<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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COMMERCE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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MISSOURI 6712 43-0889454
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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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)
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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)
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Copies to:
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DENNIS P. WILBERT, ESQ. THOMAS CUMMINGS, ESQ.
BLACKWELL SANDERS PEPER MARTIN LLP ARMSTRONG TEASDALE LLP
TWO PERSHING SQUARE ONE METROPOLITAN SQUARE, SUITE 2600
2300 MAIN, SUITE 1000 ST. LOUIS, MISSOURI 63102
KANSAS CITY, MISSOURI 64108 (314) 621-5070
(816) 983-8124 FAX: (314) 621-5065
FAX: (816) 983-8080
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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 (as described 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. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT* PRICE*
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Common Stock, par value $5.00 per share... 876,750 shares $17.92 $15,711,360
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AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
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Common Stock, par value $5.00 per share... $4,148
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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
common stock, $1.00 par value per share, of Breckenridge Bancshares Company
estimated to be outstanding immediately prior to, and to be canceled in, the
merger described herein as of September 30, 2000.
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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.
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<PAGE> 2
, 2000
Dear Breckenridge Bancshares Company Shareholder:
You are cordially invited to attend the Special Meeting of the Shareholders
of Breckenridge Bancshares Company which will be held at , on
, , 2001, commencing at p.m., local time.
At this important meeting, holders of common stock of Breckenridge will be asked
to adopt a merger agreement and approve a merger between Breckenridge and
CBI-Kansas, Inc., a wholly owned subsidiary of Commerce Bancshares, Inc.
Breckenridge presently owns all of the issued and outstanding shares of The
Centennial Bank.
The merger agreement was executed on October 20, 2000 and provides for the
merger of Breckenridge into CBI-Kansas, after certain conditions are met,
including the approval of Breckenridge's shareholders. The merger is also
subject to certain required regulatory approvals and will be completed shortly
after the necessary regulatory approvals are obtained and other conditions are
satisfied or waived. Under Missouri law, holders of common stock of Breckenridge
have dissenters' rights of appraisal with respect to the merger.
The enclosed Prospectus/Proxy Statement describes the terms of the merger
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 Breckenridge and its shareholders and unanimously recommends that
shareholders vote "for" the proposal.
A two-thirds vote of all outstanding shares of Breckenridge's 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,
Jerry L. Byrd, Sr.
President
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BRECKENRIDGE BANCSHARES COMPANY
To the Shareholders of Breckenridge Bancshares Company:
A Special Meeting of the shareholders of Breckenridge Bancshares Company, a
Missouri Corporation, will be held at , on , 2001,
commencing at p.m., local time for the following purposes:
To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of October 20, 2000 among Commerce Bancshares, Inc.,
CBI-Kansas, Inc. and Breckenridge Bancshares Company, a copy of which is
attached as Appendix A to the accompanying Prospectus/Proxy Statement.
Holders of Breckenridge common stock of record at the close of business on
, 2000, will be entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof. Approval of the merger
agreement, which is a condition to the consummation of the transactions
contemplated by the merger agreement, requires the affirmative vote of the
holders of two-thirds of the outstanding shares of Breckenridge common stock.
Pursuant to Section 351.455 of the Missouri General and Business Corporation
Law, Breckenridge's shareholders are entitled to dissenters' rights.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER. YOUR BOARD BELIEVES THAT THE MERGER IS FAIR AND IN THE BEST
INTERESTS OF BRECKENRIDGE AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AND THE MERGER.
By Order of the Board of Directors
Jerry L. Byrd. Sr.
President
Breckenridge Hills, Missouri
, 2000
<PAGE> 4
PROSPECTUS
OF
COMMERCE BANCSHARES, INC.
876,750 SHARES OF COMMON STOCK
$5.00 PAR VALUE
The boards of directors of CBI-Kansas, Inc. and Breckenridge Bancshares
Company and the Executive Committee of the Board of Directors of Commerce
Bancshares, Inc. have agreed to the merger of Breckenridge into CBI-Kansas.
After the merger, Breckenridge will cease to exist as a separate legal entity
and CBI-Kansas will continue as the merger's surviving corporation. As a result
of the merger, Commerce will issue a total of 876,750 shares of Commerce common
stock to the shareholders of Breckenridge. The number of shares of Commerce
common stock to be issued for each share of Breckenridge common stock will be
determined by dividing 876,750 by the total number of shares of Breckenridge
common stock issued and outstanding on the effective date of the merger.
Commerce common stock is traded on The Nasdaq Stock Market under the symbol
"CBSH."
PROXY STATEMENT
OF
BRECKENRIDGE BANCSHARES COMPANY
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 2001
The merger cannot be completed unless the Breckenridge shareholders approve
it by an affirmative vote of the holders of at least two-thirds of the
outstanding shares. Breckenridge's board of directors has scheduled a special
meeting for Breckenridge's shareholders to vote on the merger as follows:
------------------------------------------------------- , 2001
------------------------------------------- , p.m., local time
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This document gives you detailed information about the proposed merger. We
encourage you to read this entire document carefully. Please see "Where You Can
Find More Information" beginning on page 48 for additional information about
Commerce on file with the SEC.
This proxy statement/prospectus is first being mailed to shareholders on or
about , 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE COMMERCE COMMON STOCK TO BE ISSUED
UNDER THIS PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THE PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is , 2000.
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TABLE OF CONTENTS
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DOCUMENTS INCORPORATED BY REFERENCE......................... iii
WHAT BRECKENRIDGE SHAREHOLDERS WILL RECEIVE IN THE MERGER... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
The Companies............................................. 3
The Merger................................................ 3
Reasons for the Merger.................................... 3
Recommendation to Shareholders............................ 4
What Breckenridge Shareholders will Receive in the
Merger................................................. 4
Certain U.S. Federal Income Tax Considerations............ 4
Conditions to Completing the Merger....................... 4
Termination of the Merger Agreement....................... 5
Stock Certificates and Dividend Withholding............... 5
Comparative Stock Prices.................................. 5
Appraisal Rights.......................................... 6
Comparison of Shareholder Rights.......................... 6
Opinion of Financial Advisor.............................. 6
Accounting Treatment...................................... 6
PRO FORMA AND SELECTED FINANCIAL DATA....................... 7
COMPARATIVE PER SHARE DATA.................................. 8
THE SPECIAL MEETING......................................... 9
General Information....................................... 9
Matters to be Considered.................................. 9
Record Date; Quorum....................................... 9
Votes Required............................................ 9
Security Ownership of Management.......................... 9
Voting and Revocation of Proxies.......................... 9
Solicitation of Proxies................................... 10
THE COMPANIES............................................... 11
Commerce.................................................. 11
Breckenridge.............................................. 11
THE MERGER.................................................. 11
General................................................... 11
Conversion of Breckenridge Stock.......................... 11
Stock Options............................................. 12
Exchange of Breckenridge Stock Certificates............... 12
Fractional Shares......................................... 12
Background of Negotiations................................ 12
Reasons for the Merger.................................... 13
Opinion of Breckenridge Financial Advisor................. 14
Operations and Management After the Merger................ 19
Conditions to the Merger.................................. 20
Conduct of Business Pending the Merger.................... 20
No Solicitation........................................... 22
Waiver and Amendment...................................... 22
Possible Termination of the Merger........................ 22
Effective Time............................................ 23
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Employment Terms of Jerry L. Byrd, Sr. ................... 23
Federal Securities Laws Consequences...................... 23
Rights of Dissenting Shareholders......................... 23
Transactions Between Commerce and Breckenridge............ 24
Accounting Treatment; Restrictions on Sales by
Affiliates............................................. 24
FEDERAL INCOME TAX CONSEQUENCES............................. 25
BENEFICIAL OWNERSHIP OF SECURITIES.......................... 26
DIFFERENCES IN RIGHTS OF SHAREHOLDERS....................... 28
General................................................... 28
Number of Directors and Term.............................. 28
Removal of Directors...................................... 28
Voting.................................................... 28
Dividends and Liquidation Preference...................... 29
Preemptive Rights......................................... 29
Special Meetings.......................................... 29
Indemnification; Limitation of Liability.................. 29
Shareholder Inspection.................................... 30
Amendment of Articles of Incorporation.................... 30
Amendment of Bylaws....................................... 30
Notice of Shareholder Proposals; Nominations of
Directors.............................................. 30
Shareholders' Vote for Mergers............................ 31
Dissenters' Rights........................................ 31
Anti-takeover Statutes.................................... 31
Preferred Share Purchase Rights Plan...................... 31
SELECTED CONSOLIDATED FINANCIAL DATA OF BRECKENRIDGE
BANCSHARES COMPANY........................................ 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
BRECKENRIDGE BANCSHARES COMPANY........................... 33
COMMERCE COMMON STOCK AND BRECKENRIDGE COMMON STOCK
COMPARATIVE PER SHARE PRICES AND DIVIDENDS................ 47
LEGAL OPINION............................................... 47
EXPERTS..................................................... 48
Independent Public Accountants for Commerce Bancshares,
Inc.................................................... 48
Independent Public Accountants for Breckenridge Bancshares
Company................................................ 48
SHAREHOLDER PROPOSALS....................................... 48
WHERE YOU CAN FIND MORE INFORMATION......................... 48
INDEX TO FINANCIAL STATEMENTS OF BRECKENRIDGE BANCSHARES
COMPANY................................................... F-i
APPENDICES
Appendix A -- Copy of Merger Agreement
Appendix B -- Rights of Shareholders Dissenting from
Proposed Merger
Appendix C -- Opinion of Stifel, Nicolaus & Company,
Incorporated
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ii
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DOCUMENTS INCORPORATED BY REFERENCE
This proxy statement/prospectus incorporates by reference important
information that we are not delivering with this document. The SEC allows us to
"incorporate by reference" information into this document, which means that we
can disclose important information to you by referring you to another document
separately filed with the SEC. See "Where You Can Find More Information"
beginning on page 48. You can obtain this information without charge by
contacting:
COMMERCE BANCSHARES, INC.
1000 Walnut
Kansas City, Missouri 64106
Attention: J. Daniel Stinnett
(816) 234-2350
To ensure timely delivery of the documents in advance of the special
meeting, you should make your request no later than , 2001.
iii
<PAGE> 8
WHAT BRECKENRIDGE SHAREHOLDERS WILL RECEIVE IN THE MERGER
The number of shares of Commerce common stock into which one share of
Breckenridge common stock would be converted in the merger is referred to in
this document as the "merger consideration" or the "exchange ratio." In the
merger, Commerce expects to issue 876,750 shares of its common stock for all
shares of Breckenridge common stock held by Breckenridge shareholders
immediately before completion of the merger. It is currently anticipated that
1,019,313 shares of Breckenridge common stock will be outstanding on the
effective date of the merger and that each share of Breckenridge common stock
will be converted into the right to receive 0.8601 shares of Commerce common
stock.
The actual value of the shares of Commerce common stock issued in the
merger cannot be determined at this time since it is based on the market price
of such shares at the time the merger is completed. The last reported sales
price on , 2000 for Commerce shares as reported by The Nasdaq Stock
Market was $ . You should obtain current market prices for the Commerce
common stock.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY SHOULD BRECKENRIDGE MERGE WITH COMMERCE?
A: Breckenridge's board of directors believes that the merger will benefit
Breckenridge and its shareholders because, among other reasons:
-- the merger offers Breckenridge shareholders an attractive premium over
book value of the common stock;
-- the merger provides Breckenridge shareholders with the opportunity to
participate in a larger, more diversified company with greater financial
stability, and a more liquid market for their shares;
-- the merger offers Breckenridge shareholders, customers and employees a
unique opportunity to realize the benefits created by combining the two
companies.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect the complete the merger promptly after receiving shareholder
approval at the special meeting on , 2001.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained in this
document. Then, please fill out, sign and mail your proxy card in the
enclosed return envelope as soon as possible so that your shares may be
represented at the special meeting. If the card does not specify a choice,
your shares will be voted "FOR" the merger and all other proposals.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Breckenridge shareholders will receive
written instructions for exchanging their stock certificates for
certificates of Commerce common stock.
Q: IF I AM NOT GOING TO ATTEND THE SPECIAL MEETING, SHOULD I RETURN MY PROXY
CARD?
A: Yes. Returning your proxy card ensures that your shares will be represented
at the special meeting, even if you are unable or do not want to attend.
Q: CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
A: Yes. You can change your vote at any time before we vote your proxy at the
special meeting. You can do this in three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second,
you can complete and submit a new proxy card. If you choose either of these
two methods, you must submit your notice of revocation or your new proxy
card to Breckenridge Bancshares Company, 9850 St. Charles Rock Road,
Breckenridge Hills, Missouri 63074, Attention:
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Jerry L. Byrd, Sr. Third, you can attend the special meeting and vote in
person. Simply attending the meeting, however, will not revoke your proxy;
you must request a ballot and vote the ballot at the meeting.
Q: WHO CAN HELP ANSWER QUESTIONS?
A: If you have more questions about the merger, you should contact:
Commerce Bancshares, Inc.
1000 Walnut
Kansas City, Missouri 64106
Attention: J. Daniel Stinnett
Telephone (816) 234-2350
Breckenridge Bancshares Company
9850 St. Charles Rock Road
Breckenridge Hills, Missouri 63074
Attention: Jerry L. Byrd, Sr.
Telephone: (314) 423-6800
2
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger more fully and for a complete
description of the legal terms of the merger, you should read carefully this
entire document and the documents we have referred you to. See "Where You Can
Find More Information" beginning on page 48.
THE COMPANIES
Commerce Bancshares, Inc.
1000 Walnut
Kansas City, Missouri 64106
(816) 234-2000
Website: www.commercebank.com
Commerce is a registered multi-bank holding company which owns all of the
outstanding capital stock (except directors' qualifying shares) of one national
banking association located in Missouri, one national banking association
headquartered in Illinois, one national bank located in Kansas and a credit card
bank in Omaha, Nebraska. Commerce also directly or indirectly owns various
nonbanking subsidiaries, including 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,
2000, were approximately $11.0 billion and net income for the nine months ended
September 30, 2000, was approximately $132.4 million.
Breckenridge Bancshares Company
9850 St. Charles Rock Road
Breckenridge Hills, Missouri 63074
(314) 423-6800
Breckenridge is a registered bank holding company headquartered in
Breckenridge Hills, Missouri which owns all of the outstanding capital stock of
The Centennial Bank, a Missouri state bank located in Breckenridge Hills,
Missouri. The total assets of Breckenridge on a consolidated basis, as of
September 30, 2000 were approximately $273 million and net income for the nine
months ended September 30, 2000 was approximately $1.6 million.
THE MERGER
We have entered into an Agreement and Plan of Merger with our wholly owned
subsidiary, CBI-Kansas, Inc., and Breckenridge Bancshares Company. In the
proposed merger, Breckenridge will be merged with and into CBI-Kansas, with
CBI-Kansas as the surviving corporation. We have attached the Agreement and Plan
of Merger to this proxy statement/prospectus as Appendix A. We encourage you to
read the merger agreement as it is the legal document that governs the merger.
REASONS FOR THE MERGER
Our companies are proposing to merge because we believe that by combining
them we can create a stronger and more diversified company that will provide
significant benefits to our stockholders and customers alike.
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RECOMMENDATION TO SHAREHOLDERS
The Breckenridge board of directors believes that the merger is fair to you
and in your best interests and unanimously recommends that you vote "FOR" the
proposal to approve the merger.
WHAT BRECKENRIDGE SHAREHOLDERS WILL RECEIVE IN THE MERGER
If we complete the merger, shareholders will receive for Breckenridge
common stock 876,750 shares of Commerce common stock. It is currently
anticipated that 1,019,313 shares of Breckenridge common stock will be
outstanding as of the effective date of the merger and each share of
Breckenridge common stock will be converted into the right to receive 0.8601
shares of Commerce common stock. Commerce will not issue any fractional shares
in the merger. Instead you will receive cash for any fractional share of
Commerce common stock owed to you. The amount of cash you will receive will be
based upon the average closing sale price of Commerce common stock over a
specified period of time before the merger.
Following the merger, you will be entitled to exchange your shares of
Breckenridge common stock for shares of Commerce common stock by sending your
Breckenridge common stock share certificates and a form that we will send to
you, to the exchange agent, Commerce Bank, N.A., which will then exchange them
for shares of Commerce common stock and cash representing any fractional shares
of Commerce common stock. For more information on how this exchange procedure
works, see "The Merger -- Exchange of Breckenridge Stock Certificates" on page
12.
Commerce common stock trades on The Nasdaq Stock Market under the symbol
"CBSH." You may obtain current stock price quotations for Commerce common stock
from your stockbroker, in major newspapers such as The Wall Street Journal and
on the Internet.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
Breckenridge shareholders should not recognize gain or loss for federal
income tax purposes in the merger, although you may recognize gain or loss with
respect to cash you receive in payment of any fractional share that may result
from the exchange ratio of the merger.
CONDITIONS TO COMPLETING THE MERGER
The completion of the merger depends on the satisfaction of a number of
conditions, including the following:
- approval by the Breckenridge shareholders,
- the continued accuracy of each company's representations and warranties
and compliance by each company with its obligations contained in the
merger agreement,
- receipt of a legal opinion from Commerce's counsel as to the tax
consequences of the merger,
- receipt of legal opinions from Commerce's counsel and Breckenridge's
counsel covering customary corporate law matters,
- receipt of the required regulatory approvals,
- there being no legal action or court order that prohibits the merger,
- the declaration of effectiveness of this registration statement,
- there being no material adverse change in the financial condition or
assets of either Commerce or Breckenridge,
- certain financial measures applicable to Breckenridge being satisfied,
- the receipt by Breckenridge of an opinion of Stifel, Nicolaus & Company,
Incorporated passing on the fairness of the merger to the holders of
Breckenridge common stock,
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<PAGE> 12
- receipt of documentation from the FDIC confirming compliance by
Breckenridge and its subsidiaries with the memorandum of understanding
between Breckenridge and the FDIC, and
- the cancellation of all outstanding unexercised stock options under
Breckenridge's stock option plans.
TERMINATION OF THE MERGER AGREEMENT
Commerce, CBI-Kansas and Breckenridge can agree to terminate the merger
agreement without completing the merger, and either company can terminate the
merger agreement on its own without completing the merger under various
circumstances, including if any of the following occurs:
- by any of the companies if the merger has not been consummated by March
31, 2001, but such date may be extended in certain circumstances,
- by any of the companies if any banking regulatory approval of the merger
is denied or if any governmental entity has issued an order imposing a
burdensome condition on any of the companies,
- by Commerce or CBI-Kansas, on the one hand, or Breckenridge on the other,
if the other party has materially breached the merger agreement and has
not cured such breach within 45 days of notice of the breach,
- by Commerce or CBI-Kansas if the board of directors of Breckenridge fails
to recommend adoption of the merger agreement by the shareholders of
Breckenridge, or amends or modifies such recommendation in a manner
materially adverse to Commerce, or withdraws such recommendation,
- by Breckenridge, if it does not receive a "bring-down" fairness opinion
from Stifel Nicolaus as of the date of the Breckenridge proxy statement,
- by any of the companies if the shareholders of Breckenridge fail to vote
their approval of the merger agreement,
- by Commerce or CBI-Kansas, on the one hand, and Breckenridge, on the
other hand, if there has been a material adverse change in the business
or financial condition of the other party and such change has not been
cured within 45 days of notice of the change or the closing date,
whichever is earlier.
STOCK CERTIFICATES AND DIVIDEND WITHHOLDING
Breckenridge shareholders, other than those Breckenridge shareholders who
perfect their dissenters' rights of appraisal, must surrender the certificates
for their shares of Breckenridge common 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 and any cash in lieu of
fractional shares to which such shareholders are entitled. Until a Breckenridge
shareholder surrenders the certificates for his or her Breckenridge common stock
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 -- Exchange of Breckenridge Stock Certificates" on page 12.
COMPARATIVE STOCK PRICES
Shares of Commerce common stock are traded on The Nasdaq Stock Market. The
last sale price of Commerce common stock as reported on Nasdaq on October 19,
2000 (the last trading day preceding the execution of the merger agreement), was
$35.3125. The last sale price for Commerce common stock as reported on Nasdaq on
, 2000 (the most recent date for which it was practicable to obtain
market price data prior to the printing of this Prospectus) was $ .
As of September 30, 2000, there were 249 holders of record of Breckenridge
common stock. There is no established public trading market for the shares of
Breckenridge common stock and there has been
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<PAGE> 13
limited trading of Breckenridge common stock. Management has reviewed available
records of purchases and sales of Breckenridge common stock and, based on such
review, since January 1, 1998, two sales of Breckenridge common stock have been
at prices ranging from $15.49 to $15.50 per share. See "Commerce Common Stock
and Breckenridge Common Stock Comparative Per Share Prices and Dividends" on
page 47.
APPRAISAL RIGHTS
Under Missouri law, each holder of Breckenridge common stock who dissents
from the merger has the right to have the fair value of his or her shares
appraised by a court and paid to him or her in cash. In order to exercise
dissenters' rights, the shareholder must comply with specific procedural
requirements. If the shareholder fails to comply with these requirements,
dissenters' rights will not be available. See "The Merger -- Rights of
Dissenting Shareholders" beginning on page 23.
COMPARISON OF SHAREHOLDER RIGHTS
When the merger closes, Breckenridge shareholders will become Commerce
shareholders. Their rights will continue to be governed by Missouri law and
Commerce's governing corporate documents rather than Breckenridge's governing
corporate documents, as is currently the case. Accordingly, in a number of
respects the rights of Breckenridge's shareholders will change as a result of
the merger. For a description of these changes, see "Differences in Rights of
Shareholders" beginning on page 28.
OPINION OF FINANCIAL ADVISOR
In deciding to approve the Breckenridge board considered the opinion from
its financial advisor, Stifel, Nicolaus & Company, Incorporated, as to the
fairness from a financial point of view of the shares of Commerce common stock
to be exchanged for each share of Commerce common stock. This opinion is
attached as Appendix C to this proxy statement/prospectus. SHAREHOLDERS OF
BRECKENRIDGE ARE URGED TO, AND SHOULD, READ STIFEL NICOLAUS' OPINION IN ITS
ENTIRETY.
ACCOUNTING TREATMENT
The Merger will be treated by Commerce as a pooling of interests for
accounting purposes.
6
<PAGE> 14
PRO FORMA AND SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This information is only a
summary and you should read it in conjunction with the historical financial
statements of Commerce and Breckenridge and the related notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations. These
items for Breckenridge are contained in its Management's Discussion and Analysis
of Financial Condition and Results of Operations beginning on page 33. These
items for Commerce are contained in its annual, quarterly and other reports that
Commerce has filed with the Securities and Exchange Commission that are
incorporated herein by reference. See "Where You Can Find More Information"
beginning on page 48.
The following table presents for Commerce and Breckenridge on an historical
basis, selected consolidated financial data and unaudited pro forma combined
amounts reflecting the merger. The pro forma amounts assume the merger had been
effective during the periods presented. Pro forma per share amounts assume an
exchange ratio of 0.8601 shares of Commerce common stock for each share of
Breckenridge common stock. See "The Merger -- Conversion of Breckenridge Stock"
on page 11.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income and
other income:
Commerce................ $ 545,856 $ 521,853 $ 702,210 $ 641,782 $ 577,866 $ 524,905 $ 488,895
Breckenridge
Bancshares............ 6,815 5,806 8,079 6,008 4,667 3,673 2,966
Pro Forma............... 552,671 527,659 710,289 647,790 582,533 528,578 491,861
Net income:
Commerce................ 132,351 121,860 166,213 150,091 132,702 119,512 107,640
Breckenridge
Bancshares............ 1,605 1,232 1,713 492 816 435 373
Pro Forma............... 133,956 123,092 167,926 150,583 133,518 119,947 108,013
Diluted income per common
and common equivalent
share:
Commerce*............... 2.04 1.80 2.47 2.19 1.93 1.71 1.49
Breckenridge
Bancshares............ 1.62 1.24 1.73 0.50 1.07 0.62 0.53
Pro Forma............... 2.03 1.80 2.46 2.17 1.93 1.70 1.48
Historical dividends paid
per common share:
Commerce*............... 0.443 0.408 0.544 0.501 0.450 0.397 0.358
Breckenridge
Bancshares............ 0.070 0.070 0.090 0.080 0.080 0.080 0.080
Pro Forma............... 0.443 0.408 0.544 0.501 0.450 0.397 0.358
Total assets (end of
period):
Commerce................ 10,963,581 11,116,740 11,400,936 11,402,023 10,306,941 9,698,186 9,573,951
Breckenridge
Bancshares............ 272,512 217,100 237,410 199,580 150,107 107,207 79,745
Pro Forma............... 11,236,093 11,333,840 11,638,346 11,601,603 10,457,048 9,805,393 9,653,696
Long-term borrowings (end
of period):
Commerce................ 74,926 25,975 25,735 27,130 7,102 14,120 14,562
Breckenridge
Bancshares............ 19,000 -- -- -- -- -- --
Pro Forma............... 93,926 25,975 25,735 27,130 7,102 14,120 14,562
Total stockholders' equity
(end of period):
Commerce................ 1,120,222 1,075,765 1,079,832 1,080,785 980,784 924,271 883,783
Breckenridge
Bancshares............ 15,011 13,018 13,452 12,007 10,913 7,046 6,709
Pro Forma............... 1,135,233 1,088,783 1,093,284 1,092,792 991,697 931,317 890,492
Book value per common
share (end of period):
Commerce*............... 17.73 16.30 16.49 16.03 14.62 13.56 12.58
Breckenridge
Bancshares............ 15.41 13.36 13.81 12.32 11.68 10.00 9.51
Pro Forma............... 17.73 16.29 16.48 16.01 14.60 13.55 12.56
</TABLE>
---------------
* Commerce per share information has been restated for a 5% stock dividend
declared in October 2000.
7
<PAGE> 15
COMPARATIVE PER SHARE DATA
The following table sets forth per share data of:
-- Commerce on a historical basis.
-- Breckenridge on a historical basis.
-- Commerce and Breckenridge combined on a pro forma basis.
-- Commerce and Breckenridge combined on a pro forma basis stated on an
equivalent Breckenridge basis.
This table should be read in conjunction with the historical financial
statements and notes thereto for Commerce and the historical financial
statements for Breckenridge contained herein. Pro forma combined and equivalent
pro forma per share data reflect the combined results of Commerce and
Breckenridge 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 any estimated operating efficiencies or
revenue enhancements resulting from the proposed merger.
All shares of Breckenridge common stock shall be exchanged for 876,750
shares of Commerce common stock. Based on representations of Breckenridge with
respect to the outstanding number of shares of Breckenridge common stock, we
anticipate that each share of Breckenridge common stock will be exchanged for
.8601 shares of Commerce common stock. The Breckenridge equivalent pro forma per
share information shows the effect of the mergers from the perspective of an
owner of Breckenridge common stock.
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT
------------------------ PRO FORMA
BRECKENRIDGE PRO FORMA BRECKENRIDGE
COMMERCE* BANCSHARES COMMERCE* BANCSHARES
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Diluted income per common equivalent share:
Twelve months ended:
December 31, 1999............................ $ 2.47 $ 1.73 $ 2.46 $ 2.12
December 31, 1998............................ 2.19 0.50 2.17 1.87
December 31, 1997............................ 1.93 1.07 1.93 1.66
Nine months ended:
September 30, 2000........................... 2.04 1.62 2.03 1.75
September 30, 1999........................... 1.80 1.24 1.80 1.54
Cash dividends paid per share:
Twelve months ended:
December 31, 1999............................ 0.544 0.090 0.544 0.468
December 31, 1998............................ 0.501 0.080 0.501 0.431
December 31, 1997............................ 0.450 0.080 0.450 0.387
Nine months ended:
September 30, 2000........................... 0.443 0.070 0.443 0.381
September 30, 1999........................... 0.408 0.070 0.408 0.351
Book value per common share at:
December 31, 1999............................ 16.49 13.81 16.48 14.18
December 31, 1998............................ 16.03 12.32 16.01 13.77
December 31, 1997............................ 14.62 11.68 14.60 12.56
September 30, 2000........................... 17.73 15.41 17.73 15.25
September 30, 1999........................... 16.30 13.36 16.29 14.01
</TABLE>
---------------
* Commerce per share information has been restated for a 5% stock dividend
declared in October 2000.
8
<PAGE> 16
THE SPECIAL MEETING
GENERAL INFORMATION
This proxy statement/prospectus is provided to the shareholders of
Breckenridge in connection with the solicitation of proxies by the Breckenridge
board of directors for use at the Breckenridge special meeting to be held on
, 2001 at p.m., local time, at .
MATTERS TO BE CONSIDERED
At the special meeting, Breckenridge's shareholders will consider and vote
upon a proposal to approve the merger agreement. The shareholders will also
consider any other matters that may properly come before the special meeting or
any adjournment or postponement of the special meeting.
The merger agreement provides, among other things, for the merger of
Breckenridge with and into CBI-Kansas. CBI-Kansas will be the surviving
corporation and the Articles of Incorporation, Bylaws, directors and officers of
CBI-Kansas will remain the Articles of Incorporation, Bylaws, directors and
officers of CBI-Kansas. Shareholders of Breckenridge will receive shares of
Commerce common stock in the merger.
RECORD DATE; QUORUM
The Breckenridge board of directors has established the close of business
on , 2000 as the date to determine those record holders of
Breckenridge common stock entitled to notice of and to vote at the Breckenridge
special meeting. On that date, there were approximately shares of
Breckenridge common stock outstanding held by approximately holders of
record. A majority of the shares outstanding and entitled to vote on the record
date are required to be represented in person or by proxy in order for a quorum
to be present for purposes of approving the merger at the special meeting,
although the vote of a majority of the outstanding shares is required for
approval of the merger. In the event a quorum is not present at the special
meeting, it is expected that the meeting will be adjourned or postponed to
solicit additional proxies. Holders of record of Breckenridge common stock on
the record date are each entitled to one vote per share on the merger to be
considered at the special meeting.
VOTES REQUIRED
The approval and adoption of the merger agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of Breckenridge
common stock outstanding on . Shares which are present but not voted,
either by abstention or non-vote (including broker non-vote) will be counted for
purposes of establishing a quorum but will not be counted to determine whether
the merger is approved.
SECURITY OWNERSHIP OF MANAGEMENT
As of September 30, 2000, the directors and executive officers of
Breckenridge beneficially owned 44.1% of the outstanding shares of Breckenridge
common stock. All officers and directors of Breckenridge owning Breckenridge
common stock have indicated they intend to vote in favor of the merger
agreement.
VOTING AND REVOCATION OF PROXIES
All shares of Breckenridge common stock represented at the special meeting
by properly executed proxies received before or at the special meeting, unless
the proxies have been revoked, will be voted at the special meeting, including
any postponement or adjournment of the special meeting. If no instructions are
indicated, the proxies will be voted FOR approval of the merger agreement. In
addition, the persons designated in the proxies will have the discretion to vote
upon any other matters that may properly come before the special meeting,
including the right to vote for any adjournment of the special meeting to
solicit additional proxies.
9
<PAGE> 17
A person giving a proxy pursuant to this solicitation may revoke it at any
time before the proxy is voted at the special meeting. A proxy may be properly
revoked by:
- filing with the Secretary of Breckenridge, at 9850 St. Charles Rock Road,
Breckenridge Hills, Missouri 63074, before the voting of the proxy, a
written instrument revoking the proxy;
- completing the new proxy card and sending it to the address above, in
which case the new proxy card will automatically replace any earlier
dated proxy card; or
- voting in person at the special meeting.
Attendance at the special meeting will not, in and of itself, constitute the
revocation of a proxy.
Breckenridge will appoint one or more inspectors, who may be employees of
Breckenridge to determine, among other things, the number of shares of
Breckenridge common stock represented at the special meeting and the validity of
the proxies submitted for vote at the special meeting. The inspector(s) of
election appointed for the special meeting will tabulate votes cast by proxy and
in person.
SOLICITATION OF PROXIES
This proxy statement/prospectus is being furnished to the shareholders of
Breckenridge in connection with the solicitation of proxies by the board of
directors of Breckenridge for use at the special meeting and at any adjournment
or adjournments of the special meeting.
Except for the cost of preparing this proxy statement/prospectus, the cost
of solicitation of proxies for the Breckenridge special meeting will be borne by
Breckenridge. In addition to solicitation by mail, Breckenridge may cause
proxies to be solicited personally or by telephone or telegram by Breckenridge's
regular employees.
10
<PAGE> 18
THE COMPANIES
COMMERCE
Commerce Bancshares, Inc. is a registered multi-bank holding company which
owns all of the outstanding capital stock (except directors' qualifying shares)
of one national banking associations headquartered in Missouri, one national
banking association headquartered in Illinois, one national bank located in
Kansas and, a credit card bank in Omaha, Nebraska. Commerce also owns, directly
or through its banking subsidiaries, various non-banking subsidiaries which are
engaged in owning real state which is leased to Commerce's banking subsidiaries,
underwriting credit life and credit accident and health insurance, selling
property and casualty insurance (relating to extensions of credit made by the
banking subsidiaries), providing venture capital, brokerage services and
mortgage banking. 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 bank policy and
operations. The total assets of Commerce, on a consolidated basis as of
September 30, 2000, were approximately $11.0 billion and net income for the nine
months ended September 30, 2000, was approximately $132.4 million. See "Where
You Can Find More Information" beginning on page 48 and "Summary -- Pro Forma
and Selected Financial Data" on page 7. The principal executive offices of
Commerce are at the Commerce Bank Building, 1000 Walnut, Kansas City, Missouri
64106 (telephone number (816) 234-2000).
BRECKENRIDGE
Breckenridge Bancshares Company is a registered bank holding company
headquartered in Breckenridge Hills, Missouri, which owns all of the outstanding
capital stock of The Centennial Bank, a Missouri state bank located in
Breckenridge Hills, Missouri. The total assets of Breckenridge on a consolidated
basis, as of September 30, 2000, were approximately $273 million and net income
for the nine months ended September 30, 2000, was approximately $1.6 million.
See "FINANCIAL STATEMENTS OF BRECKENRIDGE BANCSHARES COMPANY" beginning on page
F-1 and "SELECTED CONSOLIDATED FINANCIAL DATA OF BRECKENRIDGE BANCSHARES" on
page 32. The principal executive offices of Breckenridge are at 9850 St. Charles
Rock Road, Breckenridge Hills, Missouri 63074 (telephone number (314) 423-6800).
THE MERGER
GENERAL
The merger 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 is qualified in its entirety by reference to the merger
agreement, which is attached as Appendix A to this proxy statement/ prospectus
and is incorporated herein by reference.
CONVERSION OF BRECKENRIDGE STOCK
Breckenridge shareholders will receive a total of 876,750 shares of
Commerce common stock in the merger. If you are a record holder of Breckenridge
common stock immediately prior to the effective time of the merger, and assuming
that there are 1,019,313 shares of Breckenridge common stock issued and
outstanding (as contemplated by the merger agreement), you will receive in
exchange for each share of Breckenridge common stock, 0.8601 shares of Commerce
common stock at the effective time. This exchange ratio reflects its adjustment
for a five percent (5%) Commerce common stock dividend declared on October 27,
2000 by Commerce's Board of Directors payable to holders of record of Commerce
common stock on November 30, 2000.
If between the date of the merger agreement and the effective time, the
outstanding shares of Commerce common stock shall have been further changed into
a different number of shares or a different
11
<PAGE> 19
class, by reason of any issuance of common stock, recapitalization,
reclassification, split-up, combination, exchange, readjustment, reorganization,
merger, consolidation, distribution, stock split, stock or other dividend, or
similar transaction, the merger agreement shall be adjusted to the extent
appropriate to reflect such event.
STOCK OPTIONS
As of October 20, 2000, options for 45,000 shares of Breckenridge common
stock were issued and outstanding. Of these options, 30,000 are exercisable at a
price of $6.67 per share and 15,000 are exercisable at a price of $12.65 per
share. Such options were granted to Jerry L. Byrd, Sr., who is the President of
Breckenridge pursuant to an Amended Employment Agreement dated July 1, 1998
between Breckenridge and Mr. Byrd. The merger agreement provides that
Breckenridge will cancel all outstanding unexercised options for Breckenridge
common stock as of the effective time of the merger.
EXCHANGE OF BRECKENRIDGE STOCK CERTIFICATES
After the effective time, a transmittal letter will be mailed to each
record holder of shares of Breckenridge common stock by an exchange agent. The
transmittal letter will include instructions to be followed by Breckenridge's
shareholders in exchanging their shares.
After receiving the transmittal letters, Breckenridge's shareholders will
surrender their stock certificates to the exchange agent for cancellation,
together with a signed copy of the transmittal letter. In return, they will
receive certificates for the appropriate number of shares of Commerce common
stock, plus cash instead of fractional shares. A holder of an unsurrendered
Breckenridge common stock certificate will not be entitled to receive dividends
or other distributions payable by Commerce. Upon surrender, those dividends or
distributions will be paid to the holder without interest. BRECKENRIDGE
SHAREHOLDERS SHOULD NOT SEND IN THEIR BRECKENRIDGE STOCK CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL LETTER.
If there is a transfer of Breckenridge common stock that is not registered
in Breckenridge's stock transfer records, then a certificate representing the
proper number of shares of Commerce common stock may be issued to that person to
whom the stock was transferred. However, as a condition to that issuance, that
person must deliver the certificate representing the Breckenridge common stock
to the exchange agent, along with documents that prove that the transfer has
been properly made and that all transfer taxes have been paid.
FRACTIONAL SHARES
No fractional shares will be issued by Commerce in connection with the
merger. If you are a Breckenridge shareholder who would otherwise have been
entitled to a fraction of a share of Commerce common stock, you will be paid the
cash value of such fraction determined by multiplying such fraction by the
average of 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 date prior to the effective time.
BACKGROUND OF NEGOTIATIONS
In the spring of 2000, the management of Breckenridge received an
unsolicited expression of interest from third party unrelated to Commerce with
respect to a possible merger or acquisition of Breckenridge and The Centennial
Bank. The management of Breckenridge disclosed this expression of interest to
the board of directors of Breckenridge.
The Breckenridge board of directors decided to explore this expression of
interest and other strategic alternatives. A committee, consisting of directors
Jerry Byrd, Sr., George Eble, Theodore Jacoby, Tony Karakas, Donald Muckerman,
Dale Arn, Jr. and Al Vogel, was directed by the Breckenridge Board to explore
this expression of interest and other strategic alternatives. At the suggestion
of the committee, the Breckenridge board of directors decided to retain a
consultant to assist in endeavor.
12
<PAGE> 20
In May 2000, the Committee met with representatives of Stifel, Nicolaus &
Company, Incorporated to discuss Stifel Nicolaus' possible roles in exploring
strategic alternatives. Stifel Nicolaus' representatives presented an overview
of the strategic and financial position of Breckenridge. The committee
considered that the ability of Breckenridge to maximize stockholder value was
impacted by the amount of capital, which would be necessary for Breckenridge and
Centennial to continue to increase stockholder value. The committee also
believed that the benefit to stockholders of establishing a liquid market for
their stock warranted exploration. Stifel Nicolaus was, therefore, engaged to
provide advice and assistance in connection with strategic alternatives
available, including a possible merger.
After a presentation of Breckenridge's strategic alternatives, the
committee suggested to the Breckenridge board if directors that Stifel Nicolaus
be requested to contact potential acquirors to seek indications of interest in
acquiring Breckenridge and Centennial. In accordance with this request, Stifel
Nicolaus contacted fifteen (15) companies. Eleven of these companies signed a
confidentiality agreement and requested an information packet. Three companies
expressed an indication of interest.
The Breckenridge board of directors met on October 4, 2000 to review the
status of the offers. The Breckenridge board of directors authorized Stifel
Nicolaus to communicate to Commerce that the Breckenridge board of directors was
prepared to enter into a definitive agreement if the Commerce offer was revised
to provide the exchange of not less than 835,000 shares of Commerce for all of
the shares of Breckenridge common stock, including stock options. The
Breckenridge board of directors also authorized its outside counsel, Armstrong
Teasdale, LLP to attempt negotiate the specific terms and provisions of a merger
agreement.
On October 19, 2000, the Breckenridge board of directors was informed of
the results of these efforts. Commerce had submitted to Stifel Nicolaus a
revised offer for an exchange of 835,000 shares of Commerce stock for all of the
stock of Breckenridge on a fully diluted basis. Stifel Nicolaus rendered to the
Breckenridge Board an oral opinion that, as of such date and subject to various
assumptions, matters considered and limitations described, the exchange of
835,000 shares of Commerce common stock to be paid for all outstanding shares of
Breckenridge common stock was fair to the holders of Breckenridge's common stock
from a financial point of view. In addition Breckenridge and Commerce had agreed
to specific terms of a merger agreement, which were presented to and reviewed by
the Breckenridge board of directors.
In considering all proposals, the Breckenridge board of directors
determined the Commerce proposal was the most attractive. Commerce common stock
was viewed by the Breckenridge Board to have excellent liquidity. The monthly
dollar volume in Commerce common stock has averaged approximately $2,082,083
during 1999. The Breckenridge Board viewed the market for Commerce common stock
as large and not volatile so that any sales by Breckenridge stockholders, which
did take place after the merger, would not have a significant effect on the
market value of Commerce common stock. In addition, the historic dividend that
Commerce had paid was significantly greater than the dividends Breckenridge had
historically paid.
The Breckenridge Board gave final approval to the merger agreement at that
meeting and on October 20, 2000; Breckenridge and Commerce entered into the
Agreement and Plan of Merger. The full report of Stifel Nicolaus, which was
reviewed by the Breckenridge Board at its October 19, 2000 meeting, may be
reviewed at The Centennial Bank at 9850 St. Charles Rock Road, Breckenridge
Hills, Missouri 63074 by any shareholder of record of Breckenridge.
REASONS FOR THE MERGER
Breckenridge.
The board of directors of Breckenridge believes that the terms of the
merger agreement are fair to, and in the best interests of, Breckenridge, its
stockholders and Centennial. In considering the terms and conditions of the
merger agreement, the Breckenridge board of directors considered a number of
factors. The Breckenridge board of directors did not assign any relative or
specific weights to the factors
13
<PAGE> 21
considered. The material factors considered were the financial terms and
structure of the merger. The Breckenridge board of directors is of the view
that, based on historical and anticipated trading ranges for Commerce common
stock, the value of the consideration to be received by Breckenridge represents
a fair multiple of Breckenridge per share book value and earnings. The
Breckenridge board of directors also considered that, based on its belief that
Commerce would continue to pay cash and stock dividends at its current rate, the
merger would result in a continuation of significant dividend income, as
compared to other alternatives, and stock price appreciation to Breckenridge's
stockholders. There can be no assurance, however, that current dividends are
indicative of future dividends or that recent stock price appreciation is
indicative of future performance. See "COMPARATIVE PER SHARE DATA" on page 8.
Further, the Breckenridge board of directors considered the quality and history
of Commerce's earnings and the ability to maintain those earnings given the
management quality and depth; diversification of risk; representation in growing
market areas and ability to grow internally. Additionally, the Breckenridge
board of directors recognized that the shares of Commerce common stock were
listed for trading on the Nasdaq and would provide a liquid investment as
compared to shares of Breckenridge common stock. The Breckenridge board of
directors also considered that the Merger would qualify as a tax-free
reorganization under the Code. See "FEDERAL INCOME TAX CONSEQUENCES" beginning
on page 25.
The Breckenridge board of directors also considered the social and economic
effect on the employees, depositors and customers of, and others dealing with,
Centennial and on the communities in which such banks are located or operate.
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 Breckenridge owners.
Commerce. In approving the merger agreement, management of Commerce
considered the price, financial condition of Breckenridge, the projected
synergies which Commerce anticipates will result from the merger and the
compatibility of the businesses of the banking organizations.
OPINION OF BRECKENRIDGE FINANCIAL ADVISOR
Breckenridge retained Stifel, Nicolaus & Company, Incorporated as its
financial advisor in connection with the merger because Stifel Nicolaus is a
nationally recognized investment-banking firm with substantial expertise in
transactions similar to the merger. Stifel Nicolaus is an investment banking and
securities firm with membership on all principal U.S. securities exchanges. As
part of its investment banking activities, Stifel Nicolaus is regularly engaged
in the independent valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
The following analysis is based on the exchange of 835,000 shares of
Commerce common stock and the assumption that there will be 1,019,313 shares of
Breckenridge common stock issued and outstanding at the effective time of the
merger, which equates to an exchange ratio of 0.8192 shares to be paid for each
share of Breckenridge common stock. Subsequent to the signing of the merger
agreement, Commerce declared a 5% stock dividend, which results in adjusted
merger consideration of 876,750 shares and a resulting exchange ratio of 0.8601
shares to be paid for each share of Breckenridge common stock, based on the same
assumptions noted above. The following language describes the opinion of Stifel
Nicolaus as it was presented to the board of directors of Breckenridge on
October 19, 2000 and as contained in the written opinion dated October 20, 2000
and attached hereto as Appendix C.
At a meeting of the board of directors of Breckenridge on October 19, 2000,
Stifel Nicolaus rendered to the board of directors an oral opinion that, as of
such date and subject to various assumptions, matters considered and limitations
described, the exchange ratio of 0.8192 to be paid for each share of
Breckenridge common stock pursuant to the merger agreement and subject to
adjustment as provided in the merger agreement was fair to the holders of
Breckenridge's common stock from a financial point of view.
14
<PAGE> 22
Stifel Nicolaus has confirmed its October 19, 2000 oral opinion by delivery
of its written opinion to board of directors of Breckenridge, dated October 20,
2000, that, based upon and subject to various assumptions, matters considered
and limitations described therein, the consideration to be received by the
shareholders of Breckenridge pursuant to the merger agreement is fair to such
shareholders from a financial point of view.
The full text of Stifel Nicolaus' opinion as of October 20, 2000, which
sets forth the assumptions made, matters considered and limitations of the
review undertaken, is attached as Appendix C to this proxy statement and is
incorporated herein by reference, and should be read in its entirety in
connection with this proxy statement. The summary of the opinion of Stifel
Nicolaus set forth in this proxy statement is qualified in its entirety by
reference to the full text of such opinion.
No limitations were imposed by Breckenridge on the scope of Stifel
Nicolaus' investigation or the procedures to be followed by Stifel Nicolaus in
rendering its opinion. Stifel Nicolaus was not requested to and did not make any
recommendation to the board of directors of Breckenridge as to the form or
amount of the consideration to be paid to Breckenridge or its shareholders,
which was determined through arm's length negotiations between the parties. In
arriving at its opinion, Stifel Nicolaus did not ascribe a specific range of
values to Breckenridge. Its opinion is based on the financial and comparative
analyses described below. Stifel Nicolaus' opinion was directed solely to the
board of directors of Breckenridge for its use in connection with its
consideration of the merger. Stifel Nicolaus' opinion addressed only the
fairness of the consideration to be received from a financial point of view, did
not address any other aspect of the merger, and was not intended to be and does
not constitute a recommendation to any shareholder of Breckenridge as to how
such shareholder should vote with respect to the merger. Stifel Nicolaus was not
requested to opine as to, and its opinion does not address, Breckenridge's
underlying business decision to proceed with or effect the merger or the
relative merits of the merger compared to any alternative transaction that might
be available to Breckenridge.
In connection with its October 19, 2000 oral opinion and its written
opinion dated October 20, 2000, Stifel Nicolaus, among other things:
- reviewed the merger agreement;
- reviewed the financial statements of Breckenridge for each of the five
years ended December 31, 1999, and internal financial statements for the
nine months ended September 30, 2000;
- reviewed the financial statements of Commerce included in its Annual
Reports on Form 10-K for each of the five years ended December 31, 1999,
the earnings release for the nine months ended September 30, 2000 and (in
connection with the written opinion dated the date hereof) the financial
statements included in its Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000;
- reviewed various internal financial analyses and forecasts for
Breckenridge and discussed forecasts with Commerce;
- conducted conversations with the Breckenridge's senior management
regarding their respective business plans and financial forecasts;
- compared financial and securities data (as appropriate) Breckenridge and
Commerce with various other companies whose securities are traded in
public markets and reviewed the historical stock prices and trading
volumes of the common stock of Breckenridge and Commerce;
- reviewed the financial terms of certain other business combinations; and
- conducted such other financial studies, analyses and investigations as it
deemed appropriate for purposes of its opinion.
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<PAGE> 23
Stifel Nicolaus also took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as
well as its experience in securities valuations and its knowledge of the bank
and banking industry generally.
In rendering its opinion, Stifel Nicolaus relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to it or that was otherwise reviewed by
it. Stifel Nicolaus did not assume any responsibility for independently
verifying any of such information. With respect to the financial forecasts
supplied to it, Stifel Nicolaus assumed with Breckenridge's consent that they
were reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of Breckenridge and Commerce as to the
future operating and financial performance of Breckenridge and Commerce, that
they would be realized in the amounts and time periods estimated and that they
provided a reasonable basis upon which Stifel Nicolaus could form its opinion.
Stifel Nicolaus also assumed that there were no material changes in the assets,
liabilities, financial condition, results of operations, business or prospects
of either Breckenridge or Commerce since the date of the last financial
statements made available to it. Stifel Nicolaus also assumed, without
independent verification and with Breckenridge's consent, that the aggregate
allowances for loan losses set forth in the financial statements of Breckenridge
and Commerce are in the aggregate adequate to cover all such losses. Stifel
Nicolaus did not make or obtain any independent evaluation, appraisal or
physical inspection of Breckenridge's or Commerce's assets or liabilities, the
collateral securing any of such assets or liabilities, or the collectibility of
any such assets nor did it review loan or credit files of Breckenridge or
Commerce. Stifel Nicolaus relied on advice of Breckenridge's counsel and
accountants as to all legal and accounting matters with respect to Breckenridge,
the merger agreement and the transactions and other matters contained or
contemplated therein. Stifel Nicolaus assumed, with Breckenridge's consent, that
there are no factors that would delay or subject to any adverse conditions any
necessary regulatory or governmental approval and that all conditions to the
merger will be satisfied and not waived.
In rendering its opinion, Stifel Nicolaus assumed that the merger will be
consummated as provided in the merger agreement, will constitute a tax-free
reorganization as contemplated by the merger agreement and will be accounted for
under the pooling-of-interests accounting method. Stifel Nicolaus' opinion was
necessarily based on economic, market, financial and other conditions as they
existed on, and on the information made available to it as of, the date of its
opinion, and does not imply any conclusion as to the price or trading range of
the common stock of Breckenridge or Commerce, which may vary depending upon
various factors, including changes in interest rates, dividend rates, market
conditions, economic conditions and other factors that influence the price of
securities.
As a matter of policy, Breckenridge and Commerce do not publicly disclose
internal management forecasts, projections or estimates of the type furnished to
Stifel Nicolaus in connection with its analysis of the financial terms of the
merger, and such forecasts and estimates were not prepared with a view towards
public disclosure. These forecasts and estimates were based on numerous
variables and assumptions which are inherently uncertain and which may not be
within the control of the management of either Breckenridge or Commerce,
including, without limitation, factors related to the integration of
Breckenridge and Commerce and general economic, regulatory and competitive
conditions. Accordingly, actual results could vary materially from those set
forth in such forecasts and estimates.
In connection with rendering its October 19, 2000 oral opinion and October
20, 2000 written opinion, Stifel Nicolaus performed a variety of financial
analyses that are summarized below. Such summary does not purport to be a
complete description of such analyses. Stifel Nicolaus believes that its
analyses and the summary set forth herein must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and processes underlying its opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analysis or summary description. In its
analyses, Stifel Nicolaus made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
are beyond the control of Breckenridge or Commerce. Any estimates contained in
Stifel Nicolaus' analyses are not necessarily
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<PAGE> 24
indicative of actual future values or results, which may be significantly more
or less favorable than suggested by such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the actual
prices at which companies or their securities actually may be sold. No company
or transaction utilized in Stifel Nicolaus' analyses was identical to
Breckenridge or Commerce or the merger, respectively. Accordingly, such analyses
are not based solely on arithmetic calculations; rather, they involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the relevant companies, the timing of the relevant
transactions, and prospective buyer interest, as well as other factors that
could affect the public trading values of the company or companies to which they
are being compared. None of the analyses performed by Stifel Nicolaus was
assigned a greater significance by Stifel Nicolaus than any other. The analyses
described below do not purport to be indicative of actual future results, or to
reflect the prices at which Breckenridge's common stock or Commerce common stock
may trade in the public markets.
The following is a summary of the financial analyses performed by Stifel
Nicolaus in connection with providing its oral opinion on October 19, 2000 and
written opinion on October 20, 2000.
Analysis of Bank Merger Transactions. Stifel Nicolaus analyzed various
information relating to recent transactions in the banking industry, consisting
of (1) 140 acquisitions announced between October 1, 1999 and September 20,
2000, involving sellers in all regions of the United States with announced
transaction values and excluding merger of equals transactions, referred to
below as Group A, and (2) a second group of 16 selected bank acquisitions
announced between February 1, 2000 and October 2, 2000, which Stifel Nicolaus
deemed to be relevant, referred to below as Group B. These transactions are
referred to below as the selected transactions. Stifel Nicolaus calculated the
following ratios with respect to the merger and the selected transactions:
<TABLE>
<CAPTION>
GROUP A SELECTED TRANSACTIONS
--------------------------------
BRECKENRIDGE/ 25TH 75TH
RATIOS COMMERCE PERCENTILE MEDIAN PERCENTILE
------ ------------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value Per Share............. 192.4% 173.9% 209.7% 265.7%
Deal Price Per Share/Tangible Book Value Per Share.... 192.4% 178.8% 223.6% 275.0%
Adjusted Deal Price/6.50% Equity...................... 180.8% 204.4% 243.3% 314.6%
Deal Price Per Share/Latest 12 Months Earnings Per
Share............................................... 13.9x 16.5x 20.0x 24.6x
Deal Price/Assets..................................... 12.4% 15.3% 19.1% 23.6%
Premium over Tangible Book Value/Deposits............. 6.2% 8.3% 11.5% 16.6%
Deal Price/Deposits................................... 14.6% 18.5% 22.8% 28.5%
</TABLE>
<TABLE>
<CAPTION>
GROUP B SELECTED TRANSACTIONS
--------------------------------
BRECKENRIDGE/ 25TH 75TH
RATIOS COMMERCE PERCENTILE MEDIAN PERCENTILE
------ ------------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value Per Share............. 192.4% 158.5% 194.5% 220.5%
Deal Price Per Share/Tangible Book Value Per Share.... 192.4% 178.0% 200.5% 235.5%
Adjusted Deal Price/6.50% Equity...................... 180.8% 165.0% 215.5% 269.5%
Deal Price Per Share/Latest 12 Months Earnings Per
Share............................................... 13.9x 13.0x 13.6x 15.2x
Deal Price/Assets..................................... 12.4% 11.7% 17.0% 21.1%
Premium over Tangible Book Value/Deposits............. 6.2% 7.8% 9.7% 15.0%
Deal Price/Deposits................................... 14.6% 16.7% 21.5% 26.0%
</TABLE>
This analysis resulted in a range of imputed values for Breckenridge's
common stock of between $31.03 and $51.71 based on the median multiples for
Group A and between $28.77 and $48.73 based on the median multiples for Group B.
Present Value Analysis. Applying discounted cash flow analysis to the
theoretical future earnings and dividends of Breckenridge, Stifel Nicolaus
compared the 0.8192 exchange ratio consideration to be received in exchange for
one share of Breckenridge's common stock under the terms of the merger agreement
as of October 19, 2000 to the calculated future value of one share of
Breckenridge's common
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<PAGE> 25
stock on a stand-alone basis. The analysis was based upon management's projected
earnings growth, a range of assumed price/earnings ratios, and a 15.0%, 17.5%
and 20.0% discount rate. Stifel Nicolaus selected the range of terminal
price/earnings ratios on the basis of past and current trading multiples for
other publicly traded comparable banks. The stand-alone present value of
Breckenridge's common stock calculated on this basis ranged from $21.67 to
$36.40 per share.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Stifel Nicolaus estimated the net present value of the future streams of
after-tax cash flow that Breckenridge could produce to benefit a potential
acquiror, referred to below as dividendable net income. In this analysis, Stifel
Nicolaus assumed that Breckenridge would perform in accordance with management's
estimates and calculated assumed after-tax distributions to a potential acquiror
such that its regulatory capital (including trust preferred) would be in excess
of 10.0 percent of risk weighted assets. Stifel Nicolaus calculated the sum of
the assumed perpetual dividendable net income streams per share beginning in the
year 2000, discounted to present values at assumed discount rates ranging from
15.0% to 20.0%. This discounted cash flow analysis indicated an implied equity
value reference range of $23.93 to $42.94 per share of Breckenridge's common
stock. This analysis did not purport to be indicative of actual future results
and did not purport to reflect the prices at which shares of Breckenridge's
common stock may trade in the public markets. A discounted cash flow analysis
was included because it is a widely used valuation methodology, but the results
of such methodology are highly dependent upon the numerous assumptions that must
be made, including estimated revenue enhancements, earnings growth rates,
dividend payout rates and discount rates.
Comparison of Selected Companies. Stifel Nicolaus reviewed and compared
various multiples and ratios for the merger with a peer group of nine banks
headquartered in Metropolitan Statistical Areas of the Midwestern U.S., which
Stifel Nicolaus deemed to be relevant. The group of selected banks consisted of
Allegiant Bancorp Inc., Cass Commercial Corp., CNBC Bancorp, Mercantile Bank
Corp., MetroBanCorp, Mid-America Bancorp, Mississippi Valley Bancshares,
Southside Bancshares Corp., and S.Y. Bancorp Inc. In order to calculate a range
of imputed values for a share of Breckenridge's common stock, Stifel Nicolaus
applied a 31.6% control premium to the trading prices of the selected group of
comparable companies and compared the resulting theoretical offer price to each
of book value, tangible book value, adjusted 6.5% equity, latest 12 month
earnings, estimated 2000 earnings as provided by Institutional Brokers Estimate
System, assets, tangible book value to deposits and deposits. Stifel Nicolaus
then applied the resulting range of multiples and ratios for the peer group
specified above to the appropriate financial results of Breckenridge. This
analysis resulted in a range of imputed values for Breckenridge's common stock
of between $23.46 and $46.42 based on the median multiples and ratios for the
peer group. The 31.6% control premium selected by Stifel Nicolaus was based on a
5 year analysis of market premiums paid in bank and bank merger transactions.
Additionally, Stifel Nicolaus calculated the following ratios with respect
to the nine selected comparable companies after application of the 31.6% control
premium:
<TABLE>
<CAPTION>
NINE SELECTED COMPARABLE
COMPANIES
BRECKENRIDGE/ ---------------------------
RATIO COMMERCE MINIMUM MEDIAN MAXIMUM
----- ------------- ------- ------ --------
<S> <C> <C> <C> <C>
Deal Price Per Share/Book Value Per Share.......... 192.4% 122.0% 154.7% 326.9%
Deal Price Per Share/Tangible Book Value Per
Share............................................ 192.4% 122.0% 188.1% 331.7%
Adjusted Deal Price/6.50% Equity................... 180.8% 130.0% 182.6% 350.3%
Deal Price Per Share/Latest 12 Months Earnings Per
Share............................................ 13.9x 12.1x 14.7x 20.9x
Deal Price per share/Estimated 2000 Earnings Per
Share............................................ 13.3x 10.2x 12.8x 15.9x
Deal Price/Assets.................................. 12.4% 10.8% 15.9% 23.5%
Premium over Tangible Book Value/Deposits.......... 6.2% 2.3% 13.2% 19.6%
Deal Price/Deposits................................ 14.6% 13.0% 22.2% 47.5%
</TABLE>
Contribution Analysis. Stifel Nicolaus reviewed certain financial
information for Breckenridge and Commerce for the nine month period ended
September 30, 2000 including net income before preferred
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<PAGE> 26
dividends and extraordinary items, total assets, loans, total deposits and total
equity and compared the percentage contribution of Breckenridge to the pro forma
combined figures for Breckenridge and Commerce and to the percentage of total
outstanding Commerce common stock that would be owned by the Breckenridge
stockholders as a result of the merger. The contribution analysis showed that
Breckenridge would contribute 1.2% of pro forma combined net income before
preferred dividends and extraordinary items and restructuring charges, 2.4% of
pro forma combined total assets, 2.3% of pro forma combined loans, 2.6% of pro
forma combined total deposits, and 1.3% of pro forma combined total equity.
Under the terms of the Agreement, Breckenridge shareholders would own 1.3% of
the total outstanding Commerce common shares. Ownership figures are based on an
exchange ratio of 0.8192.
In connection with its written opinion dated as of the date of this proxy
statement, Stifel Nicolaus performed procedures to update, as necessary, its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith. Stifel Nicolaus did not utilize any
methods of analysis in addition to those described above in updating its October
19, 2000 oral opinion.
Pursuant to the terms of Stifel Nicolaus' engagement, Breckenridge paid
Stifel Nicolaus a $5,000 monthly retainer for 3 months and $75,000 upon the
signing of the definitive agreement and a nonrefundable cash fee of $25,000 at
the time of mailing of the proxy statement. In addition, Breckenridge has agreed
to pay Stifel Nicolaus an additional fee of 1.25% of the total aggregate
consideration paid in the transaction, less the fees already paid, subject to
and conditioned upon consummation of the merger. Breckenridge has also agreed to
reimburse Stifel Nicolaus for various out-of-pocket expenses and has agreed to
indemnify Stifel Nicolaus, its affiliates and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal securities
laws.
In the ordinary course of its business, Stifel Nicolaus actively trades
equity securities of Commerce in its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
THE BRECKENRIDGE BOARD OF DIRECTORS RECOMMENDS THAT BRECKENRIDGE
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
OPERATIONS AND MANAGEMENT AFTER THE MERGER
At the effective time of the merger the separate corporate existence of
Breckenridge will terminate as it merges with and into CBI-Kansas. The Articles
of Incorporation and By-Laws of CBI-Kansas as in effect immediately prior to the
effective time will remain the Articles of Incorporation and By-Laws of
CBI-Kansas from and after the effective time until amended as provided by law.
The officers and directors of CBI-Kansas will remain the officers and directors
of CBI-Kansas from and after the effective time. It is expected that existing
management of the surviving corporation will be supplemented with personnel from
Commerce who will assist in bringing new methods and systems to the surviving
corporation which have been developed by Commerce. Commerce also expects to
enhance the net interest margin and non-interest income of the surviving
corporation by expanding the products and services offered. Commerce will also
analyze the surviving corporation's operations for potential efficiencies and
anticipates achieving operating cost savings through the proposed 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.
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<PAGE> 27
CONDITIONS TO THE MERGER
The merger is conditioned on the fulfillment prior to the closing of
certain conditions set forth in the merger agreement, including the following:
- Approval of the merger agreement by the holders of a majority of all the
outstanding shares of Breckenridge common stock;
- The accuracy of representations of Commerce, CBI-Kansas and Breckenridge
made in the merger agreement and the performance of their respective
obligations thereunder;
- The absence of a material adverse event since December 31, 1999,
affecting the financial condition, properties, assets, liabilities,
rights or business of Breckenridge;
- The absence of a material adverse event since June 30, 2000 affecting the
financial condition, properties, assets, liabilities, rights or business
of Commerce or CBI-Kansas;
- The receipt by Commerce and Breckenridge of an opinion from Blackwell
Sanders Peper Martin LLP relating to certain tax matters;
- The receipt by Commerce of an opinion from Armstrong Teasdale LLP as to
certain corporate matters regarding Breckenridge;
- The receipt by Breckenridge of an opinion from Blackwell Sanders Peper
Martin LLP as to certain corporate matters regarding Commerce.
- The receipt of necessary regulatory approvals;
- A minimum amount of equity and minimum loan loss reserve of Breckenridge;
and
- Dissenters' Rights shall not have been exercised with respect to more
than 8% of the outstanding shares of Breckenridge common stock on the
Closing Date;
- The receipt by Commerce of an affiliate letter from each person who is an
"affiliate" of Breckenridge at the time the merger agreement is submitted
for approval of the Breckenridge shareholders;
- The Registration Statement to register the shares of Commerce common
stock to be received by the Breckenridge shareholders if the merger shall
be effective;
- The absence of any temporary restraining order, preliminary or permanent
injunction or other order or legal restraint that would prevent the
consummation of the merger;
- The receipt by Breckenridge of an opinion from Stifel, Nicolaus &
Company, Incorporated dated as of the date of the proxy
statement/prospectus that the consideration to be received by
Breckenridge shareholders in the merger is fair to the Breckenridge
shareholders from a financial point of view;
- The cancellation of all outstanding unexercised options for Breckenridge
common stock under Breckenridge's stock option plans; and
- The receipt of written documentation from the FDIC that the obligations
of Breckenridge and Centennial under any proposed memorandum of
understanding have been fully performed and no further obligations exist
thereunder.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, Breckenridge has agreed to carry on its
business and cause Centennial Bank and its other subsidiaries to carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as conducted prior to the execution of the merger
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<PAGE> 28
agreement. Breckenridge has agreed to certain limitations on its ability to
engage in material transactions. Among those limitations, Breckenridge has
agreed, subject to certain exceptions, to refrain from:
- Declaring or paying any dividend or making any other distribution in
respect of any capital stock;
- Issuing or selling any shares of its capital stock, any securities
convertible into capital stock, any rights, warrants or options to
acquire any capital stock or entering into any agreement to do any of the
foregoing;
- Amending its articles of incorporation or By-laws;
- Entering into any new material line of business;
- Changing its lending, investment, liability management, or other material
banking policies;
- Incurring or committing to any capital expenditures or other obligations
or liabilities outside the ordinary course of business in excess of
$25,000;
- Acquiring a substantial equity interest in or substantial portion of the
assets in any business or entity outside the ordinary course of business
or in any real estate or real estate development project;
- Purchasing any securities other than U.S. government obligations;
- Acquiring or purchasing any assets of or making any investment in any
financial institution outside the ordinary course of business;
- Selling, leasing, encumbering or otherwise disposing of material assets;
- Engaging in a material transaction or incurring a material obligation not
in the ordinary course of business;
- Relocating any branch or loan production office;
- Entering into any securitization or similar transactions with respect to
loans, leases, or other assets of Breckenridge or its subsidiaries;
- Incurring any long-term indebtedness or guaranteeing any long-term
indebtedness or issuing letters of credit or guaranteeing other
obligations outside the ordinary course of business;
- Intentionally taking any action that would make Breckenridge's
representations and warranties untrue in any material respect;
- Changing accounting methods, changing or making any tax elections, filing
any amended tax returns or settling any material tax liability, except as
required by generally accepted accounting principles (GAAP) or applicable
law;
- Entering into, adopting or amending any employee benefit plan, agreement
or arrangement or increasing compensation or benefits to employees;
- Entering into, modifying, amending, renewing or terminating any material
contract;
- Settling any claim, action or proceeding involving money damages and a
payment in excess of $100,000;
- Making any single loan or commitment for a loan which would be graded
"OAEM" or in an amount greater than $250,000 or making any loan to any
director or officer of Breckenridge or its subsidiaries without giving
notice to Commerce; and
- Making any adjustments to Centennial's loan loss reserve account.
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<PAGE> 29
NO SOLICITATION
The merger agreement provides that unless and until the merger agreement
has been terminated, neither Breckenridge nor any of its subsidiaries 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 Breckenridge, Centennial Bank, or any other subsidiary of
Breckenridge is required to promptly advise Commerce of its receipt of, and the
substance of, any such proposal or inquiry.
WAIVER AND AMENDMENT
Prior to or at the effective time of the merger, any provision of the
merger 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 merger agreement by the shareholders of Breckenridge; provided, however,
that after any such approval, no such amendment shall alter the amount or change
the form of the consideration or alter or change any of the terms of the merger
agreement if such alteration or change would adversely affect the holders of
Breckenridge common stock or would legally require further approval of such
holders. 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-Kansas or Breckenridge, 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 merger agreement and the merger may be terminated at any time prior to
the closing date, provided that the terminating party is not then in material
breach of the merger agreement, by:
- The mutual consent of Commerce, CBI-Kansas and Breckenridge;
- Commerce, CBI-Kansas or Breckenridge if the merger has not been
consummated by March 31, 2001 unless extended up to May 30, 2001 by
Commerce or Breckenridge under certain circumstances;
- Commerce, CBI-Kansas or Breckenridge if regulatory approval has been
denied or the merger has been enjoined or if any regulator has issued an
order with respect to the merger which imposes a burdensome condition on
Commerce, CBI-Kansas or Breckenridge;
- Commerce or CBI-Kansas, on the one hand, or Breckenridge, on the other
hand, if the other party has materially breached the merger agreement and
has not cured such breach within 45 days of notice of the breach;
- Commerce or CBI-Kansas if the board of directors of Breckenridge fails to
recommend adoption of the merger agreement by the Breckenridge
shareholders or amends or modifies the recommendation in a manner
materially adverse to Commerce or CBI-Kansas or withdraws such
recommendation;
- Breckenridge if it has not received a "bring-down" of the opinion of
Stifel, Nicolaus & Company, Incorporated dated as of the date of the
proxy statement/prospectus that the merger is fair to Breckenridge's
shareholders from a financial point of view;
- Commerce, CBI-Kansas or Breckenridge if the Breckenridge shareholders do
not approve the merger at a duly held meeting of the Breckenridge
shareholders;
- Commerce, or CBI-Kansas, on the one hand, or Breckenridge on the other
hand, if there has been a material adverse change or event with respect
to the other party's business, financial condition, results of operations
or prospects and such change or effect has not been cured within 45 days
or the closing date, whichever is earlier.
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<PAGE> 30
EFFECTIVE TIME
It is presently anticipated that the effective time of the merger will
occur in the first quarter of 2001, but no assurance can be given to that
effect.
EMPLOYMENT TERMS OF JERRY L. BYRD, SR.
Jerry L. Byrd, Sr., the President of Breckenridge, Breckenridge and
Commerce have entered into an agreement pursuant to which upon consummation of
the merger, Mr. Byrd will serve as an officer of Commerce or an affiliate of
Commerce, receive an annual salary of $160,000, and participate in employee
benefit plans of Commerce. Additionally, to continue and replace certain
benefits to which Mr. Byrd is entitled under his employment agreement with
Breckenridge, Commerce will make to Mr. Byrd a grant of restricted stock
pursuant to the Amended and Restated Commerce Bancshares, Inc. Restricted Stock
Plan or a cash payment in lieu thereof.
FEDERAL SECURITIES LAWS CONSEQUENCES
The shares of Commerce to be issued pursuant to the merger have been
registered under the Securities Act of 1933, as amended. The provisions of Rule
145 under the Securities Act allow such shares to be sold without restriction by
shareholders of Breckenridge who are not deemed to be "affiliates" (as that term
is defined in the rules under the Securities Act) of Breckenridge and who do not
become affiliates of Commerce. The shares of Commerce to be issued to affiliates
of Breckenridge or Commerce 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.
Affiliates of Breckenridge will be required to agree in writing to such
restrictions. 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
Under a Missouri statute, the relevant provisions of which are attached to
this document as Appendix B, each Breckenridge shareholder who dissents from the
merger and who complies with various procedural requirements is entitled to
receive the fair value of his or her shares of Breckenridge common stock in
cash. Specifically, a Breckenridge shareholder may dissent from the merger and
CBI-Kansas, as the merger's surviving corporation, must pay to the shareholder,
upon the surrender of certificates representing his or her shares, the fair
value of the shares as of the day prior to Breckenridge's special meeting.
However, this obligation only applies if the shareholder:
- files with Breckenridge prior to or at the special meeting a written
objection to the merger;
- does not vote in favor of the merger; and
- within 20 days after the merger's effective time, makes a written demand
to CBI-Kansas for the payment of the fair value of the shares held by the
shareholder as of the day prior to the date of the special meeting.
The demand must state the class and number of shares owned by the dissenting
shareholder.
Written objections to the merger and demands for payment of fair value
should be addressed to:
CBI-Kansas, Inc.
c/o Commerce Bancshares, Inc.
1000 Walnut
Kansas City, Missouri 64106
Attention: J. Daniel Stinnett
Shareholders who have not complied with all of the procedural requirements
of applicable law will be conclusively presumed to have consented to the merger
and will be bound by its terms. Breckenridge will
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<PAGE> 31
provide written notice of the effective time of the merger to all shareholders
who have timely filed a written notice of objection and who have not voted in
favor of the merger.
A proxy marked "against" the merger will not be considered to be a written
notice of an objection to the merger. A shareholder who wishes to dissent from
the merger must provide a separate written notice of objection complying with
the requirements described above.
If within 30 days after the effective time the value of the shares of
Breckenridge common stock held by a dissenting shareholder is agreed upon
between the shareholder and CBI-Kansas, CBI-Kansas must pay the shareholder the
agreed amount within 90 days after the effective time, upon the surrender by the
shareholder of the certificate or certificates representing the shares. Upon
payment of the agreed amount the dissenting shareholder will cease to have any
interest in the shares or in CBI-Kansas or Commerce.
If within that 30-day period, the dissenting shareholder and CBI-Kansas
cannot agree as to the value of the shares, then the dissenting shareholder may,
within 60 days after the expiration of the 30-day period, file a petition in any
court of competent jurisdiction within Jackson County, Missouri, asking the
court to determine the fair value of the shares. Once the court makes its
finding, the shareholder will be entitled to judgment against CBI-Kansas for the
amount of fair value as of the day prior to the date of the special meeting,
together with interest to the date of the judgment.
The judgment is payable only upon, and simultaneously with, the surrender
to CBI-Kansas of the certificate or certificates representing the shares with
respect to which dissenters' rights have been exercised. Once the judgment is
paid, the dissenting shareholder will cease to have any interest in the shares
or in CBI-Kansas or Commerce. If the dissenting shareholder fails to file a
petition within the 60-day period, the shareholder will be conclusively presumed
to have approved and ratified the merger and will be bound by its terms.
The right of a dissenting shareholder to be paid with fair value of his or
her shares will cease if the shareholder fails to comply with the procedures
described above, or if the merger agreement is terminated for any reason.
The foregoing is not a complete statement of the procedures to be followed
by shareholders desiring to exercise dissenters' rights of appraisal. In view of
the fact that the exercise of the rights requires strict adherence to the
relevant provisions of Missouri law, shareholders who desire to exercise
dissenters' rights are advised to carefully review all applicable provisions of
law and to obtain legal counsel concerning proper compliance with those
provisions.
TRANSACTIONS BETWEEN COMMERCE AND BRECKENRIDGE
No shares of Breckenridge common 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; RESTRICTIONS ON SALES BY AFFILIATES
It is intended that the merger will qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method of accounting,
the consolidated assets and liabilities of Breckenridge will be carried forward
to the consolidated financial statements of Commerce at their recorded amounts
and the consolidated net income of Breckenridge will be included in the net
income of Commerce on a prospective basis.
In order for the merger to qualify as a pooling of interests, each person
who is an "affiliate" (as defined in Rules 145 and 405 adopted under the
Securities Act) of Breckenridge at the time the merger agreement is submitted
for the approval of Breckenridge's shareholders must agree in writing not to
sell, pledge, transfer or otherwise dispose of any shares of Commerce common
stock until financial results covering at least 30 days of combined operations
of Commerce and Breckenridge have been published. Pursuant to the merger
agreement, Commerce has agreed to publish such results in a timely manner.
24
<PAGE> 32
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon the provisions of the Internal
Revenue 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 Peper Martin LLP. The opinion of Blackwell Sanders
Peper Martin LLP will be based upon certain assumptions and representations by
the management of each of Breckenridge and Commerce and by certain holders of
the outstanding Breckenridge common stock. A ruling from the Internal Revenue
Service concerning the tax consequences of the merger 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 Breckenridge
common stock pursuant to the exercise of an employee option or otherwise as
compensation.
In the opinion of Blackwell Sanders Peper Martin LLP the Merger will
constitute a reorganization within the meaning of Code Section 368(a)(1).
Consequently:
1. Shareholders of Breckenridge will not recognize gain or loss upon the
receipt of Commerce common stock in the merger for their shares of Breckenridge
common stock.
2. The tax basis of Commerce common stock received by shareholders of
Breckenridge in the merger will equal the tax basis of their stock exchanged.
3. The holding period of Commerce common stock received in the merger by
shareholders of Breckenridge who are not dealers will include the holding period
of their stock exchanged.
4. Cash paid to holders of Breckenridge common stock who dissent from the
merger and cash paid to holders of Breckenridge common stock 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 BRECKENRIDGE SHAREHOLDER SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE AND LOCAL AND OTHER TAX
LAWS.
25
<PAGE> 33
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth certain information as of September 30,
2000, relating to the beneficial ownership of Breckenridge common stock by (a)
each person known to Breckenridge to be the beneficial owner of 5% or more of
the outstanding Breckenridge common stock, (b) each director and executive
officer of Breckenridge, and (c) all directors and executive officers of
Breckenridge as a group. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission which generally attribute
beneficial ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities. Except as
otherwise indicated, each person indicated below has sole voting and investment
power with respect to the shares of Breckenridge common stock reported as
beneficially owned by such person.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR OFFICER OR PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) BENEFICIAL OWNERSHIP
------------------------------------ ------------------- --------------------
<S> <C> <C>
Tony Karakas(2).................................. 69,000 7.08%
R. Dale Arn Jr.(3)............................... 18,800 1.93%
George Ballella(4)............................... 41,499 4.26%
Richard Borders(5)............................... 22,253 2.28%
Theodore Jacoby(6)............................... 3,226 *
Jerry Byrd Sr.(7)................................ 61,323 6.02%
Carl Donelson(8)................................. 23,480 2.41%
George Eble Jr.(9)............................... 29,712 2.95%
Dave Harris(10).................................. 1,633 *
Alan Honerkamp(11)............................... 7,847 *
Richard Jones(12)................................ 12,081 1.24%
Clifton Land(13)................................. 13,097 1.34%
Ted C. Matulewic(14)............................. 22,000 2.26%
Donald C. Muckerman(15).......................... 31,144 3.36%
Charles Vaaler(16)............................... 3,226 *
Stephen La Barge(17)............................. 3,226 *
James E. Rogers(18).............................. 18,050 1.85%
John C. Vatterott(19)............................ 33,520 3.44%
Allen R. Vogel(20)............................... 19,000 1.95%
Alan Walters..................................... 8,025 *
Thomas Wapelhorst(21)............................ 7,130 *
John Geppert Jr.(22)............................. 400 *
All Officers and Executive Officers As a group
(22 persons)................................... 449,472 44.10%
</TABLE>
---------------
* Less than one percent
(1) For purposes of this table, each Director or Executive Officer is deemed to
beneficially own shares of stock issuable pursuant to options, warrants or
other convertible securities that are exercisable by such Director or
Executive Officer within 60 days.
(2) This amount includes 3 shares owned by Mr. Karakas individually; 44,997
shares owned by the Tony Karakas Trust; and 24,000 shares owned by Marcus
Distributing. Mr. Karakas serves as an executive officer of Marcus
Distributing and may be deemed to beneficially own such shares.
(3) This includes 3 shares owned by Mr. Arn individually; 3,000 owned by the R.
Dale Arn Trust; 3,597 shares owned jointly with Mr. Arn's spouse; and
12,000 shares owned by the R. Dale Arn Jr. IRA.
(4) This number includes 3 shares owned by Mr. Ballella individually and 41,496
shares owned by the George Ballella Trust.
(5) This includes 14,253 shares owned by Mr. Borders individually; 4,000 shares
owned jointly with Mr. Borders' spouse; and 4,000 shares owned jointly with
Mr. Borders' father.
26
<PAGE> 34
(6) This includes 1 share owned by Mr. Jacoby individually and 3,225 shares
owned jointly with Mr. Jacoby's spouse.
(7) This includes 3 shares owned by Mr. Byrd individually; 5,700 shares owned
by the Jerry Byrd Sr. IRA; 10,620 shares owned jointly with Mr. Byrd's
spouse; and 15,000 shares of Stock which Mr. Byrd has the right to acquire
pursuant to the exercise of outstanding options granted by the Company at a
price of $6.67 per share and 30,000 shares of Stock which Mr. Byrd has the
right to acquire pursuant to the exercise of outstanding options granted by
the Company at a price of $12.65 per share.
(8) This includes 3 shares owned by Mr. Donelson individually and 23,477 shares
owned jointly with Mr. Donelson's spouse.
(9) This includes 3,523 shares owned by Mr. Eble individually and 26,189 shares
owned jointly with Mr. Eble's spouse.
(10) This includes 1 share owned by Mr. Harris individually and 1,632 shares
owned by the David Harris IRA.
(11) This includes 5 shares owned by Mr. Honerkamp individually and 7,842 shares
owned jointly with Mr. Honerkamp's spouse.
(12) This includes 3 shares owned by Mr. Jones individually and 12,078 shares
owned by Dick Jones Enterprises. Mr. Jones serves as an executive officer
of Dick Jones Enterprises and may be deemed to beneficially own such
shares.
(13) This number is comprised of 13,097 shares owned by the Clifton Land Trust.
(14) This includes 1 share owned by Mr. Matulewic individually and 21,999 shares
owned jointly with Mr. Matulewic's spouse.
(15) This includes 25,759 shares owned by Mr. Muckerman individually and 5,385
owned by the Donald C. Muckerman IRA.
(16) This includes 1 share owned by Mr. Vaaler individually and 3,225 shares
owned jointly with Mr. Vaaler's spouse.
(17) This includes 1 share owned by Mr. La Barge individually and 3,225 shares
owned jointly with Mr. La Barge's spouse.
(18) This includes 3 shares owned by Mr. Rogers individually; 2,250 shares owned
by the James E. Rogers IRA; 14,997 shares owned by the James & Gloria
Rogers Trust; and 800 shares owned by the James E. Rogers Trust.
(19) This includes 3 shares owned by Mr. Vatterott individually; 3,243 shares
owned by the John C. Vatterott IRA; 20,274 shares owned jointly with Mr.
Vatterott's spouse; and 10,000 shares owned by the John C. & Joan Vatterott
Charitable Trust.
(20) This includes 1 share owned by Mr. Vogel individually; 12,790 shares owned
by the Allen R. Vogel IRA; and 6,209 shares owned by the Allen R. Vogel
Trust.
(21) This includes 1,130 shares owned by Mr. Wapelhorst individually and 6,000
shares owned by the Thomas Wapelhorst IRA.
(22) This number is comprised of 400 shares owned by the John Geppert, Jr.
Trust.
27
<PAGE> 35
DIFFERENCES IN RIGHTS OF SHAREHOLDERS
GENERAL
Breckenridge and Commerce are both incorporated in the State of Missouri.
As a result of the merger, Breckenridge shareholders, whose rights are currently
governed by the Breckenridge Articles of Incorporation and Breckenridge Bylaws
will, upon consummation of the Merger, become Commerce shareholders. Following
the merger, their rights will continue to be governed by Missouri law, including
the Missouri General and Business Corporation Law, and will now also be governed
by the Commerce Articles of Incorporation and the Commerce Bylaws. The material
differences between the rights of Breckenridge's shareholders and Commerce's
shareholders result from differences in the companies' governing corporate
documents.
The following summary is not intended to be an exhaustive description of
the provisions discussed. It is qualified in its entirety by reference to
Missouri corporate law, the Breckenridge Articles of Incorporation, the
Breckenridge Bylaws, the Commerce Articles of Incorporation and the Commerce
Bylaws.
NUMBER OF DIRECTORS AND TERM
The Breckenridge Articles of Incorporation provide that such corporation
shall have 16 directors, unless a majority of the shareholders votes to change
such number. Currently the Breckenridge Board consists of 20 directors. Each
director of Breckenridge serves a term of 1 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 Breckenridge Articles of Incorporation and Bylaws do not have a
specific provisions governing removal of the entire Breckenridge board of
directors. 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. Missouri law provides that any director
of a corporation may be removed for cause by action of a majority of the entire
board of directors if the director, at the time of his or her removal, fails to
meet the qualifications stated in the corporation's Articles of Incorporation
and Bylaws for election as a director or is in breach of any agreement between
the director and the corporation relating to such director's services as a
director or employee of the corporation.
VOTING
Breckenridge shareholders have cumulative voting rights in connection with
the election of directors and each shareholder is entitled to as many votes as
are equal to the number of shares of Breckenridge common stock held by such
shareholder multiplied by the number of directors to be elected. A Breckenridge
shareholder may cast all of such votes for a single director or may distribute
them among the directors up for election. Commerce shareholders, however, do not
have cumulative voting rights in connection with the election of directors and
each outstanding share of Commerce common stock is entitled to one vote on each
matter submitted to shareholder vote.
The Breckenridge Bylaws state that, unless required otherwise by law or the
Articles of Incorporation of Breckenridge, the holders of a majority of the
outstanding shares of stock entitled to vote at a meeting of shareholders
constitutes a quorum at such meeting, and issues brought before a meeting of
shareholders
28
<PAGE> 36
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" on page 31 and "-- Anti-takeover
Statutes" on page 31.
DIVIDENDS AND LIQUIDATION PREFERENCE
Holders of shares of Commerce common stock and Breckenridge common 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 Breckenridge common stock have preemptive rights to purchase
Breckenridge common stock in certain limited instances set forth in the
Breckenridge Articles of Incorporation. Holders of Commerce common stock,
however, do not have preemptive rights.
SPECIAL MEETINGS
The Breckenridge Bylaws provide that the Chairman of the Board, the
President and shareholders owning at least 20% of the Breckenridge common stock
entitled to vote at any such meeting may each call special shareholder meetings.
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 of directors.
INDEMNIFICATION; LIMITATION OF LIABILITY
Missouri law permits indemnification of officers, directors and others. 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 such 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. A corporation is required to indemnify its
directors, officers, employees or agents to the extent that such persons have
been successful in defending an action, suit or proceeding or any claim, issue
or matter therein. 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 Breckenridge Articles of Incorporation provide rights of
indemnification generally as set forth in the Missouri law as described above.
The Breckenridge Articles of Incorporation state that the indemnification
provision therein is a contract right and no amendment to such provision will
diminish the indemnification obligations of Breckenridge and its successors set
forth in the Breckenridge Articles of Incorporation for claims based on acts or
omissions of any person prior to the date of such amendment. The Commerce Bylaws
provide rights of indemnification generally as set forth in the Missouri law as
described above, except that the right of indemnification is limited to
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Commerce
pursuant to the foregoing provisions, Commerce has
29
<PAGE> 37
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
SHAREHOLDER INSPECTION
Under Missouri law, any shareholder may at all proper times inspect the
corporation's stock ledger, shareholder list and other books and records.
Missouri statutory law and Missouri case law, however, does not provide 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."
AMENDMENT OF ARTICLES OF INCORPORATION
Under Missouri law, the Breckenridge Articles of Incorporation may be
amended upon a resolution of the Breckenridge board of directors, proposing the
amendment and its submission to the Breckenridge' shareholders for their
approval by the majority of the shares of Breckenridge common stock entitled to
vote.
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 Missouri law provides.
AMENDMENT OF BYLAWS
The shareholders of Breckenridge may make, alter, amend or repeal the
Breckenridge' Bylaws by a majority vote of the shares entitled to vote thereon.
A majority of the board of directors of Breckenridge may make, alter, amend or
repeal the Breckenridge' Bylaws. However, the action of the Breckenridge board
of directors may be amended, repealed or may be prohibited as to any Bylaw or
portion thereof, by action of the shareholders. The Commerce Articles of
Incorporation authorize the Commerce board of directors 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 of directors.
NOTICE OF SHAREHOLDER PROPOSALS; NOMINATIONS OF DIRECTORS
The Breckenridge Bylaws do not provide specific notice provisions with
respect to shareholders bringing matters before the annual meeting of
shareholders.
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 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.
30
<PAGE> 38
SHAREHOLDERS' VOTE FOR MERGERS
A corporation incorporated under Missouri law must obtain the affirmative
vote of the holders of a two-thirds 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.
Missouri law does not require 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.
DISSENTERS' RIGHTS
Missouri law provides dissenters' rights to shareholders entitled to vote
in merger transactions (except as indicated below) and in a sale of assets,
unless pursuant to a voluntary dissolution of the corporation. Dissenters'
rights, also known as appraisal rights, are rights afforded to shareholders who
dissent from specific transactions. The dissenting shareholders, if they comply
with the procedural requirements of Missouri law, are entitled to elect not to
participate in the subject transaction and to receive instead the fair value of
their shares in cash.
ANTI-TAKEOVER STATUTES
Missouri has a statute known as a "business combination statute." This
statute restricts certain "business combinations" between a Missouri corporation
and an "interested shareholder." For this purpose, a "business combination"
means one of various types of transactions, including mergers, that increases
the proportionate voting power of the interested shareholders. An "interested
shareholder" means any person who owns or controls 20% or more of the
outstanding shares of the corporation's voting stock. Under the statute, a
Missouri corporation may not engage in a business combination with an interested
shareholder other than:
- a business combination approved by the corporation's board of directors
prior to the date on which the interested shareholder became an
interested shareholder;
- a business combination approved by the holders of a majority of the
outstanding voting stock not owned by the interested shareholder at a
meeting called no earlier than five years after the date on which the
interested shareholder became an interested shareholder; or
- a business combination that satisfies certain fairness and procedural
requirements.
In any event, unless the corporation's board of directors, on or before the date
the interested shareholder acquired the corporation's stock, approved either the
business combination or the interested shareholder's acquisition of stock, the
corporation may not engage in any business combination with the interested
shareholder for a period of five years after that date.
A Missouri corporation may opt out of the coverage by the business
combination statute by including a provision to that effect in its governing
corporate documents. Neither Breckenridge nor Commerce has done so.
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. Breckenridge does not have a rights
plan.
31
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL DATA OF
BRECKENRIDGE BANCSHARES COMPANY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
The following table sets forth selected consolidated financial information
of Breckenridge for the periods ended September 30, 2000 and 1999 and for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995. The information
contained in this table should be read in conjunction with Breckenridge's
historical Consolidated Financial Statements and related notes thereto included
elsewhere in this proxy statement/prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END)
Total assets............................... $272,512 $217,100 $237,410 $199,580 $150,107 $107,207 $79,745
Loans, net................................. 189,526 159,817 161,411 139,201 88,690 68,962 50,124
Investments securities..................... 35,327 31,611 30,844 35,499 43,320 23,452 16,974
Total deposits............................. 231,416 189,770 206,421 183,640 135,873 98,275 72,055
Shareholders' equity....................... 15,011 13,018 13,452 12,007 10,913 7,046 6,709
INCOME STATEMENT DATA
Interest income............................ 14,729 11,405 15,814 12,756 9,630 6,863 5,258
Interest expense........................... 8,373 5,955 8,220 7,160 5,355 3,570 2,643
-------- -------- -------- -------- -------- -------- -------
Net interest income........................ 6,356 5,450 7,594 5,596 4,275 3,293 2,615
Provision for loan loss.................... 383 383 590 874 300 343 132
-------- -------- -------- -------- -------- -------- -------
Net interest income after provision for
loan
losses................................... 5,973 5,067 7,004 4,722 3,975 2,950 2,483
Non-interest income........................ 459 356 485 412 392 380 351
Non-interest expense....................... 3,784 3,474 4,764 4,375 3,139 2,693 2,268
-------- -------- -------- -------- -------- -------- -------
Income before income taxes................. 2,648 1,949 2,725 759 1,228 637 566
Income taxes............................... 1,043 717 1,012 267 412 202 193
-------- -------- -------- -------- -------- -------- -------
Net earnings............................... $ 1,605 $ 1,232 $ 1,713 $ 492 $ 816 $ 435 $ 373
======== ======== ======== ======== ======== ======== =======
DIVIDENDS
Common stock............................... 64 64 86 78 60 56 56
Ratio of total dividends declared to net
income................................... 3.99% 5.19% 5.02% 15.82% 7.47% 12.87% 15.01%
PER SHARE DATA
Diluted earnings per share................. $ 1.62 $ 1.24 $ 1.73 $ 0.50 $ 1.07 $ 0.62 $ 0.53
Dividends per share........................ 0.07 0.07 0.09 0.08 0.08 0.08 0.08
Book value (period end) per share.......... 15.41 13.36 13.81 12.32 11.68 10.00 9.51
Weighted average number of common shares
outstanding.............................. 993,551 989,666 990,813 976,978 761,726 704,928 703,866
FINANCIAL RATIOS
Return on average total assets(1).......... 0.85% 0.79% 0.85% 0.28% 0.63% 0.47% 0.52%
Return on average total shareholders'
equity(1)................................ 12.03% 11.93% 11.94% 3.98% 8.06% 6.36% 5.66%
Net interest margin........................ 2.70% 2.78% 3.83% 3.18% 3.25% 3.91% 4.01%
Net interest spread........................ 3.56% 3.28% 3.36% 3.29% 2.96% 3.53% 3.33%
Average assets per employee................ 3,186 2,665 2,730 2,295 2,320 1,744 1,658
ASSET QUALITY RATIOS
Allowance for loan losses to loans......... 1.19% 1.14% 1.19% 1.07% 0.83% 0.99% 0.98%
Non-performing loans to loans.............. 0.10% 1.36% 0.27% 1.43% 0.45% 0.71% 1.03%
Net loan charge-offs to average loans(1)... 0.02% 0.04% 0.10% 0.10% 0.30% 0.25% 0.17%
CAPITAL RATIOS OF THE COMPANY
Average shareholders' equity to average
assets................................... 5.60% 5.79% 6.65% 7.11% 7.80% 7.40% 9.25%
Total risk-based capital ratio............. 10.45% 9.03% 8.92% 9.14% 11.39% 10.35% 13.76%
Leverage ratio............................. 7.51% 6.05% 5.90% 6.10% 7.00% 6.57% 8.41%
CAPITAL RATIOS OF THE BANK
Average shareholders' equity to average
assets................................... 7.01% 6.37% 6.74% 7.17% 7.91% 8.49% 9.44%
Total risk-based capital ratio............. 10.66% 10.14% 10.50% 9.82% 12.45% 12.10% 14.70%
Leverage ratio............................. 7.45% 7.25% 7.10% 6.70% 7.60% 7.80% 9.14%
</TABLE>
---------------
(1) Ratios for the nine-month periods are annualized.
32
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF BRECKENRIDGE BANCSHARES COMPANY
The primary business of Breckenridge is community-oriented banking offering
a variety of financial services. These services include taking deposits, which
are in turn used to generate loans for small businesses, commercial and
residential real estate and consumer-oriented loans. Breckenridge also invests
its assets in U.S. and state government bonds and U.S. Agencies, primarily for
purposes of liquidity and pledging to public deposits. Ancillary services
include packaging mortgage loans for sale and providing brokerage services
through a third-party to customers throughout the metropolitan St. Louis area.
Breckenridge's primary source of income is from interest on its loans and
investments. Interest expense is incurred from interest paid on deposits, on
borrowings from the Federal Home Loan Bank ("FHLB"), and other short-term
borrowings. Net income is primarily dependent upon the difference between the
average yield earned on loans and investments and the average rate paid on
deposits and borrowings. Breckenridge controls interest-rate risk to the extent
that the average maturity/repricing on earning assets and interest-bearing
liabilities is less than two years; however, other factors also affect spread,
such as economic and competitive factors, which influence interest rates, loan
demand, and deposit flows.
Breckenridge also derives income from non-interest income, including fee
income on deposit accounts, fees for brokerage services and other fees on loans.
Net income is affected by the provision for loan losses, non-interest expenses
and provisions for income taxes.
FINANCIAL CONDITION
September 30, 2000 compared to December 31, 1999
Total assets increased approximately $35.1 million from $237.4 million at
December 31, 1999 to $272.5 million at September 30, 2000. Loans increased
approximately $28.5 million at September 30, 2000, compared to December 31,
1999. Investment securities increased $4.5 million at September 30, 2000
compared to December 31, 1999. Cash and other non-interest earning bank balances
also increased slightly.
Total deposits increased during this period from $206.4 million to $231.4
million. This increase was mostly due to an increase in time deposit accounts.
At the same time, advances from FHLB and other borrowings increased from $13.4
million at December 31, 1999 to $20.2 million at September 30, 2000.
December 31, 1999 compared to December 31, 1998
Total assets at December 31, 1999, were $237.4 million compared to $199.6
million at December 31, 1998. This growth was primarily the result of an
increase in loan demand. Cash and due from banks increased $18.1 million during
this period due to Breckenridge selling a portfolio of loans to a third-party.
Breckenridge also received advances from the FHLB and increased securities sold
under agreements to repurchase to help fund the increase in loans.
Total deposits grew by $22.8 million from $183.6 at December 31, 1998 to
$206.4 at December 31, 1999. This growth was a combination of increased demand
deposits and market response to competitively priced time deposits.
RESULTS OF OPERATIONS
Comparison of nine months ended September 30, 2000 and September 30, 1999.
Net earnings for the nine months ended September 30, 2000 increased
$373,000, or 30.3%, from the same period ended September 30, 1999. During 2000,
net interest income increased $906,000, or 16.6%, with an increase of
$3,324,000, or 29.1%, in interest income offset by a $2,418,000, or 40.6%,
increase in interest expense during these periods.
33
<PAGE> 41
Noninterest income increased $103,000 or 28.9%, as a result of an increase
in income from brokerage operations as well as a one-time gain on a sale of
other real estate.
Noninterest expense increased $310,000, or 8.9%, for the nine months ended
September 30, 2000 as compared to the same period ended September 30, 1999, and
included increases in salaries and employee benefits, other real estate expense,
insurance expense, professional fees, and data processing fees. These increases
are substantially related to the growth of Centennial and increased activity.
Provision for income taxes increased $326,000 for the nine month period
ended September 30, 2000 as compared to the same period ended September 30, 1999
due to increased profitability.
Comparison of twelve months ended December 31, 1999 to December 31, 1998
Net earnings for the fiscal year ended December 31, 1999, increased
$1,221,000 to $1,713,000 from earnings in 1998 of $492,000. During such periods,
net interest income increased $1,998,000 or 35.7%, as a result of an increase of
$3,058,000, or 24.0%, in interest income, partially offset by an increase of
$1,060,000, or 14.8%, in interest expense. During 1999, the provision for loan
losses decreased $284,000 due to improved credit quality in the loan portfolio.
Noninterest income increased $73,000, or 17.7%, in 1999 as compared to
1998, due to increases in service charges and fees from a higher volume of
accounts. Noninterest expense increased $389,000, or 8.9% during such periods
due to increased costs in salaries and employee benefits and occupancy expense.
Provision for income taxes for 1999 was $745,000 higher than 1998 due to an
increase in profitability.
Comparison of twelve months ended December 31, 1998 to December 31, 1997
Net earnings for the fiscal year ended December 31, 1998, declined
$324,000, or 39.7%, due in part to a decrease in net interest margin from 3.60%
in 1997 to 3.53% in 1998, even though overall net interest income increased due
to growth. During 1998, net interest income increased $1,321,000, or 30.9%, as a
result of an increase of $3,126,000, or 32.5%, in interest income, partially
offset by an increase of $1,805,000, or 33.7%, in interest expense.
The provision for loan losses increased $574,000 in 1998 due to a
deterioration in credit quality, which also contributed to the overall decrease
in earnings. Noninterest expense increased $1,236,000 in 1998 due to increases
in salaries and employee benefits, occupancy expenses and other costs associated
with opening a new branch location.
Provision for income taxes for 1998 decreased $145,000, as compared to
1997, reflecting the decrease in net earnings.
34
<PAGE> 42
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents, for the periods indicated, the total dollar
amount of interest income from average interest-earning assets as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates. No tax equivalent adjustments were made.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
-------------------------------------
Interest-earning assets
Loans(2)........................... $154,341 $13,265 8.59% $109,415 $ 9,630 8.80% $ 78,638 $ 7,082 9.01%
Investment securities.............. 31,364 1,737 5.54% 41,806 2,550 6.10% 33,887 2,081 6.14%
Fed funds sold and other short-term
investments...................... 16,437 806 4.90% 10,757 570 5.31% 8,417 461 5.48%
Interest-bearing bank deposits..... 100 6 6.00% 100 6 6.00% 100 6 6.00%
-------- ------- -------- ------- -------- -------
Total interest earning
assets..................... $202,242 $15,814 7.82% $162,078 $12,756 7.87% $121,042 $ 9,630 7.96%
Non-interest-earning assets
Cash and due from banks(1)......... 5,988 5,366 3,604
Bank premise and equipment......... 6,244 6,229 5,394
Other assets....................... 2,969 2,767 2,080
Allowance for possible loan loss... (1,748) (883) (627)
-------- -------- --------
Total Assets................. $215,695 $175,557 $131,493
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Interest-bearing liabilities
NOW accounts....................... $ 7,612 $ 125 1.64% $ 5,584 $ 90 1.61% $ 4,629 $ 76 1.64%
Money market accounts.............. 28,097 890 3.17% 26,786 1,091 4.07% 18,650 808 4.33%
Savings deposits................... 16,002 434 2.71% 13,554 396 2.92% 10,625 314 2.96%
Time deposits of $100,000 or
more............................. 4,660 219 4.70% 5,465 291 5.32% 3,475 185 5.32%
Other time deposits................ 112,608 6,025 5.35% 90,320 5,139 5.69% 67,454 3,885 5.76%
-------- ------- -------- ------- -------- -------
Total interest-bearing
deposits................... 168,979 7,693 4.55% 141,709 7,007 4.94% 104,833 5,268 5.02%
Other short-term borrowings........ 8,962 527 5.88% 1,674 153 9.13% 1,588 87 5.47%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities................ 177,941 8,220 4.62% 143,383 7,160 4.99% 106,421 5,355 5.03%
Non-interest-bearing liabilities
Demand deposits.................. 22,121 18,799 14,163
Other liabilities................ 1,284 976 771
Stockholders' equity............... 14,349 12,399 10,138
-------- -------- --------
Total liabilities and stockholders'
equity........................... $215,695 $175,557 $131,493
======== ======== ========
Net interest income................ $ 7,594 $ 5,596 $ 4,275
======= ======= =======
Net interest margin(3)............. 3.83% 3.18% 3.25%
==== ==== ====
</TABLE>
---------------
(1) Includes non-interest bearing balances, cash and cash items.
(2) Loans, net of allowance for 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.
35
<PAGE> 43
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the levels and volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume (i.e., changes in volume multiplied by previous rate) and
(2) changes in rate (i.e., changes in rate multiplied by previous volume). For
purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
1999 COMPARED WITH 1998 1998 COMPARED WITH 1997
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO A CHANGE IN DUE TO A CHANGE IN
----------------------- -----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ------ ------ ----- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans and leases, net..................... $3,860 $(225) $3,635 $2,706 $(162) $2,544
Investments............................... (595) (218) (813) 483 (15) 468
Federal Funds............................. 276 (40) 236 124 (10) 114
Interest-bearing deposits................. -- -- -- -- -- --
------ ----- ------ ------ ----- ------
Total Interest Income............. $3,541 $(483) $3,058 $3,313 $(187) $3,126
====== ===== ====== ====== ===== ======
Interest-bearing Liabilities:
NOW Accounts.............................. $ 33 $ 2 $ 35 $ 15 $ (1) $ 14
Money Market Accounts..................... 57 (258) (201) 328 (45) 283
Savings Deposits.......................... 63 (25) 38 86 (4) 82
Time Deposits of $100,000 or more......... (40) (32) (72) 103 -- 103
Other time deposits....................... 1,188 (302) 886 1,301 (45) 1,256
Other short-term deposits................. 407 (33) 374 8 59 67
------ ----- ------ ------ ----- ------
Total interest-bearing deposits... $1,708 $(648) $1,060 $1,841 $ (36) $1,805
====== ===== ====== ====== ===== ======
Change in net interest income............... $1,833 $ 165 $1,998 $1,472 $(151) $1,321
====== ===== ====== ====== ===== ======
</TABLE>
ASSET/LIABILITY MANAGEMENT
Centennial maintains a record of the next pricing opportunity of each
deposit account and each earning asset (loans, securities purchased and funds
sold). This information is reviewed monthly by management and the Board of
Directors. The objective of management is to match, as closely as possible, the
repricing of assets and liabilities. The objective stated in the investment
policy is to match the repricing of assets and liabilities within a tolerance of
+5% to -15%.
INVESTMENT PORTFOLIO
The investment portfolio meets a number of needs for Breckenridge,
including providing a stable source of income with nominal credit risk,
providing collateral for pledging to public fund deposits and providing a source
of liquidity as securities mature.
As of December 31, 1999, management classified $17,869,000 as "available
for sale," with the remaining portfolio of $12,975,000 classified as "held to
maturity." There were no securities held in the "trading" account. The
securities classified as "available for sale" can be sold to meet liquidity
requirements; however, management normally holds these securities until
maturity.
36
<PAGE> 44
Historically, Breckenridge has been successful in maintaining a high
loan-to-deposit ratio. As a result, Breckenridge's policy has been to minimize
risk in the investment portfolio. The composition of the investment portfolio,
as of the dates indicated, was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
2000 1999 1998 1997
------------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States Treasury securities:
Held-to-maturity......................... $ 3,027 $ 3,537 $ 3,549 $ 2,504
Available-for-sale....................... 996 2,492 5,643 7,027
------- ------- ------- -------
4,023 6,029 9,192 9,531
------- ------- ------- -------
Obligations of United States Government
agencies:
Held-to-maturity......................... 8,500 8,999 12,002 18,495
Available-for-sale....................... 21,874 14,722 12,990 13,991
------- ------- ------- -------
30,374 23,721 24,992 32,486
------- ------- ------- -------
State and political subdivisions:
Held-to-maturity......................... 438 438 437 434
Available-for-sale....................... 492 656 878 869
------- ------- ------- -------
930 1,094 1,315 1,303
------- ------- ------- -------
$35,327 $30,844 $35,499 $43,320
======= ======= ======= =======
</TABLE>
As of December 31, 1999, the maturing securities and their average weighted
yield in the investment portfolio were as follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR BUT AFTER TWO YEARS BUT AFTER FIVE YEARS BUT
WITHIN ONE YEAR WITHIN TWO YEARS WITHIN FIVE YEARS WITHIN TEN YEARS
---------------- ------------------- -------------------- --------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- --------- ------ --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasury
securities................. $ 2,000 5.69% $ -- -- $ 4,029 5.47% $ -- --
Obligations of United States
Government agencies........ 11,329 5.33% 4,986 5.60% 7,406 5.60% -- --
State and political
subdivisions............... 426 5.21% -- -- 353 5.36% 315 4.62%
------- -------- ------- ----
Total investment
securities................. $13,755 $ 4,986 $11,788 $315
======= ======== ======= ====
Weighted average yields...... 5.37% 5.60% 5.55% 4.62%
</TABLE>
LOAN PORTFOLIO
The majority of the loans and commitments have been granted in Centennial's
market areas within the St. Louis metropolitan area and surrounding communities.
The following table presents the
37
<PAGE> 45
composition of Centennial's loan portfolio, net of unearned income, at the end
of each of the periods indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------ ---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------ ------------------ ------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage
One to four family
residential loans...... $ 27,110 14.13% $ 26,157 16.01% $ 23,569 16.75% $ 19,195 21.46% $ 20,161 28.95%
Commercial............... 89,444 46.63% 71,622 43.85% 60,507 43.00% 34,570 38.66% 24,993 35.88%
Other real estate
Loans.................. 31,130 16.23% 25,542 15.64% 18,860 13.40% 9,948 11.12% 6,611 9.49%
Commercial and
industrial............... 27,454 14.31% 27,461 16.81% 28,739 20.43% 20,246 22.64% 12,139 17.43%
Installment and
consumer................. 16,677 8.70% 12,566 7.69% 9,031 6.42% 5,470 6.12% 5,749 8.25%
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total Loans........ $191,815 100.00% $163,348 100.00% $140,706 100.00% $ 89,429 100.00% $ 69,653 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
<CAPTION>
DECEMBER 31,
------------------
1995
------------------
AMOUNT PERCENT
-------- -------
<S> <C> <C>
Real estate mortgage
One to four family
residential loans...... $ 18,673 36.89%
Commercial............... 12,583 24.86%
Other real estate
Loans.................. 3,636 7.18%
Commercial and
industrial............... 11,354 22.43%
Installment and
consumer................. 4,376 8.64%
-------- ------
Total Loans........ $ 50,622 100.00%
======== ======
</TABLE>
Gross loans, at December 31, 1999, increased $22.6 million, or 16.1%, over
December 31, 1998. This growth is due to growth in real estate based loans
caused by good economic conditions. Total loans include $278,000 of non-accruing
loans at December 31, 1999, and $1,687,000 at December 31, 1998. Fixed rate
loans at December 31, 1999 comprised 58.1% of loans. The remaining 41.9% are
floating or adjustable rate loans. The maturities of loans at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
WITHIN ONE
YEAR 1-5 YEARS OVER 5 YEARS TOTAL
---------- --------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
REAL ESTATE LOAN
One to four family residential loans............ $ 8,034 $16,150 $1,973 $ 26,157
Commercial...................................... 26,906 39,778 4,938 71,622
Other real estate loans......................... 11,003 13,751 788 25,543
COMMERCIAL AND INDUSTRIAL LOANS................... 16,395 10,709 357 27,461
INSTALLMENT AND CONSUMER LOANS.................... 5,547 6,985 34 12,566
------- ------- ------ --------
$67,885 $87,373 $8,090 $163,348
======= ======= ====== ========
</TABLE>
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is the primary source of income for
Centennial. Loans, net of the allowance for loan loss, represented 70% of total
assets as of September 30, 2000. Centennial experienced a strong demand for
loans by commercial customers during 1998 and 1999. For the year ended December
31, 1999, total loans, net of unearned income, rose by $22.6 million
representing a 16.1% increase from the year ended December 31, 1998. For the
year ended December 31, 1998, the increase was $51.3 million representing an
increase of 57.3% from December 31, 1997.
The following table represents the interest rate sensitivity for the loans
as of December 31, 1999.
<TABLE>
<CAPTION>
TOTAL LOANS
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Floating rate............................................... $ 68,512
Fixed rates:
One year or less.......................................... 20,176
Over one year through five years.......................... 74,276
Over five years........................................... 384
--------
Total fixed rates................................. 94,836
--------
Total............................................. $163,348
========
</TABLE>
38
<PAGE> 46
Risk Elements of Loan Portfolio
Management reviews Centennial's loan portfolio continuously for problem
loans. During the ordinary course of business, management becomes aware of
borrowers who 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 no 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.
Nonperforming loans on September 30, 2000 represented .10% of total loans.
This represents a decrease from December 31, 1999 when nonperforming loans were
.27% of total loans. Nonperforming loans for December 31, 1998 and 1997 were
1.43% and .45%, respectively. The decrease was due to the paydown of several
loans in 2000.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE TWELVE MONTHS ENDED DECEMBER 31,
------------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage:
Nonaccrual................................. $ 75 $ 1,975 $ 176 $ 1,687 $ 26 $ -- $ 172
Past due 90 days or more................... 76 155 166 312 249 26 33
Commercial and industrial:
Non accrual................................ 32 59 93 -- -- 262 275
Past due 90 days or more................... -- -- -- 15 121 182 28
Installment and consumer:
Non accrual................................ -- -- 9 -- -- -- 13
Past due 90 days or more................... 1 12 -- 1 4 25 1
-------- -------- -------- -------- ------- ------- -------
Total nonperforming loans............ 184 2,201 444 2,015 400 495 522
Other real estate owned...................... 1,390 1,390 1,559 48 -- 78 167
-------- -------- -------- -------- ------- ------- -------
Total nonperforming assets........... $ 1,574 $ 3,591 $ 2,003 $ 2,063 $ 400 $ 573 $ 689
======== ======== ======== ======== ======= ======= =======
Loans........................................ $191,815 $161,656 $163,348 $140,706 $89,429 $69,653 $50,622
Allowance for possible loan losses to
loans...................................... 1.19% 1.14% 1.19% 1.07% 0.83% 0.99% 0.98%
Nonperforming loans to loans................. 0.10% 1.36% 0.27% 1.43% 0.45% 0.71% 1.03%
Allowance for possible loan losses to non
performing loans........................... 1244.02% 83.55% 436.26% 74.69% 184.75% 139.60% 95.40%
Nonperforming assets to loans and foreclosed
assets..................................... 0.82% 2.22% 1.23% 1.47% 0.45% 0.82% 1.36%
</TABLE>
39
<PAGE> 47
LOAN CONCENTRATIONS
Breckenridge has a concentration of credit risk to commercial developers.
Construction and development loans were $27.9 million at December 31, 1999 and
$18.9 million at December 31, 1998. Repayment of these loans is, in part,
dependent upon the economic conditions of the industry.
SUMMARY OF LOAN LOSSES
The following table summarizes, for the periods indicated, activity in
Centennial's allowance for possible loan losses, including amounts of loans
charged off, amounts of recoveries and additions to the allowance charged to
operating expenses:
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE TWELVE MONTHS ENDED DECEMBER 31,
------------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for possible loan losses --
beginning of
period...................................... $ 1,937 $ 1,505 $ 1,505 $ 739 $ 691 $ 498 $ 444
Loans charged off:
Commercial and industrial................... (1) (16) (15) (85) (232) (124) (21)
Real estate mortgage........................ (9) (36) (143) (51) -- (29) (12)
Installment and consumer.................... (32) (2) (4) (1) (34) (18) (61)
-------- -------- -------- -------- ------- ------- -------
Total loans charged off............... (42) (54) (162) (137) (266) (171) (94)
-------- -------- -------- -------- ------- ------- -------
Recoveries of loans previously charged off:
Commercial and industrial................... 5 2 1 27 4 1 2
Real estate mortgage........................ 4 -- -- -- -- 13 4
Installment and consumer.................... 2 3 3 2 10 7 10
-------- -------- -------- -------- ------- ------- -------
Total recoveries...................... 11 5 4 29 14 21 16
-------- -------- -------- -------- ------- ------- -------
Net loans charged off:........................ (31) (49) (158) (108) (252) (150) (78)
Provision for possible loan losses............ 383 383 590 874 300 343 132
-------- -------- -------- -------- ------- ------- -------
Allowance for possible loan losses -- end of
period...................................... $ 2,289 $ 1,839 $ 1,937 $ 1,505 $ 739 $ 691 $ 498
======== ======== ======== ======== ======= ======= =======
Loans outstanding
Average..................................... $171,871 $149,727 $154,341 $109,415 $78,638 $60,334 $46,404
End of period............................... $191,815 $161,656 $163,348 $140,706 $89,429 $69,653 $50,622
Ratio of allowance for possible loan losses to
loans outstanding
Average..................................... 1.33% 1.23% 1.26% 1.38% 0.94% 1.15% 1.07%
End of period............................... 1.19% 1.14% 1.19% 1.07% 0.83% 0.99% 0.98%
Ratio of net charge-offs to average loans
outstanding................................. 0.02% 0.04% 0.10% 0.10% 0.30% 0.25% 0.17%
</TABLE>
The following table summarizes, for the periods indicated, allocation of
the Bank's allowance for possible loan loss, separated by loan category type:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- ---------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------------- -------------------- -------------------- -------------------- ------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
mortgages........... $1,229 53.69% $1,093 56.43% $ 873 58.01% $466 63.06% $177
Commercial and
industrial.......... 556 24.29% 612 31.60% 265 17.61% 177 23.95% 391
Installment and
consumer............ 20 0.87% 18 0.93% 17 1.13% 14 1.89% 33
Unallocated.......... 484 21.15% 214 11.04% 350 23.25% 82 11.10% 90
------ ------- ------ ------- ------ ------- ---- ------- ----
Total Allowance for
loan losses....... $2,289 100.00% $1,937 100.00% $1,505 100.00% $739 100.00% $691
====== ======= ====== ======= ====== ======= ==== ======= ====
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995
----------- --------------------
PERCENT OF PERCENT OF
TOTAL LOANS AMOUNT TOTAL LOANS
----------- ------ -----------
<S> <C> <C> <C>
Real estate
mortgages........... 25.62% $226 45.42%
Commercial and
industrial.......... 56.58% 224 45.08%
Installment and
consumer............ 4.78% 19 3.75%
Unallocated.......... 13.02% 29 21.91%
------- ---- -------
Total Allowance for
loan losses....... 100.00% $498 100.00%
======= ==== =======
</TABLE>
40
<PAGE> 48
DEPOSITS
Breckenridge offers a variety of deposit products including demand
deposits, NOW and Money Market accounts, passbook savings, IRAs and Certificates
of Deposit. The maturities of certificate accounts offered will vary in response
to competition, but typically range from 182 days to 24 months. A total of $49.1
million in time deposits have maturities over one year. Transaction accounts,
money market and passbook savings represent 29% of deposits as of September 30,
2000, and have remained relatively stable since December 31, 1999. Time deposits
grew from $110.9 million at December 31, 1998, to $133.6 million at December 31,
1999. At September 30, 1998, time deposits were $163.6 million.
The following table indicates the average balances and average rate paid on
certain categories of deposits for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
DDA............................... $ 22,121 -- $ 18,799 -- $ 14,163 --
Interest bearing
MMDA.............................. 28,097 3.17% 26,786 4.70% 18,650 4.33%
NOW Accounts...................... 7,612 1.64% 5,584 1.61% 4,629 1.64%
Savings........................... 16,002 2.71% 13,554 2.92% 10,625 2.96%
CDs under $100,000................ 112,608 5.35% 90,320 5.69% 67,454 5.76%
CDs over $100,000................. 4,660 4.70% 5,465 5.32% 3,475 5.32%
-------- -------- --------
Total Average Deposits.... $191,100 $160,508 $118,996
======== ======== ========
</TABLE>
The following table sets forth the amounts, as of December 31, 1999, of
certain deposits in excess of $100,000 and the maturities thereon:
<TABLE>
<CAPTION>
3 MONTHS 3 TO 12 OVER 12
OR LESS MONTHS MONTHS TOTAL
-------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CDs over $100,000....................................... $4,548 $4,613 $2,764 $11,925
====== ====== ====== =======
</TABLE>
The following table summarizes short-term borrowings by Breckenridge for
periods indicated:
<TABLE>
<CAPTION>
FOR THE TWELVE
FOR THE NINE MONTHS ENDED
MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, -------------------------
2000 1999 1998 1997
------------- ------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Borrowings:
End of period balance.............................. $20,213 $16,365 $3,003 $2,500
Average rate end of period......................... 6.5% 5.60% 5.93% 8.20%
Average balance for period......................... 14,141 8,446 1,653 1,615
Average rate for period............................ 7.1% 5.25% 6.03% 8.20%
Maximum amount outstanding at any month-end........ $25,748 $18,817 $4,203 $2,500
</TABLE>
41
<PAGE> 49
SENSITIVITY TO CHANGES IN INTEREST RATES
Centennial's management monitors the interest rate sensitivity position by
matching maturities of assets and liabilities in time bands as set forth below.
Interest-earning assets and interest-bearing liabilities whose interest rates
float are grouped according to when they will reprice. Management's objective is
to maintain a gap as a percentage of total interest-earning assets in a range of
+5% through -15% in each time band. Centennial is slightly out of this range;
however, management continually monitors to determine appropriate changes. The
following table presents Centennial's interest rate position for various time
bands as of December 31, 1999.
<TABLE>
<CAPTION>
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- ------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans.................................... $ 72,187 $ 12,240 $78,537 $ 384 $163,348
Investment Securities.................... 3,000 10,755 16,774 314 30,843
Other short-term investments............. 7,723 -- -- -- 7,723
-------- -------- ------- ------ --------
Total interest-bearing assets.... $ 82,910 $ 22,995 $95,311 $ 698 $201,914
======== ======== ======= ====== ========
Interest-Bearing Liabilities
Money market............................. $ 24,184 $ -- $ -- $ -- $ 24,184
Time deposits............................ 30,447 54,035 49,123 -- 133,605
Savings accounts......................... 15,855 -- -- -- 15,855
NOW accounts............................. 7,704 -- -- -- 7,704
Other borrowed funds..................... 16,365 -- -- -- 16,365
-------- -------- ------- ------ --------
Total interest-bearing
liabilities.................... $ 94,555 $ 54,035 $49,123 $ -- $197,713
======== ======== ======= ====== ========
Interest sensitivity....................... $(11,645) $(31,040) $46,188 $ 698 $ 4,201
Cumulative gap............................. $(11,645) $(42,685) $ 3,503 $4,201
Gap as a percent of total earning assets... (5.78)% (21.10)% 1.70% 2.08%
</TABLE>
NON-INTEREST INCOME
The following table sets forth Centennial's non-interest income for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, FOR THE TWELVE MONTHS ENDED DECEMBER 31,
------------- ------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----- ----- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges and fees.................... $221 $237 $355 $300 $273 $345 $315
Credit card fees............................ 19 19 27 49 58 42 43
Other income................................ 219 100 103 63 61 (7) (7)
---- ---- ---- ---- ---- ---- ----
Total non-interest income......... $459 $356 $485 $412 $392 $380 $351
==== ==== ==== ==== ==== ==== ====
</TABLE>
Non-interest income remained consistent during the periods presented.
Centennial's service charge and fee schedules have increased moderately. The
increase in other income for the nine months ended September 30, 2000, is
primarily related to a gain on the sale of other real estate.
42
<PAGE> 50
NON-INTEREST EXPENSE
The following table sets forth Centennial's non-interest expense for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE TWELVE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- ------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Employee compensation and
benefits....................... $2,062 $1,950 $2,689 $2,309 $1,597 $1,349 $1,053
Net occupancy.................... 307 294 392 368 287 249 200
Equipment........................ 243 241 299 312 216 206 186
Data processing.................. 91 102 132 147 130 110 94
Other............................ 1,081 887 1,252 1,239 909 779 735
------ ------ ------ ------ ------ ------ ------
Total non-interest
expense.............. $3,784 $3,474 $4,764 $4,375 $3,139 $2,693 $2,268
====== ====== ====== ====== ====== ====== ======
</TABLE>
Total non-interest expense increased $310,000, or 8.9% from $3,474,000 for
the nine months ended September 30, 1999 to $3,784,000 for the nine months ended
September 30, 2000. The change is due to an increase in employee compensation
and benefits and other expenses associated with the growth of Centennial.
Total non-interest expense increased from $4,375,000 for the year ended
December 31, 1998, to $4,764,000 for the year ended December 31, 1999. The
increase is due to increases in salary expenses. Total non-interest expense for
the year ended December 31, 1998 increased 39.4% over the year ended December
31, 1997. The increase was predominately attributed to an increase in employee
compensation and benefits.
CAPITAL MANAGEMENT AND RESOURCES
At December 31, 1999, Breckenridge's shareholders' equity had risen to
$13,452,000, up $1,445,000 from December 31, 1998. Net income from Centennial
has provided the majority of Breckenridge's capital accumulations.
The analysis of capital is dependent upon a number of factors including
asset quality, earnings, strength, liquidity, economic conditions and
combinations thereof. New and expanded capital adequacy guidelines were adopted
by the FRB in 1989 and 1990. At this time, the two primary criteria in effect
are the risk-based capital guidelines and the minimum capital to total assets or
leverage capital requirements.
At December 31, 1999, federal regulatory agencies generally required member
banks to maintain core (Tier 1) capital of a least 3% of total assets plus an
additional cushion of 1%-2%. Additionally, these agencies require member banks
to maintain total risk-based capital of at least 8% of risk-weighted assets with
at least 4% of capital at Tier 1 capital. At December 31, 1999, the Bank
exceeded its minimum capital requirements.
Under the risk-based capital guidelines, Breckenridge's assets are assigned
a risk-weighted factor. The risk-based capital ratio is calculated by dividing
capital by the sum of risk-weighted assets and risk-weighted off-balance sheet
items. Qualifying capital is classified into two tiers. Tier 1 capital, for
Breckenridge, includes common stockholders' equity. Tier 2 capital includes the
allowance for loan losses. As of December 31, 1999, Breckenridge's risk-based
Tier 1 capital was 7.8% and risk-based total capital was 8.9%.
For Breckenridge, the leverage ratio is defined as Tier 1 capital as a
percentage of average total assets. Breckenridge's leverage ratio was 5.9% as of
December 31, 1999.
Subsequent to December 31, 1999, on March 23, 2000, Breckenridge raised $4
million through the formation of Breckenridge Capital Trust I, a statutory
business trust. The Trust Preferred Securities are
43
<PAGE> 51
considered to be Tier 1 capital. Terms include an annual interest rate of
10.78%, 30-year maturity, with a 10-year call option.
LIQUIDITY
Centennial needs to maintain a level of liquidity which will provide a
readily available source of funds for new loans and other obligations on a
timely basis. Historically, Centennial has targeted a loan to deposit ratio
objective of 75% to 85%. A steady growth rate of deposits coupled with a steady
loan demand has generally maintained the loan-to-deposit ratio percentage within
the target range. The loan to deposit ratio on December 31, 1999 was 79%.
MARKET AREA
Breckenridge considers Centennial's market area for lending purposes as St.
Louis County and St. Charles County, Missouri. However, the majority of loans
and deposits tend to come from within a three-mile radius of the three banking
locations.
LENDING ACTIVITIES
Due to the nature of Centennial's customer base, real estate is frequently
a material component of the collateral for its loans. The expected source of
repayment of these loans is generally the operations of the borrower's business,
but real estate provides an additional measure of security. Risks associated
with real estate loans include fluctuating land values, changes in tax policies
and concentration of loans within the market. Centennial mitigates these risks
by a large number of commercial real estate loans made to the user of the
property. Another risk associated with real estate lending is the interest rate
risk. Centennial has managed the interest rate risk by offering loans, which
fluctuate with the prime rate. Currently, approximately 42% of Centennial's
total loans are floating rate loans. The interest rate risk is further managed
by limiting fixed rate loans to three or five year balloon notes which allow
repricing at three five year intervals. Management believes Centennial has
developed experience in the commercial lending area and that Centennial's loan
loss history reflects its expertise.
Centennial manages the general risks inherent in its loan portfolio by
following loan policies and underwriting practices designed to result in prudent
loan underwriting. Lending activities are conducted pursuant to a written loan
policy. Each loan officer has a defined lending authority. Loans in excess of
$25,000 are reviewed by a second loan officer; loans in excess of $75,000 are
approved by the Loan Committee of the Board of Directors.
LOAN REVIEW AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Centennial's management maintains a loan watch list, which includes all
loans, which have displayed signs of being weak credits. The loan watch list is
reviewed each month by the Board of Directors.
Centennial's Board of Directors reviews Centennial's reserve for possible
loan losses on a quarterly basis. In analyzing the portfolio, Centennial's
management considers current economic conditions, loan portfolio composition,
past loan loss experience, independent appraisals, loan collateral and repayment
experience. In addition, Centennial's loan watch list is an integral part of the
loan loss reserve analysis. If the loan loss reserve is deemed to be inadequate
during the quarterly review, the monthly contribution to the loan loss reserve
for possible loss is increased accordingly.
Centennial has experienced a low charge off rate during the past three
years. Centennial's charge-off rate was 0.10% compared to 0.15% charge-off rate
for its peers. Centennial carries property in Other Real Estate with a balance
of $1,390,000. The property has an appraised value of $1,400,000, excluding
equipment and fixtures. The property is currently listed with a real estate
broker for $1,500,000.
44
<PAGE> 52
INVESTMENT POLICY
Centennial's investment policy is reviewed annually by the Board of
Directors. The investment policy identifies the various investment goals of
Centennial and gives guidance to management regarding the achievement of those
goals. The investment portfolio meets a number of needs for Breckenridge,
including providing a stable source of income with nominal credit risk and
providing a source of liquidity as securities mature.
COMPETITION
Centennial encounters competition primarily seeking deposits and obtaining
loan customers. The Bank's principal competitors for deposits are other
financial institutions within a few miles of its offices, including other banks,
savings and loan institutions and credit unions. Competition among these
institutions is based primarily on interest rates offered, service charges
imposed on deposit accounts, the quality of services rendered and the
convenience of banking facilities. Centennial's competitors are generally
permitted, subject to regulatory approval, to establish branches throughout
Centennial's market area. Additional competition for depositors' funds comes
from United States Government securities, private issuers of debt obligations
and suppliers of other alternatives for depositors, such as securities firms.
While Centennial also encounters competition in its lending activities,
management believes there is less competition in Centennial's target market of
small business with sales of $10 million or less. Centennial's strategy is to
form and maintain long-term relationships between its customers and management,
primarily loan officers.
Centennial also competes in its lending activities with other financial
institutions such as savings and loan institutions, credit unions, securities
firms, insurance companies, small loan companies and other sources of funds.
Many of Centennial's non-bank competitors are not subject to the same extensive
Federal regulations that govern bank holding companies and federally insured
banks and state regulations governing state chartered banks. Thus, such non-bank
competitors have advantages over Centennial in providing certain services. Loan
demand at Centennial continues to grow which management believes is due to the
expertise of its loan officers, high level of service and quick turnaround of
loan requests.
EMPLOYEES
As of December 31, 1999, Centennial has 79 full-time equivalent employees.
None of the employees of Centennial are subject to a collective bargaining
agreement. Centennial considers it relationships with its employees to be good.
Breckenridge has no employees who are not employees of Centennial.
PROPERTIES
Centennial's facilities are located at 9850 St. Charles Rock Road,
Breckenridge Hills, Missouri; 1101 First Capitol Drive, St. Charles, Missouri;
and 10010 Watson Road, Crestwood, Missouri. The building in Breckenridge Hills,
Missouri has 9,900 square feet on the main floor and 4,400 square feet on the
lower level -- primarily used as data processing and storage area. The building
in St. Charles has two levels and a total of 12,000 square feet. The building in
Crestwood has 5,000 square feet on one level. Centennial's drive-ins are modern
and ample parking is available at all locations.
All facilities are owned by Centennial, are in good condition and adequate
for the current level of operation.
LEGAL PROCEEDINGS
Centennial is from time to time a party to various legal actions arising in
the normal course of business. Management believes that there is no proceeding
threatened or pending against Breckenridge for Centennial, which, if determined
adversely, would have a material effect on the business or financial position of
Breckenridge or Centennial.
45
<PAGE> 53
EFFECT OF RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). This statement, as amended by FAS No 137,
requires all derivatives to be recorded on the balance sheet at fair value and
establishes standard accounting methodologies for hedging activities. The
standard will result in the recognition of offsetting changes in value or cash
flows of both the hedge and the hedged item in earnings or comprehensive income
in the same period. The statement is effective for Breckenridge's fiscal year
ending December 31, 2001. Because Breckenridge generally does not hold
derivative instruments, the adoption of this statement is not expected to have a
material impact on the financial statements.
EFFECTS OF INFLATION
Breckenridge's financial statements and accompanying footnotes have been
prepared in accordance with general accepted accounting principles, which
generally require 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 primary impact of
inflation is the increased cost of Breckenridge's operations because the assets
and liabilities of Breckenridge are primarily monetary and interest rates have a
greater impact on Breckenridge's performance than do the effects of inflation.
46
<PAGE> 54
COMMERCE COMMON STOCK AND BRECKENRIDGE COMMON STOCK
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
Shares of Commerce common stock are traded on The Nasdaq Stock Market. As
of September 30, 2000, there were 249 holders of record of Breckenridge common
stock. There is no established public trading market for the shares of
Breckenridge common stock and there have been a limited number of transactions
involving Breckenridge common stock. Based upon management's review of its stock
transfer records, there were two sales of Breckenridge common stock between
January 1, 1998 and September 30, 2000. The following table sets forth the high
and low sales prices for Breckenridge common stock and Commerce common stock,
and cash dividends paid thereon during the periods indicated:
<TABLE>
<CAPTION>
BRECKENRIDGE COMMON STOCK COMMERCE COMMON STOCK**
-------------------------- --------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter.................... * * $ 0.02 $42.47 $35.70 $0.125
Second Quarter................... * * $ 0.02 $43.73 $38.87 $0.125
Third Quarter.................... * * $ 0.02 $44.60 $33.26 $0.125
Fourth Quarter................... * * $ 0.02 $42.22 $29.37 $0.125
1999
First Quarter.................... $15.50 $15.50 $0.022 $39.57 $34.01 $0.136
Second Quarter................... $15.49 $15.49 $0.022 $38.89 $32.99 $0.136
Third Quarter.................... * * $0.022 $37.53 $30.67 $0.136
Fourth Quarter................... * * $0.022 $37.70 $30.83 $0.136
2000
First Quarter.................... * * $0.022 $32.86 $25.12 $0.148
Second Quarter................... * * $0.022 $34.08 $28.10 $0.148
Third Quarter.................... * * $0.022 $35.83 $28.33 $0.148
</TABLE>
---------------
* There were no known sales during such period.
** Commerce information has been restated for a 5% stock dividend declared in
October 2000.
The last sale price for Commerce common stock as reported by The Nasdaq
Stock Market on , 2000 (the most recent date for which it was
practicable to obtain market price data prior to the printing of this proxy
statement/prospectus), was $ .
LEGAL OPINION
The legality of the Commerce common stock offered hereby will be passed
upon by Blackwell Sanders Peper Martin LLP.
47
<PAGE> 55
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS FOR COMMERCE BANCSHARES, INC.
The consolidated financial statements of Commerce and subsidiaries as of
December 31, 1999, 1998 and for each of the years in the three-year period ended
December 31, 1999, 1998 and 1997 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
LLP, independent certified public accountants, and upon the authority of said
firm as experts in auditing and accounting.
INDEPENDENT PUBLIC ACCOUNTANTS FOR BRECKENRIDGE BANCSHARES COMPANY
The consolidated financial statements of Breckenridge and subsidiaries as
of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998
and 1997 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 is consummated, stockholders of Breckenridge will become
shareholders of Commerce at the Effective Time. Commerce shareholders may submit
to Commerce proposals for formal consideration at the 2001 annual meeting 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 2001 annual meeting is ,
2000. The holder of any proxy delivered in connection with Commerce's 2001
Shareholders' Meeting may exercise discretionary authority in voting on any
shareholder proposals not submitted to Commerce 60 days prior to Commerce's 2001
Shareholders' Meeting which will be held on , 2001.
WHERE YOU CAN FIND MORE INFORMATION
Commerce files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, proxy
statements or other information that we file at the SEC's public reference room
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the
SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, New York, New York 10048. Please call the SEC at
1-800-SEC-0330 for more information on the public reference rooms.
Commerce's SEC filings are also available to the public from commercial
retrieval services and at the website maintained by the SEC at
http://www.sec.gov. Reports, proxy statements and other information are also
available for inspection at the offices of the Nasdaq Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006-1506.
Commerce has filed a Registration Statement on Form S-4 with the SEC to
register the Commerce common stock to be issued to Breckenridge's shareholders
in the merger. This document is a part of that registration statement and
constitutes a prospectus of Commerce in addition to being a proxy statement of
Breckenridge for its special meeting. As allowed by the SEC rules, this document
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.
The SEC allows Commerce to "incorporate by reference" information into this
proxy statement/ prospectus, which means that Commerce can disclosure important
information to you by referring you to another document separately filed with
the SEC. The information incorporated by reference is deemed to be a part of
this proxy statement/prospectus, except for any information superseded by
information in, or incorporated by reference in, this proxy
statement/prospectus. This proxy statement incorporates by
48
<PAGE> 56
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about our companies and their
financial status.
<TABLE>
<CAPTION>
COMMERCE SEC FILINGS (FILE NO. 0-2989) PERIOD
-------------------------------------- ------
<S> <C>
Annual Report on Form 10-K................... Fiscal year ended December 31, 1999
Quarterly Report on Form 10-Q................ Quarter ended September 30, 2000
Quarterly Report on Form 10-Q................ Quarter ended June 30, 2000
Quarterly Report on Form 10-Q................ Quarter ended March 31, 2000
Description of Commerce's common stock in
Form 8-A Registration Statement, as filed on
February 26, 1968, as supplemented by Form
8-A
Registration Statement, as filed on August
31,
1988, as amended by Form 8-A12G/A as filed on
June 10, 1996
</TABLE>
Additional documents that Commerce may file with the SEC between the date
of this proxy statement/prospectus and the date of the Breckenridge special
meeting are also incorporated by reference. These include periodic reports, such
as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current
Reports on Form 8-K, as well as proxy statements.
If you are a Commerce shareholder, we may have sent you some of the
documents incorporated by reference, but you can obtain any of them through us
or the SEC. Documents incorporated by reference are available from us without
charge, but without exhibits unless we have specifically incorporated by
reference an exhibit in this proxy statement/prospectus. Shareholders may obtain
documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from Commerce at the following
address:
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 , 2000.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the special meeting. We have
not authorized anyone to provide you with information that is different from
what is contained in this proxy statement/prospectus. This proxy statement/
prospectus is dated , 2000, and you should not assume that the
information contained in the proxy statement/prospectus is accurate as of any
other date. Neither the mailing of this proxy statement/ prospectus to
Breckenridge shareholders nor the issuance of Commerce common stock in
connection with the merger shall create any implication to the contrary.
49
<PAGE> 57
INDEX TO FINANCIAL STATEMENTS OF
BRECKENRIDGE BANCSHARES COMPANY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Baird, Kurtz & Dobson, Independent Accountants.... F-1
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and
December 31, 1999 and 1998................................ F-2
Consolidated Statements of Income for the nine months ended
September 30, 2000 and September 30, 1999 (unaudited) and
years ended December 31, 1999, 1998 and 1997.............. F-3
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 2000 (unaudited)
and years ended December 31, 1999, 1998 and 1997.......... F-5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2000 and September 30, 1999
(unaudited) and years ended December 31, 1999, 1998 and
1997...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-i
<PAGE> 58
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
Breckenridge Bancshares Company
Breckenridge Hills, Missouri
We have audited the accompanying balance sheets of BRECKENRIDGE BANCSHARES
COMPANY, as of December 31, 1999 and 1998, and the related statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BRECKENRIDGE BANCSHARES
COMPANY as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.
St. Louis, Missouri
January 21, 2000
F-1
<PAGE> 59
BRECKENRIDGE BANCSHARES COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 AND 1998
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31,
------------------ --------------------
(UNAUDITED) 1999 1998
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................ $ 26,817 $ 27,091 $ 6,789
Federal funds sold................................. 9,982 7,623 9,842
-------- -------- --------
Cash and cash equivalents................... 36,799 34,714 16,631
Interest-bearing deposits with banks............... 100 100 100
Available-for-sale securities...................... 23,362 17,869 19,512
Held-to-maturity securities........................ 11,965 12,975 15,987
Loans.............................................. 191,815 163,348 140,706
Less allowances for loan losses.................... (2,289) (1,937) (1,505)
-------- -------- --------
Net Loans................................... 189,526 161,411 139,201
Premises and equipment............................. 6,031 6,163 6,332
Interest receivable................................ 1,409 1,142 1,225
Prepaid expenses and other assets.................. 1,366 888 222
Other real estate owned............................ 1,390 1,559 48
Deferred income taxes.............................. 564 589 322
-------- -------- --------
Total Assets................................ $272,512 $237,410 $199,580
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Demand deposits.................................... $ 24,319 $ 25,073 $ 21,282
NOW and money market deposits...................... 27,552 31,888 36,454
Time deposits, $100,000 and over................... 11,784 11,925 5,983
Other time deposits................................ 151,825 121,680 104,958
Savings deposits................................... 15,936 15,855 14,963
-------- -------- --------
Total Deposits.............................. 231,416 206,421 183,640
Securities sold under agreements to repurchase..... 5,213 8,365 1,703
Federal Home Loan Bank advances.................... 15,000 5,000 --
Notes payable...................................... -- 3,000 1,300
Accrued interest, taxes and other expenses......... 1,872 1,172 930
Trust preferred securities......................... 4,000 -- --
-------- -------- --------
Total Liabilities........................... 257,501 223,958 187,573
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized 2,000,000
shares; issued, 980,263 shares................ 980 980 980
Additional paid-in capital....................... 8,129 8,129 8,129
Retained earnings................................ 6,111 4,570 2,943
Treasury stock, at cost; 5,950 shares............ (140) (140) (140)
Accumulated other comprehensive income
Unrealized appreciation (depreciation) on
available-for-sale securities, net of income
taxes of $(28) at September 30, 2000 and $(53)
and $60 at December 31, 1999 and 1998,
respectively.................................. (69) (87) 95
-------- -------- --------
Total Stockholders' Equity.................. 15,011 13,452 12,007
-------- -------- --------
Total Liabilities and Stockholders'
Equity................................... $272,512 $237,410 $199,580
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-2
<PAGE> 60
BRECKENRIDGE BANCSHARES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------------
2000 1999 1999 1998 1997
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans...................................... $11,788 $ 9,559 $13,265 $ 9,630 $7,082
Investment securities...................... 1,343 1,326 1,737 2,550 2,081
Deposits with banks........................ 5 5 6 6 6
Federal funds sold......................... 1,593 515 806 570 461
------- ------- ------- ------- ------
Total Interest Income................. 14,729 11,405 15,814 12,756 9,630
INTEREST EXPENSE............................. 8,373 5,955 8,220 7,160 5,355
------- ------- ------- ------- ------
NET INTEREST INCOME.......................... 6,356 5,450 7,594 5,596 4,275
PROVISION FOR LOAN LOSSES.................... 383 383 590 874 300
------- ------- ------- ------- ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.................. 5,973 5,067 7,004 4,722 3,975
------- ------- ------- ------- ------
NON-INTEREST INCOME
Gain on foreclosed assets held-for-sale.... 92 -- -- -- --
Service charges and fees................... 221 237 355 300 273
Credit card fees........................... 19 19 27 49 58
Other income............................... 127 100 103 63 61
------- ------- ------- ------- ------
Total Non-Interest Income............. 459 356 485 412 392
------- ------- ------- ------- ------
NON-INTEREST EXPENSES
Salaries and employee benefits............. 2,062 1,950 2,689 2,309 1,597
Occupancy expense.......................... 307 294 393 368 287
Equipment expense.......................... 243 241 299 312 216
Loss on foreclosed assets held-for-sale.... 2 12 10 -- 18
Data processing expense.................... 91 102 132 147 130
Other expenses............................. 1,079 875 1,241 1,239 891
------- ------- ------- ------- ------
Total Non-Interest Expenses........... 3,784 3,474 4,764 4,375 3,139
------- ------- ------- ------- ------
INCOME BEFORE INCOME TAXES................... 2,648 1,949 2,725 759 1,228
PROVISION FOR INCOME TAXES................... 1,043 717 1,012 267 412
------- ------- ------- ------- ------
NET INCOME................................... 1,605 1,232 1,713 492 816
======= ======= ======= ======= ======
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 61
BRECKENRIDGE BANCSHARES COMPANY
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------- ------------------------
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) of
available-for-sale securities, net of income
taxes of $(44) and 89, for September 30, 2000
and 1999 and (107), 38 and 37 for December 31,
1999, 1998 and 1997, respectively.............. $ (72) $ (144) $ (172) $ 60 $ 60
LESS: Reclassification adjustment for
(depreciation) appreciation
Included in net income, net of income taxes $55
and $(7) for September 30, 2000 and 1999 and
$(6), $-0-and $(12) for December 31, 1999, 1998
and 1997, respectively......................... 90 (12) (10) -- (18)
------ ------ ------ ------ ------
18 (156) (182) 60 42
------ ------ ------ ------ ------
COMPREHENSIVE INCOME............................. $1,623 $1,076 $1,530 $ 552 $ 858
====== ====== ====== ====== ======
BASIC EARNINGS PER SHARE......................... $ 1.65 $ 1.26 $ 1.76 $ .51 $ 1.09
====== ====== ====== ====== ======
DILUTED EARNINGS PER SHARE....................... $ 1.62 $ 1.24 $ 1.73 $ .50 $ 1.07
====== ====== ====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 62
BRECKENRIDGE BANCSHARES COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
UNREALIZED
APPRECIATION
(DEPRECIATION)
ADDITIONAL ON AVAILABLE-
COMMON PAID-IN RETAINED TREASURY FOR-SALE
STOCK CAPITAL EARNINGS STOCK SECURITIES, NET TOTAL
------ ---------- -------- -------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997...................... $710 $4,709 $1,773 $(139) $ (7) $ 7,046
Net income.................................... -- -- 816 -- -- 816
Cash dividends paid on common stock, $.08 per
share....................................... -- -- (60) -- -- (60)
Sale of 230,078 shares of common stock........ 230 2,840 -- -- -- 3,070
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes of $25................................ -- -- -- -- 42 42
Purchase of 13 shares of treasury stock....... -- -- -- (1) -- (1)
---- ------ ------ ----- ----- -------
BALANCE, DECEMBER 31, 1997.................... 940 7,549 2,529 (140) 35 10,913
Net income.................................... -- -- 492 -- -- 492
Cash dividends paid on common stock, $.08 per
share....................................... -- -- (78) -- -- (78)
Sale of 39,985 shares of common stock......... 40 580 -- -- -- 620
Change in unrealized appreciation on
available-for-sale securities, net of income
taxes of $38................................ -- -- -- -- 60 60
---- ------ ------ ----- ----- -------
BALANCE, DECEMBER 31, 1998.................... 980 8,129 2,943 (140) 95 12,007
Net income.................................... -- -- 1,713 -- -- 1,713
Cash dividends paid on common stock, $.09 per
share....................................... -- -- (86) -- -- (86)
Change in unrealized depreciation on
available-for-sale securities, net of income
taxes of $(113)............................. -- -- -- -- (182) (182)
---- ------ ------ ----- ----- -------
BALANCE, DECEMBER 31, 1999.................... 980 8,129 4,570 (140) (87) 13,452
Net income.................................... -- -- 1,605 -- -- 1,605
Cash dividends paid on common stock, $.07 per
share....................................... -- -- (64) -- -- (64)
Change in unrealized depreciation on
available-for-sale securities, net of income
taxes of $(11).............................. -- -- -- -- 18 18
---- ------ ------ ----- ----- -------
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED)....... $980 $8,129 $6,111 $(140) $ (69) $15,011
==== ====== ====== ===== ===== =======
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 63
BRECKENRIDGE BANCSHARES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000, AND 1999 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 1,605 $ 1,231 $ 1,713 $ 492 $ 816
Items not requiring (providing) cash:
Depreciation and amortization........................ 231 230 354 323 250
Provision for loan losses............................ 383 383 590 874 300
Gain (loss) on sale of foreclosed assets
held-for-sale...................................... 2 12 10 -- 18
Deferred income taxes................................ (92) (77) (154) (266) 28
Amortization (accretion) of premiums and discounts on
securities......................................... (25) 30 30 18 (10)
Changes in:
Interest receivable.................................. (267) (115) 82 (83) (456)
Prepaid expenses and other assets.................... (359) (190) (113) (14) 5
Accrued interest, taxes and other expenses........... 700 1,321 242 110 285
-------- -------- -------- -------- --------
Net cash provided by operating activities.......... 2,178 2,825 2,754 1,454 1,236
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans.................................. (28,498) (22,535) (24,509) (51,727) (20,042)
Purchases of premises and equipment.................... (66) (45) (139) (953) (1,223)
Purchases of available-for-sale securities............. (7,080) (7,490) (11,351) (12,049) (16,296)
Proceeds from maturities of available-for-sale
securities........................................... 165 8,700 12,685 14,500 6,500
Purchases of held-to-maturity securities............... -- (507) (505) (15,550) (20,495)
Purchase of Federal Home Loan Bank Stock............... (151) (599) (600) -- --
Proceeds from maturities of held-to-maturity
securities........................................... 2,500 3,500 3,500 21,000 10,500
Proceeds from sale of foreclosed assets
held-for-sale........................................ 259 182 189 293 74
-------- -------- -------- -------- --------
Net cash used in investing activities.............. (32,871) (18,794) (20,730) (44,486) (40,982)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, NOW, money market
and savings deposits................................. (5,009) 1,932 118 18,655 10,637
Net increase in time deposits.......................... 30,004 4,199 22,663 29,111 26,961
Net increase (decrease) in repurchase agreements....... (3,153) 7,595 6,663 1,703 --
Proceeds from issuance of trust preferred stock........ 4,000 -- -- -- --
Proceeds from issuance of notes payable................ -- 1,500 1,700 550 1,300
Proceeds from Federal Home Loan advances............... 10,000 -- 5,000 -- --
Payment on notes payable............................... (3,000) -- -- (1,750) (150)
Purchase of treasury stock............................. -- -- -- -- --
Dividends paid......................................... (64) (64) (85) (77) (61)
Proceeds from issuance of common stock................. -- -- -- 620 3,070
-------- -------- -------- -------- --------
Net cash provided by financing activities.......... 32,778 15,162 36,059 48,812 41,757
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... 2,085 (807) 18,083 5,780 2,011
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............. 34,714 16,631 16,631 10,851 8,840
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR................... $ 36,799 $ 15,824 $ 34,714 $ 16,631 $ 10,851
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 64
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
Breckenridge Bancshares Company ("the Company") is a bank holding company
with a wholly-owned subsidiary, The Centennial Bank ("the Bank").
The Bank is primarily engaged in providing a full range of banking and
mortgage services to individual and corporate customers in St. Louis, Missouri
and surrounding communities. This banking operation is the Company's only
operating segment. The Bank is subject to competition from other financial
institutions. The Bank also is subject to the regulation of certain federal and
state agencies and undergoes periodic examinations by those regulatory
authorities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Breckenridge
Bancshares Company and its wholly-owned subsidiary, The Centennial Bank.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
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 loan losses 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,
changes 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 allowance 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.
INVESTMENT SECURITIES
Available-for-sale securities, which include any security for which the
Bank 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 amortized cost of the
specific security, are included in other 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 Bank
has the positive intent and ability to hold until maturity, are carried at
historical cost adjusted for amortization of premiums and
F-7
<PAGE> 65
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
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 and dividends on investments in debt and equity securities are
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-offs 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.
PREMISES AND EQUIPMENT
Premises and equipment 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 the value of foreclosed assets held-for-sale periodically and
increases the valuation allowance for any subsequent declines in estimated fair
value. Increases in the valuation allowance and gains/losses on sale of
foreclosed assets are included in non-interest expense, net.
INCOME TAXES
Breckenridge Bancshares Company and its subsidiary file a consolidated
federal income tax return. 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.
F-8
<PAGE> 66
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 1999 and 1998, cash
equivalents consisted of federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 financial statement presentation. These reclassifications
had no effect on net earnings.
EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted-average number
of shares outstanding during each year. Diluted earnings per share are computed
using the weighted-average common shares and all potential dilutive common
shares outstanding during the period.
The computation of per share earnings is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Net income.............................................. $1,712,647 $491,632 $816,483
========== ======== ========
Average common shares outstanding....................... 974,313 961,978 748,226
Average common share stock options outstanding.......... 16,500 15,000 13,500
---------- -------- --------
Average diluted common shares........................... 990,813 976,978 761,726
========== ======== ========
Basic earnings per share................................ $ 1.76 $ .51 $ 1.09
========== ======== ========
Diluted earnings per share.............................. $ 1.73 $ .50 $ 1.07
========== ======== ========
</TABLE>
NOTE 2: INVESTMENTS IN DEBT SECURITIES
The amortized cost and approximate fair value of available-for-sale
securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury........................... $ 2,496,960 $ 998 $ (6,231) $ 2,491,727
U.S. Government agencies................ 14,852,304 -- (130,277) 14,722,027
State and political subdivisions........ 660,575 1,987 (6,939) 655,623
----------- ------ --------- -----------
$18,009,839 $2,985 $(143,447) $17,869,377
=========== ====== ========= ===========
</TABLE>
F-9
<PAGE> 67
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury............................ $ 5,495,984 $147,386 $ -- $ 5,643,370
U.S. Government agencies................. 13,000,226 31,799 (41,894) 12,990,131
State and political subdivisions......... 860,684 17,605 -- 878,289
----------- -------- -------- -----------
$19,356,894 $196,790 $(41,894) $19,511,790
=========== ======== ======== ===========
</TABLE>
Maturities of available-for-sale debt instruments at December 31, 1999:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
One year or less............................................ $12,699,590 $12,669,730
After one through five years................................ 4,990,249 4,885,230
After five through ten years................................ 320,000 314,417
----------- -----------
$18,009,839 $17,869,377
=========== ===========
</TABLE>
The amortized cost and approximate fair value of held-to-maturity
securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury........................... $ 3,537,340 $ -- $(122,655) $ 3,414,685
U.S. Government agencies................ 8,999,593 -- (225,103) 8,774,490
State and political subdivisions........ 437,561 9,529 -- 447,090
----------- ------ --------- -----------
$12,974,494 $9,529 $(347,758) $12,636,265
=========== ====== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS (LOSSES) FAIR VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury............................ $ 3,549,192 $ 63,762 $ (54) $ 3,612,900
U.S. Government agencies................. 12,001,410 18,339 (37,222) 11,982,527
State and political subdivisions......... 436,646 24,280 -- 460,926
----------- -------- -------- -----------
$15,987,248 $106,381 $(37,276) $16,056,353
----------- -------- -------- -----------
</TABLE>
Maturities of held-to-maturity securities at December 31, 1999:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
One year or less............................................ $ 1,085,260 $ 1,085,402
After one through five years................................ 11,889,234 11,550,863
After five through ten years................................ -- --
----------- -----------
$12,974,494 $12,636,265
=========== ===========
</TABLE>
F-10
<PAGE> 68
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
Securities pledged as collateral to secure public deposits and for other
purposes totaled:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Amortized cost.............................................. $2,516,920 $2,148,759
Fair value.................................................. $2,416,301 $2,170,142
</TABLE>
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans include:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Real estate loans........................................... $ 51,699,000 $ 42,429,000
Commercial real estate loans................................ 71,622,000 60,507,000
Commercial and industrial loans............................. 27,461,000 28,739,000
Consumer and other loans.................................... 12,565,960 9,031,477
------------ ------------
163,347,960 140,706,477
Less:
Allowance for loan losses................................. (1,936,708) (1,505,176)
------------ ------------
$161,411,252 $139,201,301
============ ============
</TABLE>
Impaired loans totaled $1,399,005 and $2,103,241 at December 31, 1999 and
1998, respectively. An allowance for loan losses of $169,039 relates to impaired
loans of $1,263,351 at December 31, 1999. At December 31, 1999 and 1998,
impaired loans of $135,654 and $2,103,241, respectively, had no related
allowance for loan losses. Interest recognized on average impaired loans of
$1,407,000 and $2,130,230 was $169,000 and $156,000.
At December 31, 1999 and 1998, the Bank had loans totaling $16,928,581 and
$17,091,971, respectively, to employees, officers, directors, principal
stockholders and affiliated companies. In management's opinion, such loans 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.
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year........................... $1,505,176 $ 738,721 $ 690,733
Provision charged to expense....................... 590,000 874,411 300,000
Losses charged off, net of recoveries of $5,310
(1999), $30,034 (1998) and $13,874 (1997)....... (158,468) (107,956) (252,012)
---------- ---------- ---------
Balance, end of year................................. $1,936,708 $1,505,176 $ 738,721
========== ========== =========
</TABLE>
NOTE 4: FEDERAL FUNDS SOLD
From time to time, the Bank has excess deposits with the Federal Reserve
Bank. Excess deposits are loaned to other banks as federal funds sold, which
represents overnight lending to other member banks of the Federal Reserve
System. At December 31, 1999 and 1998, $7,623,480 and $9,841,704, respectively,
were sold to several banks in the St. Louis, Missouri area.
F-11
<PAGE> 69
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 5: BANK PREMISES AND EQUIPMENT
Premises and equipment are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land........................................................ $1,603,801 $1,633,676
Premises.................................................... 4,610,070 4,574,551
Vault, furniture and fixtures............................... 676,928 660,294
Equipment................................................... 1,094,837 981,316
---------- ----------
7,985,636 7,849,837
Less accumulated depreciation............................... 1,822,398 1,517,831
---------- ----------
$6,163,238 $6,332,006
========== ==========
</TABLE>
NOTE 6: 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. Current vulnerabilities due to certain concentrations of credit
risk are discussed in the footnote on commitments and credit risk. Other
significant estimates and concentrations not discussed in those footnotes
include the following:
The Bank grants commercial, residential and consumer loans to customers
throughout the St. Louis Missouri area. Although the Bank has a diversified loan
portfolio, there is a concentration of credit risk relating to loans to
commercial developers. Repayment of loans is in part dependent upon the economic
conditions of the industry. The Bank monitors this risk by limiting the number
of land development loans to individual customers and the amount extended in
geographic areas. In addition, approximately 25% of the portfolio relates to
construction homes which are pre-sold prior to advancing funds for the loan. The
Bank evaluates each customer's creditworthiness on a case-by-case basis.
Construction and development loans totaled $27,904,676 and $18,859,665 at
December 31, 1999 and 1998, respectively.
The Bank also recognizes a concentration of credit with the Federal Reserve
Bank with a deposit balance of $20,915,217 as of December 31, 1999.
NOTE 7: COMMITMENTS AND CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit.
The Bank's maximum exposure to credit loss under standby letters of credit
and commitments to extend credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer so 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 some of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
F-12
<PAGE> 70
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements.
Management does not anticipate any material losses as a result of these
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Financial instruments whose contract amounts represent
potential credit risk:
Commitments to extend credit.............................. $37,279,000 $28,366,541
Standby letters of credit................................. $ 1,087,000 $ 1,289,633
</TABLE>
The Bank requires collateral to support financial instruments when it is
deemed necessary. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained upon extension of credit
is based on management's credit evaluation of the counterparty. Collateral held
varies, but may include real estate; income-producing commercial properties;
accounts receivable; property, plant and equipment; and inventory. At December
31, 1999, all of the Bank's credit commitments expire at various times through
2003.
NOTE 8: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank enters into sales of securities under agreements to repurchase.
Repurchase agreements are treated as financings, and the obligations to
repurchase securities sold are reflected as a liability in the statement of
financial condition. The securities underlying the agreements are book-entry
securities. The securities were delivered by appropriate entry into the Bank's
account maintained at the Federal Reserve Bank of St. Louis or into a
third-party custodian's account designated by the Bank under a written custodial
agreement that explicitly recognizes the Bank's interest in the securities. At
December 31, 1999 and 1998 these agreements had an outstanding balance of
$8,365,617 and $1,702,550, with a weighted-average interest rate of 4.07% and
3.90% and matured within 90 days, respectively. At December 31, 1999 and 1998
all of the agreements were agreements to repurchase the same securities.
Securities sold under agreements to repurchase averaged $5,209,616 and $602,572
during 1999 and 1998 and the maximum amount outstanding at any month-end during
1999 and 1998 was $10,416,957 and $1,702,550.
Securities underlying the agreements to repurchase consist of U.S. Treasury
and U.S. Agency securities with book values of $12,518,447 and $3,047,827 and
fair values of $12,367,935 and $3,160,470 at December 31, 1999 and 1998,
respectively.
NOTE 9: INTEREST-BEARING DEPOSITS
At December 31, 1999, the scheduled maturities of certificates of deposit
are as follows:
<TABLE>
<S> <C>
2000..................................................... $ 84,482,116
2001..................................................... 41,843,912
2002..................................................... 4,606,595
2003..................................................... 887,467
2004..................................................... 1,784,633
------------
$133,604,723
============
</TABLE>
F-13
<PAGE> 71
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 10: INCOME TAXES
PROVISION FOR INCOME TAXES
The provision for income taxes includes these components:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Taxes currently payable................................ $1,166,667 $ 533,463 $383,883
Deferred income taxes.................................. (154,000) (266,000) 28,300
---------- --------- --------
$1,012,667 $ 267,463 $412,183
========== ========= ========
</TABLE>
A reconciliation of income tax expense at the statutory rate to the Bank's
actual income tax expense is shown below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
Taxes at the statutory rate (34%)...................... $ 927,000 $ 258,000 $418,000
Increase (decrease) in taxes resulting from:
Income from tax-exempt investments................... (20,679) (23,500) (24,200)
State taxes, net of federal tax benefits............. 69,455 400 24,400
Other................................................ 36,891 32,563 (6,017)
---------- --------- --------
Actual provision.................................. $1,012,667 $ 267,463 $412,183
========== ========= ========
</TABLE>
DEFERRED INCOME TAXES
The tax effects of temporary differences related to deferred taxes shown on
the balance sheets are:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses........................... $ 652,000 $ 488,000 $ 213,000
Deferred loan fees and costs........................ 2,000 2,000 7,000
Unrealized loss on available-for-sale securities.... 53,320 -- --
--------- --------- ---------
707,320 490,000 220,000
--------- --------- ---------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities.... -- (59,636) (21,788)
Discount accretion of investment securities......... (7,000) (7,000) (10,000)
Accumulated depreciation............................ (111,000) (101,000) (94,000)
--------- --------- ---------
(118,000) (167,636) (125,788)
--------- --------- ---------
Net deferred tax asset.............................. $ 589,320 $ 322,364 $ 94,212
========= ========= =========
</TABLE>
NOTE 11: REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1999,
approximately $878,000 of the Bank's retained earnings were available for
dividend declaration without prior regulatory approval.
The Company and the Bank are also subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory
F-14
<PAGE> 72
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
and, possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from Federal Deposit
Insurance Corporation categorized the Bank as well as 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 Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total Capital
(to Risk Weighted Assets)
Consolidated....................................... $15,609,316 8.9% $14,001,415 8.0% $17,501,768 N/A
Centennial Bank.................................... $18,380,402 10.5% $14,001,415 8.0% $17,501,768 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated....................................... $13,672,608 7.8% $ 7,000,707 4.0% $10,501,061 N/A
Centennial Bank.................................... $16,443,694 9.4% $ 7,000,707 4.0% $10,501,061 6.0%
Tier I Capital
(to Average Assets)
Consolidated....................................... $13,672,608 5.9% $ 9,233,309 4.0% $11,541,637 N/A
Centennial Bank.................................... $16,443,694 7.1% $ 9,233,309 4.0% $11,541,637 5.0%
AS OF DECEMBER 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated....................................... $13,503,621 9.2% $11,820,552 8.0% $14,775,690 N/A
Centennial Bank.................................... $14,510,371 9.8% $11,820,552 8.0% $14,775,690 10.0%
Tier I Capital
(to Risk Weighted Assets)
Consolidated....................................... $11,998,445 8.1% $ 5,910,276 4.0% $ 8,865,414 N/A
Centennial Bank.................................... $13,005,195 8.8% $ 5,910,276 4.0% $ 8,865,414 6.0%
Tier I Capital
(to Average Assets)
Consolidated....................................... $11,998,445 6.1% $ 7,811,760 4.0% $ 9,764,700 N/A
Centennial Bank.................................... $13,005,195 6.7% $ 7,811,760 4.0% $ 9,764,700 5.0%
</TABLE>
F-15
<PAGE> 73
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 12: EMPLOYEE BENEFIT PLANS
The Bank has a 401k plan covering substantially all employees. The Bank's
contributions are determined annually by the Board of Directors. Contributions
to the plan were $27,261, $18,523 and $18,772, for 1999, 1998 and 1997,
respectively.
NOTE 13: EXECUTIVE OFFICER STOCK OPTION PLAN
The Company maintains a stock option plan, whereby 45,000 shares of common
stock were reserved for issuance upon exercise of options granted to an
executive officer of the Bank. Options vest at a cumulative rate of 20% per
year. The options expire in 2003.
A summary of the status of the plan and changes during the years are
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, on beginning of Year..... 45,000 $ 9 30,000 $ 7 30,000 $ 7
Granted............................... -- $-- 15,000 $12 -- $--
Exercised............................. -- $-- -- $-- -- $--
Forfeited............................. -- $-- -- $-- -- $--
------ ------ ------
Outstanding, on end of Year........... 45,000 $ 9 45,000 $ 9 30,000 $ 7
====== ====== ======
Weighted-Average Remaining Contractual
Life as of December 31, 1999........ 4
Options Exercisable, End of Year...... 33,000 $ 7 30,000 $ 7 27,000 $ 7
====== ====== ======
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividends Per Share......................................... -- -- --
Risk-Free Interest Rate..................................... -- 6% --
Expected Life of Options.................................... -- 5years --
Weighted-Average Fair Value of Options Granted During the
Year...................................................... -- $12 --
</TABLE>
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for the plan, and no compensation cost has been
recognized. Had compensation cost for the Company's Plan been determined based
on the fair value at the grant dates using Statement of Financial Accounting
Standards No. 123, the Company's net income would have decreased by $6,000,
$6,000 and $0 and basic earnings per share would have decreased by $.01, $.01
and $0 for 1999, 1998 and 1997, respectively. The effects of applying this
Statement for either recognizing compensation cost or providing pro forma
disclosures are not likely to be representative of the effects on reported net
income for future years because options vest over several years.
F-16
<PAGE> 74
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 14: NOTES PAYABLE
The Company has a $3,000,000 line of credit agreement requiring quarterly
interest at prime less .50%. The note is secured by the stock of the subsidiary
Bank and is due September 29, 2000. The balance outstanding at December 31, 1999
and 1998, was $3,000,000 and $1,300,000, respectively. In 1999, the Company
obtained an additional $3,000,000 line of credit agreement requiring quarterly
interest at prime less .25%. The note is secured by the stock of the Subsidiary
Bank and is due December 15, 2000. There is no outstanding balance for this line
at December 31, 1999
NOTE 15: FEDERAL HOME LOAN BANK ADVANCES
The Bank has a $5,000,000 advance from the Federal Home Loan Bank as of
December 31, 1999. The advance is short term and bears a 5.74% fixed interest
rate. Principal and interest is due at maturity. The advance is secured by 1-4
family real estate loans.
NOTE 16: 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
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.
HELD-TO-MATURITY SECURITIES
Fair values for investment 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 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 interest receivable approximates its fair value.
DEPOSITS
The fair value of demand deposits, savings accounts, NOW accounts, and
certain money market deposits is the amount payable on demand at the reporting
date (i.e., their carrying amount). The fair value of fixed-maturity time
deposits 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.
F-17
<PAGE> 75
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE PAYABLE
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
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 creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
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
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 Company 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>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents..... $ 34,714,168 $ 34,714,168 $ 16,630,928 $ 16,630,928
Available-for-sale
securities.................... $ 17,769,377 $ 17,769,377 $ 19,511,790 $ 19,511,790
Held-to-maturity securities... $ 12,974,494 $ 12,636,265 $ 15,987,248 $ 16,056,353
Interest receivable........... $ 1,142,166 $ 1,142,166 $ 1,224,426 $ 1,224,426
Loans, net of allowance for
loan losses................... $161,411,252 $161,194,700 $139,201,301 $138,078,587
Interest bearing deposits with
banks......................... $ 99,829 $ 99,829 $ 99,614 $ 99,614
Financial liabilities:
Deposits...................... $206,421,058 $206,173,479 $183,861,174 $183,990,141
Notes payable................. $ 3,000,000 $ 3,000,000 $ 1,300,000 $ 1,300,000
Federal Home Loan Bank
advances...................... $ 5,000,000 $ 5,000,000 $ -- $ --
Interest payable.............. $ 885,152 $ 885,152 $ 754,112 $ 754,112
Repurchase agreements......... $ 8,365,617 $ 8,365,617 $ 1,702,550 $ 1,702,550
Unrecognized financial
instruments (net of contract
amount):
Commitments to extend
credit........................ $ -- $ -- $ -- $ --
Letters of credit............. $ -- $ -- $ -- $ --
</TABLE>
F-18
<PAGE> 76
BRECKENRIDGE BANCSHARES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997 -- (CONTINUED)
NOTE 17: ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NONCASH INVESTING ACTIVITY
Other assets acquired through repossession......... $1,709,523 $ 341,298 $ 14,500
ADDITIONAL CASH INFORMATION
Interest paid...................................... $8,089,090 $7,050,730 $5,073,529
Income taxes paid.................................. $1,044,336 $ 581,960 $ 242,579
</TABLE>
NOTE 18: OTHER EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- --------
<S> <C> <C> <C>
Marketing............................................. $ 193,413 $ 270,907 $160,474
Postage and delivery.................................. 151,798 140,540 116,025
Stationery and supplies............................... 86,785 108,532 64,388
Professional fees..................................... 123,988 130,950 72,827
Regulatory examinations and dues...................... 76,622 43,347 35,751
Employee development.................................. 77,739 85,785 63,251
Miscellaneous......................................... 318,060 280,438 237,030
Telephone............................................. 85,710 72,724 47,565
Insurance............................................. 51,048 35,518 44,119
Travel................................................ 52,119 52,674 32,673
Taxes and licenses.................................... 23,419 17,975 16,536
---------- ---------- --------
$1,240,701 $1,239,390 $890,639
========== ========== ========
</TABLE>
NOTE 19: FUTURE CHANGES IN ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). This statement, as amended by FAS No 137,
requires all derivatives to be recorded on the balance sheet at fair value and
establishes standard accounting methodologies for hedging activities. The
standard will result in the recognition of offsetting changes in value or cash
flows of both the hedge and the hedged item in earnings or comprehensive income
in the same period. The statement is effective for Breckenridge Bancshares'
fiscal year ending December 31, 2001. Because Breckenridge Bancshares generally
does not hold derivative instruments, the adoption of this statement is not
expected to have a material impact on the financial statements.
F-19
<PAGE> 77
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
COMMERCE BANCSHARES, INC.,
BRECKENRIDGE BANCSHARES COMPANY
AND
CBI-KANSAS, INC.
DATED OCTOBER 20, 2000
<PAGE> 78
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER....................................... A-1
1.1 Effective Time of the Merger.......................... A-1
1.2 Closing............................................... A-1
1.3 Effects of the Merger................................. A-1
1.4 Absence of Control.................................... A-2
1.5 Further Assurances.................................... A-2
1.6 The Centennial Bank Merger............................ A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
COMPANY AND SUB; EXCHANGE OF CERTIFICATES....... A-2
2.1 Effect on Capital Stock of Company and Sub............ A-2
(a) Sub Capital Stock................................. A-2
(b) Conversion of Company Common Stock................ A-2
2.2 No Further Ownership Rights in Company Common Stock... A-3
2.3 Fractional Shares..................................... A-3
2.4 Surrender of Shares of Company Common Stock........... A-3
2.5 Adjustments........................................... A-3
2.6 Dissenters' Rights.................................... A-4
2.7 Shareholder Approval.................................. A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES................. A-4
3.1 Representations and Warranties of Company............. A-4
(a) Organization, Standing and Power.................. A-4
(b) Capital Structure; Ownership of Company Common
Stock................................................. A-5
(c) Authority; No Violation........................... A-6
(d) Financial Statements.............................. A-7
(e) Company Information Supplied...................... A-8
(f) Compliance with Applicable Laws................... A-8
(g) Litigation........................................ A-8
(h) Taxes............................................. A-9
(i) Certain Agreements................................ A-10
(j) Benefit Plans..................................... A-10
(k) Subsidiaries...................................... A-12
(l) Agreements with Bank or Other Regulators.......... A-12
(m) Absence of Certain Changes or Events.............. A-12
(n) Undisclosed Liabilities........................... A-13
(o) Governmental Reports.............................. A-13
(p) Environmental Liability........................... A-13
(q) Properties........................................ A-15
(r) Brokers or Finders................................ A-15
(s) Intellectual Property............................. A-15
(t) Opinion of Financial Advisor...................... A-16
(u) Insurance......................................... A-16
(v) Loans and Other Assets............................ A-16
(w) Labor Matters..................................... A-17
(x) Internal Controls and Records..................... A-17
3.2 Representations and Warranties of Commerce............ A-17
(a) Organization and Authority........................ A-17
(b) Valid and Binding Agreement; No Violation......... A-17
(c) Capital Stock of Commerce......................... A-17
</TABLE>
A-i
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(d) Financial Statements............................... A-18
(e) SEC Reports........................................ A-18
(f) Status of Commerce Common Stock to be Issued....... A-18
(g) Governmental Regulation............................ A-18
(h) Litigation......................................... A-18
(i) Taxes.............................................. A-18
(j) Defaults........................................... A-19
(k) Information Supplied............................... A-19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS....... A-19
4.1 Covenants of Company.................................. A-19
4.2 Covenants of Commerce and Sub......................... A-22
(a) Regulatory Approvals.............................. A-22
(b) Information....................................... A-23
(c) Tax-Free Reorganization Treatment................. A-23
(d) Employee Benefits................................. A-23
(e) Pooling of Interests.............................. A-23
ARTICLE V ADDITIONAL AGREEMENTS............................ A-23
5.1 Regulatory Matters.................................... A-23
(a) Registration Statement and Proxy Statement........ A-23
(b) State Securities Laws............................. A-24
(c) Affiliates........................................ A-24
(d) Publication of Combined Financial Results......... A-24
(e) Indemnification................................... A-24
(f) Governmental Entity Communications................ A-24
5.2 Shareholders' Meetings................................ A-24
5.3 Legal Conditions...................................... A-25
5.4 Plan Termination...................................... A-26
5.5 Additional Agreements................................. A-26
5.6 Fees and Expenses..................................... A-26
5.7 Cooperation........................................... A-26
5.8 Advice of Changes..................................... A-26
5.9 Dissenters' Rights.................................... A-26
5.10 Retention of Centennial Directors.................... A-26
5.11 Indemnification; Directors' and Officers'
Insurance.............................................. A-26
5.12 Grant of Option...................................... A-27
5.13 Director Letters of Intent........................... A-27
5.14 Certain Financial Statement Adjustments.............. A-27
ARTICLE VI CONDITIONS PRECEDENT............................ A-27
6.1 Conditions to Each Party's Obligation................. A-27
(a) Shareholder Approval.............................. A-27
(b) Other Approvals................................... A-27
(c) No Injunctions or Restraints...................... A-27
(d) Registration Statement............................ A-28
6.2 Conditions to Obligations of Commerce and Sub......... A-28
(a) Representations and Warranties.................... A-28
(b) Performance of Obligations........................ A-28
(c) Corporate Action.................................. A-28
(d) Material Adverse Effect........................... A-28
(e) Closing Documents................................. A-28
(f) Financial Measures................................ A-28
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(g) Sales of Shares................................... A-28
(h) Tax Representations............................... A-28
(i) Dissenting Shareholders........................... A-29
(j) Tax Opinion....................................... A-29
(k) Cancellation of Unexercised Options............... A-29
(l) Opinion of Counsel................................ A-29
(m) Memorandum of Understanding....................... A-29
6.3 Conditions to Obligations of Company.................. A-29
(a) Representations and Warranties.................... A-29
(b) Performance of Obligations........................ A-29
(c) Corporate Action.................................. A-29
(d) Tax Opinion....................................... A-29
(e) Material Adverse Effect........................... A-30
(f) Closing Documents................................. A-30
(g) Fairness Opinion.................................. A-30
(h) Opinion of Counsel................................ A-30
ARTICLE VII TERMINATION AND AMENDMENT...................... A-30
7.1 Termination........................................... A-30
7.2 Effect of Termination................................. A-31
7.3 Amendment............................................. A-31
7.4 Extension; Waiver..................................... A-31
ARTICLE VIII GENERAL PROVISIONS............................ A-32
8.1 Survival of Representations, Warranties and
Covenants.............................................. A-32
8.2 Notices............................................... A-32
8.3 Interpretation........................................ A-33
8.4 Counterparts.......................................... A-33
8.5 Entire Agreement; No Third Party Beneficiaries; Rights
of Ownership........................................... A-33
8.6 Governing Law......................................... A-33
8.7 Severability.......................................... A-33
8.8 Assignment............................................ A-34
8.9 Publicity............................................. A-34
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Affiliate................................................... 3.1(a)(vi)
Agreement................................................... Intro Paragraph
Articles of Merger.......................................... 1.1
ASTM........................................................ 3.1(p)(iii)
Bank Merger................................................. 1.6
Bank Regulators............................................. 3.1(f)
BHC Act..................................................... 3.1(a)
BIF......................................................... 3.1(a)
Business.................................................... 3.1(p)(iv)
Centennial.................................................. 1.6
Centennial.................................................. 3.1(a)
Certificate of Merger....................................... 1.1
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ 3.1(j)
Commerce.................................................... Intro Paragraph
Commerce Common Stock....................................... 2.1(b)
Commerce Instrument......................................... 2.5
Company..................................................... Intro Paragraph
Company Common Stock........................................ 2.1(b)
Company Consolidated Financial Statements................... 3.1(d)
Company Disclosure Schedule................................. 3.1(b)(iii)
Company Dissenting Shares................................... 2.6
Company Intellectual Property............................... 3.1(s)
Company Permits............................................. 3.1(f)
Company Shareholder Approval................................ 3.1(c)
Confidentiality Agreement................................... 4.1
Consents.................................................... 6.1(b)
Doubtful.................................................... 3.1(v)
DPC Shares.................................................. 3.1(b)(v)
Effective Time.............................................. 1.1
Employee Plans.............................................. 3.1(j)
Environmental Audit......................................... 3.1(p)(iii)
Environmental Law........................................... 3.1(p)(iv)
Environmental Liability..................................... 3.1(p)(iii)
ERISA....................................................... 3.1(j)
Exchange Agent.............................................. 2.4
Exchange Ratio.............................................. 2.1(b)
FDIC........................................................ 3.1(a)
Federal Reserve............................................. 3.1(c)(iii)
GAAP........................................................ 3.1(d)
GBCL........................................................ 1.1
Governmental Entity......................................... 3.1(c)(iii)
Hazardous Substances........................................ 3.1(p)(iv)
Indemnified Party........................................... 5.11
Injunction.................................................. 6.1(c)
IRS......................................................... 3.1(h)
KGCC........................................................ 1.1
Litigation.................................................. 3.1(g)
Loss........................................................ 3.1(v)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
material.................................................... 3.1(a)(ii)
material adverse effect..................................... 3.1(a)(iii)
Maximum Premium Amount...................................... 5.11(b)
Merger...................................................... Recitals
OAEM........................................................ 4.1(t)
OREO........................................................ 3.1(v)
Other Loans Especially Mentioned............................ 3.1(v)
person...................................................... 3.1(a)(vii)
Preferred Stock............................................. 3.2(c)
Properties.................................................. 3.1(p)(iii)
Proxy Statement............................................. 5.1(a)
Real Property............................................... 3.1(p)(iv)
Registration Statement...................................... 5.1(a)
Reportable Quantity......................................... 3.1(p)(iv)
Requested Adjustments....................................... 5.14
Requisite Regulatory Approvals.............................. 6.1(b)
SEC......................................................... 3.1(c)(iii)
SEC Fees.................................................... 5.6
Securities Act.............................................. 3.1(e)
SFAS No. 5.................................................. 3.1(a)(iii)
Significant Subsidiary...................................... 5.2(c)
Stock Option Agreement...................................... 5.12
Sub......................................................... Intro Paragraph
Sub Common Stock............................................ 2.1(a)
Subsidiary.................................................. 3.1(a)(i)
Substandard................................................. 3.1(v)
Superior Proposal........................................... 5.2(c)
Surviving Corporation....................................... 1.3(c)
Takeover Proposal........................................... 5.2(c)
Tax or Taxes................................................ 3.1(h)
Transaction Agreements...................................... 3.1(a)(iv)
Trust Account Shares........................................ 3.1(b)(v)
</TABLE>
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of October 20, 2000 (the "date hereof"), between COMMERCE BANCSHARES,
INC., a Missouri corporation ("Commerce"), CBI-KANSAS, INC., a Kansas
corporation ("Sub") and BRECKENRIDGE BANCSHARES COMPANY, a Missouri corporation
("Company").
WHEREAS, the Executive Committee of the Board of Directors of Commerce and
the Board of Directors of Sub have approved this Agreement, declared it
advisable and deem it advisable and in the best interests of their respective
shareholders to consummate the transactions provided for herein in which, inter
alia, Commerce and Company become affiliated through the merger of Company with
and into Sub (the "Merger");
WHEREAS, the Board of Directors of Company has approved this Agreement and
declared it advisable and deems it advisable and in the best interests of the
shareholders of Company to consummate the Merger;
WHEREAS, the Boards of Directors of Commerce, Sub and Company have each
determined that the Merger and the other transactions contemplated by this
Agreement are consistent with, and will contribute to the furtherance of, their
respective business strategies and goals.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the terms and conditions of
this Agreement, on the Closing Date (as hereinafter defined), the proper
officers of Company and Sub shall execute and acknowledge the appropriate
certificates of merger that shall be filed with the Kansas Secretary of State
(the "Certificate of Merger") and the Articles of Merger that shall be filed
with the Missouri Secretary of State (the "Articles of Merger") on the first
Business Day following the Closing Date, all in accordance with the Kansas
General Corporation Code ("KGCC") and the General and Business Corporation Law
of Missouri ("GBCL"), respectively. The Merger shall become effective on the
first day of the first calendar month following the Closing Date (the "Effective
Time").
1.2 Closing. The closing of the Merger (the "Closing") will take place at
10 a.m., Kansas City time, on a day 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 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
Date"). The Closing shall be held at the offices of Commerce Bank, N.A., 1000
Walnut, Kansas City, Missouri or at such other location as is agreed to in
writing by the parties hereto. As used in this Agreement, "Business Day" shall
mean any day that is not a Saturday, Sunday or other day on which banks are
required or authorized by law to be closed in Missouri.
1.3 Effects of the Merger.
(a) At the Effective Time (i) Company shall be merged with and into Sub and
the separate corporate existence of Company shall cease, (ii) the Articles of
Incorporation of Sub as in effect immediately prior to the Effective Time shall
be the Articles of Incorporation of the Surviving Corporation, (iii) the By-laws
of Sub as in effect immediately prior to the Effective Time shall be the By-
laws of the Surviving Corporation, (iv) the directors of Sub at the Effective
Time shall be the directors of the Surviving Corporation and (v) the officers of
Sub immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
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(b) Subject to Missouri law, at the Effective Time, (i) Sub 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 Company and all
obligations belonging to or due each of Company and Sub shall be vested in Sub
without further act or deed; (ii) title to any real estate or any interest
therein vested in Company shall not revert or in any way be impaired by reason
of the Merger; (iii) all rights of creditors and all liens on any property of
Company shall be preserved unimpaired; (iv) Sub shall be liable for all the
obligations of Company, 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.
(c) As used in this Agreement, "Surviving Corporation" shall mean Sub, at
and after the Effective Time, as the surviving corporation in the Merger.
(d) At and after the Effective Time, the Merger will have the effects set
forth in the GBCL and the KGCC.
1.4 Absence of Control. Subject to any specific provisions of this
Agreement, it is the intent of the parties hereto that neither Sub nor Company
by reason of this Agreement shall be deemed (until consummation of the
transactions contemplated hereby) to control, directly or indirectly, the other
party and shall not exercise, or be deemed to exercise, directly or indirectly,
a controlling influence over the management or policies of such other party.
1.5 Further Assurances. If at any time after the Effective Time, Sub
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 Sub the title to any property,
rights, privileges, powers, or franchises of Company, the Board of Directors and
officers of Sub shall, and will be authorized to, execute and deliver in the
name and on behalf of Company 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 Sub, and otherwise to carry out the
provisions of this Agreement.
1.6 The Centennial Bank Merger. The parties understand and agree that it
is the intention of Commerce and Sub, simultaneously with the Merger, to merge
Company's Subsidiary, The Centennial Bank ("Centennial") with Commerce Bank,
N.A., a wholly owned subsidiary of Commerce (the "Bank Merger"). Company agrees
to cooperate with Commerce and Sub and take all reasonable steps in order to
effectuate the Bank Merger. All out of pocket expenses incurred by Company and
Centennial in consummating the Bank Merger, shall be paid by Sub.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF COMPANY AND SUB;
EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock of Company and Sub. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Company, Commerce or Sub capital stock:
(a) Sub Capital Stock. At and after the Effective Time, 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 remain an issued and
outstanding share of capital stock of Sub and shall not be affected by the
Merger.
(b) Conversion of Company Common Stock. Subject to Sections 2.3, 2.5 and
7.1(h), the shares of common stock, $1.00 par value per share, of Company
("Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than Company Dissenting Shares (as defined below)
perfected in accordance with Section 351.455 of the GBCL) shall be converted
into the right to receive 835,000 shares (the "Exchange Ratio") of fully paid
and nonassessable shares of common stock,
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<PAGE> 85
$5.00 par value per share (the "Commerce Common Stock"), of Commerce. All such
shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such shares shall thereafter represent
the right to receive (i) a certificate representing the number of whole shares
of Commerce Common Stock into which such Company Common Stock has been converted
and, if applicable, (ii) cash in lieu of fractional shares as provided in
Section 2.3 hereof. Certificates previously representing shares of Company
Common Stock shall be exchanged for certificates representing whole shares of
Commerce Common Stock issued in consideration therefor (and, if applicable, cash
in lieu of fractional shares as provided in Section 2.3 hereof) upon the
surrender of such certificates.
2.2 No Further Ownership Rights in Company Common Stock. All shares of
Commerce Common Stock issued upon conversion of shares of Company Common Stock
in accordance with the terms hereof shall be deemed to represent all rights
pertaining to such shares of Company Common Stock, and, after the Effective
Time, there shall be no further registration of transfers on the stock transfer
books of Company of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates formerly representing shares of Company Common Stock are presented
to Commerce for any reason, they shall be canceled and, if applicable, exchanged
as provided in this ARTICLE II.
2.3 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Commerce Common Stock and no certificates or script
therefor or other evidence of ownership thereof shall be issued to holders of
shares of Company Common Stock. In lieu thereof, each such holder entitled to a
fraction of a share of Commerce Common Stock (after taking into account all
shares of Company Common Stock held at the Effective Time by such holder) shall
receive from the Exchange Agent (as defined below), at the time of surrender of
the certificates representing such holder's Company Common Stock, an amount in
cash equal to the product of such fraction and the average of ten (10) closing
sale prices of Commerce Common Stock as reported by the Nasdaq Stock Market on
each of the ten (10) consecutive trading days preceding the third trading day
prior to the Closing Date. No such holder shall be entitled to dividends, voting
rights, interest on the value of, or any other rights in respect of a fractional
share. 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 Surrender of Shares of Company Common Stock. Prior to the Effective
Time, Commerce and Sub shall appoint Commerce Bank, N.A. or its successor, as
exchange agent (the "Exchange Agent") for the purpose of exchanging certificates
representing Commerce Common Stock which are to be issued pursuant to Section
2.1. Commerce, on behalf of Sub, shall make available to 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
2.1 hereof. As soon as practicable after the Closing Date, Commerce on behalf of
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.
2.5 Adjustments. In the event Commerce changes (or establishes a record
date for changing) the number of shares of Commerce Common Stock issued and
outstanding prior to the Effective Time as a result of an issuance of shares of
Commerce Common Stock, or a recapitalization, reclassification, split-up,
combination, exchange, readjustment, reorganization, merger, consolidation,
distribution, stock split, stock or other dividend, or similar transaction with
respect to the outstanding Commerce Common Stock and the record date therefor,
if applicable, shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted with the result that the holders of Company Common
Stock shall receive the same economic benefit set forth in Section 2.1. Further,
in the event Commerce, prior to the Effective Time, grants, issues, delivers,
sells or otherwise distributes any warrant, option, security, right or other
instrument convertible into or exchangeable for any shares of Commerce Common
Stock (collectively, an "Commerce Instrument"), then (i) the Exchange Ratio
shall be proportionately adjusted in the manner prescribed above as if the
shares of Commerce Common Stock issuable pursuant to such Commerce
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<PAGE> 86
Instrument were outstanding prior to the Effective Time or, (ii) in the sole
discretion of Commerce, Commerce shall provide, at or prior to the Effective
Time, for the holders of the Company Common Stock whose shares are to be
converted into shares of Commerce Common Stock pursuant to the Merger
proportionately equivalent Commerce Instruments upon consummation of the Merger.
2.6 Dissenters' Rights. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by shareholders that
have not voted such shares in favor of the Merger and have delivered a written
demand for the valuation of such shares in the manner provided in the laws of
the State of Missouri (such shares, the "Company Dissenting Shares") shall not
be converted into or represent the right to receive Commerce Common Stock as
provided in Section 2.1 and the holders thereof shall only be entitled to such
rights as are granted by Section 351.455 of the GBCL. Each holder of Company
Dissenting Shares that becomes entitled to payment for such shares pursuant to
Section 351.455 of the GBCL shall receive payment therefor from the Surviving
Corporation in accordance with the GBCL; provided, however, that (i) if any such
holder of Company Dissenting Shares shall have failed to establish that such
holder is entitled to dissenters' rights as provided in Section 351.455 of the
GBCL, or (ii) if any such holder of Company Dissenting Shares shall have
effectively withdrawn the demand for valuation of such shares or lost the right
to valuation and payment of such shares under Section 351.455 of the GBCL, or
(iii) if neither the Surviving Corporation nor such holder of Company Dissenting
Shares shall have filed a petition demanding a determination of the value of all
Company Dissenting Shares within the time provided in Section 351.455 of the
GBCL, such holder's or holders' (as the case may be) shares of Company Common
Stock shall thereupon be deemed to have been converted, as of the Effective
Time, into and represent the right to receive from the Surviving Corporation the
shares of Commerce Common Stock as provided in Section 2.1 hereof.
2.7 Shareholder 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 5.2 hereof. A shareholders' meeting of
the 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 5.1(a) hereof). Company and its Board of Directors shall
recommend, subject to the exercise of their fiduciary responsibilities, that the
shareholders of the Company approve this Agreement and the transactions
contemplated hereby and shall use their reasonable best efforts to secure such
approval.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Company. Company hereby represents
and warrants to Commerce and Sub as follows:
(a) Organization, Standing and Power. Company is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Company has one bank subsidiary, Centennial Bank ("Centennial");
Centennial is a wholly owned Subsidiary of Company and is a bank organized under
the laws of the State of Missouri. The deposit accounts of Centennial are
insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC") to the fullest extent permitted by law, and all premiums
and assessments required in connection therewith have been paid when due.
Company and each of its Subsidiaries is a bank or corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure so to qualify would not, either individually or
in the aggregate, have a material adverse effect on Company. The Articles of
Incorporation and By-laws of each of
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Company, and each Subsidiary of Company, copies of which were previously made
available to Commerce, are true, complete and correct. The minute books of
Company and its Subsidiaries which have been made available to Commerce contain
a complete (except for certain portions thereof relating to the Merger and the
transactions contemplated hereby) and accurate record of all meetings of the
respective Boards of Directors (and committees thereof) and shareholders.
As used in this Agreement,
(i) the term "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, (x)
of which such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interests in such partnership), or (y) at least a majority of the securities or
other interests of which having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its Subsidiaries, or
by such party and one or more of its Subsidiaries,
(ii) any reference to any event, change or effect being "material" with
respect to any entity means an event, change or effect which is material in
relation to the condition (financial or otherwise), properties, assets,
liabilities, businesses, results of operations or prospects of such entity and
its Subsidiaries taken as a whole,
(iii) the term "material adverse effect" means, with respect to any entity,
a material adverse effect (whether or not required to be accrued or disclosed
under Statement of Financial Accounting Standards No. 5 ("SFAS No. 5")) (A) on
the condition (financial or otherwise), properties, assets, liabilities,
businesses, results of operations or prospects of such entity and its
Subsidiaries taken as a whole (but does not include any such effect resulting
from or attributable to any action or omission by Company, Commerce, Sub or any
Subsidiary of any of them taken with the prior written consent of the other
parties hereto, in contemplation of the transactions contemplated hereby), or
(B) on the ability of such entity to perform its obligations under the
Transaction Agreements (as defined below) on a timely basis,
(iv) the term "Transaction Agreements" shall mean this Agreement, the Stock
Option Agreement, the Certificate of Merger to be filed pursuant to the KGCC and
the Articles of Merger to be filed pursuant to the GBCL,
(v) the term "knowledge" or "to the best knowledge of" a party hereto means
the actual knowledge of a director or executive officer of a party after
reasonable inquiry under all the circumstances,
(vi) the term "Affiliate" means, as to any person, a person which controls,
is controlled by or is under common control with such person, and
(vii) the term "person" shall mean an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity.
(b) Capital Structure; Ownership of Company Common Stock.
(i) The authorized capital stock of Company consists of 2,000,000 shares of
Company Common Stock, par value $1.00 per share, of which as of the date hereof,
974,313 shares of Company Common Stock were outstanding. As of the Closing Date,
1,019,313 shares of Company Common Stock will be outstanding. All outstanding
shares of Company Common Stock have been duly authorized and validly issued and
are fully paid and non-assessable and not subject to preemptive rights. As of
the Closing Date, all outstanding shares of Company Common Stock will be duly
authorized and validly issued and will be fully paid and non-assessable and not
subject to preemptive rights.
(ii) The authorized capital stock of Centennial consists of 180,628 shares
of Centennial Common Stock, $1.00 par value per share, of which 180,628 shares
are outstanding. All outstanding shares of Centennial Common Stock have been
duly authorized and validly issued and are fully paid and non-
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assessable and not subject to preemptive rights. The Company owns all of the
issued and outstanding shares of its Subsidiaries free and clear of all liens,
encumbrances, equities or claims.
(iii) Except for this Agreement and except as set forth in Section
3.1(b)(iii) of the disclosure schedule of Company delivered to Commerce and Sub
on the date hereof (the "Company Disclosure Schedule"), (A) there are no
outstanding options, warrants, calls, rights, commitments or agreements of any
character to which Company or any of its Subsidiaries or Affiliates (as defined
herein) is a party or by which any of the foregoing are bound obligating Company
or any of its Subsidiaries, including Centennial, or Affiliates to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of Company or any of its Subsidiaries or obligating Company or any
of its Subsidiaries or Affiliates to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement, (B) there are no
outstanding contractual obligations of Company or any of its Subsidiaries or
Affiliates to repurchase, redeem or otherwise acquire any shares of capital
stock of Company or any of its Subsidiaries and (C) there are no outstanding
securities of any kind convertible into or exchangeable for the capital stock of
Company or any of its Subsidiaries (or any interest therein). Except as set
forth in Section 3.1(b)(iii) of the Company Disclosure Schedule, there is no
agreement of any kind to which Company or Centennial is a party and, to the
knowledge of Company, no other agreement of any kind, in each case that gives
any person any right to participate in the equity, value or income of, or to
vote (x) in the election of directors or officers of, or (y) otherwise with
respect to the affairs of, Company or any of its Subsidiaries.
(iv) Neither Company nor any of its Subsidiaries or, to the best knowledge
of Company, its Affiliates, beneficially owns, directly or indirectly, any
shares of capital stock of Commerce or Sub, securities of Commerce or Sub
convertible into, or exchangeable for, such shares, or options, warrants or
other rights to acquire such shares (regardless of whether such securities,
options, warrants or other rights are then exercisable or convertible), nor is
Company or any of such Subsidiaries or Affiliates a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of shares of capital stock of Commerce or Sub or any such other
securities, options, warrants or other rights.
(v) No shares of Company Common Stock are held directly or indirectly by
Company or its Subsidiaries in trust accounts, managed accounts and the like or
otherwise held in a fiduciary or nominee capacity (any such shares, and shares
of Commerce Common Stock or Sub Common Stock which are similarly held, whether
held directly or indirectly by Company, Commerce or Sub or any of their
respective Subsidiaries, as the case may be, being referred to herein as "Trust
Account Shares") and no shares of Company Common Stock are held by Company or
its Subsidiaries in respect of a debt previously contracted (any such shares and
shares of Commerce Common Stock and Sub Common Stock which are similarly held,
whether held directly or indirectly by Company, Commerce or Sub or any of their
respective Subsidiaries, as the case may be, being referred to herein as "DPC
Shares").
(c) Authority; No Violation. Company has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Agreements and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Company, other than
the approval of this Agreement and the Merger by the holders of two thirds of
the outstanding shares of Company Common Stock entitled to vote (the "Company
Shareholder Approval"). This Agreement and the other Transaction Agreements have
been duly executed and delivered by Company, and (assuming due authorization,
execution and delivery by Commerce and Sub) constitute the valid and binding
obligations of Company, enforceable against Company in accordance with their
terms, subject, as to enforceability, to bankruptcy, insolvency and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
(i) The Company Shareholder Approval is the only vote of any class or
series of Company capital stock necessary to approve this Agreement and the
other Transaction Agreements and the consummation of the transactions
contemplated hereby and thereby. Subject to Section 5.2, the Board of Directors
of Company will direct that this Agreement and the transactions contemplated
hereby be submitted to Company's shareholders for approval at a meeting of such
shareholders. Subject to Section 5.2, the Board
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of Directors of Company will recommend that the Company's shareholders approve
this Agreement and the transactions contemplated hereby and will exempt the
transaction from any applicable state takeover statutes.
(ii) Except as set forth in Section 3.1(c)(ii) of the Company Disclosure
Schedule, subject to approval by the appropriate regulatory agencies, the
execution, delivery and performance of this Agreement and the other Transaction
Agreements by Company do not, and the consummation of the transactions
contemplated hereby will not, constitute (x) 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 of its Subsidiaries or to which Company or any of its Subsidiaries (or
any of their respective properties) is subject, (y) a breach or violation of, or
a default under, the articles of incorporation, charter or bylaws of Company or
any subsidiary of Company, or (z) 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 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 Company is a party, or to which any of its respective properties or assets
may be bound or affected.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement or
the other Transaction Agreements or the consummation by Company of the
transactions contemplated hereby or thereby, which, if not made or obtained,
would have a material adverse effect on Company or on the ability of Company to
perform its obligations hereunder or thereunder on a timely basis, or on
Commerce's or Sub's ability to own, possess or exercise the rights of an owner
with respect to the business and assets of Company and its Subsidiaries, except
for (A) the filing of applications and notices with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the BHC Act and
approval of same, (B) the filing by Commerce with the Securities and Exchange
Commission (the "SEC") of a Registration Statement (as defined in Section 5.1(a)
hereof)) to register the Commerce Common Stock to be issued, (C) such
applications, filings, authorizations, orders and approvals as may be required
by the FDIC and the Missouri Division of Finance, (D) the filing with the
Secretary of State of Kansas of the Certificate of Merger and (E) the filing
with the Secretary of State of Missouri of the Articles of Merger.
(d) Financial Statements. Company has previously delivered to Commerce and
Sub copies of (a) the consolidated statements of financial condition of Company
and its Subsidiaries, as of December 31, 1999 for the fiscal years 1998 and 1999
, and the related consolidated statements of operations, comprehensive income
(loss), shareholders' equity and cash flows for the fiscal years 1998 through
1999, inclusive, in each case accompanied by the report of Baird, Kurtz &
Dobson, independent auditors with respect to Company (the consolidated financial
statements of Company and its Subsidiaries referred to in this clause being
hereinafter sometimes referred to as the "Company Consolidated Financial
Statements") and (b) the unaudited condensed consolidated statement of financial
position of Company and its Subsidiaries as of June 30, 2000 and the unaudited
condensed consolidated statements of operations of Company and its Subsidiaries
for the three-month periods ended March 31, 2000 and June 30, 2000 (the
unaudited condensed consolidated financial statements of Company and its
Subsidiaries referred to in this clause being sometimes hereinafter referred to
as the "Company Interim Financial Statements"). Each of the financial statements
referred to in this Section 3.1(d) (including the related notes, where
applicable) fairly present (subject, in the cases of the Company Interim
Financial Statements, to normal recurring and year-end audit adjustments, none
of which are expected to be material in nature or amount and the fact that the
Company Interim Financial Statements do not contain footnotes), the results of
the consolidated operations and changes in shareholders' equity and consolidated
financial condition of Company and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth. Each of such statements
(including the related notes, where applicable) and each
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of such statements (including the related notes, where applicable) has been
prepared, in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except in
each case as indicated in such statements or in the notes thereto. The books and
records of Company and its Subsidiaries have been, and are being, maintained
where required in accordance with GAAP and any other applicable legal and
accounting requirements and, where such books and records purport to reflect any
transactions, the transactions so reflected are actual transactions. 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,
1999, or incurred since December 31, 1999, in the ordinary course of business.
From December 31, 1999 until the date hereof, there has been no material adverse
change in the financial condition, properties, assets, liabilities, rights or
business of Company or Company's Subsidiaries, or in the relationship of Company
and its Subsidiaries with respect to its employees, creditors, suppliers,
distributors, customers or others with whom it has business relationships.
(e) Company Information Supplied. None of the information supplied or to
be supplied by Company for inclusion or incorporation by reference in the (i)
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 of
1933, as amended, or any successor federal statute and the rules and regulations
promulgated thereunder (the "Securities Act"), contain any untrue statement of
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 (as defined in Section 5.1(a)) relating to the meeting of the
shareholders of Company (the "Company Shareholders' Meeting") at which the
Company Shareholder Approval will be sought will not, at the date of mailing to
shareholders of Company and at the time of the Company Shareholders' Meeting,
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.
(f) Compliance with Applicable Laws. Company and its Subsidiaries hold,
and at all relevant times have held, all material permits, licenses, variances,
exemptions, orders, approvals, franchises and rights of all Governmental
Entities necessary for the lawful operation of the businesses of Company and its
Subsidiaries (the "Company Permits"). Company and its Subsidiaries are in
compliance and have complied with the terms of the Company Permits, except where
the failure so to comply, individually or in the aggregate, would not have a
material adverse effect on Company. The businesses of Company and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which,
individually or in the aggregate, do not, and, insofar as reasonably can be
foreseen, in the future will not, have a material adverse effect on Company.
Except for routine examinations by Federal or state Governmental Entities
charged with the supervision or regulation of banks or bank holding companies or
engaged in the insurance of bank deposits ("Bank Regulators"), no investigation
by any Governmental Entity with respect to Company or any of its Subsidiaries
is, to the knowledge of Company, pending or threatened, and no proceedings by
any Bank Regulator are, to the knowledge of Company, pending or threatened which
seek to revoke or materially limit any of the Company Permits. Company and its
Subsidiaries do not offer or sell insurance and/or securities products,
including but not limited to annuity products, for their own account or the
account of others.
(g) Litigation. Except as set forth in Section 3.1(g) of the Company
Disclosure Schedule, to the knowledge of Company, there is no suit, action,
proceeding, arbitration or investigation ("Litigation") pending to which Company
or any Subsidiary of Company is a party or by which any of such persons or their
respective assets may be bound or, to the knowledge of Company, threatened
against or affecting Company or any Subsidiary of Company, or challenging the
validity or propriety of the transactions contemplated hereby which, if
adversely determined, would, individually or in the aggregate, have or
reasonably be expected to have a material adverse effect on Company or on the
ability of Company to
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perform its obligations under this Agreement in a timely manner, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Company or any Subsidiary of Company.
(h) Taxes. Each of the Company and its Subsidiaries has timely filed all
Tax Returns (as defined below) required to be filed by them, and the Company and
each of its Subsidiaries has 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. Except as set forth in Section 3.1(h) of the
Company Disclosure Schedule, to the knowledge of Company: (i) there are no liens
with respect to income taxes upon any of the assets or properties of Company and
its Subsidiaries, (ii) no material issue relating to income taxes of Company and
its Subsidiaries has been raised in writing by any taxing authority in any audit
or examination which can result in a proposed adjustment or assessment by a
governmental authority in a taxable period (or portion thereof) ending on or
before the Closing Date, (iii) to the knowledge of Company, Company and its
Subsidiaries have duly and timely withheld from all payments (including employee
salaries, wages and other compensation paid to independent contractors,
creditors, stockholders or other third parties) and paid over to the appropriate
taxing authorities all amounts required to be so withheld and paid over for all
periods for which the statute of limitations has not expired under all
applicable laws and regulations and have complied with the applicable
information reporting requirements under Part III, Subchapter A of Chapter 61 of
the Code and similar state and local information reporting requirements, (iv) as
of the Closing Date, none of Company nor any of its Subsidiaries shall be a
party to, be bound by or have any obligation under, any tax sharing agreement or
similar contract or arrangement or any agreement that obligates any of them to
make any payment computed by reference to the income taxes, taxable income or
taxable losses of any other person, (v) there is no contract or agreement, plan
or arrangement by Company or any of its Subsidiaries covering any person that,
individually or collectively, could give rise to the payment of any material
amount that would not be deductible by Company or any of its Subsidiaries by
reason of section 280G of the Code, (vi) neither Company nor any of its
Subsidiaries has been a United States real property holding corporation within
the meaning of section 897(c)(2) of the Code during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code, (vii) none of Company nor any
of its Subsidiaries (A) has been a member of an affiliated group (other than the
group to which they are currently members) filing a consolidated federal income
tax return or (B) to the knowledge of Company, has any liability for the income
taxes of any person (other than the members of such current group) under
Treasury Regulation section 1.1502-6(a) (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract, or otherwise,
(viii) neither Company nor any of its Subsidiaries has waived any statute of
limitations or agreed to any extension of time in respect of Taxes, (ix) neither
Company nor any of its Subsidiaries has entered into any closing or other
agreement with any taxing authority which affects any taxable year of Company or
its Subsidiaries, (x) neither Company nor any of its Subsidiaries are party to
any tax sharing agreement or similar arrangement for the sharing of tax
liabilities or benefits, (xi) neither Company nor any of its Subsidiaries has
applied for, been granted , or agreed to any accounting method
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change since December 31, 1994, and (xii) neither the Company nor any of its
Subsidiaries has an election in effect under Section 341(f) of the Code.
(i) Certain Agreements. Section 3.1(i) of the Company Disclosure Schedule
sets forth a listing of all of the following material contracts and other
agreements, oral or written (which are currently in force or which may in the
future be operative in any respect) to which Company or any of its Subsidiaries
is a party or by or to which Company or any of its Subsidiaries or any of their
respective assets or properties are bound or subject: (i) consulting agreements
not terminable on six months or less notice involving the payment of more than
$25,000 per annum, or union, guild or collective bargaining agreements covering
any employees in the United States, (ii) agreements with any officer or other
key employee of Company or any of its Subsidiaries (x) providing any term of
employment or (y) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving Company
of the nature contemplated by this Agreement, (iii) any agreement or plan, any
of the benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement, (iv) contracts and other agreements for the sale or lease (other than
where Company or any of its Subsidiaries is a lessor) of any assets or
properties (other than in the ordinary course of business) or for the grant to
any person (other than to Company or any of its Subsidiaries) of any
preferential rights to purchase any assets or properties, (v) contracts and
other agreements relating to the acquisition by Company or any of its
Subsidiaries of any operating business or entity or any interest therein, (vi)
contracts or other agreements under which Company or any of its Subsidiaries
agrees to indemnify any party, other than in the ordinary course of business,
consistent with past practice, or to share a tax liability of any party, (vii)
contracts and other agreements containing covenants restricting Company or any
of its Subsidiaries from competing in any line of business or with any person in
any geographical area or requiring Company or any of its Subsidiaries to engage
in any line of business, (viii) contracts or other agreements (other than
contracts in the ordinary course of their banking business) relating to the
borrowing of money by Company or any of its Subsidiaries, or the direct or
indirect guaranty by Company or any of its Subsidiaries of any obligation for,
or an agreement by Company or any of its Subsidiaries to service, the repayment
of borrowed money, or any other contingent obligations of Company or any of its
Subsidiaries in respect of indebtedness of any other person, and (ix) any other
material contract or other agreement whether or not made in the ordinary course
of business. There have been delivered or made available to Commerce true and
complete copies of all of the contracts and other agreements set forth in
Section 3.1(i) of the Company Disclosure Schedule and in any other Section of
the Company Disclosure Schedule. Except as set forth in Section 3.1(i) of the
Company Disclosure Schedule, each such contract and other agreement is in full
force and effect and constitutes a legal, valid and binding obligation of
Company or its Subsidiaries, as the case may be, and to the best knowledge of
Company, each other party thereto, enforceable in accordance with its terms
subject, as to enforceability, to bankruptcy, insolvency, and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles. Neither Company nor any Subsidiary of Company has received
any notice, whether written or oral, of termination or intention to terminate
from any other party to such contract or agreement. None of Company or any of
its Subsidiaries or (to the best knowledge of Company) any other party to any
such contract or agreement is in violation or breach of or default under any
such contract or agreement (or with or without notice or lapse of time or both,
would be in violation or breach of or default under any such contract or
agreement), which violation, breach or default has had or would have,
individually or in the aggregate, a material adverse effect on Company.
(j) Benefit Plans. Section 3.1(j) of the Company Disclosure Schedule lists
all the employee benefit plans (as defined in Sections (3)(3) or 3(37) of the
Employment Retirement Income Security Act of 1974 ("ERISA"), health, welfare,
supplemental unemployment benefit, bonus, pension, profit sharing, 401(k),
deferred compensation, stock compensation, stock purchase, retirement, medical,
dental, post-termination benefits (including, but not limited to, medical or
dental or life insurance), legal, disability and similar plans or arrangements
or practices relating to Employees or former Employees which Company or its
Subsidiaries has established or maintained, or to which Company or its
Subsidiaries have contributed or have had any obligation to contribute at any
time during the five-year period ending on the date hereof
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(the "Employee Plans"). Schedule 3.1(j) includes (i) a copy of each written
Employee Plan document (and, in the case of any unwritten Employee Plan, a
description thereof), (ii) the most recent summary plan description for each
Employee Plan if any such description was required, (iii) the most recent Form
5500s, (iv) the most recent audited financial reports, (v) any related trust
agreements and all amendments thereto, (vi) the most recent Internal Revenue
Service determination letter for each Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986 (the "Code"), and (vii) all
other required reports and supporting schedules filed with any governmental
agency in respect of the Employee Plans for the three most recent years. Except
as set out in Schedule 3.1(j),
(i) All of the Employee Plans are and have been established, registered,
qualified, invested and administered, in all material respects, in accordance
with all Laws applicable to the Employee Plans, including without limitation,
ERISA, and each Employee Plan which is intended to be qualified under Section
401(a) of the Code satisfies the requirements for such qualification, except
that no representation is made with respect to any qualification requirement
relating to the form of the plan or trust document for which the remedial
amendment period under Section 401(b) of the Code has not yet expired.
(ii) All obligations regarding the Employee Plans have been satisfied and
there are no outstanding defaults or violation of any requirement by any party
to any Employee Plan and no Taxes, penalties or fees are owing under or with
respect to any of the Employee Plans. Company and its Subsidiaries (each with
respect to the Employee Plans), as well as the Employee 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 payment
of benefits in the ordinary course.
(iii) All contributions or premiums required to be made by the Company or
its Subsidiaries under the terms of each Employee Plan have been made in a
timely fashion in accordance with ERISA and the terms of the Employee Plans.
(iv) There have been no improper withdrawals, applications or transfers of
assets from any Employee Plan or the trusts or other funding media relating
thereto, and neither the Company nor any of its agents has been in breach of any
fiduciary obligation with respect to the administration of the Employee Plans or
the trusts or other funding media relating thereto.
(v) No Employee Plan nor any trust created thereunder nor any trustee or
administrator thereof has engaged in a prohibited transaction within the meaning
of Section 406 of ERISA or Section 4975 of the Code for which an exception is
not available.
(vi) No Employee Plan, nor any related trust or other funding medium
thereunder, is subject to any pending investigation, examination or other
proceeding, action or claim initiated by any governmental agency or
instrumentality, or by any other party (other than routine claims for benefits),
and there exists no state of facts which after notice or lapse of time or both
could reasonably be expected to give rise to any such investigation, examination
or other proceeding, action or claim.
(vii) All filings required by ERISA and the Code as to each Employee Plan
have been timely filed, and all notices and disclosures to Participants in the
Employee Plans required by ERISA or the Code have been timely provided.
(viii) Neither the Company nor any other Person that, together with the
Company, would be treated as a single employer under Section 414 of the Code,
has ever established, maintained or contributed to, or otherwise participated
in, any multiemployer plan as defined in Section 3(37)(A) of Title I of ERISA
and/or any pension plan as described in Section 3(2) of Title I of ERISA.
(ix) None of the Employee Plans provides medical or other benefits not
determinable in advance to Employees who have terminated employment with the
Company or to the beneficiaries or dependents of such Employees, other than
benefits required to be furnished under Part 6 of Title I of ERISA and/or
Section 4999 of the Code.
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(x) No changes to any Employee Plan have been promised and no amendments or
changes to an Employee Plan will be made or promised before the Effective Time,
except as otherwise permitted by this Agreement.
(xi) To Company's knowledge as sponsor of the Employee Plans, the Employee
Plans and each fiduciary (as defined in Section 3(21) of ERISA) of the Employee
Plans are in compliance in all material respects with all applicable
requirements (including nondiscrimination requirements in effect as of the date
hereof) of the Code, including, but not limited to, Sections 79, 105, 106, 125,
401, 501, and 4975 of the Code. For purposes of this Section 3.1(j),
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 Employee
Plans or of Company or its Subsidiaries, either as of the Effective Time or upon
discovery of the noncompliance.
(xii) All assets of any retirement plan readily liquidated within five (5)
business days without incurring any penalty or cost, other than ordinary
commission expenses.
(k) Subsidiaries. Section 3.1(k) of the Company Disclosure Schedule lists
all the Subsidiaries of Company. Except as listed on Section 3.1(k) of the
Company Disclosure Schedule, Company owns, directly or indirectly, beneficially
and of record 100% of the issued and outstanding voting securities of each such
Subsidiary. All of the shares of capital stock of each of the Subsidiaries held
by Company or by another of its Subsidiaries are fully paid and nonassessable
and are owned by Company or one of its Subsidiaries free and clear of any lien,
claim or other encumbrance. Neither Company nor any of its Subsidiaries owns any
shares of capital stock or other equity securities of any person (other than, in
the case of Company, the capital stock of its Subsidiaries and, in the case of
such Subsidiaries, shares or equity securities acquired in satisfaction of debts
previously contracted in good faith in the ordinary course of their banking
business).
(l) Agreements with Bank or Other Regulators. Except as set forth in
Section 3.1(l) of the Company Disclosure Schedule, neither Company nor any
Subsidiary of Company is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board resolutions at
the request of, any Bank Regulator which restricts materially the conduct by
Company or its Subsidiaries of their businesses, or in any manner relates to
their capital adequacy, credit policies, community reinvestment, loan
underwriting or documentation or management, nor has Company or any such
Subsidiary been advised by any Bank Regulator that it is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar submission, or any such board
resolutions.
(m) Absence of Certain Changes or Events. Except as set forth in Section
3.1(m) of the Company Disclosure Schedule, since December 31, 1999 (i) there has
not been any change, or any event involving a prospective change, in the
business, financial condition or results of operations or prospects of Company
or any of its Subsidiaries or in the relationship of Company or its Subsidiaries
with respect to their employees, creditors, suppliers, distributors, customers
or others with whom they have business relationships, which has had, or would be
reasonably likely to have, a material adverse effect on Company, (ii) Company
and each of its Subsidiaries have conducted their respective businesses in the
ordinary course consistent with their past practices and neither Company nor any
of its Subsidiaries has taken any action or entered into any transaction, and,
to the knowledge of Company, no event has occurred, that would have required
Commerce or Sub's consent pursuant to Section 4.1 of this Agreement if such
action had been taken, transaction entered into or event had occurred, in each
case, after the date of this Agreement, nor has Company or any of its
Subsidiaries entered into any agreement, plan or arrangement to do any of the
foregoing, (iii) 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 by Section 4.1 of this Agreement
occurred or been taken, and (iv) Company and its Subsidiaries have not entered
into any employment contract with any director, officer or salaried employee,
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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 increases 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.
(n) Undisclosed Liabilities. Except as set forth in Section 3.1(n) of the
Company Disclosure Schedule, and except (i) for those liabilities or obligations
that are fully reflected or reserved against in the condensed consolidated
statement of financial condition at December 31, 1999 of Company referred to in
Section 3.1(d) or (ii) for liabilities or obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1999 and
which are not material to Company and its Subsidiaries taken as a whole, neither
Company nor any of its Subsidiaries has incurred any debt, liability or
obligation of any nature whatsoever (whether absolute, accrued or contingent or
otherwise and whether due or to become due). No agreement pursuant to which any
loans or other assets have been or will be sold by Company or any Subsidiary
entitle the buyer of such loans or other assets, unless there is material breach
of a representation or covenant by Company or its Subsidiaries not relating to
the payment or other performance by an obligor of such loan or other asset of
its obligations thereunder, to cause Company or its Subsidiaries to repurchase
such loan or other asset or the buyer to pursue any other form of recourse
against Company or its Subsidiaries.
(o) Governmental Reports. Company and each of its Subsidiaries have timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto with any Governmental Entity
and have paid all fees and assessments due and payable in connection therewith.
Except as set forth in Section 3.1(o) of the Company Disclosure Schedule and
except for normal examinations conducted by a Governmental Entity in the regular
course of business of Company and its Subsidiaries, to the knowledge of Company
no Governmental Entity has initiated any proceeding or investigation into the
business or operations of Company or any of its Subsidiaries. Except as set
forth in Section 3.1(o) of the Company Disclosure Schedule, to the knowledge of
Company there is no material unresolved violation, criticism or exception by any
Governmental Entity with respect to any report or statement relating to any
examinations of Company or any of its Subsidiaries.
(p) Environmental Liability. Except as set forth in Section 3.1(p) of the
Company Disclosure Schedule, to the knowledge of Company, there are no pending
or threatened claims, actions or proceedings against Company or Centennial
relating to:
(A) any asserted liability of Company or any of its Affiliates
regarding any Real Property (as defined herein) under any Environmental Law
(as defined herein), including without limitation, the terms and conditions
of any permit, license, authority, settlement or other obligation arising
under any Environmental Law;
(B) any handling, storage, use or disposal of Hazardous Substances (as
defined herein) on, under or within any Real Property or any transportation
or removal of Hazardous Substances to or from any Real Property;
(C) any actual or threatened discharge, release or emission of
Hazardous Substances from, on, under or within any Real Property into the
air, water, surface water, groundwater, land surface or subsurface strata;
or
(D) any actual or asserted claims for personal injuries, illness or
damage to real or personal property related to or arising out of exposure
to Hazardous Substances discharged, released or emitted from, on, under,
within or into, or transported from or to, any Real Property.
Except as set forth in Section 3.1(p) of the Company Disclosure Schedule,
to the knowledge of Company, no Hazardous Substances are present on, under or
within any Real Property (except those Hazardous Substances used in the normal
course of operating or maintaining the business of Company or any Subsidiary of
Company). Except as set forth in Section 3.1(p) of the Company Disclosure
Schedule,
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to the knowledge of Company, there are no storage tanks underground or otherwise
present on any Real Property.
(i) To the knowledge of Company, except as set forth in Section 3.1(p) of
the Company Disclosure Schedule, Company and its Affiliates are in material
compliance, in all material respects, with all Environmental Laws related to the
ownership, operation, use and occupation of the Real Property.
(ii) To the knowledge of Company, except as set forth in Section 3.1(p) of
the Company Disclosure Schedule, no part of any Real Property is listed on
CERCLIS or the National Priorities List created pursuant to the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, as a
site containing Hazardous Substances.
(iii) Commerce may obtain at its option and expense on or prior to 90 days
following the date hereof an environmental audit ("Environmental Audit") of all
the properties and assets of Company and its Subsidiaries classified as other
real estate owned or real property owned or leased by Company or its
Subsidiaries 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
Commerce 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, on or prior to
60 days following completion of the Phase I process, 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 any of its Subsidiaries'
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 or its Subsidiaries or any predecessor in title
to any of the Properties or any employees, agents, affiliates, contractors or
subcontractors of Company, its Subsidiaries 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 would have a material adverse effect and which
liability exists against Company or any of its Subsidiaries or affects in any
way the Properties or Company's or any of its Subsidiaries' 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 a material adverse effect of 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 VII hereof, thereby relieving Company, Commerce and Sub of all their
obligations hereunder, including the obligation to cause or engage in the
Merger.
(iv) For purposes of this Section 3.1(p) only, the following terms shall
have the indicated meaning:
"Business" means the business conducted at any Real Property (as
defined below).
"Environmental Law" means any and all applicable federal, state and
local laws (whether under common law, statute, rule, regulation or
otherwise), requirements under permits issued with respect thereto, and
other orders, decrees, judgments, directives or other requirements of any
governmental authority relating to the environment, or to any Hazardous
Substances.
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"Hazardous Substances" means any chemical, compound, material,
mixture, living organism or substance that is now defined or listed in, or
otherwise classified or regulated in any way pursuant to, any Environmental
Laws as a "hazardous waste," "hazardous substance," "hazardous material,"
"extremely hazardous waste," "infectious waste," "toxic substance," or
"toxic pollutants," such materials, including without limitation, oil,
waste oil, petroleum, waste petroleum, polychlorinated biphenyls ("PCBs"),
asbestos, radon, natural gas, natural gas liquids, liquefied natural gas,
or synthetic gas usable for fuel (or mixtures of natural gas and such
synthetic gas).
"Real Property" means all interests in real property of Company or its
Subsidiaries, including without limitation, interests in fee, leasehold,
interest as mortgagee or secured party, or option or contract to purchase
or acquire.
"Reportable Quantity" means the quantity set forth in 40 C.F.R. Part
302 as it is in effect on the effective date of this Agreement for the
particular Hazardous Substances set forth therein. With respect to
Hazardous Substances not listed in that part, if any, "reportable quantity"
means that quantity which, if released, would be required to be reported to
a Governmental Entity pursuant to applicable Environmental Law. "Reportable
Quantity" shall be determined based on a single release or series of
related releases or threatened releases.
(q) Properties. Except as set forth in Section 3.1(q) of the Company
Disclosure Schedule, Company or its Subsidiaries (i) has good and marketable
title to all Real Property owned in fee, and good title to all other properties
and assets reflected in the Company Consolidated Financial Statements as being
owned by Company or its Subsidiaries or acquired after the date thereof which
are material to the business of Company on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the ordinary
course of business), free and clear of all claims, liens, charges, security
interests or encumbrances of any nature whatsoever except (A) statutory liens
securing payments not yet delinquent, (B) liens on assets of Centennial securing
deposits incurred in the ordinary course of its banking business and (C) such
imperfections or irregularities of title, claims, liens, charges, security
interests or encumbrances as do not materially affect the use of the properties
or assets subject thereto or affected thereby or otherwise materially impair
business operations at such properties and (ii) is the lessee of all leasehold
estates reflected in the Company Consolidated Financial Statements or acquired
after the date thereof which are material to its business on a consolidated
basis (except for leases that have expired by their terms since the date
thereof) and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without material default thereunder by
the lessee or, to the knowledge of Company, the lessor. Except as set forth in
Section 3.1(q) of the Company Disclosure Schedule, all real properties owned by
Company or its Subsidiaries are owned in accordance in all material respects
with all requirements of applicable rules, regulations and policies of the Bank
Regulators.
(r) Brokers or Finders. Except Stifel, Nicolaus & Company, Incorporated,
no agent, broker, investment banker, financial advisor or other firm or person
is or will be entitled to any broker's or finder's fee or any other similar
commission or fee in connection with any of the transactions contemplated by the
Agreement.
(s) Intellectual Property. Except as set forth in Section 3.1(s) of the
Company Disclosure Schedule, Company and its Subsidiaries own or have a valid
license to use all trademarks, service marks and trade names (including any
registrations or applications for registration of any of the foregoing)
(collectively, the "Company Intellectual Property") necessary to carry on their
business substantially as currently conducted, except for such Company
Intellectual Property the failure of which to own or validly license,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on Company. Neither Company nor any such Subsidiary has
received any notice of infringement of or conflict with, and, to the best
knowledge of Company, there are no infringements of or conflicts with, the
rights of others with respect to the use of any Company Intellectual Property
that, individually or in the aggregate, in either such case, would reasonably be
expected to have a material adverse effect on Company.
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(t) Opinion of Financial Advisor. Company has received the written opinion
of Stifel, Nicolaus & Company, Incorporated dated the date hereof, to the effect
that, as of such date, subject to the limitations and conditions contained
therein, the consideration to be received by the holders of Company Common Stock
pursuant to the Merger is fair to such holders from a financial point of view.
(u) Insurance. Company has previously delivered to Commerce a list
identifying all insurance policies maintained on behalf of Company and its
Subsidiaries (other than mortgage, title and other similar policies for the
benefit of Company or its Subsidiaries as mortgagees under residential mortgage
loans). All of the material insurance policies and bonds maintained by or for
the benefit of Company and its Subsidiaries are in full force and effect, to the
knowledge of Company, Company and its Subsidiaries are not in default
thereunder, and all material claims thereunder have been filed in due and timely
fashion, and neither Company nor any of its Subsidiaries has received notice
that any of such material claims have been or will be denied. The insurance
policies and bonds maintained by Company and its Subsidiaries are written by
reputable insurers and are in such amounts, cover such risks and have such other
terms as is customary for banks and bank holding companies comparable in size
and operations to Company and its Subsidiaries. Since December 31, 1999, there
has not been any damage to, destruction of, or loss of any assets of Company and
its Subsidiaries (whether or not covered by insurance) that could have a
material adverse effect on Company. Neither Company nor any of its Subsidiaries
has received any notice of a premium increase or cancellation with respect to
any of its insurance policies or bonds, and within the last three years, neither
Company nor any of its Subsidiaries has been refused any insurance coverage
sought or applied for, and Company has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect, other than
possible increases in premiums or unavailability in coverage that have not
resulted from an extraordinary loss experience of Company or any Company
Subsidiary.
(v) Loans and Other Assets.
(i) Company has disclosed to Commerce prior to the date hereof the amounts
of all loans, leases, other extensions of credit, commitments or other
interest-bearing assets presently owned by Company or any of its Subsidiaries
that have been classified by any Bank Regulator, Company's independent auditors,
or the management of Company or any Subsidiary of Company as "Other Loans
Especially Mentioned," "Substandard," "Doubtful," or "Loss," or classified using
categories with similar import, and will have disclosed promptly to Commerce and
Sub prior to the Closing Date all such items which will be so classified
hereafter and prior to the Closing Date. All such assets or portions thereof
classified "Loss," or which are subsequently so classified, have been (or will
be) charged off on a timely basis in full, collected or otherwise placed in a
bankable condition. Company regularly reviews and appropriately classifies its
and its Subsidiaries' loans and other assets in accordance in all material
respects with all applicable legal and regulatory requirements and GAAP. Company
has disclosed to Commerce and Sub the amounts and identities of all other real
estate owned ("OREO") that has been classified as such as of the date hereof by
Company's independent auditors, management of Company or any Bank Regulator and
will have promptly disclosed to Commerce and Sub prior to the Closing Date all
such assets which will be so classified hereafter and prior to the Closing Date.
As of the date hereof and the Closing Date, the recorded values of all OREO on
the books of Company and its Subsidiaries accurately reflect and will reflect
the net realizable values of each OREO parcel thereof in compliance with GAAP.
Company and its Subsidiaries have recorded on a timely basis all expenses
associated with or incidental to its OREO, including but not limited to taxes,
maintenance and repairs as required by GAAP.
(ii) All loans, leases, other extensions of credit, commitments or other
interest-bearing assets and investments of Company and its Subsidiaries are
legal, valid and binding obligations enforceable in accordance with their
respective terms and are not subject to any setoffs, counterclaims or disputes
known to Company (subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
equitable principles of general applicability), except as reserved for in the
consolidated statement of financial condition of Company as of December 31, 1999
referred to in Section 3.1(d) in accordance with GAAP, and were duly authorized
under and made in compliance with applicable federal and state laws and
regulations. Company and its Subsidiaries do not
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have any extensions or letters of credit, investments, guarantees,
indemnification agreements or commitments for the same (including without
limitation commitments to issue letters of credit, to create acceptances, or to
repurchase securities, federal funds or other assets) other than those
documented on the books and records of Company and its Subsidiaries.
(w) Labor Matters. Neither Company nor any of its Subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
or any of its Subsidiaries the subject of a proceeding asserting that it or any
such Subsidiary has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it or such Subsidiary to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to the best of its knowledge, threatened, nor is it
aware of any activity involving it or any of its Subsidiaries' employees seeking
to certify a collective bargaining unit or engaging in any other organization
activity.
(x) Internal Controls and Records. Company and its Subsidiaries 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, each
of its Subsidiaries' written internal policies and procedures which are
identified on Section 3.1(x) of the Company Disclosure Schedule.
3.2 Representations and Warranties of Commerce. Commerce and Sub, jointly
and severally, represent and warrant to Company as follows:
(a) Organization and Authority.
(i) 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 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.
(ii) 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.
(b) 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.
(c) Capital Stock of Commerce. As of September 30, 2000, the authorized
capital stock of Commerce consisted of (a) 80,000,000 shares of common stock,
$5.00 par value, of which 60,174,035 shares were issued and outstanding, and (b)
2,000,000 shares of preferred stock, $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.
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(d) Financial Statements. The consolidated balance sheets of Commerce as
of December 31, 1999 and December 31, 1998, the consolidated statements of
earnings for the years ended December 31, 1999 and December 31, 1998, and all
related schedules and notes to the foregoing, all of which have been delivered
to Company, have been audited 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, 1999, or incurred since December 31, 1999,
in the ordinary course of business. From December 31, 1999 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.
(e) SEC Reports. Commerce's Report on Form 10-K for year ended December
31, 1999, filed with the 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, 1999; the Annual Report to Shareholders for such year; and a
copy of the Proxy Statement for the 2000 Annual Meeting of Shareholders of
Commerce; and copies of Commerce's report on Form 10-Q for the quarter ended
June 30, 2000.
(f) Status of Commerce Common Stock to be Issued. The shares of Commerce
Common Stock into which the Company 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 non-assessable, and
registered pursuant to an effective registration statement under the Securities
Act.
(g) 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.
(h) 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.
(i) 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
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and adversely affect the business, operations, properties or financial condition
of Commerce and its subsidiaries.
(j) 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.
(k) 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 5.1(a)) 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, or (b) the Proxy
Statement (as defined in Section 5.1(a) 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.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of Company. During the period from the date of this
Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that Commerce or
Sub shall otherwise consent in writing, which consent shall not be unreasonably
withheld) Company agrees that it will and will cause each of its Subsidiaries to
carry on the business of Company and each of its Subsidiaries in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all reasonable efforts to preserve intact the present business
organizations of Company and each of its Subsidiaries, maintain the rights and
franchises of, and preserve the relationships with customers, suppliers and
others having business dealings with, Company and each of its Subsidiaries to
the end that their goodwill and ongoing businesses shall not be impaired in any
material respect at the Effective Time. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time, Company shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of Commerce and Sub in writing:
(a) (i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock, except for cash dividends in an amount per
share not greater than, and consistent with the manner and frequency of,
dividends paid by Company in the past 12 months and dividends by a wholly owned
Subsidiary of Company to Company, (ii) set any record or payment dates for the
payment of any dividends or distribution on its capital stock except in the
ordinary course of business consistent with past practice, (iii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its capital stock or (iv) repurchase, redeem or otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire, any shares
of its capital stock or the capital stock of any other Subsidiary of Company or
any securities convertible into or exercisable for any shares of such capital
stock;
(b) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock of any class, any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing, other than issuances of Company Common Stock pursuant to the exercise
of Company Options;
(c) except as required to perform its obligations under this Agreement,
amend or propose to amend its Articles of Incorporation or its By-laws or other
organizational documents or that of any Subsidiary;
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(d) (i) enter into any new material line of business, (ii) change its
lending, investment, liability management and other material banking policies in
any respect which is material to Company, except as required by law or by
policies imposed by a Bank Regulator, or (iii) except as set forth in Section
4.1(d) of the Company Disclosure Schedule, incur or commit to any capital
expenditures or any obligations or liabilities in connection therewith other
than capital expenditures and obligations or liabilities incurred or committed
to in the ordinary course of business consistent with past practice but in no
event for more than $25,000 as to any one such item or $50,000 as to all such
items in the aggregate;
(e) 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 means, any business or any corporation, partnership,
association or other business organization or division thereof; provided,
however, that the foregoing shall not prohibit foreclosures and other
debt-previously-contracted acquisitions in the ordinary course of business
consistent with past practice;
(f) sell, lease, encumber or otherwise dispose of, or agree to sell, lease,
encumber or otherwise dispose of, any of its assets (including capital stock of
Subsidiaries of Company), which are material, individually or in the aggregate,
to Company, other than in the ordinary course of business consistent with past
practice;
(g) incur any long-term indebtedness for borrowed money or guarantee any
such long-term indebtedness or issue or sell any long-term debt securities or
warrants or rights to acquire any long-term debt securities of Company or any of
its Subsidiaries or guarantee any long-term debt securities of others other than
(i) indebtedness of any Subsidiary of Company to Company or to another
Subsidiary of Company, (ii) deposits taken in the ordinary course of business
consistent with past practice, or (iii) renewals or extensions of existing
long-term indebtedness without any change in the material terms thereof;
(h) intentionally take or fail to take any action that would, or reasonably
might be expected to, result in any of the representations and warranties set
forth in this Agreement being or becoming untrue in any material respect, or in
any of the conditions to the Closing set forth in ARTICLE VI (including without
limitation the conditions set forth in Section 6.3(d)) not being satisfied, or
(unless such action is required by applicable law or sound banking practice)
which would adversely affect the ability of Commerce, Sub or Company to obtain
any of the Requisite Regulatory Approvals;
(i) change the methods of accounting of Company or any of its Subsidiaries,
except as required by changes in GAAP as concurred in by such party's
independent auditors;
(j) (i) enter into, adopt, amend (except for technical amendments and such
amendments as may be required by law) or terminate any Company Benefit Plan or
any other Benefit Plan or any agreement, arrangement, plan or policy between
Company or any of its Subsidiaries and one or more of its directors or officers,
increase in any manner the compensation or fringe benefits of any director,
officer or employee of Company or any of its Subsidiaries without obtaining the
prior written consent of Commerce and Sub (which consent shall not be
unreasonably withheld)) or pay or grant any benefit not required by any plan and
arrangement as in effect as of the date hereof (including, without limitation,
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares or any similar awards) or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing, (ii) enter into or renew any contract, agreement, commitment or
arrangement providing for the payment to any director, officer or employee of
Company or any of its Subsidiaries of compensation or benefits contingent, or
the terms of which are materially altered, upon the occurrence of any of the
transactions contemplated by this Agreement, or (iii) with respect to any
Company Benefit Plan which is a defined benefit or defined contribution pension
plan, permit or cause (A) a consolidation or merger of any such Company Benefit
Plan, (B) a spin-off involving any such Company Benefit Plan, (C) a transfer of
assets and/or liabilities from or to any such Company Benefit Plan, or (D) any
similar transaction involving any such Company Benefit Plan;
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(k) enter into any contract that would be required to be disclosed on
Section 3.1(i) of the Company Disclosure Schedule or renew or terminate any
contract listed in Section 3.1(i) of the Company Disclosure Schedule through any
volitional conduct, other than renewals of contracts or leases for a term of one
year or less without material adverse changes to the terms thereof;
(l) issue or agree to issue any letters of credit or otherwise guarantee
the obligations of any other persons except in the ordinary course of business
consistent with past practice;
(m) engage or participate in any material transaction or incur or sustain
any material obligation not in the ordinary course of business consistent with
past practice;
(n) settle any claim, action or proceeding involving money damages
involving a payment in excess of $100,000 as to any such matter, or settle any
other matter not involving money damages which is material to Company;
(o) except as required by GAAP or applicable law or regulation, change or
make any tax elections, change any method of accounting with respect to taxes,
file any amended tax return, or settle or compromise any federal, state, local
or foreign material tax liability;
(p) except as set forth in Section 4.1(p) of the Company Disclosure
Schedule, relocate or close any branch or loan production office;
(q) except as described in Section 4.1(q) of the Company Disclosure
Schedule, enter into any securitization or similar transactions with respect to
any loans, leases or other assets of Company or any of its Subsidiaries;
(r) take any action which would materially adversely affect the ability of
any party to obtain any consents required for the transactions contemplated
hereby or to perform its covenants and agreements under this Agreement;
(s) take any action which would prevent the Merger from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Code;
(t) 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
Centennial's rating system or in an amount greater than $250,000 other than
renewals of existing loans or commitments to loan;
(u) 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 (3) years from the date
of purchase;
(v) 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,
(w) 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;
(x) 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 Company or its
Subsidiaries, other than renewals of existing loans or commitments to loan,
without giving Commerce five days' notice in advance of Company's or its
Subsidiary's approval of such loan or extension of credit or commitment relating
thereto;
(y) make any adjustments to Centennial's loan loss reserve account except
for increases to such account and appropriate charge-offs and recoveries
following its normal historical practices; or
(z) agree to, or make any commitment to, take any of the actions prohibited
by this Section 4.1.
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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 its Subsidiaries. Company shall furnish to Commerce and
its authorized representatives all information with respect to the affairs of
Company and its Subsidiaries as Commerce may reasonably request. During such
period, Company shall (and shall cause each of its Subsidiaries to) make
available to Commerce and Sub and their representatives and advisors a copy of
each report, schedule, registration statement and other document filed or
received by Company during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which such party is not permitted to disclose under applicable law or
reports or documents which are subject to an attorney-client privilege or which
constitute attorney work product). Commerce and Sub will hold any such
information with respect to Company and its Subsidiaries which is nonpublic in
confidence to the extent required by, and in accordance with, the provisions of
the letters dated July 15, 2000 and August 31, 2000 between Company and Commerce
(the "Confidentiality Agreement"). No investigation by Commerce or Sub shall
affect the representations and warranties of Company. In addition, Commerce
shall be permitted to conduct a verification of trust assets.
Company and its Subsidiaries shall, unless the Board of Directors of
Company determines, in good faith, that the exercise of its fiduciary duties to
Company's shareholders under applicable law, as advised by outside counsel,
prohibits the taking of such action (i) allow a representative of Commerce to
attend as an observer all meetings of the Boards of Directors of Company and
Subsidiaries and all meetings of the committees of each such board, including,
without limitation, the audit and executive committees thereof and any other
meeting of Company and its Subsidiaries officials at which policy is being made;
(ii) Company and its Subsidiaries shall give reasonable notice to Commerce of
any such meeting and, if known, the agenda for business to be discussed at such
meeting; and (iii) Company and its Subsidiaries 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 the Company or its Subsidiaries.
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.
Neither Company, nor its Subsidiaries nor any affiliates or associates of
Company or its Subsidiaries acting for or on behalf or Company or its
Subsidiaries 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 Company
or its Subsidiaries, (ii) outside the ordinary course of business, sale of a
significant amount of assets of Company or its Subsidiaries, (iii) purchase or
sale of shares of capital stock of Company or its Subsidiaries or (iv) any
similar transactions involving Company or its Subsidiaries, other than the
transactions contemplated by this Agreement; provided, however, that Company may
provide information at the request of a third party if the Board of Directors of
Company determines, in good faith, that the exercise of its fiduciary duties to
Company's shareholders under applicable law, as advised by outside counsel,
requires it to take such action. Company shall immediately cease and cause to be
terminated any and all such contacts and negotiations with respect to any such
transaction upon the execution of this Agreement.
4.2 Covenants of Commerce and Sub.
(a) 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
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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.
(b) Information. Commerce and Sub shall provide such information and
answer such inquiries as Company may reasonably request or make concerning the
subject matter of the representations and warranties of Commerce and Sub herein.
(c) 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 as a tax-free "reorganization"
within the meaning of Section 368(a) of the Code.
(d) Employee Benefits. Employees of Company and its Subsidiaries 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 Company and its Subsidiaries shall be counted as service with Commerce.
Continuous coverage under Company or Subsidiary health plan through the
Effective Time shall count as coverage under the Commerce health plan.
(e) Pooling of Interests. Neither Commerce nor Sub shall take any
affirmative or intentional action from the date hereof until the Effective Date
that would prevent the Merger from qualifying for pooling-of-interests
accounting treatment.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Regulatory Matters.
(a) 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 (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 for 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. If necessary, in light of developments
occurring subsequent to the distribution of the Proxy Statement to Company or
stockholders, Company shall mail or otherwise furnish to its shareholders such
amendments or supplements to the Proxy Statement materials as may, in the
reasonable opinion of Commerce, Sub, or Company, be necessary so that the Proxy
Statement 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 two
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.
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(b) 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 or to obtain an exemption
from such qualification or registration.
(c) 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 5.1(c); provided, however, that
following publication of financial results covering at least thirty (30) days of
combined operations of Commerce and 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.
(d) Publication of Combined Financial Results. Commerce will file with the
Securities and Exchange Commission a Current 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.
(e) 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,
Registration Statement, Proxy Statement, 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.
(f) Governmental Entity Communications. Commerce, Sub and Company shall
promptly advise each other upon receiving any communication from any
Governmental Entity whose consent or approval is required for consummation of
the transactions contemplated by this Agreement which causes such party to
believe that there is a reasonable likelihood that any Requisite Regulatory
Approval (as defined in Section 6.1(b)) will not be obtained or that the receipt
of any such approval will be materially delayed.
5.2 Shareholders' Meetings.
(a) Company shall call a meeting of its shareholders for the purpose of
voting upon the adoption of this Agreement. Company will, through its Board of
Directors, recommend to its shareholders adoption of this Agreement unless the
Board of Directors of Company determines in good faith, based upon the written
advice of outside counsel, that making such recommendation, or failing to
withdraw, modify or amend any previously made recommendation, would constitute a
breach of fiduciary duty by Company's Board of Directors under applicable law.
In addition, nothing in this Section 5.2 or elsewhere in this Agreement shall
prohibit accurate disclosure by Company of information that is required to be
disclosed in the Proxy Statement, or otherwise required to be disclosed by
applicable law or regulation or the rules of any securities exchange or
automated quotation system on which the securities of Company may then be
traded.
(b) Company shall use all commercially reasonable efforts to cause such
meeting of its shareholders to take place as soon as is reasonably practicable
after the Registration Statement is declared effective by the SEC.
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(c) Except as set forth herein, neither the Board of Directors of Company
nor any committee thereof shall withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Commerce or Sub, the approval or recommendation
by the Board of Directors of Company or any such committee of this Agreement or
the Merger. Notwithstanding the foregoing, the Board of Directors of Company, to
the extent required by its fiduciary obligations, as determined in good faith by
the Board of Directors of Company based on advice of independent counsel, may
(subject to the following sentences), withdraw or modify its approval or
recommendation of this Agreement or the Merger, approve or recommend any
Superior Proposal (as defined herein), enter into an Agreement with respect to
such Superior Proposal or terminate this Agreement, in each case at any time
after the receipt by Commerce or Sub of a written notice advising Commerce or
Sub that the Board of Directors of Company has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal. Company
shall, unless the Board of Directors of Company determines, in good faith, that
the exercise of its fiduciary duties to Company shareholders under applicable
law, as advised by outside counsel, prohibits the taking of such action,
promptly advise Commerce in orally and in writing of any request for information
or of any Takeover Proposal, or any inquiry with respect to or which could lead
to any Takeover Proposal, the material terms and conditions of such request,
Takeover Proposal or inquiry and the identity of the Person making any such
request, Takeover Proposal or inquiry. Company shall, unless the Board of
Directors of Company determines, in good faith, that the exercise of its
fiduciary duties to Company shareholders under applicable law, as advised by
outside counsel, prohibits the taking of such action, keep Commerce fully
informed of the status and details (including amendments or proposed amendments)
of any such request, Takeover Proposal or inquiry. For purposes hereof,
"Superior Proposal" shall mean any bona fide written Takeover Proposal by a
third party on terms determined in good faith by the Board of Directors of
Company to be reasonably capable of being completed, taking into account all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal and, if consummated to be more favorable to the shareholders
of Company from a financial point of view than the Merger. For purposes hereof,
"Takeover Proposal" shall mean any inquiry, proposal or offer to acquire in any
manner 20% or more of any class of equity securities of, or a merger,
consolidation, business combination, sale, recapitalization, liquidation,
dissolution or other disposition or similar transaction involving 20% or more of
the assets of, Company or any Significant Subsidiary of Company, or any tender
offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of Company or
any Significant Subsidiary of Company (other than pursuant to the transactions
contemplated by this Agreement). A "Significant Subsidiary" means any Subsidiary
of a person that would constitute a Significant Subsidiary of such person within
the meaning of Rule 1-02 of Regulation S-X promulgated by the SEC.
5.3 Legal Conditions.
(a) Each of Company, Commerce and Sub shall, and shall cause its respective
Subsidiaries to, use all reasonable efforts (i) to take, or cause to be taken,
all actions necessary to comply promptly with all legal requirements which may
be imposed on such party or its Subsidiaries with respect to the transactions
contemplated by this Agreement and as promptly as practicable, (ii) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity and or any
other public or private third party which is required to be obtained or made by
such party or any of its Subsidiaries in connection with the Merger and the
other transactions contemplated by this Agreement. Each of Company, Commerce and
Sub will promptly cooperate with and furnish information to the other in
connection with any such burden suffered by, or requirement imposed upon, any of
them or any of their Subsidiaries in connection with the foregoing.
(b) Each of Company, Commerce and Sub agrees to use all reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary and proper or advisable to consummate, as soon as
practicable after the date of this Agreement, the transactions contemplated
hereby, including, without limitation, using all reasonable best efforts to (i)
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby, (ii) defend any Litigation seeking to enjoin, prevent or delay the
consummation of
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the transactions contemplated hereby or seeking material damages, (iii) provide
to counsel to the other party hereto representations and certifications as to
such matters as such counsel may reasonably request in order to render the
opinion referred to in Section 6.2(j).
5.4 Plan Termination. Centennial's 401(k) Plan shall be terminated by
Company pursuant to the appropriate corporate action undertaken prior to the
Effective Date, which termination shall be contingent upon receipt of a
determination from the Internal Revenue Service that such termination does not
adversely affect the qualified status of the Plan. If a favorable Internal
Revenue Service determination letter is received, then the 401(k) Plan accounts
shall be distributed pursuant to the Plan.
5.5 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
5.6 Fees and Expenses. Unless otherwise agreed by the parties in writing
or as otherwise provided herein, each party hereto shall bear and pay all costs
and expenses incurred by it incident to preparing, entering into and carrying
out this Agreement and to consummating the Merger, including fees and expenses
of its own financial advisors, accountants and counsel, all printing, filing,
mailing and other incidental fees. Commerce will bear and pay all costs and
expenses related thereto associated with the Registration Statement and the
Proxy Statement (collectively, the "SEC Fees").
5.7 Cooperation. During the period from the date of this Agreement to the
Effective Time, each of Company, Commerce and Sub shall, (i) confer on a regular
and frequent basis with the other, report on operational matters, policies and
banking practices and promptly advise the other orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen, could
have, a material adverse effect on Company or Commerce or Sub, as the case may
be, or which would cause or constitute a material breach of any of the
representations, warranties or covenants of such party contained herein, (ii)
cause each Subsidiary of Company and Commerce and Sub that is a bank to file all
call reports with the appropriate Bank Regulators and all other reports,
applications and other documents required to be filed with the applicable
Governmental Entities between the date hereof and the Effective Time and (iii)
coordinate with the other the declaration of any dividends in respect of
Commerce Common Stock and Company Common Stock and the record dates and payment
dates relating thereto, it being the intention of the parties hereto that
holders of Commerce Common Stock or Company Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter with
respect to their shares of Commerce Common Stock and/or Company Common Stock and
any shares of Commerce Common Stock any such holder receives in exchange
therefor in the Merger.
5.8 Advice of Changes. Commerce, Sub and Company shall promptly advise
the other party of any change or event which, individually or in the aggregate
with other such changes or events, has a material adverse effect on it or which
it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein.
5.9 Dissenters' Rights. Company shall include in the notice of
shareholder's meeting required by Section 5.2 hereof a description of appraisal
rights as contained in Section 351.455 of the Revised Statutes and, if required,
Section 351.455 of the Revised Statutes.
5.10 Retention of Centennial Directors. It is the intention of the
parties hereto that immediately following the Closing Date the current statutory
and advisory directors of Centennial shall be invited to serve on Commerce's St.
Louis Region advisory board.
5.11 Indemnification; Directors' and Officers' Insurance.
(a) The Surviving Corporation shall indemnify, defend, and hold harmless
the present directors, officers, employees, and agents of Company and its
Subsidiaries (each, an "Indemnified Party") after the Effective Time against all
damages in connection with any action arising out of actions or omissions
occurring at or prior to the Effective Time (including the transactions
contemplated by this Agreement) to the full extent permitted under Missouri Law.
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(b) With respect to all persons who are currently covered by Company's
directors' and officers' liability insurance, or will become covered by such
insurance prior to the Effective Time, the Surviving Corporation shall maintain
in effect for a period of not less than three years following the Effective Time
directors' and officers' liability insurance in an amount not less than the
current coverage with respect to matters occurring prior to the Effective Time;
provided, that in no event shall the Surviving Corporation be required to expend
under this Section 5.11(b) more than an aggregate of 120% of the current annual
premium expended by Company to provide such coverage (the "Maximum Premium
Amount"). In the event the Surviving Corporation would be required to expend
more than the Maximum Premium Amount to provide such coverage, it shall maintain
under this Section 5.11(b) the greatest amount of such insurance which it can
obtain for the Maximum Premium Amount.
5.12 Grant of Option. Contemporaneously with the execution and delivery
of this Agreement, Company shall have granted an option to Commerce (or its
designee) to purchase that number of shares of Company Common Stock that would
equal 19.9% of the total outstanding shares of Company Common Stock (including
the shares issuable pursuant to the option) for an exercise price per share
equal to $24.07 (the "Stock Option Agreement"). Such option would be exercisable
in the event that the Merger is not consummated and prior to March 31, 2000,
Company or Centennial enters into any agreement regarding (a) the
recapitalization, merger, or consolidation of Company or Centennial, (b) the
sale of a significant amount of assets of Company or Centennial, (c) the
purchase or sale of shares of capital stock of Company or Centennial, or (d) any
similar transactions involving Company or Centennial, other than the
transactions contemplated by this Agreement.
5.13 Director Letters of Intent. Prior to the date the Proxy Statement is
first mailed to shareholders of Company, Company shall have caused each of its
directors to provide to Commerce letters indicating such director's intent to
vote all shares of Company Common Stock beneficially owned by him or her, in
favor of the Merger.
5.14 Certain Financial Statement Adjustments. Prior to Closing, Company
agrees to make such pre-closing adjustments to its stub financial statements as
shall be reasonably requested by Commerce (the "Requested Adjustments"). In the
event that this Agreement is terminated pursuant to Section 7.1 and Company is
not able to reverse such Requested Adjustments, Commerce agrees to reimburse
Company for any loss or expense incurred as a result of such Requested
Adjustments.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation. The respective obligations of
each party to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have been
obtained.
(b) Other Approvals. All authorizations, consents, orders or approvals of,
or declarations or filings with, and all expirations of waiting periods imposed
by, any Governmental Entity (all the foregoing, "Consents") which are necessary
pursuant to the Merger, other than immaterial Consents which, if not obtained,
would have no material adverse effect on the consummation of the transactions
contemplated by this Agreement or on either Commerce, Sub or the Surviving
Corporation, shall have been filed, have occurred or been obtained (all such
permits, approvals, filings and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals") and all such
Requisite Regulatory Approvals shall be in full force and effect.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the transactions contemplated by this Agreement
or the Transaction Agreements shall be in effect. There shall not be any action
taken, or any
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statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the transactions contemplated by this Agreement or the Transaction
Agreements, by any Federal, state or foreign Governmental Entity of competent
jurisdiction which makes the consummation of the transactions contemplated by
this Agreement or the Transaction Agreements illegal.
(d) Registration Statement. The Registration Statement shall become
effective under the Securities Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
6.2 Conditions to Obligations of Commerce and Sub. The obligation of
Commerce and Sub to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of the following conditions unless waived by
Commerce and Sub:
(a) Representations and Warranties. The representations and warranties of
Company set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Commerce and Sub shall
have received a certificate signed on behalf of Company by its President and
Chief Executive Officer to such effect.
(b) Performance of Obligations. Company shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Commerce and Sub shall have
received a certificate signed on behalf of Company by its any executive officer
to such effect.
(c) Corporate Action. Commerce and Sub shall have received a copy of the
resolution or resolutions duly adopted by the Board of Directors (or a duly
authorized committee thereof) of Company and of the holders of the Company
Common Stock authorizing the execution, delivery and performance by Company of
this Agreement and the other Transaction Agreements, certified by the Secretary
or an Assistant Secretary of Company.
(d) Material Adverse Effect. Except as disclosed to Commerce and Sub in
writing prior to the date hereof, no material adverse effect upon Company shall
have occurred since December 31, 1999 and Company shall not be a party to or so
far as Company is aware, threatened with, and to Company's knowledge there is no
reasonable basis for, any legal action or other proceeding before any court, any
arbitrator of any kind or any government agency, which in the reasonable
judgment of Commerce and Sub, could have a material adverse effect upon Company,
and Commerce and Sub shall have received a certificate signed on behalf of
Company by its President and Chief Executive Officer to such effect.
(e) Closing Documents. Commerce and Sub shall have received from Company
such certificates and other closing documents as counsel for Commerce shall
reasonably request.
(f) Financial Measures. On the Closing Date, Company's stockholders'
equity shall not be less than $14,345,000, and the Company's loan loss reserve
shall not be less than $2,160,000, all as determined on the basis of the
financial statements of Company as prepared in accordance with generally
accepted accounting principles consistently applied and applicable bank
regulatory instructions.
(g) 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 5.1(c) 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 Company shall have been published.
(h) 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 paragraph (j) below.
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(i) Dissenting Shareholders. Company Dissenting Shares shall not
constitute more than 8% 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
subsection unless it commits to provide the Surviving Corporation with funds
necessary to pay the aggregate appraisal amount for such Company Dissenting
Shares.
(j) Tax Opinion. Commerce shall have received the opinion of Blackwell
Sanders Peper Martin LLP, counsel to Commerce, dated the Closing Date, in form
and substance reasonably satisfactory to Commerce, to the effect that the Merger
should be treated for Federal income tax purposes as a reorganization within the
meaning of section 368(a) of the Code.
(k) Cancellation of Unexercised Options. Company will have taken all
necessary corporate action to cause the cancellation, effective as of the
Closing Date, of all outstanding options under the Company's stock option plans
which remain unexercised at the Closing Date.
(l) Opinion of Counsel. Commerce shall have received an opinion of
Armstrong Teasdale LLP dated the Closing Date in form and substance reasonably
satisfactory to Commerce covering the matters set out in Exhibit 6.2(l) hereto.
(m) Memorandum of Understanding. Company and Centennial shall have taken
all actions and made all reimbursements required to be taken or made in
connection with the proposed Memorandum of Understanding between the Board of
Directors of Centennial and the Regional Director of the Kansas City Region of
the FDIC, as referenced in Section 3.1(l) of the Company Disclosure Schedule,
and any other proposed or final Memorandum of Understanding or Agreement with,
or directive by, the FDIC with respect to the Compliance Report of Examination
prepared as of the close of business June 12, 2000, by Examiner Mark A. Haley of
the FDIC. Company or Centennial shall have received written documentation from
the FDIC that the obligations of Company and Centennial with respect to the
proposed Memorandum of Understanding or such other agreement or directive with
the FDIC have been fully performed and Company and Centennial have no further
obligations thereunder.
6.3 Conditions to Obligations of Company. The obligation of Company to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions unless waived by Company:
(a) Representations and Warranties. The representations and warranties of
Commerce and Sub set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, and Company shall
have received a certificate signed on behalf of Commerce and Sub by an executive
officer to such effect.
(b) Performance of Obligations. Commerce and Sub shall have performed in
all material respects all obligations required to be performed by them under
this Agreement at or prior to the Closing Date, and Company shall have received
a certificate signed on behalf of Commerce and Sub by an executive officer to
such effect.
(c) Corporate Action. Company shall have received a copy of the resolution
or resolutions duly adopted by the Board of Directors (or a duly authorized
committee thereof) of Commerce and Sub authorizing the execution, delivery and
performance by Commerce and Sub of this Agreement and the other Transaction
Agreements, certified by the Secretary or an Assistant Secretary of Commerce and
Sub.
(d) Tax Opinion. Company shall have received, at Commerce's expense, an
opinion of Commerce's counsel, addressed to Company and its shareholders and in
form and substance reasonably satisfactory to Company and Company counsel, dated
the Closing Date, to the effect that the Merger will be a tax-free
reorganization under Section 368(a) of the Code and no gain or loss will be
recognized by the shareholders of Company to the extent they receive Commerce
Common Stock solely in exchange for shares of Company Common Stock.
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(e) Material Adverse Effect. Except as disclosed to Company in writing
prior to the date hereof, no material adverse effect upon Commerce or Sub shall
have occurred since June 30, 2000 and Commerce or Sub shall not be a party to or
so far as Commerce and Sub are aware, threatened with, and to Commerce's and
Sub's knowledge there is no reasonable basis for, any legal action or other
proceeding before any court, any arbitrator of any kind or any governmental
agency, which in the reasonable judgment of Company, could have a material
adverse effect upon Commerce or Sub, and Company shall have received a
certificate signed on behalf of Commerce and Sub by an executive officer to such
effect.
(f) Closing Documents. Company shall have received from Commerce and Sub
such certificates and other closing documents as counsel for Company shall
reasonably request.
(g) Fairness Opinion. Company shall have received a written "bring-down"
opinion of Stifel, Nicolaus & Company, Incorporated, dated as of the date of
Company's Proxy Statement, to the effect that, as of such date, the
consideration to be received by the holders of the Company Common Stock in the
Merger is fair to the holders of the Company Common Stock from a financial point
of view.
(h) Opinion of Counsel. Company shall have received an opinion of
Blackwell Sanders Peper Martin LLP, counsel to Commerce, dated the Closing Date,
in form and substance reasonably satisfactory to Company covering the matters
set forth in Exhibit 6.3(h) hereto.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, whether before or after adoption of the
Agreement by the shareholders of Company:
(a) by mutual consent of Commerce, Sub and Company in a written instrument;
(b) by either Commerce, Sub or Company (i) upon written notice to the other
party if any Bank Regulator shall have issued an order denying approval of the
Merger and the other material aspects of the transactions contemplated by this
Agreement or if any Governmental Entity of competent jurisdiction shall have
issued a final permanent order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement or (ii) if any
Governmental Entity of competent jurisdiction shall have issued an order in
connection with the transactions contemplated hereby imposing a Burdensome
Condition on Commerce, Sub or the Surviving Corporation, and in any such case
the time for appeal or petition for reconsideration of any such order referred
to in clauses (i) or (ii) shall have expired without such appeal or petition
being granted;
(c) by either Commerce, Sub or Company if the Merger shall not have been
consummated on or before March 31, 2001; provided that if the Merger shall not
have been consummated on or before such date, such termination date may be
extended by up to 60 days thereafter (i) at the election of the non-breaching
party, if the Merger shall not have been consummated due to the volitional
breach of any material representation, warranty or covenant in this Agreement by
Commerce, Sub or Company, or (ii) at the election of the party who has requested
any Requisite Regulatory Approval, in the event that the Merger shall not have
been consummated due to the fact that any such Requisite Regulatory Approvals
shall not yet have been received;
(d) by Commerce or Sub in the event of a breach by Company of any
representation, warranty or covenant contained in this Agreement, which breach
(i) either is not cured within 45 days after the giving of written notice to
Company, or is of a nature which cannot be cured prior to the Closing and (ii)
would entitle the non-breaching party to elect not to consummate the
transactions contemplated hereby pursuant to ARTICLE VI;
(e) by Company in the event of a breach by Commerce or Sub of any
representation, warranty or covenant contained in this Agreement, which breach
(1) either is not cured within 45 days after the giving
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of written notice to Commerce and Sub or is of a nature which cannot be cured
prior to the Closing and (2) would entitle the non-breaching party to elect not
to consummate the transactions contemplated hereby pursuant to ARTICLE VI;
(f) (i) by Commerce or Sub if, in accordance with Section 5.2, the Board of
Directors of Company fails to recommend adoption of this Agreement by the
shareholders of Company, or amends or modifies such recommendation in a manner
materially adverse to Commerce or Sub or withdraws such recommendation to the
shareholders of Company;
(ii) by Company if the condition set forth in Section 6.3(g) is not
satisfied;
(g) by Commerce, Sub or Company, if the Company Shareholder Approval shall
not have been obtained at a duly held meeting of shareholders of Company held
for such purpose or at any adjournment, postponement or continuation thereof;
(h) (i) by Commerce or Sub in the event there has been a change, or any
event involving a prospective change, in the business, financial condition,
results of operations or prospects of Company or any of its Subsidiaries which
has had, or would be reasonably likely to have, a material adverse effect on
Company; provided, however, that termination pursuant to this subsection (i)
shall be effective 45 days after the giving of written notice to Company if the
change or event described in said notice has not been cured; and provided,
further that termination under this subsection (i) shall be effective
immediately after the giving of written notice if said change or event cannot be
cured prior to the Closing; and
(ii) by Company in the event there has been a change, or any event
involving a prospective change, in the business, financial condition,
results of operations or prospects of Commerce, Sub or any of its
Subsidiaries which has had, or would be reasonably likely to have, a
material adverse effect on Commerce or Sub; provided, however, that
termination pursuant to this subsection (ii) shall be effective 45 days
after the giving of written notice to Commerce and Sub if the change or
event described in said notice has not been cured; and provided, further
that termination under this subsection (ii) shall be effective immediately
after the giving of written notice if said change or event cannot be cured
prior to Closing.
7.2 Effect of Termination. Termination of this Agreement shall not
terminate or affect the obligations of the parties under Section 5.6 or
otherwise to pay expenses as provided elsewhere herein, to maintain the
confidentiality of the other party's information pursuant to Section 4.1 or the
provisions of this Section 7.2 or of Section 8.2 or 8.6, and shall not affect
any agreement after such termination. The parties agree that any termination of
this Agreement shall not in any manner release or be construed as so releasing
the nonterminating party or parties or their respective officers or directors
from any liability or damage to the other party or parties arising out of, in
connection with or otherwise relating to, directly or indirectly, such parties
willful breach of its covenants, agreements, representations or warranties
hereunder, except to the extent expressly provided herein.
7.3 Amendment. This Agreement may be amended by the parties hereto at any
time before or after approval of this Agreement by the shareholders of Company,
but after any such approval, no amendment shall be made which by law requires
further approval by such shareholders 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.
7.4 Extension; Waiver. At any time prior to the Closing Date, the parties
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) 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.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival of Representations, Warranties and Covenants. No
investigation by Commerce, Sub or Company made before or after the date hereof
shall affect the representations and warranties which are contained in this
Agreement; provided that all representations, warranties, covenants and
agreements in this Agreement or in any instrument delivered pursuant hereto or
thereto shall expire on, and be terminated and extinguished at, the Effective
Time other than covenants and agreements that by their terms are to survive or
be performed, in whole or in part, after the Effective Time; provided that no
such representations, warranties or covenants shall be deemed to be terminated
or extinguished so as to deprive Commerce, Sub or Company (or any director or
officer thereof) of any defense in law or equity which otherwise would be
available against the claims of any person, including, without limitation, any
shareholder or former shareholder of either Commerce, Sub or Company, the
aforesaid representations, warranties, covenants and agreements being material
inducements to the consummation by Commerce, Sub and Company of the transactions
contemplated herein.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or on the first Business Day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the fifth Business
Day following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
(a) if to Company, to:
Breckenridge Bancshares Company
9850 St. Charles Rock Road
St. Ann, Missouri 63074
Attention: Jerry L. Byrd, Sr.
Fax: (314) 423-0478
with a copy to:
Armstrong Teasdale LLP
One Metropolitan Square, Suite 2600
St. Louis, Missouri 63102-2740
Attention: Thomas Cummings
Fax: (314) 621-5065
and
Stifel, Nicolaus & Company, Incorporated
501 North Broadway
One Financial Plaza
St. Louis, Missouri 63012
Attention: Patrick Koster
Fax: (314) 342-2275
(b) if to Commerce or Sub, to:
Commerce Bancshares, Inc.
8000 Forsyth Boulevard
Clayton, Missouri 63105
Attention: A. Bayard Clark
Fax: (314) 746-3039
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with a copy to:
Commerce Bancshares, Inc.
1000 Walnut -- 18th Floor
Kansas City, Missouri 64106
Attention: J. Daniel Stinnett, Esq.
Fax: (816) 234-2333
and
Blackwell Sanders Peper Martin LLP
Two Pershing Square
2300 Main Street, Suite 1100
Kansas City, Missouri 64108
Attention: Dennis P. Wilbert, Esq.
Fax: (816) 983-8080
8.3 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, other than the Confidentiality Agreement,
which shall survive the execution and delivery of this Agreement, and (b) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder. The parties hereby acknowledge that, except as hereinafter
agreed to in writing, no party shall have the right to acquire or shall be
deemed to have acquired shares of common stock of the other party pursuant to
the Merger until consummation thereof. No current or former employee of Company,
Commerce, Sub, or any of their respective Subsidiaries, shall be construed as a
third party beneficiary under this Agreement, and no provision in this Agreement
shall create any right in any such employee (or his or her beneficiary or
dependent) for any reason, including, without limitation, in respect of
employment, continued employment, or resumed employment with the Surviving
Corporation, Company, Commerce or Sub (or any of their respective Affiliates) or
in respect of any benefits that may be provided, directly or indirectly, under
any Benefit Plan maintained by the Surviving Corporation, Company, Commerce or
Sub (or any of their respective Affiliates).
8.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri without giving effect to the
principles of conflicts of law.
8.7 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability and, unless the
effect of such invalidity or unenforceability would prevent the parties from
realizing the major portion of the economic benefits of the Merger that they
currently anticipate obtaining therefrom, shall not render invalid or
unenforceable the remaining terms and provisions of this Agreement or affect the
validity or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction.
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<PAGE> 116
If any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
8.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties, and any attempt to make any such assignment without such consent shall
be null and void. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
8.9 Publicity. Commerce, Sub, Centennial, and Company shall consult with
each other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other parties, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other parties (but after prior consultation, to the extent
practicable in the circumstances) issue such press release or make such public
statement as may upon the advice of outside counsel be required by law. Without
limiting the reach of the preceding sentence, Commerce, Sub and Company shall
cooperate to develop all public announcement materials and make appropriate
management available at presentations related to the transactions contemplated
by this Agreement as reasonably requested by the other party. In addition,
Company and its Subsidiaries shall (a) consult with Commerce and Sub regarding
communications with customers, shareholders, prospective investors and employees
related to the transactions contemplated hereby, (b) provide Commerce and Sub
with shareholders lists of Company and (c) allow and facilitate Commerce and Sub
contact with shareholders of Company and other prospective investors.
IN WITNESS WHEREOF, Commerce, Sub and Company have caused this Agreement to
be executed by their respective officers thereunto duly authorized, all as of
date first above written.
COMMERCE BANCSHARES, INC.
By: /s/ A. BAYARD CLARK
----------------------------------
Name: A. Bayard Clark
Title: Executive Vice President and
Chief
Financial Officer
CBI-KANSAS, INC.
By: /s/ A. BAYARD CLARK
----------------------------------
Name: A. Bayard Clark
Title: Vice President
BRECKENRIDGE BANCSHARES COMPANY
By: /s/ JERRY L. BYRD, SR.
----------------------------------
Name: Jerry L. Byrd, Sr.
Title: President
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APPENDIX B
SECTION 351.455 OF THE GENERAL AND
BUSINESS CORPORATION LAW OF MISSOURI
351.455 SHAREHOLDER WHO OBJECTS TO MERGER MAY DEMAND VALUE OF SHARES, WHEN.
1. If a shareholder of a corporation which is a party to a merger or
consolidation shall file with such corporation, prior to or at the meeting of
shareholders at which the plan of merger or consolidation is submitted to a
vote, a written objection to such plan of merger or consolidation, and shall not
vote in favor thereof, and such shareholder, within twenty days after the merger
or consolidation is effected, shall make written demand on the surviving or new
corporation for payment of the fair value of his shares as of the day prior to
the date on which the vote was taken approving the merger or consolidation, the
surviving or new corporation shall pay to such shareholder, upon surrender of
his certificate or certificates representing said shares, the fair value
thereof. Such demand shall state the number and class of the shares owned by
such dissenting shareholder. Any shareholder failing to make demand within the
twenty day period shall be conclusively presumed to have consented to the merger
or consolidation and shall be bound by the terms thereof.
2. If within thirty days after the date on which such merger or
consolidation was effected the value of such shares is agreed upon between the
dissenting shareholder and the surviving or new corporation, payment therefor
shall be made within ninety days after the date on which such merger or
consolidation was effected, upon the surrender of his certificate or
certificates representing said shares. Upon payment of the agreed value the
dissenting shareholder shall cease to have any interest in such shares or in the
corporation.
3. If within such period of thirty days the shareholder and the surviving
or new corporation do not so agree, then the dissenting shareholder may, within
sixty days after the expiration of the thirty day period, file a petition in any
court of competent jurisdiction within the county in which the registered office
of the surviving or new corporation is situated, asking for a finding and
determination of the fair value of such shares, and shall be entitled to
judgment against the surviving or new corporation for the amount of such fair
value as of the day prior to the date on which such vote was taken approving
such merger or consolidation, together with interest thereon to the date of such
judgment. The judgment shall be payable only upon and simultaneously with the
surrender to the surviving or new corporation of the certificate or certificates
representing said shares. Upon the payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares, or in the surviving
or new corporation. Such shares may be held and disposed of by the surviving or
new corporation as it may see fit. Unless the dissenting shareholder shall file
such petition within the time herein limited, such shareholder and all persons
claiming under him shall be conclusively presumed to have approved and ratified
the merger or consolidation, and shall be bound by the terms thereof.
4. The right of a dissenting shareholder to be paid the fair value of his
shares as herein provided shall cease if and when the corporation shall abandon
the merger or consolidation.
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APPENDIX C
October 20, 2000
Board of Directors
Breckenridge Bancshares Company
9850 St. Charles Rock Road
St. Ann, MO 63074
Members of the Board:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Breckenridge Bancshares Company ("Breckenridge") of
835,000 shares of common stock, $5.00 par value per share, of Commerce
Bancshares, Inc. ("Commerce") (equivalent to an exchange ratio (the "Exchange
Ratio") of .8192 shares of Commerce common stock to be exchanged for each share
of common stock, $1.00 par value per share, of Breckenridge) pursuant to the
terms of the Agreement and Plan of Merger, dated as of October 20, 2000 (the
"Agreement") by and between Commerce and Breckenridge. For the purposes of our
opinion, we have assumed that the merger of Breckenridge with Commerce pursuant
to the Agreement (the "Merger") will be consummated as provided in the
Agreement, will constitute a tax-free reorganization as contemplated by the
Agreement and will qualify as a pooling of interests for accounting purposes.
Stifel, Nicolaus & Company, Incorporated, as part of its investment banking
services, is regularly engaged in the independent valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. We are familiar with
Breckenridge and Commerce and have completed our financial analysis of this
transaction. In the ordinary course of its business, Stifel Nicolaus actively
trades equity securities of Commerce for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position in
such securities.
In rendering our opinion, we have reviewed, among other things: the form of
the Agreement as executed on October 20, 2000; the financial statements of
Breckenridge and Commerce provided by Breckenridge and included in the 10-Ks for
the 5 years ended December 31, 1999 for Commerce, as well as appropriate interim
financial information; and certain internal financial analyses and forecasts for
Breckenridge and Commerce prepared by their respective management and consensus
earnings estimates for Commerce. We have conducted conversations with
Breckenridge's and Commerce's senior management regarding recent developments
and management's financial forecasts for Breckenridge and Commerce. We have also
compared certain financial and securities data as appropriate of Breckenridge
and Commerce with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the common
stock of Commerce, reviewed the financial terms of certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We also
took into account our assessment of general economic, market and financial
conditions and our experience in other transactions, as well as our experience
in securities valuations and our knowledge of the commercial banking and thrift
industries generally.
In rendering our opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all of the financial
and other information that was provided to us or that was otherwise reviewed by
us and have not assumed any responsibility for independently verifying any of
such information. With respect to the financial forecasts supplied to us, we
have assumed that they were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of Breckenridge
and Commerce as to the future operating and financial performance of
Breckenridge and Commerce, that they would be realized in the amounts and time
periods estimated and that they provided a reasonable basis upon which we could
form our opinion. We also assumed that there were no material changes in the
assets, liabilities, financial condition, results of operations, business or
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prospects of either Breckenridge or Commerce since the date of the last
financial statements made available to us. We have also assumed, without
independent verification and with your consent, that the aggregate allowances
for loan losses set forth in the financial statements of Breckenridge and
Commerce are in the aggregate adequate to cover all such losses. We did not make
or obtain any independent evaluation, appraisal or physical inspection of
Breckenridge's or Commerce's assets or liabilities, the collateral securing any
of such assets or liabilities, or the collectibility of any such assets nor did
we review loan or credit files of Breckenridge or Commerce. We relied on advice
of Breckenridge's counsel as to all legal matters with respect to Breckenridge,
the Agreement and the transactions and other matters contained or contemplated
therein. We have assumed, with your consent, that there are no factors that
would delay or subject to any adverse conditions any necessary regulatory or
governmental approval and that all conditions to the Merger will be satisfied
and not waived.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. Our opinion is directed to the Board of Directors of
Breckenridge for its information and assistance in connection with its
consideration of the financial terms of the Merger and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed transaction, nor have we expressed any opinion as to the prices at
which any securities of Breckenridge or Commerce might trade in the future.
Except as required by applicable law, including without limitation federal
securities laws, our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Stifel Nicolaus be made, without our prior
written consent.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion, as of the date hereof, that the Exchange Ratio pursuant to the
Agreement is fair to the holders of Breckenridge Common Stock from a financial
point of view.
Very truly yours,
/s/ STIFEL, NICOLAUS & COMPANY, INCORPORATED
Stifel, Nicolaus & Company, Incorporated
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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.
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>
2 -- Agreement and Plan of Merger dated the 20th day of
October, 2000, among the Registrant, CBI-Kansas, Inc. and
Breckenridge Bancshares Company (included as Appendix A
to the proxy statement/prospectus).
3(a)* -- Restated Articles of Incorporation, as currently amended,
were filed in the quarterly report on Form 10-Q for the
quarter ended June 30, 1999, and the same are hereby
incorporated by reference.
3(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
reference.
4(a) -- Pursuant to paragraph 4(iii) of Item 601 of Regulation
S-K, Registrant will furnish to the Commission upon
request copies of long-term debt instruments.
4(b)* -- Shareholder Rights Plan contained in an Amended and
Restated Rights Agreement was filed on Form 8-A12 G/A
dated June 7, 1996, and the same is hereby incorporated
by reference.
4(c)* -- Form of Rights Certificate and Election to Exercise was
filed on Form 8-A12 G/A dated June 7, 1996, and the same
is hereby incorporated by reference.
4(d)* -- Form of Certificate of Designation of Preferred Stock was
filed on Form 8-A12 G/A dated June 7, 1996, and the same
is hereby incorporated by reference.
5 -- Opinion of Blackwell Sanders Peper Martin LLP.
8 -- Opinion of Blackwell Sanders Peper Martin LLP.
10(a)* -- Commerce Bancshares, Inc. Executive Incentive
Compensation Plan amended and restated as of December 31,
1999, was filed in annual report on Form 10-K dated March
17, 2000, and the same is hereby incorporated by
reference.
</TABLE>
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<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10(b)* -- Commerce Bancshares, Inc. Incentive Stock Option Plan
amended and restated as of October 4, 1996 was filed in
quarterly report on Form 10-Q dated November 8, 1996, and
the same is hereby incorporated by reference.
10(c)* -- Commerce Bancshares, Inc. 1987 Non-Qualified Stock Option
Plan amended and restated as of October 4, 1996, was
filed in quarterly report on Form 10-Q dated November 8,
1996, and the same is hereby incorporated by reference.
10(d)* -- Commerce Bancshares, Inc. Stock Purchase Plan for
Non-Employee Directors amended and restated as of October
4, 1996 was filed in quarterly report on Form 10-Q dated
November 8, 1996, and the same is hereby incorporated by
reference.
10(e)* -- 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(f)* -- Commerce Bancshares, Inc. 1996 Incentive Stock Option
Plan amended and restated as of October 4, 1996 was filed
in quarterly report on Form 10-Q dated November 8, 1996,
and the same is hereby incorporated by reference.
10(g)* -- 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.
10(h)* -- Commerce Bancshares, Inc. Restricted Stock Plan amended
and restated as of February 4, 2000 was filed in annual
report on Form 10-K dated March 17, 2000, and the same is
hereby incorporated by reference.
10(i)* -- Form of Severance Agreement between Commerce Bancshares,
Inc. and certain of its executive officers entered into
as of October 4, 1996 was filed in quarterly report on
Form 10-Q dated November 8, 1996, and the same is hereby
incorporated by reference.
10(j)* -- Trust Agreement for Commerce Bancshares, Inc. Executive
Incentive Compensation Plan was filed in annual report on
Form 10-K dated March 17, 2000, 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 LLP.
23(b) -- Consent of Baird, Kurtz & Dobson.
23(c) -- Consents of Blackwell Sanders Peper Martin LLP (included
in Exhibits 5 and 8).
23(d) -- Consent of Stifel, Nicolaus & Company, Incorporated.
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 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
II-2
<PAGE> 122
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 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 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.
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<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 December 15, 2000.
COMMERCE BANCSHARES, INC.
By: /s/ J. DANIEL STINNETT
------------------------------------
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 , 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* 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
* Controller (Principal Accounting Officer)
-----------------------------------------------------
Jeffrey D. Aberdeen
* Director
-----------------------------------------------------
Giorgio Balzer
* Director
-----------------------------------------------------
Fred L. Brown
* Director
-----------------------------------------------------
John R. Capps
* Director
-----------------------------------------------------
W. Thomas Grant
* Director
-----------------------------------------------------
James B. Hebenstreit
* Director
-----------------------------------------------------
Jonathan M. Kemper
* Director
-----------------------------------------------------
Mary Ann Krey
</TABLE>
II-4
<PAGE> 124
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Director
-----------------------------------------------------
Terry O. Meek
* Director
-----------------------------------------------------
Benjamin F. Rassieur III
* Director
-----------------------------------------------------
John H. Robinson, Jr.
* Director
-----------------------------------------------------
L. W. Stolzer
* Director
-----------------------------------------------------
Andrew C. Taylor
* Director
-----------------------------------------------------
William A. Sullins, Jr.
* Director
-----------------------------------------------------
Robert H. West
</TABLE>
By: /s/ J. DANIEL STINNETT
------------------------------------
J. Daniel Stinnett
Attorney-in-Fact
as attorney-in-fact for the above
officers and directors marked by an
asterisk
II-5
