank Holding Company Act and any other applicable federal or
state banking regulatory statute or rule and no such order, consent or
approval shall be conditioned or restricted in any manner which in the
reasonable judgment of Commerce and Company would materially adversely affect
the operations of or be unduly burdensome to Commerce.
7.5. Litigation. At the Closing Date, there shall not be pending or
threatened litigation in any court or any proceeding by any governmental
commission, board or agency which Commerce reasonably believes could
reasonably result in restraining, enjoining or prohibiting the consummation of
this Agreement.
7.6. Financial Measures. On the Closing Date, the Bank's capital shall not
be less than that existing on July 31, 1997 and the Bank's loan loss reserve
shall not be less than $886,736.61 (which is $32,952.68 less than the amount
of the loan loss reserve existing on July 31, 1997).
7.7. Approval by Shareholders. The shareholders of Company shall have duly
approved and adopted this Agreement and the other transactions contemplated
hereby to the extent required by applicable requirements of law and the
Articles of Incorporation and By-Laws of Company.
7.8. Tax Representations. Each shareholder of Company owning more than 10%
of the outstanding Company Common Stock shall have made those representations
reasonably requested by counsel and necessary to enable them to render the
opinion described in Section 7.11 hereof.
7.9. Sales of Shares. Each person who is an "affiliate" (as defined in Rules
145 and 405 adopted under the Securities Act) of the Company at the time this
Agreement is submitted to approval of the stockholders of the Company shall
deliver to Commerce a letter substantially in the form of Exhibit 7.9 whereby
such affiliate represents to and agrees with Commerce that he shall not sell,
pledge, transfer or otherwise dispose of any shares of stock of Commerce held
by such person or any shares of Commerce Common Stock to be received by such
person in the Merger except in compliance with the applicable provisions of
the Securities Act and until such time as financial results covering at least
30 days of combined operations of Commerce and the Company shall have been
published.
7.10. Dissenting Shareholders. Company Dissenting Shares shall not
constitute more than 10% of the outstanding shares of Company Common Stock on
the Closing Date. Notwithstanding anything in this Agreement to the contrary,
Commerce shall not be entitled to waive the condition contained in this
Section 7.10 unless it commits to provide the surviving corporation with funds
necessary to pay the aggregate appraisal amount for such Company Dissenting
Shares.
7.11. Federal Tax Opinion. Commerce shall have received an opinion of
Blackwell Sanders Matheny Weary & Lombardi LLP., counsel to Commerce
("Commerce's Counsel"), in form and substance reasonably satisfactory to
Commerce, dated the Closing Date, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code.
7.12. Opinion of Counsel. Commerce shall have received an opinion of
Stinson, Mag & Fizzell P.C. dated the Closing Date in form and substance
reasonably satisfactory to Commerce covering the matters set out in Exhibit
7.12 hereto.
7.13. Market Price of Commerce Stock. The Commerce Stock Price, determined
as of the third trading day prior to the Closing Date, shall not be greater
than $60.625.
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ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATION OF COMPANY
The obligations of Company to consummate the transactions contemplated
hereunder shall be subject to satisfaction on or before the Closing Date of
all of the following conditions, except such conditions as Company may waive
in writing:
8.1. Representations, Warranties and Covenants. All representations and
warranties of Commerce contained in this Agreement shall be true in all
material respects on and as of the Closing Date, except to the extent that any
such representation or warranty is made solely as of a specified date, and
Commerce shall have performed all agreements and covenants in all material
respects required by this Agreement to be performed on or prior to the Closing
Date.
8.2. Regulatory Authority Approval. Orders, consents and approvals in form
and substance reasonably satisfactory to Company shall have been entered by or
obtained from the appropriate regulatory authorities authorizing consummation
of the transactions contemplated by this Agreement pursuant to the provisions
of the Bank Holding Company Act and any other applicable federal or state
banking regulatory statute or rule.
8.3. Litigation. There shall not be pending or threatened litigation in any
court or any proceeding by any governmental commission, board or agency which
Company believes could reasonably result in restraining, enjoining or
prohibiting the consummation of the transactions contemplated by this
Agreement.
8.4. Approval by Shareholders. The shareholders of Company shall have duly
approved and adopted this Agreement and the transactions contemplated hereby
to the extent required by applicable requirements of law and the Articles of
Incorporation and By-Laws of the Company.
8.5. Federal Tax Opinion. The Company shall have received, at Commerce's
expense, an opinion of Commerce's Counsel, addressed to the Company and its
shareholders and in form and substance reasonably satisfactory to the Company
and, Company counsel, dated the Closing Date, to the effect that the Merger
will be a tax-free reorganization under Section 368(a)(2)(E) of the Code and
no gain or loss will be recognized by the shareholders of the Company to the
extent they receive Commerce Common Stock solely in exchange for shares of
Company Common Stock.
8.6. Adverse Changes. From December 31, 1996, to the Closing Date, there
will have been no material adverse change in the financial condition,
properties, assets, liabilities, rights, business or prospects of Commerce.
8.7. Opinion of Counsel. Company shall have received an Opinion of Blackwell
Sanders Matheny Weary & Lombardi LLP, counsel to Commerce, dated the Closing
Date, in form and substance reasonably satisfactory to Company covering the
matters set out in Exhibit 8.7 hereto.
8.8. Market Price of Commerce Common Stock. The Commerce Stock Price,
determined as of the third trading day prior to the Closing Date, shall not be
less than $42.625.
8.9. Cash Dividend. The board of directors of the Company shall have
declared and the Company shall have paid the special cash dividend on Company
Common Stock permitted by Section 5.2(e) hereof.
ARTICLE IX
TERMINATION OF AGREEMENT
9.1. Basis for Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing Date: (a) by mutual
consent in writing of the parties hereto; (b) by Commerce
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upon written notice to Company if any regulatory approval of the transactions
contemplated under the terms of this Agreement shall be denied or if any such
regulatory approval shall be conditioned or restricted in any manner which in
the reasonable judgment of Commerce and Company would materially adversely
affect the operations of or would be unduly burdensome to Commerce; (c) by
Commerce or Company if the other party has materially breached this Agreement
and has not cured such breach within the earlier of (i) 30 days after the non-
breaching party shall have given notice to the breaching party of the
existence of such breach or (ii) the Closing Date; (d) by Commerce or Company
upon written notice to the other of any other condition imposed for the
benefit of such party that shall not have been satisfied or waived prior to
the Closing Date; or (e) by either Commerce or Company if this Agreement shall
not have been consummated by April 30, 1997; provided that the terminating
party is not then in material breach of this Agreement. As used in this
Section 9.1, actions contemplated as being taken by Commerce or the Company
must be taken by their respective Board of Directors or the Executive
Committee of such Board.
9.2. Effect of Termination. In the event of termination of this Agreement
for any reason set forth in Section 9.1, other than a breach thereof, no party
hereto shall have any liability to the other of any nature whatsoever,
including any liability for loss, damages or expenses suffered or claimed to
be suffered by reason thereof.
9.3. Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of Company or Sub, but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
9.4. Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
ARTICLE X
SECURITIES LAWS MATTERS
10.1. Registration Statement and Proxy Statement. Commerce shall as soon as
practicable prepare and file a registration statement on Form S-4 to be filed
with the SEC pursuant to the Securities Act for the purpose of registering the
shares of Commerce Common Stock to be issued in the Merger and the Exchange
Offer (the "Registration Statement"). Company, Commerce and Sub shall each
provide promptly to the other such information concerning their respective
businesses, financial conditions, and affairs as may be required or
appropriate for inclusion in the Registration Statement or the proxy statement
to be prepared by Company and to be used in connection with the Exchange Offer
or the special stockholders' meeting of Company to be called for the purpose
of considering and voting on the Merger (the "Proxy Statement"). Company,
Commerce and Sub shall each cause their counsel and auditors to cooperate with
the other's counsel and auditors in the preparation and filing of the
Registration Statement and the Proxy Statement. Commerce shall not include in
the Registration Statement any information concerning Company to which Company
shall reasonably and timely object in writing. Commerce, Sub and Company shall
use their reasonable best efforts to have the Registration Statement declared
effective under the Securities Act as soon as may be practicable and
thereafter Company shall distribute the Proxy Statement to its stockholders in
accordance with applicable laws not fewer than 20 business days prior to the
date on which this Agreement is to be submitted to its stockholders for voting
thereon and shall deliver the Exchange Offer materials to the minority
shareholders of the Bank. If necessary, in light of developments occurring
subsequent to the distribution of the Proxy Statement to Company or
stockholders, Company or shall
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<PAGE>
mail or otherwise furnish to its shareholders or the minority shareholders of
the Bank such amendments or supplements to the Proxy Statement or the Exchange
Offer materials as may, in the reasonable opinion of Commerce, Sub, or
Company, be necessary so that the Proxy Statement or the Exchange Offer
materials, as so amended or supplemented, will contain no untrue statement of
any material fact and will not omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or as may be
necessary to comply with applicable law. Commerce and Sub shall not be
required to maintain the effectiveness of the Registration Statement after
delivery of the Commerce Common Stock issued pursuant hereto for the purpose
of resale of Commerce Common Stock by any person. For a period of at least
three years from the date of the conversion of shares described in Section 2.2
hereof, Commerce shall make available "adequate current public information"
within the meaning of and as required by paragraph (c) of Rule 144 adopted
pursuant to the Securities Act.
10.2. State Securities Laws. The parties hereto shall cooperate in making
any filings required under the securities laws of any state in order either to
qualify or register the Commerce Common Stock so it may be offered and sold
lawfully in such state in connection with the Merger and the Exchange Offer or
to obtain an exemption from such qualification or registration.
10.3. Affiliates. Certificates representing shares of Commerce Common Stock
issued to "affiliates" (as defined in Rules 145 and 405 adopted under the
Securities Act) of Company pursuant to this Agreement will be subject to stop
transfer orders (as reasonably required in connection with Rule 145) and will
bear a restrictive legend set out in Exhibit 7.9; provided, however, that
following publication of financial results covering at least thirty (30) days
of combined operations of Commerce and the Company and upon receipt of an
opinion of counsel reasonably satisfactory to Commerce that a proposed sale,
pledge, transfer or other disposition of a specified number of shares of
Commerce Common Stock by an affiliate will comply with or will be exempt from
the Securities Act, Commerce shall, as promptly as practicable after receipt
of the stock certificates representing such affiliate's Commerce Common Stock
(and in any event within seven (7) business days after such receipt), direct
the Transfer Agent for the Commerce Common Stock to remove the stop transfer
order related thereto and reissue a stock certificate evidencing such shares
to the affiliate without such restrictive legend.
10.4. Publication of Combined Financial Results. Commerce will file with the
Securities and Exchange Commission a Periodic Report on Form 8-K containing
financial statements which include no less than 30 days of combined operations
of Commerce and Company, ended on a normal closing date, as soon as
practicable after the Effective Time unless the first 30 day period of
combined operations is reflected in and ends on the normal closing date of an
annual report on Form 10-K or quarterly report on Form 10-Q.
10.5. Indemnification. Commerce agrees to indemnify and hold harmless
Company and its directors, officers, employees, representatives and agents
from and against any and all claims, liabilities, damages and expenses
(including reasonable attorneys' fees), whether arising under federal or state
securities or Blue Sky laws or otherwise, which may be asserted against any of
them and which arise as a result of any alleged act or failure to act, or any
alleged statement or omission, of Commerce done or made in connection with the
Merger, Exchange Offer, Registration Statement, Proxy Statement, Exchange
Offer materials, or any other statement or form filed or required to be filed
with the SEC or any state securities department or delivered or required to be
delivered to the holders of Company Common Stock or Bank Stock.
ARTICLE XI
MISCELLANEOUS
11.1. Brokers and Finders. Commerce and Company represent each to the other
that this Agreement is the result of direct negotiations between them and that
such party has not incurred any liability for any brokers, finders or similar
fees in connection with this Agreement.
A-21
<PAGE>
11.2. Parties in Interest. This Agreement and the rights hereunder are not
assignable unless such assignment is consented to in writing by all parties
hereto. Except as otherwise expressly provided herein, all of the terms and
provisions of this Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the respective heirs, beneficiaries, personal
and legal representatives, successors and permitted assigns of the parties
hereto.
11.3. Entire Agreement, Amendments, Waiver. This Agreement contains the
entire understanding of Commerce, Sub and Company with respect to the Merger
and supersedes all prior agreements and understandings, whether written or
oral, between them with respect to the Merger contemplated herein. This
Agreement may be amended only by a written instrument duly executed by the
parties or their respective successors or permitted assigns. Any condition to
a party's obligation hereunder may be waived by such party in writing.
11.4. Notices. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or transmitted by telefacsimile with a copy thereof
transmitted by a nationally recognized overnight delivery service or deposited
in the United States mail, certified or registered, return receipt requested,
postage prepaid, addressed to the parties at the following addresses or at
such other address as shall be given in like manner by any party to the other:
If to Company:
Mr. Wendell Wilkinson
Pittsburg Bancshares, Inc.
100 S. Broadway
Pittsburg, Kansas 66762
Telephone: 316-231-8400
FAX: 316-231-9340
with a copy to:
Michael W. Lochmann, Esq.
Stinson, Mag & Fizzell P.C.
1201 Walnut Street
Kansas City, Missouri 64106
Telephone: 816-691-3208
FAX: 816-691-3495
If to Commerce:
Mr. A. Bayard Clark
Commerce Bancshares, Inc.
8000 Forsyth Boulevard
Clayton, Missouri 63105
Telephone: (314) 746-7440
FAX: (314) 746-8739
with a copy to:
J. Daniel Stinnett, Esq.
Commerce Bancshares, Inc.
1000 Walnut--18th Floor
Kansas City, Missouri 64106
Telephone: (816) 234-2350
FAX: (816) 234-2333
A-22
<PAGE>
and
Dennis P. Wilbert, Esq.
Blackwell Sanders Matheny Weary & Lombardi LLP
Two Pershing Square
2300 Main, Suite 1100
Kansas City, Missouri 64108
Telephone: (816) 983-8124
FAX: (816) 983-8080
11.5. Law Governing. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Kansas.
11.6. Further Acts. Commerce, Company and Sub agree to execute and deliver
on or before the Closing Date such other documents, certificates, agreements
or other writings and take such other actions as may be necessary or desirable
in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
11.7. Confidential Treatment. In the event the transactions contemplated by
this Agreement shall not be consummated for any reason whatsoever, Commerce
agrees that all information relative to Company and Bank concerning their
operations and, in particular, information relative to loan and deposit
customers shall be treated as confidential information which will not be
disclosed or utilized by Commerce or its agents, representatives or employees,
and Commerce further agrees that it will cause all copies of documents or
other papers received from Company or Bank to be returned thereto.
11.8. Press Release. Immediately after execution and delivery of this
Agreement, the parties hereto shall issue a mutually acceptable press release
publicly disclosing the existence of this Agreement.
11.9. Litigation Expenses. In the event that a dispute arises or legal
proceeding is brought with respect to any provision of this Agreement or any
party's rights or obligations hereunder, the party that prevails in such legal
proceeding or receives any amount in settlement of such dispute or proceeding
shall be entitled to recover its reasonable costs, expenses and attorneys'
fees from the other party or parties to such dispute or proceeding.
11.10. Adjustments per Section 2.9. The parties acknowledge and agree that
(a) Commerce has declared a five percent (5%) stock dividend on the Commerce
Common Stock payable on December 12, 1997, (b) the effects of such stock
dividend are not reflected in subsections (a) and (b) of Section 2.2 hereof,
and (c) pursuant to Section 2.9 hereof, when such stock dividend is paid by
Commerce, subsections (a) and (b) of Section 2.2 hereof shall be revised to
read as follows:
(a) Each outstanding share of common stock, $6.00 par value per share, of
the Company ("Company Common Stock"), of which 72,737.50 shares are issued
and outstanding (but excepting Company Dissenting Shares, as defined below,
and excepting shares of Company Common Stock held by Commerce or Sub or any
subsidiary of the Company or Commerce, other than as a trustee, fiduciary,
nominee or in a similar capacity), shall be converted into 6.72 shares (the
"Exchange Ratio") of common stock, $5.00 par value per share, of Commerce
("Commerce Common Stock").
(b) If the actual Commerce Stock Price is less than $44.144 then (i) the
Exchange Ratio shall be increased to 7.194666 (the "Adjusted Exchange
Ratio") or, at Commerce's option, (ii) the Exchange Ratio shall remain at
6.72 and a cash payment equal to $20.95 per share of Company Common Stock
shall be made.
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<PAGE>
In Witness Whereof, the parties hereto have duly executed this Agreement as
of the date first above written.
Pittsburg Bancshares, Inc.
/s/ Wendell Wilkinson
By: _________________________________
Wendell Wilkinson
President
Commerce Bancshares, Inc.
/s/ A. Bayard Clark
By: _________________________________
A. Bayard Clark
Executive Vice President and
Chief Financial Officer
CBI-Kansas, Inc.
/s/ A. Bayard Clark
By: _________________________________
A. Bayard Clark
Vice President
A-24
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
This First Amendment to Agreement and Plan of Reorganization (the "First
Amendment"), is dated as of the 24th day of December, 1997, and made by and
between Commerce Bancshares, Inc., a Missouri corporation ("Commerce"), CBI-
Kansas, Inc., a Kansas corporation ("Sub"), and Pittsburg Bancshares, Inc., a
Kansas corporation ("Company").
WITNESSETH:
Whereas, Commerce, Sub and Company have heretofore entered into an Agreement
and Plan of Reorganization, dated as of the 29th day of October, 1997 (the
"Original Agreement"), providing for the merger of Sub with and into Company
(the "Merger"); and
Whereas, the parties desire to amend the Original Agreement in the manner
hereinafter set forth (the Original Agreement as amended by this First
Amendment is referred to herein as the "Agreement");
Whereas, capitalized terms used herein that are not otherwise defined herein
shall have the meanings given to such items in the Original Agreement;
Now Therefore, in consideration of the premises and the mutual covenants and
agreements herein contained, the parties agree as follows:
1. Section 2.2(b) is hereby amended to read in its entirety as follows:
"(b) If the Commerce Stock Price is $57.73 or less, then the Exchange
Ratio shall be increased to 6.72 (the "Adjusted Exchange Ratio")."
2. Section 2.8(a) is hereby amended by deleting the proviso to the first
sentence thereof.
3. Section 2.9 is hereby amended to read in its entirety as follows:
"Section 2.9 Adjustments. If at any time during the period between the
date hereof and the Effective Time, any change in the outstanding shares of
capital stock of Commerce is effected by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such
period, the Exchange Ratio or the Adjusted Exchange Ratio, as the case may
be, shall be adjusted on a pro rata basis."
4. Section 5.2(e) is hereby amended to read in its entirety as follows:
(e) permit the Bank to declare or pay any dividend or make any other
distribution in respect of any capital stock of the Bank except for (i) a
cash dividend in the amount of $3.70 per share ($277,500.00 aggregate
amount) that has been declared and is payable on January 2, 1998; (ii) cash
dividends in amounts sufficient to cover reasonable out of pocket fees and
expenses incurred by the Company in connection with the consummation of the
transactions contemplated hereby; (iii) if the transactions contemplated
hereby are not consummated in time to permit the shareholders of the
Company and the Bank to receive any cash dividends declared and payable on
the Commerce Common Stock on or after January 1, 1998 with respect to the
shares of Commerce Common Stock which they will receive pursuant hereto
(the aggregate dollar amount of such dividends is referred to herein as the
"Commerce Equivalent Dividend") then the Bank may declare and pay a cash
dividend in an amount equal to the Commerce Equivalent Dividend (the
amounts referred to in (i), (ii) and (iii) hereof are collectively referred
to herein as "Permitted Dividends").
5. Section 7.6 is hereby amended to read in its entirety as follows:
"7.6. Financial Measures. On the Closing Date, (i) the Bank's capital
(computed in a manner consistent with the computation of the Bank's capital
as shown on its July 31, 1997 balance sheet heretofore furnished to
Commerce) shall not be less than $14,100,000; provided, however, that if
the Bank pays the
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<PAGE>
Commerce Equivalent Dividend contemplated by Section 5.2(e)(iii) hereof,
then the Bank's capital shall not be less than the remainder of $14,100,000
minus the Commerce Equivalent Dividend, and (ii) the Bank's loan loss
reserve shall not be less than $886,736.61 (which is $32,952.68 less than
the amount of the loan loss reserve existing on July 31, 1997)."
6. Section 7.13 is deleted in its entirety.
7. Section 8.8 is deleted in its entirety.
8. Section 8.9 is deleted in its entirety.
9. Section 11.10 is deleted in its entirety.
In Witness Whereof, the parties have duly executed this First Amendment as of
the date first above written.
Pittsburg Bancshares, Inc.
/s/ Wendell L. Wilkinson
By: _________________________________
Wendell L. Wilkinson
President
Commerce Bancshares, Inc.
/s/ A. Bayard Clark
By: _________________________________
Title: Executive Vice President
and Chief
Financial Officer
Name: A. Bayard Clark
CBI-Kansas, Inc.
/s/ A. Bayard Clark
By: _________________________________
Name: A. Bayard Clark
Title: Vice President
A-26
<PAGE>
ANNEX B
K.S.A. (S) 17-6712. Payment for stock of stockholder objecting to merger or
consolidation; definitions; notice to objecting stockholders; demand for
payment; appraisal and determination of value by district court, when;
taxation of costs; rights of objecting stockholders; status of stock; section
inapplicable to certain shares of stock. (a) When used in this section, the
word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation.
(b) The corporation surviving or resulting from any merger or consolidation,
within 10 days after the effective date of the merger or consolidation, shall
notify each stockholder of any corporation of this state so merging or
consolidating who objected thereto in writing and whose shares either were not
entitled to vote or were not voted in favor of the merger or consolidation,
and who filed such written objection with the corporation before the taking of
the vote on the merger or consolidation, that the merger or consolidation has
become effective. If any such stockholder, within 20 days after the date of
mailing of the notice, shall demand in writing, from the corporation surviving
or resulting from the merger or consolidation, payment of the value of the
stockholder's stock, the surviving or resulting corporation shall pay to the
stockholder, within 30 days after the expiration of the period of 20 days, the
value of the stockholder's stock on the effective date of the merger or
consolidation, exclusive of any element of value arising from the expectation
or accomplishment of the merger or consolidation.
(c) If during a period of 30 days following the period of 20 days provided
for in subsection (b), the corporation and any such stockholder fail to agree
upon the value of such stock, any such stockholder, or the corporation
surviving or resulting from the merger or consolidation, may demand a
determination of the value of the stock of all such stockholders by an
appraiser or appraisers to be appointed by the district court, by filing a
petition with the court within four months after the expiration of the thirty-
day period.
(d) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the corporation, which shall file with the clerk of
such court, within 10 days after such service, a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by the corporation. If the petition shall be filed by the
corporation, the petition shall be accompanied by such duly verified list. The
clerk of the court shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the corporation
and to the stockholders shown upon the list at the addresses therein stated
and notice shall also be given by publishing a notice at least once, at least
one week before the day of the hearing, in a newspaper of general circulation
in the county in which the court is located. The court may direct such
additional publication of notice as it deems advisable. The forms of the
notices by mail and by publication shall be approved by the court.
(e) After the hearing on such petition the court shall determine the
stockholders who have complied with the provisions of this section and become
entitled to the valuation of and payment for their shares, and shall appoint
an appraiser or appraisers to determine such value. Any such appraiser may
examine any of the books and records of the corporation or corporations the
stock of which such appraiser is charged with the duty of valuing, and such
appraiser shall make a determination of the value of the shares upon such
investigation as seems proper to the appraiser. The appraiser or appraisers
shall also afford a reasonable opportunity to the parties interested to submit
to the appraiser or appraisers pertinent evidence on the value of the shares.
The appraiser or appraisers, also, shall have the powers and authority
conferred upon masters by K.S.A. 60-253 and amendments thereto.
(f) The appraiser or appraisers shall determine the value of the stock of
the stockholders adjudged by the court to be entitled to payment therefor and
shall file a report respecting such value in the office of the clerk of the
court, and notice of the filing of such report shall be given by the clerk of
the court to the parties in interest.
<PAGE>
Such report shall be subject to exceptions to be heard before the court both
upon the law and facts. The court by its decree shall determine the value of
the stock of the stockholders entitled to payment therefor and shall direct
the payment of such value, together with interest, if any, as hereinafter
provided, to the stockholders entitled thereto by the surviving or resulting
corporation. Upon payment of the judgment by the surviving or resulting
corporation, the clerk of the district court shall surrender to the
corporation the certificates of shares of stock held by the clerk pursuant to
subsection (g). The decree may be enforced as other judgments of the district
court may be enforced, whether such surviving or resulting corporation be a
corporation of this state or of any other state.
(g) At the time of appointing the appraiser or appraisers, the court shall
require the stockholders who hold certificated shares and who demanded payment
for their shares to submit their certificates of stock to the clerk of the
court, to be held by the clerk pending the appraisal proceedings. If any
stockholder fails to comply with such direction, the court shall dismiss the
proceedings as to such stockholder.
(h) The cost of any such appraisal, including a reasonable fee to and the
reasonable expenses of the appraiser, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to such appraisal or any of them as appears to be equitable,
except that the cost of giving the notice by publication and by registered or
certified mail hereinabove provided for shall be paid by the corporation. The
court, on application of any party in interest, shall determine the amount of
interest, if any, to be paid upon the value of the stock of the stockholders
entitled thereto.
(i) Any stockholder who has demanded payment of the stockholder's stock as
herein provided shall not thereafter be entitled to vote such stock for any
purpose or be entitled to the payment of dividends or other distribution on
the stock, except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation, unless the appointment of an appraiser or appraisers shall not
be applied for within the time herein provided, or the proceeding be dismissed
as to such stockholder, or unless such stockholder with the written approval
of the corporation shall deliver to the corporation a written withdrawal of
the stockholder's objections to and an acceptance of the merger or
consolidation, in any of which cases the right of such stockholder to payment
for the stockholder's stock shall cease.
(j) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
(k) This section shall not apply to the shares of any class or series of a
class of stock, which, at the record date fixed to determine the stockholders
entitled to receive notice of and to vote at the meeting of stockholders at
which the agreement of merger or consolidation is to be acted on, were either
(1) registered on a national securities exchange, or (2) held of record by not
less than 2,000 stockholders, unless the articles of incorporation of the
corporation issuing such stock shall otherwise provide; nor shall this section
apply to any of the shares of stock of the constituent corporation surviving a
merger, if the merger did not require for its approval the vote of the
stockholders of the surviving corporation, as provided in subsection (f) of
K.S.A. 17-6701 and amendments thereto. This subsection shall not be applicable
to the holders of a class or series of a class of stock of a constituent
corporation if under the terms of a merger or consolidation pursuant to K.S.A.
17-6701 or 17-6702, and amendments thereto, such holders are required to
accept for such stock anything except (i) stock or stock and cash in lieu of
fractional shares of the corporation surviving or resulting from such merger
or consolidation, or (ii) stock or stock and cash in lieu of fractional shares
of any other corporation, which at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders at which the agreement of merger or consolidation is to be acted
on, were either registered on a national securities exchange or held of record
by not less than 2,000 stockholders, or (iii) a combination of stock or stock
and cash in lieu of fractional shares as set forth in (i) and (ii) of this
subsection.
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 351.355 of the Missouri Revised Statutes (1986) allows
indemnification of corporate directors and officers by a corporation under
certain circumstances as therein specified against liabilities, expenses,
counsel fees and costs reasonably incurred in connection with or arising out
of any action, suit, proceeding or claim in which such person is made a party
by reason of such person being or having been such director or officer.
Section 351.355 also permits such persons to seek indemnification under any
applicable bylaw, agreement, vote of shareholders or disinterested directors
or otherwise. Section 351.355 also permits corporations to maintain insurance
for officers and directors against liabilities incurred while acting in such
capacities whether or not the corporation would be empowered to indemnify such
persons under this section.
There is also in effect a bylaw provision entitling officers and directors
to be indemnified by Commerce from and against any and all of the expenses,
liabilities or other matters covered by said provision. Commerce has executed
a security agreement pursuant to which securities with a market value of
approximately $10,000,000 have been pledged to an agent to collateralize the
obligations of Commerce under this bylaw provision.
ITEM 21. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference. Documents designated by an asterisk (*) are incorporated by
reference pursuant to Rule 411 of the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
2 Agreement and Plan of Reorganization dated the 29th day of
October, 1997, among the Registrant, CBI-Kansas, Inc. and
Pittsburg Bancshares, Inc., as amended (included as Annex
A to the Prospectus).
4(a)* Restated Articles of Incorporation, as currently amended,
were filed in the quarterly report on Form 10-Q for the
quarter ended June 30, 1996, and the same are hereby in-
corporated by reference.
4(b)* Restated By-Laws, as currently amended, were filed in the
quarterly report on Form 10-Q for the quarter ended June
30, 1996, and the same are hereby incorporated by refer-
ence.
4(c)* Shareholder Rights Plan contained in an Amended and Re-
stated Rights Agreement was filed on Form 8-A12G/A dated
June 7, 1996, and the same is hereby incorporated by ref-
erence.
4(d)* Form of Rights Certificate and Election to Exercise was
filed on Form 8-A12G/A dated June 7, 1996, and the same is
hereby incorporated by reference.
4(e)* Form of Certificate of Designation of Preferred Stock was
filed on Form 8-A12G/A dated June 7, 1996, and the same is
hereby incorporated by reference.
5 Opinion of Blackwell Sanders Matheny Weary & Lombardi LLP.
8 Opinion of Blackwell Sanders Matheny Weary & Lombardi LLP.
10(a)* Commerce Bancshares, Inc. Executive Incentive Compensation
Plan--Amendment and Restatement of December 3, 1993, was
filed in quarterly report on Form 10-Q dated August 5,
1994, and the same is hereby incorporated by reference.
10(b)* Copy of Commerce Bancshares, Inc. Incentive Stock Option
Plan as adopted on April 16, 1996, was filed in annual re-
port on Form 10-K dated March 30, 1987, and the same is
hereby incorporated by reference.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S> <C>
10(c)* Copy of Commerce Bancshares, Inc. 1987 Non-Qualified Stock
Option Plan, and now captioned the Commerce Bancshares,
Inc. 1996 Non-Qualified Stock Option Plan, as amended and
restated in its entirety on April 19, 1996, was filed in
quarterly report on Form 10-Q dated August 9, 1995, and
the same is hereby incorporated by reference.
10(d)* Commerce Bancshares, Inc. Stock Purchase Plan for Non-Em-
ployee Directors dated July 1, 1989 was filed on Form 10-Q
for the quarterly period ended June 30, 1989, and the same
is hereby incorporated by reference.
10(e)* Copy of Security Agreement with respect to Directors and
Officers Liability was filed in quarterly report on Form
10-Q dated July 30, 1986, and the same is hereby incorpo-
rated by reference.
10(f)* Copy of Supplemental Retirement Income Plan established by
Commerce Bancshares, Inc. for James M. Kemper, Jr. was
filed in annual report on Form 10-K dated March 6, 1992,
and the same is hereby incorporated by reference.
10(g)* Copy of Agreement between Commerce Bancshares, Inc. and
James M. Kemper, Jr. relating to the provision of consult-
ing and other services by James M. Kemper, Jr. for Com-
merce Bancshares, Inc. was filed in annual report on Form
10-K dated March 6, 1992, and the same is hereby incorpo-
rated by reference.
10(h)* Copy of 1996 Incentive Stock Option Plan was filed in
quarterly report on Form 10-Q dated August 9, 1995, and
the same is hereby incorporated by reference.
10(i)* Copy of Commerce Executive Retirement Plan was filed in
annual report on Form 10-K dated March 8, 1996, and the
same is hereby incorporated by reference.
21* The list of subsidiaries of Commerce was filed in annual
report on Form 10-K dated March 8, 1996, and the same is
hereby incorporated by reference.
23(a) Consent of KPMG Peat Marwick LLP.
23(b) Consent of Baird Kurtz & Dobson.
23(c) Consents of Blackwell Sanders Matheny Weary & Lombardi LLP
(included in Exhibits 5 and 8).
23(d) Consent of GRA, Thompson, White & Co., P.C.
24 Powers of Attorney.
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of employee benefit plans annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(2) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will
II-2
<PAGE>
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(3) That, every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415 (section 230.415 of this chapter), will be
filed as part of an amendment of the registration statement and will not be
used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF KANSAS CITY, STATE OF
MISSOURI, ON JANUARY 8, 1998.
Commerce Bancshares, Inc.
/s/ J. Daniel Stinnett
By: _________________________________
J. Daniel Stinnett
Vice President, Secretary and
General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON JANUARY 8, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board, President and Chief
___________________________________________ Executive Officer (Principal Executive
David W. Kemper Officer) and Director
* Executive Vice President (Principal
___________________________________________ Financial Officer)
A. Bayard Clark
/s/ Jeffery D. Aberdeen Controller (Principal Accounting Officer)
___________________________________________
Jeffery D. Aberdeen
Giorgio Balzer
Fred L. Brown
W. Thomas Grant
James B. Hebenstreit
David W. Kemper
James M. Kemper, Jr.
A majority of the Board of Directors*
Terry O. Meek
Benjamin F. Rassieur, Jr.
Dolph C. Simons, Jr.
L. W. Stolzer
Andrew C. Taylor
Robert H. West
</TABLE>
<TABLE>
<S> <C>
/s/ J. Daniel Stinnett as attorney-in-fact for the above officers
By: _______________________________________ and directors marked by an asterisk.
(J. Daniel Stinnett
Attorney-in-Fact)
</TABLE>
II-4
<PAGE>
Exhibit 5
January 9, 1998
Commerce Bancshares, Inc.
1000 Walnut, 18th Floor
Kansas City, MO 64106
Ladies and Gentlemen:
We have acted as counsel to Commerce Bancshares, Inc., a Missouri
corporation (the "Company"), in connection with the transactions contemplated by
the Agreement and Plan of Reorganization, dated as of October 29, 1997 (as
amended, the "Acquisition Agreement"), by and among Commerce Bancshares, Inc.
("Commerce"), CBI-Kansas, Inc. ("CBI") and Pittsburg Bancshares, Inc.
("Pittsburg Bancshares").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Securities Act").
Pursuant to the Acquisition Agreement, CBI will be merged with and into
Pittsburg Bancshares, with Pittsburg Bancshares being the surviving corporation
(the "Merger"). In the Merger, the outstanding shares of common stock, $6.00 par
value of Pittsburg Bancshares, other than any shares owned by Commerce, CBI,
Pittsburg Bancshares or any of their subsidiaries (which shares will be
canceled), will be exchanged for fully paid and nonassessable shares of common
stock, $5.00 par value, of Commerce (the "Commerce Common Stock").
Pittsburg Bancshares will also offer to acquire the remaining shares of
stock of City National Bank of Pittsburg ("Bank") in exchange for shares of
Commerce Common Stock (the "Exchange").
In connection with the transactions contemplated by the Acquisition
Agreement, the Company will file with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form S-4 (the "Registration
Statement") relating to the registration under the Securities Act of the shares
of the Commerce Common Stock to be issued in the Merger and Exchange.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Registration Statement, (ii) the Articles of Incorporation and By-laws
of the Company, as in effect on the date hereof, (iii) the Acquisition Agreement
and (iv) certain resolutions of the Board of Directors of the Company
<PAGE>
relating to the Merger and Exchange. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such documents
as we have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the completeness and authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
completeness and authenticity of the originals of such latter documents. In
making our examination of documents executed by parties other than the Company,
we have assumed that such parties had the power, corporate or other, to enter
into and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents on such parties. As to any facts
material to the opinion expressed herein which were not independently
established or verified, we have relied upon oral or written statements and
representations of officers and other representations of the Company and others.
Members of our firm are admitted to the Bar in the State of Missouri, and
we do not express any opinion as to the laws of any other jurisdiction.
Based upon and subject the foregoing, we are of the opinion that the shares
of the Commerce Common Stock, when issued upon the consummation of the Merger
and Exchange in accordance with the terms of the Acquisition Agreement and as
set forth in the Registration Statement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to our firm under the
heading "LEGAL MATTERS" in the related Proxy Statement/Prospectus/Exchange Offer
which forms a part of the Registration Statement. In giving such consent we do
not thereby admit or imply that we are in the category of persons whose consent
is required under Section 7 of the Securities Act or the rules and regulations
of the Commission thereunder.
Very truly yours,
/s/ Blackwell Sanders Matheny Weary & Lombardi LLP
<PAGE>
EXHIBIT 8
January 9, 1998
Commerce Bancshares, Inc.
1000 Walnut, 18th Floor
Kansas City, Missouri 64105
Pittsburg Bancshares, Inc.
City National Bank of Pittsburg
100 S. Broadway
Pittsburg, KS 66762
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg Shareholders
Re: Commerce Bancshares, Inc. Acquisition of Pittsburg Bancshares,
Inc. and City National Bank of Pittsburg
Ladies and Gentlemen:
You have asked for our opinion about the Federal income tax consequences of
the proposed acquisition of (i) Pittsburg Bancshares, Inc. ("Pittsburg") by
Commerce Bancshares, Inc. ("Commerce") and (ii) minority owned shares of City
National Bank of Pittsburg ("Bank") by Pittsburg in exchange for voting common
stock of Commerce in the manner described below. In our opinion, the proposed
acquisition of Pittsburg will constitute a tax-free reorganization both within
the meaning of section 368(a)(1)(A) (as amplified by 368(a)(2)(E)) and section
368(a)(1)(B) of the Internal Revenue Code (the "Code"). Further, in our opinion,
the proposed acquisition of the shares of Bank not owned by Pittsburg will
constitute a tax-free reorganization within the meaning of section 368(a)(1)(B)
of the Code.
Proposed Transactions
---------------------
Pittsburg is a closely held bank holding company incorporated under the
laws of Kansas. Pittsburg has 72,737.50 shares of $6.00 par value voting common
stock issued and outstanding. Pittsburg has no other shares outstanding.
Pittsburg owns 97 percent of the outstanding stock of Bank. Pittsburg acquired
all of the Bank stock it currently owns in exchange for its own stock from
transferors who owned all of Pittsburg's stock after the transfers. Such
transfers qualified
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 2
as tax-free transfers under section 351 of the Code. The other 3 percent of Bank
stock is held by minority shareholders.
Commerce is a publicly traded bank holding company incorporated under the
laws of Missouri. Commerce's $5.00 par value voting common stock is its only
outstanding stock. Commerce owns all of the outstanding stock of CBI-Kansas
("CBI"), which is a bank holding company incorporated under the laws of Kansas.
Under the Agreement and Plan of Reorganization Among Commerce Bancshares,
Inc., Pittsburg Bancshares, Inc. and CBI-Kansas, Inc. (the "Agreement"), CBI
will merge into Pittsburg pursuant to the laws of Kansas (the "Merger"). At the
time of the Merger, each share of CBI common stock will be converted into a
share of Pittsburg common stock. Concurrently, each share of Pittsburg's stock,
except shares held by Commerce or any of its subsidiaries or by any dissenting
Pittsburg shareholder, will be converted into shares of Commerce common stock.
Under the Agreement, Pittsburg will offer to exchange shares of Commerce
voting stock for the minority-held shares of Bank stock immediately following
the Merger (the "Exchange"). The Bank shareholders will receive the same number
of Commerce shares per Bank share as Pittsburg shareholders received per
Pittsburg share in the Merger.
Assumptions
-----------
We have made certain assumptions which are described below. Our opinion is
conditioned on, among other things, the accuracy of such information, covenants,
representations and assumptions as of the time the Merger is consummated.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all persons, the authenticity of all documents submitted to us
as originals, and the conformity with authentic originals of all copies of
documents submitted to us.
In rendering our opinion, we have considered the applicable provisions of
the Code, Treasury Regulations promulgated under the Code, pertinent judicial
authorities, interpretive rules by the Internal Revenue Service, and such other
authorities as we have considered relevant. It should be noted that statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 3
change in the authorities upon which our opinion is based, could affect our
conclusions. In addition, we have made the following assumptions:
1. The fair market value of the Commerce stock and other consideration
received by each Pittsburg shareholder in the Merger will be
approximately equal to the fair market value of the Pittsburg stock
surrendered in the Merger.
2. The fair market value of the Commerce stock received by each Bank
shareholder in the Exchange will be approximately equal to the fair
market value of the Bank stock surrendered in the Exchange.
3. Following the Merger, Pittsburg will hold (i) at least 90 percent of
the fair market value of its net assets, (ii) at least 70 percent of
the fair market value of its gross assets, (iii) at least 90 percent of
the fair market value of CBI's net assets, and (iv) at least 70 percent
of the fair market value of CBI's gross assets held immediately prior
to the transaction. For this purpose, amounts paid by Pittsburg to
dissenters or to shareholders who receive cash or other property, and
amounts used by Pittsburg or CBI to pay reorganization expenses, and
all redemptions and distributions (except for regular, normal
dividends) made by Pittsburg will be included as assets of Pittsburg or
CBI, respectively immediately prior to the Merger.
4. There is no plan or intention by shareholders of Pittsburg who own 1
percent or more of the Pittsburg stock, and to the best knowledge of
the management of Commerce and Pittsburg, there is no plan or intention
on the part of the remaining shareholders of Pittsburg to sell,
exchange, or otherwise dispose of a number of shares of Commerce stock
received in the Merger that would reduce the transferring shareholders'
ownership of Commerce's voting stock received in the Merger to a number
of shares having a value, as of the date of the Merger, of less than 80
percent of the value of all of the formerly outstanding stock of
Pittsburg as of the same date. For this purpose, shares of Pittsburg
stock exchanged for cash or other property, surrendered by dissenters
or exchanged for cash in lieu of fractional shares of Commerce stock
will be treated as outstanding Pittsburg stock on the date of the
Merger.
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 4
5. Prior to the Merger, Commerce will hold all of CBI's outstanding stock
and, after the Merger, Commerce will hold all of Pittsburg's stock.
6. Pittsburg has no plan or intention to issue additional shares of its
stock that would result in Commerce holding less than 80 percent of
Pittsburg's voting stock or less than 80 percent of any other classes
of Pittsburg stock. Likewise, Bank has no plan or intention to issue
additional shares of its stock that would result in Pittsburg holding
less than 80 percent of Pittsburg's voting stock or less than 80
percent of any other classes of Pittsburg stock.
7. Except for fractional shares, neither Commerce nor any of its
subsidiaries has any plan or intention to reacquire any of the
Commerce voting stock issued in the Merger or the Exchange.
8. Neither Commerce nor any of its affiliates has any plan or intention
to liquidate Pittsburg; to merge Pittsburg with or into another
corporation; to sell or otherwise dispose of the stock of Pittsburg
except for transfers of stock to corporations controlled by Commerce;
or to cause Pittsburg to sell or otherwise dispose of any of its
assets or any of the assets acquired from CBI, except for transfers to
a corporation controlled by Commerce.
9. Neither Pittsburg nor any of its affiliates has any plan or intention
to liquidate Bank; to merge Bank into another corporation; to cause
Bank to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business; or to sell or
otherwise dispose of any of the Bank stock acquired in the Exchange,
except for transfers to a corporation controlled by Pittsburg.
10. The liabilities of CBI assumed by Pittsburg and the liabilities to
which the transferred assets of CBI are subject at the time of the
Merger were incurred in the ordinary course of business.
11. Following the Merger and the Exchange, Pittsburg and Bank will
continue their respective historic business or will use a significant
portion of their respective historic business assets in a business.
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 5
12. All parties (including Bank shareholders) will pay their respective
expenses incurred in connection with the Merger and Exchange.
13. There is no intercorporate indebtedness existing between Pittsburg and
any other party to the Merger that was issued, acquired or will be
settled at a discount.
14. At the time of the Merger, Pittsburg will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Pittsburg that, if
exercised or converted, would affect Commerce's acquisition or
retention of 80 percent of Pittsburg's voting stock or 80 percent of
any other classes of Pittsburg stock.
15. At the time of the Exchange, Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Bank that, if
exercised or converted, would affect Pittsburg's acquisition or
retention of 80 percent of Bank's voting stock or 80 percent of any
other classes of Bank stock.
16. Commerce will acquire Pittsburg stock representing at least 80 percent
of Pittsburg's outstanding voting stock solely in exchange for
Commerce voting stock. For this purpose, Pittsburg stock redeemed for
cash or other property furnished by Commerce will be considered as
acquired by Commerce. Further, no liabilities of Pittsburg or the
Pittsburg shareholders will be assumed by Commerce, nor will any of
the Pittsburg stock be subject to any liabilities.
17. Pittsburg will acquire Bank stock solely in exchange for Commerce
voting stock. For this purpose, Bank stock redeemed for cash or other
property furnished by Pittsburg or Commerce will be considered as
acquired by Pittsburg. Further, no liabilities of Bank or the Bank
shareholders will be assumed by Pittsburg, nor will any of the Bank
stock be subject to any liabilities.
18. None of the parties to the Merger or Exchange is an investment company
within the meaning of section 368(a)(2)(F)(iii) of the Code.
19. During the five years prior to the Merger, neither Commerce nor any of
its affiliates owned directly or indirectly, any shares of the stock
of Pittsburg.
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 6
20. On the date of the Exchange, Pittsburg will have acquired all of the
Bank stock it owns solely in exchange for Pittsburg voting stock.
21. On the date of the Merger, the fair market values of the assets of
Pittsburg transferred in the Merger will exceed the sum of the
liabilities of Pittsburg that are assumed in the Merger or to which
transferred assets are subject.
22. On the date of the Exchange, the fair market value of the assets of
Bank will exceed the sum of its liabilities plus the liabilities, if
any, to which the assets are subject.
23. Pittsburg is not under the jurisdiction of a court in any insolvency
proceeding.
24. Pittsburg will pay its dissenting shareholders the value of their stock
out of its own funds. No funds will be supplied for that purpose,
directly or indirectly, by Commerce, nor will Commerce directly or
indirectly reimburse Pittsburg for any payments to dissenters.
25. The payment of cash to transferring shareholders in lieu of fractional
shares of Commerce voting stock is not separately bargained for
consideration, and is solely for the purpose of saving Commerce the
expense and inconvenience of issuing fractional shares. The total
amount of cash paid in lieu of fractional shares will not exceed one
percent of the total consideration in the Merger. No shareholder will
receive cash for fractional shares in excess of the value of one full
share of Commerce voting stock in the Merger.
26. None of the shares being issued in the Merger is consideration for the
performance of services, and none of the compensation received by any
shareholder employee of Pittsburg will be allocable to any shares of
stock exchanged. All compensation paid to shareholder employees will be
commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 7
Opinion
-------
Based on the assumptions set forth above, our examination of the Agreement,
and such other investigations of fact and legal authorities as we have deemed
necessary or appropriate, and subject to the conditions and limitations
expressed elsewhere herein, it is our opinion that:
1. The Merger of CBI into Pittsburg will constitute a reorganization both
within the meaning of section 368(a)(1)(A) (as amplified by
368(a)(2)(E)) and section 368(a)(1)(B) of the Code.
2. Pittsburg's acquisition of Bank stock in exchange for Commerce stock
will constitute a reorganization within the meaning of section
368(a)(1)(B) of the Code.
3. Under section 354(a) of the Code, shareholders of Pittsburg will not
recognize gain or loss upon the conversion of their Pittsburg stock to
Commerce voting stock. Likewise, under section 351(a) of the Code,
shareholders of Bank will not recognize gain or loss upon the exchange
of their Bank stock for Commerce voting stock.
4. Under section 358 of the Code, the basis of Commerce's voting stock in
the hands of former shareholders of Pittsburg and Bank will equal the
basis of the stock exchanged.
5. Under section 1223(1) of the Code, the holding period of Commerce voting
stock received by shareholders (other than dealers) of Pittsburg and
Bank will include the holding period of the stock exchanged.
6. The Merger will not affect the basis or holding period of the assets of
Pittsburg or Bank.
7. Cash paid to holders of shares of Pittsburg stock who dissent or in
exchange for Pittsburg stock and cash paid to holders of shares of
Pittsburg in lieu of fractional shares will be treated as proceeds from
sales of shares on which gain or loss will be recognized.
<PAGE>
Commerce Bancshares, Inc.
Pittsburg Bancshares, Inc.
Pittsburg Bancshares, Inc. Shareholders
City National Bank of Pittsburg
City National Bank of Pittsburg Shareholders
January 9, 1998
Page 8
Except as otherwise set forth above, we express no opinion to any party to
the transactions as to the consequences of the consummation of the transactions
described in this letter. We consent to the filing of this opinion as an exhibit
to the Registration Statement and to references to the opinion and to Blackwell
Sanders Matheny Weary & Lombardi LLP. in the Prospectus. In giving this consent,
we do not admit or imply that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933. This opinion is solely
for your benefit and may not be relied upon by any other person without our
prior written consent.
Very truly yours,
/s/ Blackwell Sanders Matheny Weary & Lombardi LLP
<PAGE>
Exhibit 23(a)
INDEPENDENT ACCOUNTANTS' CONSENT
Board of Directors
Commerce Bancshares, Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of Commerce Bancshares, Inc. of our report dated January 31, 1997,
relating to the consolidated balance sheets of Commerce Bancshares, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related statements of
income, cash flows and stockholders' equity for each of the years in the three-
year period ended December 31, 1996, which report appears in the December 31,
1996 annual report on Form 10-K of Commerce Bancshares, Inc., and to the
reference to our firm under the heading of "Experts" in the related prospectus.
/s/ KPMG Peat Marwick LLP
Kansas City, Missouri
January 9, 1998
<PAGE>
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Commerce Bancshares, Inc.
registration statement on Form S-4 of our report dated November 25, 1997 with
respect to Pittsburg Bancshares, Inc.'s financial statements for the year ended
December 31, 1996. We also consent to the reference to us under the heading
"EXPERTS" in such registration statement.
/s/ Baird, Kurtz & Dobson
Joplin, Missouri
January 6, 1998
<PAGE>
EXHIBIT 23(d)
CONSENT
We hereby consent to the references to our Valuation of Shares of
Common Stock of Pittsburg Bancshares, Inc. as of May 31, 1997 under the caption
"Background of Negotiations" in the Prospectus/Proxy Statement/Exchange Offer
which forms a part of the Registration Statement on Form S-4 relating to the
issuance of shares of common stock of Commerce Bancshares, Inc. ("Commerce") in
exchange for (i) shares of common stock of Pittsburg Bancshares, Inc.
("Pittsburg Bancshares") in the proposed merger of CBI-Kansas, Inc., a wholly-
owned subsidiary of Commerce, with and into Pittsburg Bancshares and (ii) shares
of common stock of City National Bank of Pittsburg, a subsidiary of Pittsburg
Bancshares. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
GRA, THOMPSON, WHITE & CO., P.C.
By /s/ Terry W. White
-----------------------------
December 17, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
We, the undersigned Directors and Officers of Commerce Bancshares, Inc. do
hereby name, constitute and appoint J. Daniel Stinnett, Jeff Aberdeen or Bayard
Clark, III, our agent and attorney-in-fact, for each of us and in our respective
behalves as Directors and/or as Officers of Commerce Bancshares, Inc. to sign
and execute a Registration Statement on Form S-4, and any amendments thereto,
relating to the registration with the Securities and Exchange Commission of
shares of common stock of Commerce Bancshares, Inc.
Executed this 5th day of December, 1997.
/s/ David W. Kemper /s/ Giorgio Balzer
- ------------------------------------- ---------------------------------------
David W. Kemper Giorgio Balzer
/s/ Fred L. Brown /s/ W. Thomas Grant II
- ------------------------------------- ---------------------------------------
Fred L. Brown W. Thomas Grant II
/s/ James B. Hebenstreit /s/ Jonathan M. Kemper
- ------------------------------------- ---------------------------------------
James B. Hebenstreit Jonathan M. Kemper
/s/ Terry O. Meek
---------------------------------------
Terry O. Meek
/s/ Benjamin F. Rassieur, III
- -------------------------------------
Benjamin F. Rassieur, III
/s/ Dolph C. Simons, Jr. /s/ L. W. Stolzer
- ------------------------------------- ---------------------------------------
Dolph C. Simons, Jr. L. W. Stolzer
/s/ Andrew C. Taylor /s/ Robert H. West
- ------------------------------------- ---------------------------------------
Andrew C. Taylor Robert H. West
/s/ Jeffrey D. Aberdeen
---------------------------------------
Jeffrey D. Aberdeen
<PAGE>
POWER OF ATTORNEY
The undersigned hereby appoints J. Daniel Stinnett and Jeffrey D. Aberdeen,
or either of them, attorney-in-fact for the undersigned and in the name and on
behalf of the undersigned to sign a Registration Statement Form S-4 to be filed
by Commerce Bancshares, Inc. together with any and all amendments which might be
required from time to time with respect thereto, to be filed with the Securities
and Exchange Commission under the Securities Act of 1933 with respect to the
acquisition of Pittsburg Bancshares, Inc. and City National Bank of Pittsburg
with full power and authority in either of said attorneys-in-fact to do and
perform in the name of and on behalf of the undersigned every act whatsoever
necessary or desirable to be done in connection therewith as fully and to all
intents and purposes as the undersigned might or could do in person.
Executed this 8th day of December, 1997.
/s/ A. Bayard Clark
-----------------------------------------
A. Bayard Clark, Executive Vice President
and Principal Financial Officer
